10-K

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 1934
	For the fiscal year ended December 31, 2009
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number 1-03560

P. H. Glatfelter Company

(Exact name of registrant as specified in its charter)

Pennsylvania (State or other jurisdiction of incorporation or organization)	23-0628360 (IRS Employer Identification No.)
96 South George Street, Suite 500 York, Pennsylvania 17401 (Address of principal executive offices)	(717) 225-4711 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which registered
Common Stock, par value $.01 per share	New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ.

Based on the closing price as of June 30, 2009, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was $404.7 million.

Common Stock outstanding on March 12, 2010 totaled 45,751,906 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference in this Annual Report on Form 10-K:

Proxy Statement to be dated on or about March 29, 2010 (Part III).

P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended

DECEMBER 31, 2009

Table of Contents

			Page
	PART I
	Item 1	Business		1
	Item 1A	Risk Factors		6
	Item 1B	Unresolved Staff Comments		11
	Item 2	Properties		11
	Item 3	Legal Proceedings		12
	Item 4	[Reserved]		12
		Executive Officers		12
	PART II
	Item 5	Market for Registrant’s Common Equity, Related   Stockholder Matters and Issuer   Purchases of Equity Securities		13
	Item 6	Selected Financial Data		14
	Item 7	Management’s Discussion and Analysis of Financial   Condition and Results of Operations		15
	Item 7A	Quantitative and Qualitative Disclosures about   Market Risk		24
	Item 8	Financial Statements and Supplementary Data		25
	Item 9	Changes in and Disagreements With Accountants on Accounting and   Financial Disclosures		57
	Item 9A	Controls and Procedures		57
	Item 9B	Other Information		57
	PART III
	Item 10	Directors, Executive Officers and Corporate Governance		57
	Item 11	Executive Compensation		57
	Item 12	Security Ownership of Certain Beneficial Owners   and Management and Related Stockholder   Matters		57
	Item 13	Certain Relationships and Related Transactions, and   Director Independence		57
	Item 14	Principal Accountant Fees and Services		57
	PART IV
	Item 15	Exhibits, Financial Statement Schedules		58
SIGNATURES				61
CERTIFICATIONS				62
	SCHEDULE II			64
EXHIBIT 2.(A)
EXHIBIT 2(B)
EXHIBIT 10.(J)(A)
EXHIBIT 10(Q)
EXHIBIT 10(R)
EXHIBIT 21
EXHIBIT 23
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

ITEM 1   BUSINESS

Overview  Glatfelter began operations in 1864 and today, we believe we are one of the world’s leading manufacturers of specialty papers and fiber-based engineered products. Headquartered in York, Pennsylvania, we own and operate manufacturing facilities located in Pennsylvania, Ohio, Germany, the United Kingdom, France, the Philippines and Canada.

We manufacture a broad and diverse line of products serving customers in numerous markets. Many of the markets in which we operate are characterized by higher-value-added products and, in some cases, by higher growth prospects and lower cyclicality than commodity paper markets. Examples of some of our markets and product applications include:

•  papers for carbonless and forms products and specialized envelopes

•  filtration papers for the tea and coffee industry

•  book publishing papers

•  metallized papers for packaging and bottled beverage labels

•  overlay papers for decorative laminate, flooring and furniture applications

•  papers for a wide variety of other specialty products including postage stamps, playing cards, greeting cards, digital imaging papers and FDA grades

Recent Developments  On February 12, 2010, we completed the acquisition of Concert Industries Corp. (“Concert”), a privately-held, leading supplier of airlaid non-woven fabric-like material, for $234.4 million based on the currency exchange rates on the closing date. Concert, with approximately 590 employees, has operations located in Gatineau, Quebec, Canada and Falkenhagen, Brandenburg, Germany. Annual revenues totaled $203.0 million in 2009.

Concert manufactures highly absorbent cellulose based airlaid non-woven material used in products such as feminine hygiene and adult incontinence products, baby wipes, pre-moistened cleaning wipes, napkins and tablecloths, and food pads.

Acquisitions  Over the past four years we completed the following additional acquisitions:

					Est		Primary
			Purchase		Annual		Paper
Dollars in millions	Date		Price		Revenue		Products
Business Location
Lydney, England		Mar ’06	$	65.0	$	75.0	Tea bags & coffee papers
Chillicothe, Ohio		Apr ’06		83.3		440.0	Carbonless & forms
Caerphilly, Wales		Nov ’07		12.6		53.4	Metallized

These strategic acquisitions significantly increased our revenues and provided us with additional operating scale, increased production capacity, and an expansion of our geographic reach.

Our Business Units  Prior to the completion of the Concert acquisition, we managed our business as two distinct units: (i) the North America-based Specialty Papers business unit; and (ii) the Europe-based Composite Fibers business unit. Consolidated net sales and the relative net sales contribution of each of our business units for the past three years are summarized below:

Dollars in thousands	2009			2008			2007
Net sales	$	1,184,010		$	1,263,850		$	1,148,323
Business unit contribution
Specialty Papers		66.9	%		66.0	%		69.9	%
Composite Fibers		33.1			34.0			30.1
Total		100.0	%		100.0	%		100.0	%

Net tons sold by each business unit for the past three years were as follows:

	2009		2008		2007
Specialty Papers		738,841		743,755		726,657
Composite Fibers		80,064		85,599		72,855
Total		818,905		829,354		799,512

Specialty Papers  Our North America-based Specialty Papers business unit focuses on producing papers for the following markets:

•  Carbonless & forms papers for credit card receipts, multi-part forms, security papers and other end-user applications;

•  Book publishing papers for the production of high quality hardbound books and other book publishing needs;

•  Envelope and converting papers for the direct mail market, shopping bags, and other converting applications; and

•  Engineered products for digital imaging, transfer, casting, release, postal, playing card and other niche specialty applications.

The markets in which Specialty Papers competes have undergone significant and rapid consolidation over the past several years resulting in fewer, more globally

Glatfelter 2009 Annual Report    1

focused producers. Over 80% of the North American market share is now served by five paper companies, of which Glatfelter is one. Specialty Papers’ revenue composition by market consisted of the following for the years indicated:

In thousands	2009		2008		2007
Carbonless & forms	$	320,088	$	338,067	$	345,785
Book publishing		176,646		201,040		185,343
Envelope & converting		146,812		138,293		116,797
Engineered products		143,490		149,372		136,785
Other		4,879		7,127		17,583
Total	$	791,915	$	833,899	$	802,293

We believe we are one of the leading suppliers of book publishing papers in the United States and the second leading carbonless paper producer. Although the market for carbonless papers in North America is declining approximately 8% to 10% per year, and in 2009, in part due to the recession, this decline was greater, we have been successful in executing our strategy to replace this lost volume with products such as envelope and converting papers, forms and other products. Specialty Papers also produces paper that is converted into specialized envelopes in a wide array of colors, finishes and capabilities. This market is generally more mature and declining. However, we compete on our customer service capabilities and have grown our market share in each of the last three years.

Specialty Papers’ highly technical engineered products include those designed for multiple end uses, such as papers for pressure-sensitive postage stamps, greeting and playing cards, conical cups, digital imaging applications and for release paper applications. Such products comprise an array of distinct business niches that are in a continuous state of evolution. Many of these products are utilized by demanding, specialized customer and end-user applications. Some of our products are new and higher growth while others are more mature and further along in the product life cycle. Because many of these products are technically complex and involve substantial customer-supplier development collaboration, they typically command higher per ton prices and generally exhibit greater pricing stability relative to commodity grade paper products.

Composite Fibers  Our Composite Fibers business unit, based in Gernsbach, Germany, serves customers globally and focuses on higher-value-added products in the following markets:

•  Food & Beverage paper used for tea bags and coffee pods/pads;

•  Metallized products used in the labeling of beer bottles, innerliners, gift wrap, self-adhesive labels and other consumer products applications;

•  Composite Laminates papers used in production of decorative laminates, furniture and flooring applications; and

•  Technical Specialties is a diverse line of paper products used in batteries, medical masks and other highly engineered applications.

We believe this business unit maintains a market leadership position in the tea bag and coffee pods/pads and filters market and the composite laminates market. Since the completion of the Caerphilly acquisition, we have the second largest market share for metallized products globally. Composite Fibers’ revenue composition by market consisted of the following for the years indicated:

In thousands	2009		2008		2007
Food & beverage	$	233,899	$	252,545	$	218,961
Metallized		81,388		85,719		45,426
Composite laminates		46,442		58,705		52,972
Technical specialties and other		30,366		32,983		28,671
Total	$	392,095	$	429,952	$	346,030

Our focus on products made from abaca pulp has made us the world’s largest producer of tea bag and coffee pods/pads filter papers. Many of this unit’s papers are technically sophisticated. Most of the papers produced in the Composite Fibers business unit, except for metallized papers, are extremely lightweight and require very specialized fibers. Our engineering capabilities, specifically designed papermaking equipment and customer orientation position us well to compete in these global markets.

Additional financial information for each of our business units is included in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 8 – Financial Statements and Supplementary Data, Note 22.

We intend to manage the operations of Concert Industries as a separate business unit to be known as Advanced Airlaid Materials.

Our Competitive Strengths  Since commencing operations over 145 years ago, we believe that Glatfelter has developed into one of the world’s leading

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manufacturers of specialty papers and engineered products. We believe that the following competitive strengths have contributed to our success:

•  Broad and diverse product portfolio.  We manufacture a very large portfolio of specialized paper products which diversifies our revenue base, enabling us to access a variety of end-markets and to pursue a wide range of customers. We have the ability to shift production in order to capitalize on market opportunities. The breadth and global reach of our product range help cushion the impact of external economic influences on us.

•  Leading market positions in higher-value, niche segments.  We have focused our resources to achieve market-leading positions in certain higher-value, niche segments. Our products include various highly specialized paper products designed for technically demanding end uses. Consequently, many of our products achieve premium pricing relative to that of commodity paper grades. In each of the past three years, approximately 77%, 81% and 81% respectively, of our sales were derived from these higher-value, niche products. The specialized nature of these products generally provides greater pricing stability relative to commodity paper products.

•  Integrated and flexible production.  As a nearly fully integrated producer, we are able to mitigate adverse fluctuations in the costs of certain raw materials and energy. In Specialty Papers, our Spring Grove and Chillicothe facilities are vertically integrated operations producing in excess of 85% of the annual pulp required for their paper production. Our Spring Grove and Chillicothe facilities also generate 100% of the steam and substantially all of the electricity required for their operations. The flexible operating platform of our Specialty Papers business offers the following unique benefits:

•  the capability to manufacture a broad and diverse product portfolio;

•  the ability to shift manufacturing capacity among product lines;

•  the flexibility to maximize manufacturing efficiencies in response to changing market dynamics; and

•  support for our New Product Development initiatives.

In Composite Fibers, our Philippine mill processes abaca fiber to produce abaca pulp, a key raw material used by this business unit. The Philippine mill produces approximately 80% of the annual abaca pulp required for Composite Fibers’ production requirements.

•  Customer-centric business focus.  We offer a unique and diverse product line that can be customized to serve the individual needs of our customers. This allows us to develop close relationships with our key customers and to be adaptable in our product development, manufacturing, sales and marketing practices to meet changing customer needs. We believe that this approach has led to the development of excellent customer relationships, defensible market positions, and increased pricing stability relative to commodity paper producers. Additionally, our customer-centric focus has been a key driver to our success in new product development.

•  Significant investment in product development.  In order to keep up with our customers’ ever-changing needs, we continually enhance our product offerings through significant investment in product development. In each of the past three years, we invested approximately $8 million in product development activities. We derive a significant portion of our revenue from products developed, enhanced or improved as a result of these activities. Revenue generated from products developed, enhanced or improved within the five previous years as a result of these activities represented in excess of 50% of net sales in each of the past three years ended December 31, 2009.

Our Business Strategy  Our vision is to become the global supplier of choice in specialty papers and engineered products. We are continuously developing and refining our strategies to strengthen our business and position it for the future. Execution of our strategies is dependent on our customer relationships, technology, operational flexibility and our new product development efforts. Components of our strategy include:

Specialty Papers  The North American uncoated free sheet market has been challenged by a supply and demand imbalance, particularly for commodity-like products. While the industry has narrowed the supply-demand gap by eliminating capacity, the imbalance continues. To be successful in the current market environment, our strategy is focused on:

•  leveraging our flexible operating platform to optimize product mix by shifting production among facilities to more closely match output with changing demand trends;

Glatfelter 2009 Annual Report    3

•  employing our new product development capabilities to meet changing customer demands and to replace declining carbonless volumes;

•  employing a low-cost approach to our manufacturing activities and continuously implementing cost reduction initiatives; and

•  improving business processes and deploying continuous improvement capabilities to maintain superior customer service.

Composite Fibers  The markets served by this business unit are characterized by long-term growth opportunities. To take advantage of this, our strategy is focused on:

•  capturing world-wide growth in Composite Fibers’ core markets of food & beverage, composite laminates and metallized papers;

•  enhancing product mix across all of the business unit’s markets by utilizing new product development capabilities; and

•  implementing cost reduction initiatives including, among others, work-force efficiencies and improved supply chain management.

Balance Sheet  We are focused on prudent financial management and the maintenance of a conservative capital structure. By aggressively managing working capital to maximize cash flow from operations, making disciplined capital expenditure decisions and monetizing the value of our timberland assets, we are able to maintain a strong balance sheet, thereby preserving the flexibility to pursue strategic opportunities that will benefit our shareholders.

Acquisitions  We have a demonstrated ability to establish leading market positions through the successful acquisition and integration of complementary businesses. Since 2006, we have successfully completed and fully integrated three acquisitions. In November 2007, we expanded our growth platform in metallized products and created a major increase in our European production scale through our acquisition of Metallised Products Limited and its facility located in Caerphilly, United Kingdom. Our acquisition of the carbonless business operations of NewPage Corporation in April 2006 permitted us to take advantage of that operation’s scale and efficient manufacturing environment to expand our higher-value-added Specialty Papers business unit. Lastly, our acquisition of the Lydney mill from J R Crompton Ltd. in March 2006 further strengthened our leading position in tea bags and coffee filter papers. We expect that our purchase of Concert will enable us to grow with the industry leaders in feminine hygiene and adult incontinence products and complements our long-term strategy of driving growth in our markets in part through acquisitions.

Raw Material and Energy  The following table provides an overview of the estimated amount of principal raw materials (“PRM”) expected to be used in 2010 by each of our manufacturing facilities:

	Estimated Annual
	Quantity (short		Percent of PRM
	tons)		Purchased
Specialty Papers
Spring Grove
Pulpwood(1)		1,051,000		92
Wood – and other pulps		272,800		16
Chillicothe(1)
Pulpwood		1,270,000		100
Wood – and other pulps		384,900		10
Composite Fibers
Abaca fiber		17,000		100
Wood- and other pulps		40,200		100
Abaca pulp		16,000		13
Synthetic fiber		10,200		100
Metallized base stock		33,000		100

(1)	Pulpwood is used to produce woodpulp.
(2)	The information set forth above does not include the raw material needs of Concert Industries which was acquired on February 12, 2010.

Our Spring Grove, Pennsylvania and Chillicothe, Ohio mills are vertically integrated operations producing in excess of 85% of the combined annual pulp required for paper production. The principal raw material used to produce this pulp is pulpwood, including both hardwoods and softwoods. Hardwoods are available within a relatively short distance of our mills. Softwoods are obtained from a variety of locations including the states of Pennsylvania, Maryland, Delaware, Virginia, Kentucky, Tennessee and South Carolina. To protect our sources of pulpwood, we actively promote conservation and forest management among suppliers and woodland owners. In addition to sourcing the pulpwood in the open market, we have long-term supply contracts that provide access to timber at market prices.

In addition to integrated pulp making, both the Spring Grove and Chillicothe facilities generate 100% of the steam and 100% and 80%, respectively, of their electricity needs. Principal fuel sources vary by facility and include over 600,000 tons of coal, 870,000 MMBTUs of natural gas, as well as recycled pulping chemicals, bark, wood waste, and fuel oil. Spring Grove’s coal needs are met under a three year contract that expires at the end of 2012 and Chillicothe’s coal needs are supplied under two contracts that expire in the fourth quarter of 2010.

Energy and related sales activities  The Spring Grove facility produces more electricity than it requires. Excess electricity is sold to the local power company under a long-term co-generation contract expiring March 31, 2010. Anticipating the 2010 expiration of our co-generation contract, we became a member of PJM

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Interconnection, a federally regulated regional transmission organization that coordinates the movement and ensures reliability of wholesale electricity in its region. As a member, we are committed to providing capacity to the high-voltage electricity grid and agree to sell excess power at market prices. Accordingly, our margin earned from energy sales will be subject to market volatility associated with price at which energy is sold together with volatility in input costs, primarily related to coal. The Gernsbach, Scaër and Lydney facilities generate all of the steam required for their operations. The Gernsbach facility generated approximately 19.5% of its 2009 electricity needs and purchased the balance. The Scaër and Lydney facilities purchased 100% of their 2009 electric power requirements. Natural gas was used to produce substantially all internally generated energy at the Gernsbach, Scaër and Lydney facilities during 2009.

Our mill in the Philippines processes abaca fiber to produce a specialized pulp. This abaca pulp production provides a unique advantage by supplying a key raw material used by our Composite Fibers business unit. The supply of abaca fiber was somewhat constrained in 2008. As a result, the Composite Fibers business unit slowed its paper machines and used substitute grades of abaca and substitute fibers to meet customer demands. In addition, events may arise from the relatively unstable political and economic environment in which the Philippine facility operates that could interrupt the production of abaca pulp. Management periodically evaluates the availability of abaca pulp for our Composite Fibers business unit. Any extended interruption of the Philippine operation could have a material impact on our consolidated financial position and/or results of operations. We target to have approximately one month of fiber supply in stock and one month of fiber supply at sea available to us. In addition, we have established contingency plans for alternative sources of abaca pulp. However, the cost of obtaining abaca pulp from such alternative sources, if available, would likely be much higher.

Alternative Fuel Mixture Credits  The U.S. Internal Revenue Code provides a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. We began mixing black liquor and diesel fuel in late February 2009. On May 11, 2009, we were notified by the Internal Revenue Service that our application to be registered as an alternative fuel mixer was approved. Since we began mixing and burning eligible alternative fuels, we earned $107.8 million of alternative fuel mixture credits.

According to the Internal Revenue Code, the tax credit expired on December 31, 2009. Accordingly, we do not expect to be eligible for additional credits.

Based on information currently available, we believe that we will continue to have ready access, for the foreseeable future, to all principal raw materials used in the production of our products. The cost of our raw materials is subject to significant change, including, but not limited to, the costs of wood, pulp products, certain commodity chemicals and energy.

Concentration of Customers  For each of the past three years, no single customer represented more than 10% of our consolidated net sales.

Competition  Our industry is highly competitive. We compete on the basis of product quality, customer service, product development, price and distribution. We offer our products throughout the United States and globally in approximately 85 countries, exclusive of the Concert acquisition. Competition in the markets in which we participate comes from companies of various sizes, some of which have greater financial and other capital resources than we do.

There are a number of companies in the United States that manufacture printing and converting papers. We believe we are one of the leading producers of book publishing papers and compete in these markets with, among others, Domtar and Fraser. In the envelope sector we compete with, among others, International Paper, Domtar and Blue Ridge. In the carbonless paper and forms market, we compete with Appleton Papers and, to a lesser extent, Nekoosa Papers, Inc. In our Specialty Papers’ engineered products markets and for the Composite Fibers business unit’s markets, competition is product line specific as the necessity for technical expertise and specialized manufacturing equipment limits the number of companies offering multiple product lines. We compete with specialty divisions of large companies such as, among others, Ahlstrom, International Paper, Sappi and Stora Enso. Service, product performance, technological advances and product pricing are important competitive factors with respect to all our products. We believe our reputation in these areas continues to be excellent.

Glatfelter 2009 Annual Report    5

Capital Expenditures  Our business is capital intensive and requires extensive expenditures for new and enhanced equipment. These capital investments are necessary for environmental compliance, normal upgrades or replacements, business strategy and research and development. For 2010, we expect capital expenditures to total approximately $45 million to $50 million, inclusive of Concert.

Environmental Matters  We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of our mills. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. For a discussion of environmental matters, see Item 8 – Financial Statements and Supplementary Data – Note 21.

Employees  The following table summarizes our workforce as of December 31, 2009:

								Contract Period
Location(3)	Total		Hourly			Salaried		Start			End		Union
U.S.
Corporate/Spring Grove		943		581	(1)		362		Jan. 2008			Jan. 2011	United Steelworkers International
Chillicothe/Fremont		1,424		1,073	(1)		351		Aug. 2009			Aug. 2012	Union and the Office and Professional Employees International Union,
International
Gernsbach		579		222	(1)		357			(2)			Industriegewerkschaft Bergbau, Chemie, Energie-IG BCE
Scaër		118		69	(1)		49			(2)			Confederation Generale des Travailleurs & Force Ouvriere
Lydney		278		213	(1)		65			(2)			Unite the Union
Caerphilly		112		82	(1)		30			(2)			General Maintenance & Boiler’s
Philippines		92		61	(1)		31			(2)			Newtech Pulp Workers Union
Total worldwide employees		3,546		2,301			1,245

(1)	Generally, the majority of the hourly employees included in the table above are covered by terms and conditions of the collective bargaining agreements with the respective labor organization indicated.
(2)	Employees of these facilities are generally covered by one-year labor agreements. Negotiations to renew the agreements are underway at various times during the year. The terms and conditions of the existing agreements will remain in effect until new agreements are reached.
(3)	The data does not include Concert, which employs approximately 590 people.

We consider the overall relationship with our employees to be satisfactory.

Available Information  On our investor relations page of our Corporate website at www.glatfelter.com we make available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and other related information as soon as reasonably practical after they are filed with the Securities and Exchange Commission. In addition, our website includes a Corporate Governance page consisting of, among others, our Governance Principles and Code of Business Conduct, and biographies of our Board of Directors and Executive Officers, Audit, Compensation, Finance and Nominating Committees of the Board of Directors and their respective Charters, Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter, our “whistle-blower” policy and other related material. We satisfy the disclosure requirement for any future amendments to, or waivers from, our Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by posting such information on our website. We will provide a copy of the Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers, without charge, to any person who requests one, by calling (717) 225-2724.

ITEM 1A   RISK FACTORS

Our business and financial performance may be adversely affected by the adverse global economic environment or downturns in the target markets that we serve.

Demand for our products in the markets we serve is primarily driven by demand for our customers’ products, which is often affected by general economic conditions. Downturns in our target markets could result in decreased demand for our products. In particular, our businesses may continue to be adversely affected by the global economic downturn and by softness in targeted markets. Our results could be adversely affected if economic conditions further weaken or fail to continue to improve. Also, there may be periods during which demand for our products is insufficient to enable us to operate our production facilities in an economical manner. The economic impact may cause customer insolvencies which may result in their inability to satisfy their financial obligations to us. These conditions are beyond our ability to control and may have a significant impact on our sales and results of operations.

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In addition to fluctuations in demand for our products in the markets we serve, the markets for our paper products are also significantly affected by changes in industry capacity and output levels. There have been periods of supply/demand imbalance in the pulp and paper industry, which have caused pulp and paper prices to be volatile. The timing and magnitude of price increases or decreases in the pulp and paper market have generally varied by region and by product type. A sustained period of weak demand or excess supply would likely adversely affect pulp and paper prices. This could have a material adverse affect on our operating and financial results.

The cost of raw materials and energy used to manufacture our products could increase and the availability of certain raw materials could become constrained.

We require access to sufficient and reasonably priced quantities of pulpwood, purchased pulps, pulp substitutes, abaca fiber and certain other raw materials. Our Spring Grove and Chillicothe locations are vertically integrated manufacturing facilities that generate in excess of 85% of their annual pulp requirements. However, as a result of selling timberlands over the past two years, purchased timber will represent a larger source of the total pulpwood used in our operations.

Our Philippine mill purchases abaca fiber to produce abaca pulp, which we use to manufacture our tea bag and coffee pods/pads and filter paper products at our Gernsbach, Scaër and Lydney facilities. However, in the past the supply of abaca fiber has been constrained unexpectedly due to severe weather related damage to the source crop as well as selection by land owners of alternative uses of land in lieu of fiber producing activities. As a result of supply constraints, pricing pressure persists.

The cost of many of our production materials and costs, including petroleum based chemicals and freight charges, are influenced by the cost of oil. In addition, coal is a principal source of fuel for both the Spring Grove and Chillicothe facilities and natural gas is used as a source of fuel for our Chillicothe and Composite Fibers’ business unit facilities. Also, in prior years other input costs such as caustic, starch and others, have exhibited extreme upward pricing pressure. In addition, our vendors’ liquidity may be impacted by the economy creating supply shortages.

We may not be able to pass increased raw materials or energy costs on to our customers if the market will not bear the higher price or where existing agreements with our customers limit price increases. If price adjustments significantly trail increases in raw materials or energy prices our operating results could be adversely affected.

Our industry is highly competitive and increased competition could reduce our sales and profitability.

In recent years, the global paper industry in which we compete has been adversely affected by paper producing capacity exceeding the demand for products and by declining uncoated free sheet demand. As a result, the uncoated free sheet industry has taken steps to reduce underperforming capacity. However, slowing demand or increased competition could force us to lower our prices or to offer additional services at a higher cost to us, which could reduce our gross margins and net income. The greater financial resources of certain of our competitors may enable them to commit larger amounts of capital in response to changing market conditions. Certain competitors may also have the ability to develop product or service innovations that could put us at a competitive disadvantage.

Some of the factors that may adversely affect our ability to compete in the markets in which we participate include:

•  the entry of new competitors into the markets we serve, including foreign producers;

•  the willingness of commodity-based paper producers to enter our specialty markets when they are unable to compete or when demand softens in their traditional markets;

•  the aggressiveness of our competitors’ pricing strategies, which could force us to decrease prices in order to maintain market share;

•  our failure to anticipate and respond to changing customer preferences;

•  the impact of emerging electronic-based substitutes for certain of our products such as book publishing and envelope;

•  our inability to develop new, improved or enhanced products; and

•  our inability to maintain the cost efficiency of our facilities.

If we cannot effectively compete in the markets in which we operate, our sales and operating results would be adversely affected.

We may not be able to develop new products acceptable to our customers.

Our business strategy is market focused and includes investments in developing new products to meet the changing needs of our customers and to maintain our market share. Our success will depend in large part on our ability to develop and introduce new and enhanced products that keep pace with introductions by

Glatfelter 2009 Annual Report    7

our competitors and changing customer preferences. If we fail to anticipate or respond adequately to these factors, we may lose opportunities for business with both current and potential customers. The success of our new product offerings will depend on several factors, including our ability to:

•  anticipate and properly identify our customers’ needs and industry trends;

•  price our products competitively;

•  develop and commercialize new products and applications in a timely manner;

•  differentiate our products from our competitors’ products; and

•  invest in research and development activities efficiently.

Our inability to develop new products could adversely impact our business and ultimately harm our profitability.

We are subject to substantial costs and potential liability for environmental matters.

We are subject to various environmental laws and regulations that govern our operations, including discharges into the environment, and the handling and disposal of hazardous substances and wastes. We are also subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. To comply with environmental laws and regulations, we have incurred, and will continue to incur, substantial capital and operating expenditures. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. Because environmental regulations are not consistent worldwide, our ability to compete globally may be adversely affected by capital and operating expenditures required for environmental compliance. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment, such as air and water quality, resulting from mills we operate or have operated. Potential obligations include compensation for the restoration of natural resources, personal injury and property damages.

We have exposure to liability for remediation and other costs related to the presence of polychlorinated biphenyls in the lower Fox River on which our former Neenah, Wisconsin mill was located. In December 2009, the United States District Court for the Eastern District of Wisconsin issued a favorable order in the pending litigation relating to the Fox River site that while not fully resolving our liability at the site, essentially dismissed the plaintiffs’ claims against the defendants. The plaintiffs have filed a notice of appeal of this order. There can be no assurance that we will be able to successfully defend against such appeal. We have financial reserves for environmental matters, including the Fox River site, but we cannot be certain that those reserves will be adequate to provide for future obligations related to these matters, that our share of costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations.

Our environmental issues are complicated and should be reviewed in context; please see a more detailed discussion of these matters in Item 8 – Financial Statements and Supplementary Data – Note 21.

We may not be able to successfully integrate the Concert acquisition or realize the potential benefits of the acquisition, which could have a material adverse effect on our results of operations.

We may not be able to combine successfully the operations of Concert with our operations. The integration of Concert with our operations will require significant attention from management and may impose substantial demands for other resources. Acquisitions inherently involve risks, including those associated with assimilating and integrating different business operations, corporate cultures, personnel, infrastructures and technologies or products and increasing the scope, geographic diversity and complexity of our operations. There may be additional costs or liabilities that are not currently anticipated, including unexpected loss of key employees or customers of Concert and hiring additional management and other critical personnel. The acquisition may also be disruptive to our ongoing business and may not be successfully received by our customers. The purchase of Concert also involved a significant capital commitment, and the return that we achieve on any capital invested may be less than the return that we would achieve on our other projects or investments. Any of these factors could adversely affect our operations, financial results and liquidity.

Furthermore, we may not realize the potential benefits of the acquisition. Historically, Concert has been dependent upon a limited number of customers and product markets for a significant portion of its net sales. One customer accounted for the majority of Concert’s net sales for the three years ended December 31, 2009. The loss of a significant customer could have a material adverse effect on Concert’s operating results. In addition,

8

Concert’s sales in the feminine hygiene market accounted for over three-fourths of its net sales in 2009. A decline in Concert’s sales of feminine hygiene products or in sales of feminine hygiene products generally could have a material adverse effect on Concert’s operating results. Customers in the airlaid non-woven fabric material market, including the feminine hygiene market, may also switch to less expensive products or otherwise reduce demand for Concert’s products, thus reducing the size of the markets in which Concert currently sells its products. Any of the foregoing could result in our failing to realize the benefits of the acquisition, which could have a material adverse effect on our financial performance and business prospects.

Our operations may be impaired and we may be exposed to potential losses and liability as a result of natural disasters, acts of terrorism or sabotage or similar events.

Natural disasters, such as earthquakes, flooding or fire, and acts of terrorism or sabotage affecting our operating activities and major facilities could materially and adversely affect our operations, our operating results and financial condition. In particular, we own and operate four dams in York County, Pennsylvania that were built to ensure a steady supply of water for the operation of our paper mill in Spring Grove, Pennsylvania, which is a primary manufacturing location for our book publishing papers and engineered products. Each of these dams is classified as “high hazard” by the Commonwealth of Pennsylvania because they are located in close proximity to inhabited areas and sudden failure would endanger occupants or residential, commercial or industrial structures. Failure or breach of any of the dams, including as a result of natural disaster or act of terrorism or sabotage, could cause significant personal injuries and damage to residential and commercial property downstream for which we may be liable. The failure of a dam could also be extremely disruptive and result in damage to or the shutdown of our Spring Grove mill. Any losses or liabilities incurred due to the failure of one of our dams may not be fully covered by our insurance policies or may substantially exceed the limits of our policies, and could materially and adversely affect our operating results and financial condition.

In addition, many of our paper making operations requires a reliable and abundant supply of water. Such mills rely on a local water body or water source for its water needs and, therefore, is particularly impacted by drought conditions or other natural or manmade interruptions to its water supplies. At various times and for differing periods, each of our mills has had to modify operations due to water shortages or low flow conditions in its principal water supplies. Any interruption or curtailment of operations at any of our paper mills due to drought or low flow conditions at the principal water source or another cause could materially and adversely affect our operating results and financial condition.

In addition, our pulp mill in Lanao del Norte on the Island of Mindanao in the Republic of the Philippines is located along the Pacific Rim in the world’s hazard belt. By virtue of its geographic location, this mill is subject to, among other types of natural disasters, floods, droughts, cyclones, typhoons, earthquakes, windstorms and volcanic activity. Moreover, the area of Lanao del Norte has been a target of terrorist activities, including bombings, by suspected members of the al-Qaeda-linked Islamist groups in the Philippines, such as the Abu Sayyaf and the Rajah Solaiman Group and other Islamic militant groups, most notably the Moro Islamic Liberation Front. The most common bomb targets in Lanao del Norte to date have been power transmission towers. Our pulp mill in Mindanao is located in a rural portion of the island and is susceptible to attacks or power interruptions. The Mindanao mill supplies approximately 80% of the abaca pulp that is used by our Composite Fibers business unit to manufacture our coffee and tea bag filter papers. Any interruption, loss or extended curtailment of operations at our Mindanao mill could materially and adversely affect our operating results and financial condition.

We have operations in a potentially politically and economically unstable location.

Our pulp mill in the Philippines is located in a region that is unstable and subject to political unrest. As discussed above, our Philippine pulp mill produces abaca pulp, a significant raw material used by our Composite Fibers business unit and is currently our main provider of abaca pulp. There are limited suitable alternative sources of readily available abaca pulp in the world. In the event of a disruption in supply from our Philippine mill, there is no guarantee that we could obtain adequate amounts of abaca pulp from alternative sources at a reasonable price or at all. As a consequence, any civil disturbance, unrest, political instability or other event that causes a disruption in supply could limit the availability of abaca pulp and would increase our cost of obtaining abaca pulp. Such occurrences could adversely impact our sales volumes, revenues and operating results.

Our international operations pose certain risks that may adversely impact sales and earnings.

We have significant operations and assets located in Germany, France, the United Kingdom, the Philippines and as a result of the recent completion of the Concert Industries acquisition, in Canada. Our international sales and operations are subject to a number of special risks,

Glatfelter 2009 Annual Report    9

in addition to the risks in our domestic sales and operations, including differing protections of intellectual property, trade barriers, labor unrest, exchange controls, regional economic uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, domestic and foreign customs and tariffs, differing regulatory environments, difficulty in managing widespread operations and political instability. These factors may adversely affect our future profits. Also, in some foreign jurisdictions, we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met. Any such limitations would restrict our flexibility in using funds generated in those jurisdictions.

Foreign currency exchange rate fluctuations could adversely affect our results of operations.

We own and operate paper and pulp mills in Germany, France, the United Kingdom and the Philippines and as a result of the recent completion of the Concert acquisition, in Canada. The majority of our business is transacted in U.S. dollars, however, a substantial portion of business is transacted in Euros, British Pound Sterling and Canadian dollars. With respect to the Euro and Canadian dollar, we generate substantially greater cash inflow in these currencies than we do outflow. However, with respect to the British Pound Sterling, we have greater outflows than inflows of this currency. As a result of these positions, we are exposed to changes in currency exchange rates.

Our ability to maintain our products’ price competitiveness is reliant, in part, on the relative strength of the currency in which the product is denominated compared to the currency of the market into which it is sold and the functional currency of our competitors. Changes in the rate of exchange of foreign currencies in relation to the U.S. dollar, and other currencies, may adversely impact our results of operations and our ability to offer products in certain markets at acceptable prices.

Substantially lower and more volatile market prices for sales of excess electricity compared to the price we currently receive may prevent us from achieving the historical margins on our sales of excess electricity in relation to our coal supply contract, which could have a material adverse affect on our consolidated financial position and results of operations.

We generate electricity at our Spring Grove facility using a variety of fuels, including coal. We purchase coal for this facility under a long-term, fixed price supply contract, which expires at the end of 2012. The current market price for coal is approximately 10% higher than the fixed price we pay under the contract. In addition, because our Spring Grove facility produces more electricity than it requires, we have historically sold the excess electricity to the local power company under a long-term co-generation contract, which expires March 31, 2010. The fixed price we receive for electricity under this contract is approximately 30% higher than current forward prices for electricity. We are unable to renew this co-generation contract upon its expiration on March 31, 2010 and will, instead, sell our excess electricity at market prices prevailing at the time of sale. Market prices for electricity have historically been volatile and may continue to be substantially lower than the price we currently receive under our expiring co-generation contract.

Our cost of coal, as well as the costs incurred for natural gas and other fuels used to generate electricity, have a major impact on the net revenue and overall profitability of our Specialty Paper business unit. By selling our excess electricity at market prices prevailing at the time of sale, we may not be able to continue to sell excess electricity at acceptable margins in relation to the prices under our coal supply contract, if at all. A reduction in these margins or an inability to sell our excess electricity could reduce the net revenues and overall profitability of our Specialty Papers business unit, which would have a material adverse affect on our consolidated financial position and results of operations.

The impairment of financial institutions may adversely affect us.

We, our customers and our vendors, have transactions and borrowing arrangements with U.S. and foreign commercial banks, and other financial institutions, some of whom may be exposed to ratings downgrade, bankruptcy, liquidity, default or similar risks, especially in connection with recent financial market turmoil. A ratings downgrade, bankruptcy, receivership, default or similar event involving such institutions may adversely affect the counterparty’s performance under letters of credit, limit our access to capital, impact the ability of our suppliers to provide us with raw materials needed for our production, impact our customers’ ability to meet obligations to us, or adversely affect our liquidity position, future business and results of operations.

10

An IRS audit of our 2009 tax return could result in a change in the tax treatment of the alternative fuel mixture credits we claimed in 2009, which could have a material adverse effect on our results of operations and financial position.

The U.S. Internal Revenue Code, or the Code, provided a tax credit for companies that used alternative fuel mixtures to produce energy to operate their businesses on or prior to December 31, 2009. During 2009, we registered two of our facilities with the IRS as alternative fuel mixers based on their use of black liquor as an alternative fuel source. For the year ended December 31, 2009, we will have substantial alternative fuel mixture credits relating to these facilities. Our results of operations in 2009 included, on a pre-tax basis, $107.8 million of alternative fuel mixture credits of which $29.7 million has been received in cash, $20.1 million was used to reduce estimated interim tax payments and $58.0 million will be claimed as refundable income tax credits and is expected to be realized in cash primarily in the first half of 2010. In the event that the IRS audits our tax return for the year ended December 31, 2009, the IRS may conclude that some or all of the credits claimed are subject to federal income taxes, which would subject us to additional tax liabilities and could have a material adverse effect on our results of operations and financial position.

In the event any of the above risk factors impact our business in a material way or in combination during the same period, we may be unable to generate sufficient cash flow to simultaneously fund our operations, finance capital expenditures, satisfy obligations and make dividend payments on our common stock.

In addition to debt service obligations, our business is capital intensive and requires significant expenditures for equipment maintenance, new or enhanced equipment, environmental compliance, and research and development to support our business strategies. We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing credit facility and other long-term debt. If we are unable to generate sufficient cash flow from these sources, we could be unable to meet our near and long-term cash needs or make dividend payments.

ITEM 1B   UNRESOLVED STAFF COMMENTS

None.

ITEM 2   PROPERTIES

Our leased corporate offices are located in York, Pennsylvania. In addition, we lease office space for a sales and distribution office in Moscow, Russia. As of December 31, 2009, we owned and operated paper mills located in Pennsylvania; Ohio; the United Kingdom; Germany; and France. Our metallized paper production facility located in Caerphilly, Wales leases the building and land associated with its operations. We also own and operate a pulp mill in the Philippines. Substantially all of the equipment used in our papermaking and related operations is also owned. All of our properties, other than those that are leased, are free from any material liens or encumbrances. We consider all of our buildings to be in good structural condition and well maintained and our properties to be suitable and adequate for present operations.

The following table summarizes the estimated production capacity of each of our facilities as of December 31, 2009:

Estimated Annual Production
Capacity (short tons)
Specialty Papers
Spring Grove	332,000	Uncoated
	68,000	Coated
Chillicothe	400,000	Uncoated
	7,500	Coated
Composite Fibers
Gernsbach	40,000	Lightweight
	11,800	Metallized
Scaër	6,000	Lightweight
Lydney	16,800	Lightweight
Caerphilly	17,000	Metallized
Philippines	13,000	Abaca pulp

The Spring Grove facility includes five uncoated paper machines that have been rebuilt and modernized from time to time with the capacity to produce 332,000 tons. It has an off-line combi-blade coater and a Specialty Coater (“S-Coater”), which together yield a potential annual production capacity for coated paper of approximately 68,000 tons. Since uncoated paper is used in producing coated paper, this is not additional capacity. We view the S-Coater as an important asset that allows us to expand our engineered paper products business. The Spring Grove facility also includes a pulpmill that has a production capacity of approximately 650 tons of bleached pulp per day.

Glatfelter 2009 Annual Report    11

The Chillicothe facility operates four paper machines which together yield a potential annual production capacity of uncoated and carbonless paper of approximately 400,000 tons. In addition, this location produces 7,500 tons per year of other coated paper. This facility also includes a pulpmill that has a production capacity of approximately 955 tons of bleached pulp per day.

The Composite Fibers business unit’s four facilities operate a combined ten papermaking machines with the capacity to produce approximately 60,700 tons of lightweight paper on an annual basis. In addition, the business unit has the capacity to produce an aggregate of 27,500 tons of metallized papers from its lacquering and metallizing operations in Gernsbach, Germany and Caerphilly, Wales.

Our facility in the Philippines consists of a pulpmill that supplies a majority of the abaca pulp requirements of the Composite Fibers paper mills.

Concert, which was acquired in February 2010, has annual rated capacity totaling approximately 84,000 metric tons of airlaid products.

ITEM 3   LEGAL PROCEEDINGS

We are involved in various lawsuits that we consider to be ordinary and incidental to our business. The ultimate outcome of these lawsuits cannot be predicted with certainty; however, we do not expect such lawsuits individually or in the aggregate, will have a material adverse effect on our consolidated financial position, liquidity or results of operations.

For a discussion of commitments, legal proceedings and related contingencies, see Item 8 – Financial Statements and Supplementary Data – Note 21.

ITEM 4   [RESERVED]

EXECUTIVE OFFICERS

The following table sets forth certain information with respect to our executive officers as of March 15, 2010.

Name	Age		Office with the Company
George H. Glatfelter II		58	Chairman and Chief Executive Officer
Dante C. Parrini		45	Executive Vice President and Chief Operating Officer
John P. Jacunski		44	Senior Vice President and Chief Financial Officer
David C. Elder		41	Vice President and Corporate Controller
Thomas G. Jackson		44	Vice President General Counsel and Corporate Secretary
Debabrata Mukherjee		40	Vice President and General Manager, Specialty Papers Business Unit
Martin Rapp		50	Vice President and General Manager, Composite Fibers Business Unit
Mark A. Sullivan		55	Vice President Global Supply Chain
William T. Yanavitch II		49	Vice President Human Resources and Administration

Officers are elected to serve at the pleasure of the Board of Directors. Except in the case of officers elected to fill a new position or a vacancy occurring at some other date, officers are generally elected at the organizational meeting of the Board of Directors held immediately after the annual meeting of shareholders.

George H. Glatfelter II is our Chairman and Chief Executive Officer, positions he has held since February 2001. Mr. Glatfelter joined our company in January 1977. He also serves as a director of Met-Pro Corporation.

Dante C. Parrini became Executive Vice President and Chief Operating Officer in February 2005. Prior to this, Mr. Parrini was Senior Vice President and General Manager, a position he held beginning in January 2003. Mr. Parrini previously was Vice President responsible for Sales and Marketing.

John P. Jacunski became Senior Vice President & Chief Financial Officer in July 2006. From October 2003 until July 2006, he was Vice President and Corporate Controller. Mr. Jacunski was previously Vice President and Chief Financial Officer at WCI Steel, Inc. from June 1999 to October 2003. Prior to joining WCI, Mr. Jacunski was with KPMG, an international accounting and consulting firm, where he served in various capacities.

David C. Elder was appointed Vice President in March 2009 and has served as Corporate Controller and Chief Accounting Officer since July 2006. Prior to joining us in January 2006, Mr. Elder was Corporate Controller for YORK International Corporation, a position he held since December 2003. Prior thereto, he was the Director, Financial Planning and Analysis for YORK International Corporation from August 2000 to December 2003.

12

Thomas G. Jackson became Vice President, General Counsel and Secretary in June 2008. Since joining us in November 2006, Mr. Jackson has held various positions in our legal department including Assistant General Counsel, Assistant Secretary and Director of Compliance. Prior to joining our company, Mr. Jackson was Director of Business Development at C&D Technologies, Inc. from August 2005 to September 2006 and prior to that was Deputy General Counsel at C&D Technologies from October 1999 to August 2005.

Debabrata Mukherjee was appointed Vice President & General Manager – Specialty Papers Business Unit in April 2008. Dr. Mukherjee joined our Company in 1998 and since then has held various operational, sales and technical leadership positions within the Specialty Papers Business Unit. From March 2006 through March 2008, Dr. Mukherjee served as Division Vice President, Engineered & Converting Products. From February 2004 through February 2006, Dr. Mukherjee served as Director, Engineered Products. Prior to joining Glatfelter, Dr. Mukherjee served in various capacities with Felix Schoeller, a German based global specialty paper manufacturer.

Martin Rapp joined Glatfelter in August 2006 and serves as Vice President and General Manager – Composite Fibers Business Unit. Prior to this, Mr. Rapp was Vice President and General Manager of Avery Dennison’s Roll Materials Business in Central and Eastern Europe since August 2002.

Mark A. Sullivan was appointed Vice President, Global Supply Chain in February 2005. Mr. Sullivan joined our company in December 2003, as Chief Procurement Officer. His experience includes a broad array of operations and supply chain management responsibilities during 20 years with the DuPont Company.

William T. Yanavitch II rejoined the Company in May 2005 as Vice President Human Resources and Administration. Mr. Yanavitch served as Vice President Human Resources from July 2000 until his resignation in January 2005 at which time he became Corporate Human Resources Manager of Constellation Energy.

PART II

ITEM 5   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Prices and Dividends Declared Information

The following table shows the high and low prices of our common stock traded on the New York Stock Exchange under the symbol “GLT” and the dividend declared per share for each quarter during the past two years.

Quarter	High		Low		Dividend
2009
Fourth	$	12.58	$	10.01	$	0.09
Third		12.14		7.91		0.09
Second		11.59		6.00		0.09
First		9.80		4.57		0.09
2008
Fourth	$	13.69	$	7.50	$	0.09
Third		15.76		12.51		0.09
Second		15.76		13.51		0.09
First		15.44		12.85		0.09

As of March 12, 2010, we had 1,515 shareholders of record.

Glatfelter 2009 Annual Report    13

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative 5-year total return of our common stock with the cumulative total returns of both a peer group and a broad market index. For the year ended December 31, 2009, as a result of changes in our industry, including the bankruptcy of certain companies previously included in the old peer group, we now compare our stock performance to the S&P Small Cap 600 Paper Products index. This peer index is comprised of Buckeye Technologies Inc., Clearwater Paper Corp., Neenah Paper Inc., Schweitzer-Mauduit International and Wausau Paper Corp. The old peer group consisted of AbitibiBowater, Inc., Neenah Paper, Inc., Schweitzer-Mauduit International and Wausau Paper Corp.

In addition, the chart includes a comparison to the Russell 2000, which we believe is an appropriate benchmark index for stocks such as ours.

The graph assumes that the value of the investment in our common stock, in each index, and in each of the peer groups (including reinvestment of dividends) was $100 on December 31, 2004 and charts it through December 31, 2009.

ITEM 6   SELECTED FINANCIAL DATA

As of or for the year ended December 31
Dollars in thousands, except per share	2009(1)		2008		2007			2006			2005
Net sales	$	1,184,010	$	1,263,850	$	1,148,323		$	986,411		$	579,121
Energy sales, net		13,332		9,364		9,445			10,726			10,078
Total revenue		1,197,342		1,273,214		1,157,768			997,137			589,199
Reversal of (shutdown and restructuring charges and unusual items)		—		856		(35	)		(30,318	)		(1,564	)
Gains on dispositions of plant, equipment and timberlands, net		898		18,468		78,685			17,394			22,053
Gains from insurance recoveries		—		—		—			205			20,151
Net income (loss)		123,442		57,888		63,472			(12,236	)		38,609
Earnings (loss) per share
Basic		2.70		1.28		1.41			(0.27	)		0.88
Diluted		2.70		1.27		1.40			(0.27	)		0.87
Total assets		1,190,294		1,057,309		1,287,067			1,225,643			1,044,977
Total debt		254,583		313,285		313,185			397,613			207,073
Shareholders’ equity		510,704		342,707		476,068			388,368			432,312
Cash dividends declared per common share		0.36		0.36		0.36			0.36			0.36
Shares outstanding		45,706		45,434		45,141			44,821			44,132
Capital expenditures		26,257		52,469		28,960			44,460			31,024
Depreciation and amortization		61,256		60,611		56,001			50,021			50,647
Tons sold		818,905		829,354		799,512			721,892			498,593
Number of employees		3,546		3,633		3,854			3,704			1,958

(1) During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold.

14

ITEM 7   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-K are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, net sales, costs of products sold, non-cash pension expense, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.	variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing;
ii.	changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, caustic soda and abaca fiber;
iii.	changes in energy-related costs and commodity raw materials with an energy component;
iv.	our ability to develop new, high value-added Specialty Papers and Composite Fibers products;
v.	our inability to renew our electricity sales agreement resulting in market pricing that is currently below historical margins in relation to our current coal supply contract;
vi.	the impact of competition, changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases;
vii.	the impairment of financial institutions as a result of the current credit market conditions and any resulting impact on us, our customers or our vendors;
viii.	the gain or loss of significant customers and/or on-going viability of such customers;
ix.	cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls (“PCBs”) in the lower Fox River on which our former Neenah mill was located;
x.	risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;
xi.	geopolitical events, including war and terrorism;
xii.	disruptions in production and/or increased costs due to labor disputes;
xiii.	enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation;
xiv.	adverse results in litigation; and
xv.	our ability to finance, consummate and integrate current or future acquisitions.

Introduction  We manufacture, both domestically and internationally, a wide array of specialty papers and engineered products. Substantially all of our revenue is earned from the sale of our products to customers in numerous markets, including book publishing, envelope & converting, carbonless papers and forms, food & beverage filter papers, decorative laminates for furniture and flooring, metallized papers and other highly technical niche markets.

Overview  Our results of operations for 2009 when compared with 2008 were impacted by the weak global economic conditions. Overall volumes shipped by Specialty Papers declined slightly and Composite Fibers declined 6.5% in the year-to-year comparison. As a result of the soft demand for most of our products and our efforts to reduce inventory, during the second quarter of 2009, we incurred significant market-related downtime at many of our facilities which adversely affected results of operations. This downtime continued within our Composite Fibers business unit into the third quarter, although to a lesser extent. For 2009, we generated $163.9 million of cash from operations, including alternative fuel mixture credits, as a result of improved operations, inventory reductions and effective working capital management initiatives.

During 2009, we registered two of our facilities with the U.S. Internal Revenue Service as alternative fuel mixers based on their use of black liquor as an

Glatfelter 2009 Annual Report    15

alternative fuel source. Our 2009 results of operations included, on a pre-tax basis, $107.8 million of alternative fuel mixture credits, of which $29.7 million was received in cash and another $20.1 million was used to offset interim estimated tax payments. We expect to realize the remaining $58.0 million of credits in the form of non-taxable refundable income tax credits.

Specialty Papers’ operating income totaled $55.9 million and $49.2 million for 2009 and 2008, respectively. The improvement in operating income was led by productivity improvements and cost reduction initiatives and sales of renewable energy credits, partially offset by the adverse impact of lower volumes and selling prices. During 2009, the weak economic environment adversely affected demand in all markets served by Specialty Papers. As a result of weak demand in the first half of the year and our efforts to reduce inventory, this unit incurred market related downtime totaling 33,019 tons of paper. During the year, we reduced Specialty Papers’ inventories by 13.3%.

Our Composite Fibers business unit’s operating income declined to $21.9 million from $25.0 million in 2008. Volumes shipped during 2009 declined 6.5% compared to 2008 as a result of the weak economic environment and our customers’ actions to reduce their inventory levels. As a result of weak demand and our inventory reduction efforts, during 2009 we incurred unscheduled downtime totaling approximately 6,480 tons of paper, or 9.4% of the unit’s total capacity for the period.

In addition, our pre-tax results of operations in 2009 included $17.7 million of lower gains from the sale of timberlands than what was realized in 2008. We also recorded $7.0 million of pension expense in 2009 compared with pension income of $16.1 million in 2008.

RESULTS OF OPERATIONS

2009 versus 2008

The following table sets forth summarized results of operations:

	Year Ended December 31
In thousands, except per share	2009		2008
Net sales	$	1,184,010	$	1,263,850
Gross profit		269,764		177,782
Operating income		160,405		99,209
Net income		123,442		57,888
Earnings per diluted share		2.70		1.27

The consolidated results of operations for 2009 and 2008 include the following items not considered to be part of our core business operations:

	After-tax
In thousands, except per share	Income (loss)			Diluted EPS
2009
Alternative fuel mixture credits	$	95,764		$	2.09
Acquisition related costs		(1,768	)		(0.04	)
2008
Gains on sale of timberlands	$	10,984		$	0.24
Reversal of shutdown and restructuring charges		517			0.01
Acquisition integration costs		(889	)		(0.02	)

These items increased earnings by $94.0 million, or $2.05 per diluted share in 2009. Comparatively, the items identified above increased earnings in 2008 by $10.6 million, or $0.23 per diluted share.

Business Units  Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the Business Unit Performance table.

Management evaluates results of operations of the business units before pension income or expense, alternative fuel mixture credits, charges related to the Fox River environmental reserves, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is aligned with the management and operating structure of our company. It is also on this basis that our performance is evaluated internally and by our Board of Directors.

16

Business Unit Performance	Year Ended December 31
In thousands, except tons	Specialty Papers				Composite Fibers				Other and Unallocated						Total
	2009		2008		2009		2008		2009			2008			2009			2008
Net sales	$	791,915	$	833,899	$	392,095	$	429,952		–		$	(1	)	$	1,184,010		$	1,263,850
Energy sales, net		13,332		9,364		–		–		–			–			13,332			9,364
Total revenue		805,247		843,263		392,095		429,952		–			(1	)		1,197,342			1,273,214
Cost of products sold		693,949		739,481		334,378		366,791		(100,749	)		(10,840	)		927,578			1,095,432
Gross profit (loss)		111,298		103,782		57,717		63,161		100,749			10,839			269,764			177,782
SG&A		55,408		54,596		35,779		38,206		19,070			5,095			110,257			97,897
Reversal of shutdown and restructuring charges		–		–		–		–		–			(856	)		–			(856	)
Gains on dispositions of plant, equipment and timberlands		–		–		–		–		(898	)		(18,468	)		(898	)		(18,468	)
Total operating income (loss)		55,890		49,186		21,938		24,955		82,577			25,068			160,405			99,209
Non operating income (expense)		–		–		–		–		(17,259	)		(18,183	)		(17,259	)		(18,183	)
Income (loss) before income taxes	$	55,890	$	49,186	$	21,938	$	24,955	$	65,318		$	6,885		$	143,146		$	81,026
Supplementary Data
Net tons sold		738,841		743,755		80,064		85,599		–			–			818,905			829,354
Depreciation, depletion and amortization	$	37,520	$	35,010	$	23,736	$	25,601	$	–		$	–		$	61,256		$	60,611
Capital expenditures		14,077		20,878		12,080		31,591		100			–			26,257			52,469

Sales and Costs of Products Sold

	Year Ended December 31
In thousands	2009			2008			Change
Net sales	$	1,184,010		$	1,263,850		$	(79,840	)
Energy and related sales – net		13,332			9,364			3,968
Total revenues		1,197,342			1,273,214			(75,872	)
Costs of products sold (1)		927,578			1,095,432			(167,854	)
Gross profit	$	269,764		$	177,782		$	91,982
Gross profit as a percent of Net sales		22.8	%		14.1	%

(1) Includes $107.8 million of alternative fuel mixture credits, net of related expenses.

The following table sets forth the contribution to consolidated net sales by each business unit:

	Percent of total
	2009			2008
Business Unit
Specialty Papers		66.9	%		66.0	%
Composite Fibers		33.1			34.0
Total		100.0	%		100.0	%

Net sales  totaled $1,184.0 million for 2009, a decrease of $79.8 million, or 6.3%, compared to 2008.

In the Specialty Papers business unit, 2009 net sales decreased $42.0 million to $791.9 million. Operating income increased $6.7 million in the year over year comparison and totaled $55.9 million in 2009. The improvement in operating income was primarily due to $12.2 million of productivity efficiencies and cost reduction initiatives and $4.5 million of lower input costs. These favorable factors were offset by $7.6 million of lower volumes and mix impact and $2.1 million of lower selling prices. Operating income was also adversely impacted by the costs of unplanned downtime at the Spring Grove and Chillicothe facilities totaling approximately $6.6 million in 2009 compared to 2008.

We sell excess power generated by the Spring Grove, PA facility pursuant to a long-term contract that expires March 31, 2010. The following table summarizes this activity for each of the past two years:

In thousands	2009			2008			Change
Energy sales	$	20,128		$	19,731		$	397
Costs to produce		(11,883	)		(10,367	)		(1,516	)
Net		8,245			9,364			(1,119	)
Renewable energy credits		5,087			–			5,087
Total	$	13,332		$	9,364		$	3,968

Renewable energy credits (“RECs”) represent sales of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste. The market for such certificates is an emerging and somewhat illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of management’s control. Therefore, we may not be able to generate additional sales of RECs in future periods. In addition, the certification by the Public Utility Commission of Ohio of our Chillicothe, OH facility as a renewable energy generator was appealed by a consumer advocacy group. While we believe the certification will be upheld, we are unable to predict its ultimate outcome.

In Composite Fibers, 2009 net sales were $392.1 million, a decline of $37.9 million from 2008. Operating income declined by $3.0 million in the comparison to $21.9 million. Total volumes shipped by this business unit declined 6.5% led by lower shipments of composite laminates and food & beverage paper products, which declined 18.5% and 5.5%, respectively. The translation of foreign currencies adversely impacted net sales by $23.0 million; however, higher average selling prices contributed $6.2 million.

Glatfelter 2009 Annual Report    17

Energy and raw material costs in the Composite Fibers business unit were $3.9 million higher in 2009 than in 2008. Market-related downtime adversely impacted operating results by $7.4 million in 2009 compared to 2008.

Alternative Fuel Mixture Credits  The U.S. Internal Revenue Code provides a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. On May 11, 2009, we were notified by the Internal Revenue Service that our application to be registered as an alternative fuel mixer was approved. We received a payment from the Internal Revenue Service on June 30, 2009 in the amount of $29.7 million for the alternative fuel mixture consumed at our Spring Grove, PA and Chillicothe, OH facilities during the period February 20, 2009 through May 17, 2009. Since we began mixing and burning eligible alternative fuels, we have earned $107.8 million of alternative fuel mixture credits of which $29.7 million has been received in cash, $20.1 million was used to reduce estimated interim tax payments and $58.0 million will be claimed as refundable income tax credits and is expected to be realized in cash primarily in the first half of 2010. We record all alternative fuel mixture credits as a reduction to cost of goods sold.

According to the Internal Revenue Code, the tax credit expired on December 31, 2009.

Pension Expense/Income  The following table summarizes the amounts of pension expense or income recognized for 2009 compared to 2008:

	Year Ended December 31
In thousands	2009			2008		Change
Recorded as:
Costs of products sold	$	(4,936	)	$	11,067	$	(16,003	)
SG&A expense		(2,097	)		4,995		(7,092	)
Total	$	(7,033	)	$	16,062	$	(23,095	)

The amount of pension expense or income recognized each year is determined using various actuarial assumptions and certain other factors, including the fair value of our pension assets as of the beginning of the year. As discussed in Item 8 – Financial Statements – Note 11, the fair value of the plans’ assets declined approximately 29% during 2008. As a result, during 2009 we recognized net pension expense totaling approximately $7.0 million, on a pre-tax basis. However, we were not required to make cash contributions to our qualified defined benefit pension plans in 2009.

Selling, general and administrative (“SG&A”) SG&A expenses increased $12.4 million in the year-to-year comparison and totaled $110.3 million for 2009. In 2009, SG&A included $2.1 million of pension expense compared with $5.0 million of pension income in 2008. In addition, we incurred higher legal and professional fees related to the Fox River environmental matter and the Concert Industries acquisition.

Gain on Sales of Plant, Equipment and Timberlands  During the years ended December 31, 2009 and 2008, we completed sales of timberlands which are summarized by the following table:

Dollars in thousands	Acres		Proceeds		Gain
2009
Timberlands		319	$	951	$	906
Other		n/a		–		(8	)
Total			$	951	$	898
2008
Timberlands		4,561	$	19,279	$	18,649
Other		n/a		–		(181	)
Total			$	19,279	$	18,468

In connection with each of the asset sales set forth above, we received cash proceeds.

Income taxes  Our results of operations for 2009 reflect an effective tax rate of 13.8% compared to 28.6% a year ago. The lower tax rate in 2009 was primarily due to a tax benefit of $27.1 million due to nontaxable alternative fuel mixture credits, and from a lower proportion of timberland gains, which are taxed at a higher effective tax rate.

Foreign Currency  In 2009, we owned and operated paper and pulp mills in Germany, France, the United Kingdom and the Philippines. The functional currency in Germany and France is the Euro, in the UK it is the British Pound Sterling, and in the Philippines it is the Peso. During 2009, Euro functional currency operations generated approximately 19.8% of our sales and 18.9% of operating expenses and British Pound Sterling operations represented 10.6% of net sales and 10.8% of operating expenses. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates. The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results:

	Year Ended
In thousands	December 31, 2009
	Favorable
	(unfavorable)
Net sales	$	(22,975	)
Costs of products sold		24,116
SG&A expenses		3,233
Income taxes and other		883
Net income	$	5,257

The above table only presents the financial reporting impact of foreign currency translations. It does not

18

present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

RESULTS OF OPERATIONS

2008 versus 2007

The following table sets forth summarized results of operations:

	Year Ended December 31
In thousands, except per share	2008		2007
Net sales	$	1,263,850	$	1,148,323
Gross profit		177,782		156,312
Operating income		99,209		118,818
Net income		57,888		63,472
Earnings per diluted share		1.27		1.40

The consolidated results of operations for the years ended December 31, 2008 and 2007 include the following non-routine items:

	After-tax
In thousands, except per share	Income (loss)			Diluted EPS
2008
Gains on sale of timberlands	$	10,984		$	0.24
Reversal of shutdown and restructuring charges		517			0.01
Acquisition integration costs		(889	)		(0.02	)
2007
Gains on sale of timberlands	$	44,052		$	0.97
Environmental remediation		(15,979	)		(0.35	)
Acquisition integration costs		(1,569	)		(0.03	)

These items increased earnings by $10.6 million, or $0.23 per diluted share in 2008. Comparatively, the items identified above increased earnings in 2007 by $26.5 million, or $0.59 per diluted share.

Business Unit Performance	Year Ended December 31
In thousands, except tons	Specialty Papers				Composite Fibers				Other and Unallocated						Total
	2008		2007		2008		2007		2008			2007			2008			2007
Net sales	$	833,899	$	802,293	$	429,952	$	346,030	$	(1	)	$	–		$	1,263,850		$	1,148,323
Energy sales, net		9,364		9,445		–		–		–			–			9,364			9,445
Total revenue		843,263		811,738		429,952		346,030		(1	)		–			1,273,214			1,157,768
Cost of products sold		739,481		721,216		366,791		287,606		(10,840	)		(7,366	)		1,095,432			1,001,456
Gross profit (loss)		103,782		90,522		63,161		58,424		10,839			7,366			177,782			156,312
SG&A		54,596		56,561		38,206		32,541		5,095			27,042			97,897			116,144
Shutdown and restructuring charges		–		–		–		–		(856	)		35			(856	)		35
Gains on dispositions of plant, equipment and timberlands		–		–		–		–		(18,468	)		(78,685	)		(18,468	)		(78,685	)
Total operating income (loss)		49,186		33,961		24,955		25,883		25,068			58,974			99,209			118,818
Non operating income (expense)		–		–		–		–		(18,183	)		(24,884	)		(18,183	)		(24,884	)
Income (loss) before income taxes	$	49,186	$	33,961	$	24,955	$	25,883	$	6,885		$	34,090		$	81,026		$	93,934
Supplementary Data
Net tons sold		743,755		726,657		85,599		72,855		–			–			829,354			799,512
Depreciation, depletion and amortization	$	35,010	$	34,882	$	25,601	$	21,119	$	–		$	–		$	60,611		$	56,001
Capital expenditures		20,878		17,395		31,591		11,565		–			–			52,469			28,960

Sales and Costs of Products Sold

	Year Ended December 31
In thousands	2008			2007			Change
Net sales	$	1,263,850		$	1,148,323		$	115,527
Energy sales – net		9,364			9,445			(81	)
Total revenues		1,273,214			1,157,768			115,446
Costs of products sold		1,095,432			1,001,456			93,976
Gross profit	$	177,782		$	156,312		$	21,470
Gross profit as a percent of Net sales		14.1	%		13.6	%

The following table sets forth the contribution to consolidated net sales by each business unit:

	Percent of total
	2008			2007
Business Unit
Specialty Papers		66.0	%		69.9	%
Composite Fibers		34.0			30.1
Total		100.0	%		100.0	%

Net sales  totaled $1,263.9 million for the year ended December 31, 2008, an increase of $115.5 million, or 10.1%, compared to the previous year.

In the Specialty Papers business unit, net sales for 2008 increased $31.6 million to $833.9 million and operating income totaled $49.2 million, an increase of $15.2 million over the previous year. The improved operating income is primarily due to progress achieved in executing Chillicothe’s profit improvement initiatives and improved operating efficiencies. Higher average selling prices contributed $36.4 million of the increase in net sales and volumes shipped increased 2.4%. These price and volume increases were partially offset by expected mix changes between carbonless papers and uncoated papers, as well as lower sales of scrap paper. The benefits of higher average selling prices were offset by $37.7 million of higher costs, largely driven by fiber and energy. Unplanned operating downtime at the Spring Grove and Chillicothe facilities also reduced operating results by $4.3 million in 2008 compared to 2007.

In Composite Fibers, net sales were $430.0 million for 2008, an increase of $83.9 million from the previous year. The completion of the November 30, 2007 Caerphilly acquisition accounted for $40.9 million of the increase in net sales, the translation of foreign currencies

Glatfelter 2009 Annual Report    19

benefited net sales by $14.4 million and higher average selling prices contributed $16.3 million. Total volumes shipped by this business unit increased 17.5%, including a 4.3% increase in Food & Beverage paper product shipments. Shipments of Composite Laminates were down 1.5% primarily due to the weak housing and related markets.

Energy and raw material costs in the Composite Fibers business unit were $17.1 million higher than a year ago, increasing at a rate faster than average selling prices. Operating income for Composite Fibers declined $0.9 million in the comparison and totaled $25.0 million for 2008. During 2008, this unit’s results were adversely impacted by an aggregate of $6.2 million due to operating issues, market related downtime and accelerated depreciation related to completed or planned machine upgrades.

Non-Cash Pension Income  Non-cash pension income resulted from the over-funded status of our pension plans. The following summarizes non-cash pension income for 2008 compared to 2007:

	Year Ended December 31
In thousands	2008		2007		Change
Recorded as:
Costs of products sold	$	11,067	$	8,846	$	2,221
SG&A expense		4,995		4,050		945
Total	$	16,062	$	12,896	$	3,166

The amount of pension income recognized each year is determined using various actuarial assumptions and certain other factors, including the fair value of our pension assets as of the beginning of the year. As discussed in Item 8 – Financial Statements and Supplementary Data – Note 11, the fair value of the plans’ assets has declined approximately 29% since the beginning of 2008.

SG&A  expenses decreased $18.2 million in the year-to-year comparison and totaled $97.9 million in 2008 compared to $116.1 million a year ago. The decrease was primarily due to a $26.0 million charge for the Fox River environmental matter in 2007 partially offset by the inclusion in 2008 of a full year’s result for the Caerphilly acquisition.

Gain on Sales of Plant, Equipment and Timberlands  During 2008 and 2007, we completed sales of timberlands which are included in the following table:

Dollars in thousands	Acres		Proceeds		Gain
2008
Timberlands		4,561	$	19,279	$	18,649
Other		n/a		–		(181	)
Total			$	19,279	$	18,468
2007
Timberlands		37,448	$	84,409	$	78,958
Other		n/a		377		(273	)
Total			$	84,786	$	78,685

We received cash proceeds in connection with each of the asset sales set forth above, with the exception of the sale of approximately 26,000 acres of timberland completed in November 2007. In connection with that transaction, we formed GPW Virginia Timberlands LLC (“GPW Virginia”) as an indirect, wholly owned and bankruptcy-remote subsidiary of ours. GPW Virginia received as consideration for the timberland sold in that transaction a $43.2 million, interest-bearing note that matures in 2027 from the buyer, Glawson Investments Corp. (“Glawson”), a Georgia corporation, and GIC Investments LLC, a Delaware limited liability company owned by Glawson. The Glawson note receivable is fully secured by a letter of credit issued by The Royal Bank of Scotland plc. In January 2008, GPW Virginia monetized the Glawson note receivable by entering into a $36.7 million term loan agreement (the “2008 Term Loan”) with a financial institution. The 2008 Term Loan is secured by all of the assets of GPW Virginia, including the Glawson note receivable, the related letter of credit and additional notes with an aggregate principal amount of $9.2 million that we issued in favor of GPW Virginia (the “Company Note”). The 2008 Term Loan bears interest at a six month reserve adjusted LIBOR rate plus a margin rate of 1.20% per annum. Interest on the 2008 Term Loan is payable semiannually. The principal amount of the 2008 Term Loan is due on January 15, 2013, but GPW Virginia may prepay the 2008 Term Loan at any time, in whole or in part, without premium or penalty. During 2009, GPW Virginia received aggregate interest payments of $1.5 million under the Glawson note receivable and the Company Note and, in turn, made interest payments of $1.1 million under the 2008 Term Loan.

Income taxes  During 2008, we recorded income tax expense totaling $23.1 million on pre-tax income of $81.0 million. The comparable amounts in 2007 were income taxes of $30.5 million on a taxable income of $93.9 million. The effective rate in 2007 included a $5.7 million deferred income tax benefit related to the reduction of German corporate income tax rates passed into law July 2007. Overall, the decline in the effective tax rate from 2007 to 2008 was primarily due to higher gains from timberland sales in the prior year which are taxed at a higher rate.

Foreign Currency  In 2008, we owned and operated paper and pulp mills in Germany, France, the United Kingdom and the Philippines. The functional currency in Germany and France is the Euro, in the UK it is the British Pound Sterling, and in the Philippines it is the Peso. During 2008, Euro functional currency operations generated approximately 20.6% of our sales and 19.9% of operating expenses and British Pound Sterling operations represented 10.6% of net sales and 11.2% of operating expenses. The translation of the results from

20

international operations into U.S. dollars is subject to changes in foreign currency exchange rates. The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results:

	Year Ended
In thousands	December 31, 2008
	Favorable
	(unfavorable)
Net sales	$	14,360
Costs of products sold		(10,435	)
SG&A expenses		(855	)
Income taxes and other		(1,033	)
Net income	$	2,037

The above table only presents the financial reporting impact of foreign currency translations. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

LIQUIDITY AND CAPITAL RESOURCES

Our business is capital intensive and requires significant expenditures for new or enhanced equipment, for environmental compliance matters including, but not limited to, the Clean Air Act, to support our research and development efforts and for our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the years presented:

	Year Ended December 31
In thousands	2009			2008
Cash and cash equivalents at beginning of period	$	32,234		$	29,833
Cash provided by (used for)
Operating activities		163,868			53,425
Investing activities		12,544			(33,190	)
Financing activities		(75,329	)		(12,879	)
Effect of exchange rate changes on cash		2,103			(4,955	)
Net cash provided		103,186			2,401
Cash and cash equivalents at end of period	$	135,420		$	32,234

At the end of the 2009, we had $135.4 million in cash and cash equivalents and $194.3 million available under our revolving credit agreement, which matures in April 2011. Operating cash flow improved by $110.4 million primarily due to cash generated from working capital management initiatives including $28.2 million of cash in 2009 from reduced inventory compared with a use of $10.0 million in 2008 and $16.5 million from lower accounts receivable in 2009 compared with a $17.7 million use in 2008. In addition, $29.7 million of cash was received from alternative fuel mixture credits. In January 2009, we used $6.5 million to satisfy a commitment we had to fund certain Fox River environmental remediation activities.

Net cash provided from investing activities totaled $12.5 million in 2009 compared with a net use of $33.2 million in 2008. The improvement reflects the collection of a $37.9 million note receivable in connection with the unwinding of the 2003 timberland installment sale, and $26.2 million from reduced capital expenditures in connection with the deferral of discretionary capital expenditures.

Net cash used for financing activities totaled $75.3 million in 2009, primarily reflecting reductions of debt including $34.0 million repaid in connection with the above referenced unwinding of the 2003 timberland installment sale, term loan principal repayments of $16.0 million and reduced usage under our revolving credit facility.

During 2009 and 2008, cash dividends paid on common stock totaled $16.6 million and $16.5 million, respectively. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.

The following table sets forth our outstanding long-term indebtedness:

	December 31
In thousands	2009			2008
Revolving credit facility, due April 2011	$	–		$	6,724
Term loan, due April 2011		14,000			30,000
71/8% Notes, due May 2016		200,000			200,000
2008 Term Loan, due January 2013		36,695			36,695
Note payable, due March 2013		–			34,000
Total long-term debt		250,695			307,419
Less current portion		(13,759	)		(13,759	)
Long-term debt, excluding current portion	$	236,936		$	293,660

The significant terms of the debt instruments are more fully discussed in Item 8 – Financial Statements and Supplementary Data – Note 17.

We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of mills we operate, or have operated. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to be burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. See Item 8 – Financial

Glatfelter 2009 Annual Report    21

Statements and Supplementary Data – Note 21 for a summary of significant environmental matters.

On February 5, 2010, we and certain of our subsidiaries (the “Guarantors”) issued and sold $100 million in aggregate principal amount of 71/8% Senior Notes due 2016 (the “Notes”). The Notes were issued at 95.0% of the principal amount. We used the net proceeds from the sale, along with borrowings under our revolving credit facility and cash on hand, to fund the acquisition of Concert Industries Corp. See Item 8 – Financial Statements and Supplementary Data – Note 24 for a summary of these transactions.

We will pay interest on the Notes on May 1 and November 1 of each year, beginning on May 1, 2010. The Notes will mature on May 1, 2016. The Notes are senior unsecured obligations and will rank equally with our other and future senior unsecured obligations. The Notes are guaranteed, jointly and severally, on a senior unsecured basis, by certain of our current and future domestic subsidiaries.

We may redeem some or all of the notes at any time and from time to time on or after May 1, 2011 at the applicable redemption price plus accrued and unpaid interest to the date of redemption. We have the option to redeem the Notes in whole, but not in part, prior to May 1, 2011 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest and a make-whole premium.

We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, and our existing credit facilities. However, as discussed in Item 8 – Financial Statements and Supplementary Data – Note 21, an unfavorable outcome of various environmental matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations.

Our credit agreement, as amended, contains a number of customary compliance covenants. In addition, both the Notes and our previously issued $200 million in aggregate principal amount of 71/8% Senior Notes due 2016 contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity or a default under the credit agreement, that accelerates the debt outstanding thereunder. As of December 31, 2009, we met all of the requirements of our debt covenants.

Off-Balance-Sheet Arrangements  As of December 31, 2009 and 2008, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments to which we are a party and guarantees of indebtedness, which solely consist of obligations of subsidiaries and a partnership, are reflected in the condensed consolidated balance sheets included herein in Item 8 – Financial Statements and Supplementary Data.

Contractual Obligations  The following table sets forth contractual obligations as of December 31, 2009:

			Payments Due During the Year
			Ended December 31,
					2011 to		2013 to		2015 and
In millions	Total		2010		2012		2014		beyond
Long-term debt(1)	$	344	$	29	$	30	$	66	$	219
Operating leases(2)		20		5		5		3		7
Purchase obligations(3)		163		94		69		–		–
Other long term obligations (4),(5)		104		11		20		26		47
Total	$	631	$	139	$	124	$	95	$	273

(1)	Represents principal and interest payments due on long-term debt. At December 31, 2009, we had $200.0 million of debt maturing in May 2016 and bearing a fixed rate of interest at 71/8%, payable semiannually, a $36.7 million note maturing in January 2013 bearing interest at six-month reserve adjusted LIBOR plus a margin rate of 1.20% per annum, and a $34.0 million note maturing in March 2013 and bearing a fixed rate of interest of 3.10%. The amounts set forth above do not include the $100 million Notes issued in February 2010 scheduled to mature in 2016.
(2)	Represents rental agreements for various land buildings, and computer and office equipment.
(3)	Represents open purchase order commitments and other obligations, primarily for raw material forward purchases and pulpwood contracts with minimum annual purchase obligations. In certain situations, prices are subject to variations based on market prices. In such situations, the information above is based on prices in effect at December 31, 2009 or expectations based on historical experience and/or current market conditions.
(4)	Primarily represents expected benefits to be paid pursuant to medical retirement plans and nonqualified pension plans over the next ten years and expected costs of asset retirement obligations.
(5)	Since we are unable to reasonably estimate the timing of ultimate payment, the amounts set forth above do not include any payments that may be made related to uncertain tax positions, including potential interest, accounted for in accordance with ASC 740-10-20. As discussed in more detail in Item 8 – Financial Statements, Note 9, “Income Taxes”, such amounts totaled $40.1 million at December 31, 2009.

22

Critical Accounting Policies and Estimates  
The preceding discussion and analysis of our consolidated financial position and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, pension and post-retirement obligations, environmental liabilities and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following represent the most significant and subjective estimates used in the preparation of our consolidated financial statements.

Inventory Reserves  We maintain reserves for excess and obsolete inventories to reflect our inventory at the lower of its stated cost or market value. Our estimate for excess and obsolete inventory is based upon our assumptions about future demand and market conditions. If actual conditions are less favorable than those we have projected, we may need to increase our reserves for excess and obsolete inventories. Any increases in our reserves will adversely impact our results of operations. The establishment of a reserve for excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold. If we are able to sell such inventory, any related reserves would be reversed in the period of sale.

Long-lived Assets  We evaluate the recoverability of our long-lived assets, including plant, equipment, timberlands and intangible assets periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Our evaluations include analyses based on the cash flows generated by the underlying assets, profitability information, including estimated future operating results, trends or other determinants of fair value. If the value of an asset determined by these evaluations is less than its carrying amount, a loss is recognized for the difference between the fair value and the carrying value of the asset. Future adverse changes in market conditions or poor operating results of the related business may indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future.

Pension and Other Post-Retirement Obligations  Accounting for defined-benefit pension plans, and any curtailments thereof, requires various assumptions, including, but not limited to, discount rates, expected long-term rates of return on plan assets and future compensation growth rates. Accounting for our retiree medical plans, and any curtailments thereof, also requires various assumptions, which include, but are not limited to, discount rates and annual rates of increase in the per capita costs of health care benefits. We evaluate these assumptions at least once each year or as facts and circumstances dictate and we make changes as conditions warrant. Changes to these assumptions will increase or decrease our reported income or expense, which will result in changes to the recorded benefit plan assets and liabilities.

Environmental Liabilities  We maintain accruals for losses associated with environmental obligations when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is assured beyond a reasonable doubt.

Income Taxes  We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our balance sheets, as well as operating loss and tax credit carry forwards. These deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when such amounts are expected to reverse or be utilized. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against our deferred tax assets, which may result in a substantial increase in our effective tax rate and a material adverse impact on our reported results.

Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations

Glatfelter 2009 Annual Report    23

where the ultimate tax determination is less than certain. We and our subsidiaries are examined by various Federal, State and foreign tax authorities.  We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current liability and deferred taxes in the period in which the facts that give rise to a revision become known.

Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless important to an understanding of the Consolidated Financial Statements. Refer to Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements for additional accounting policies.

ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

	Year Ended December 31															At December 31, 2009
Dollars in thousands	2010			2011			2012			2013			2014			Carrying Value		Fair Value
Long-term debt
Average principal outstanding
At fixed interest rates – Bond	$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000	$	196,750
At variable interest rates		43,815			36,815			36,695			1,407			–			50,695		51,209
																$	250,695	$	247,959
Weighted – average interest rate
Fixed interest rate debt – Bond		7.13	%		7.13	%		7.13	%		7.13	%		7.13	%
Variable interest rate debt		1.57			1.65			1.66			1.66			–

The table above presents the average principal outstanding and related interest rates for the next five years for debt outstanding as of December 31, 2009. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities. The amounts set forth above do not give effect to the issuance in February 2010 of $100 million 71/8% senior notes due May 2016. These notes are described more fully in Item 8 – Financial Statements and Supplementary Data, Note 24.

Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At December 31, 2009, we had long-term debt outstanding of $250.7 million, of which $50.7 million or 20.2% was at variable interest rates. Variable-rate debt outstanding represents i) borrowings under our revolving credit facility and term loans that accrue interest based on the domestic prime rate or a Eurocurrency rate, at our option, plus a margin; and ii) cash collateralized borrowing incurred in connection with the 2007 installment timberland sale that accrues interest based on 6 month LIBOR plus a margin. At December 31, 2009, the weighted-average interest rate paid was approximately 1.57%. A hypothetical 100 basis point increase or decrease in the interest rate on variable rate debt would increase or decrease annual interest expense by $0.4 million.

We are subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. dollar. During 2009, Euro functional currency operations generated approximately 19.8% of our sales and 18.9% of operating expenses and British Pound Sterling operations represented 10.6% of net sales and 10.8% of operating expenses.

24

ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of P. H. Glatfelter Company (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the chief executive and chief financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

As of December 31, 2009, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has determined that the Company’s internal control over financial reporting as of December 31, 2009 is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

The Company’s internal control over financial reporting as of December 31, 2009, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009.

The Company’s management, including the chief executive officer and chief financial officer, does not expect that our internal control over financial reporting will prevent or detect all errors and all frauds. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Glatfelter 2009 Annual Report    25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of P. H. Glatfelter Company

We have audited the internal control over financial reporting of P. H. Glatfelter Company and subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2009 of the Company and our report dated March 16, 2010 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 16, 2010

26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of P. H. Glatfelter Company

We have audited the accompanying consolidated balance sheets of P. H. Glatfelter Company and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of P. H. Glatfelter Company and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 16, 2010

Glatfelter 2009 Annual Report    27

P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31
In thousands, except per share	2009			2008			2007
Net sales	$	1,184,010		$	1,263,850		$	1,148,323
Energy and related sales – net		13,332			9,364			9,445
Total revenues		1,197,342			1,273,214			1,157,768
Costs of products sold		927,578			1,095,432			1,001,456
Gross profit		269,764			177,782			156,312
Selling, general and administrative expenses		110,257			97,897			116,144
(Reversals of) Shutdown and restructuring charges		–			(856	)		35
Gains on disposition of plant, equipment and timberlands, net		(898	)		(18,468	)		(78,685	)
Operating income		160,405			99,209			118,818
Other nonoperating income (expense)
Interest expense		(19,220	)		(23,160	)		(29,022	)
Interest income		1,886			4,975			3,933
Other – net		75			2			205
Total other nonoperating expense		(17,259	)		(18,183	)		(24,884	)
Income before income taxes		143,146			81,026			93,934
Income tax provision		19,704			23,138			30,462
Net income	$	123,442		$	57,888		$	63,472
Weighted average shares outstanding
Basic		45,678			45,247			45,035
Diluted		45,774			45,572			45,422
Earnings per share
Basic	$	2.70		$	1.28		$	1.41
Diluted		2.70			1.27			1.40

The accompanying notes are an integral part of the consolidated financial statements.

28

P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	December 31
Dollars in thousands, except par values	2009			2008
Assets
Current assets
Cash and cash equivalents	$	135,420		$	32,234
Accounts receivable (less allowance for doubtful accounts: 2009 – $2,888; 2008 – $2,633)		119,319			132,635
Inventories		168,370			193,354
Prepaid expenses and other current assets		96,947			33,596
Total current assets		520,056			391,819
Plant, equipment and timberlands – net		470,632			493,564
Other long-term assets		199,606			171,926
Total assets	$	1,190,294		$	1,057,309
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	13,759		$	13,759
Short-term debt		3,888			5,866
Accounts payable		63,604			59,750
Dividends payable		4,170			4,089
Environmental liabilities		440			5,734
Other current liabilities		100,249			100,904
Total current liabilities		186,110			190,102
Long-term debt		236,936			293,660
Deferred income taxes		96,668			90,158
Other long-term liabilities		159,876			140,682
Total liabilities		679,590			714,602
Commitments and contingencies		–			–
Shareholders’ equity
Common stock, $.01 par value; authorized – 120,000,000 shares; issued – 54,361,980 shares (including shares in treasury: 2009 – 8,655,826; 2008 – 8,928,004)		544			544
Capital in excess of par value		46,746			45,806
Retained earnings		711,765			605,001
Accumulated other comprehensive income (loss)		(119,885	)		(176,133	)
		639,170			475,218
Less cost of common stock in treasury		(128,466	)		(132,511	)
Total shareholders’ equity		510,704			342,707
Total liabilities and shareholders’ equity	$	1,190,294		$	1,057,309

The accompanying notes are an integral part of the consolidated financial statements.

Glatfelter 2009 Annual Report    29

P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31
In thousands	2009			2008			2007
Operating activities
Net income	$	123,442		$	57,888		$	63,472
Adjustments to reconcile to net cash provided by operations:
Depreciation, depletion and amortization		61,256			60,611			56,001
Pension expense (income), net of unfunded benefits paid		6,343			(16,062	)		(12,896	)
(Reversals of) shutdown and restructuring charges		–			(856	)		35
Deferred income taxes		(22,981	)		3,265			8,004
Gains on dispositions of plant, equipment and timberlands, net		(898	)		(18,468	)		(78,685	)
Share-based compensation		4,599			4,350			3,850
Alternative fuel mixture credits, net of credits applied to taxes due		(57,946	)		–			–
Change in operating assets and liabilities
Accounts receivable		16,542			(17,668	)		16,662
Inventories		28,207			(9,975	)		8,493
Prepaid and other current assets		1,451			871			(2,461	)
Accounts payable		2,390			4,264			(10,045	)
Environmental matters		(7,728	)		(13,012	)		26,000
Accruals and other current liabilities		6,676			(10,557	)		20,408
Other		2,515			8,774			1,494
Net cash provided by operations		163,868			53,425			100,332
Investing activities
Expenditures for purchases of plant, equipment and timberlands		(26,257	)		(52,469	)		(28,960	)
Proceeds from disposal of plant, equipment and timberlands		951			19,279			41,616
Proceeds from timberland installment sale note receivable		37,850			–			–
Acquisitions, net of cash acquired		–			–			(7,923	)
Net cash provided (used) by investing activities		12,544			(33,190	)		4,733
Financing activities
Net repayments of revolving credit facility		(6,725	)		(24,197	)		(30,656	)
Net (repayments of) proceeds from other short-term debt		(2,008	)		2,927			(6,916	)
Repayments of $100 million term loan facility		(16,000	)		(13,000	)		(53,000	)
(Repayments of) proceeds from borrowing under Term Loans due 2013		(34,000	)		36,695			–
Payment of dividends		(16,596	)		(16,469	)		(16,350	)
Proceeds and excess tax benefits from stock options exercised and other		–			1,165			7,551
Net cash used by financing activities		(75,329	)		(12,879	)		(99,371	)
Effect of exchange rate changes on cash		2,103			(4,955	)		2,154
Net increase in cash and cash equivalents		103,186			2,401			7,848
Cash and cash equivalents at the beginning of period		32,234			29,833			21,985
Cash and cash equivalents at the end of period	$	135,420		$	32,234		$	29,833
Supplemental cash flow information
Cash paid for
Interest	$	17,338		$	21,243		$	28,498
Income taxes		16,634			20,011			2,614

The accompanying notes are an integral part of the consolidated financial statements.

30

P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2009, 2008 and 2007

									Accumulated
			Capital in						Other						Total
	Common		Excess of			Retained			Comprehensive			Treasury			Shareholders’
In thousands	Stock		Par Value			Earnings			Income (Loss)			Stock			Equity
Balance at January 1, 2007	$	544	$	42,288		$	519,489		$	(32,337	)	$	(141,616	)	$	388,368
Net income							63,472									63,472
Foreign currency translation adjustments										24,966
Change in benefit plans’ net funded status, net of tax benefit of $7,167										11,432
Other comprehensive income										36,398						36,398
Comprehensive income																99,870
Cumulative effect of adopting of FIN 48							(2,974	)								(2,974	)
Tax effect on employee stock options exercised				89												89
Cash dividends declared ($0.36 per share)							(16,379	)								(16,379	)
Share-based compensation expense – RSU				2,348												2,348
Delivery of treasury shares
Performance Shares
401(k) plans				85									3,049			3,134
Director compensation				1									162			163
Employee stock options exercised – net				(114	)								1,563			1,449
Balance at December 31, 2007		544		44,697			563,608			4,061			(136,842	)		476,068
Comprehensive income
Net income							57,888									57,888
Foreign currency translation adjustments										(32,029	)
Change in benefit plans’ net funded status, net of tax benefit of $92,570										(148,165	)
Other comprehensive income										(180,194	)					(180,194	)
Comprehensive income																(122,306	)
Cumulative effect of adopting of FIN 48
Tax effect on employee stock options exercised				38												38
Cash dividends declared ($0.36 per share)							(16,495	)								(16,495	)
Share-based compensation expense				3,244												3,244
Delivery of treasury shares
RSUs				(1,739	)								1,400			(339	)
401(k) plans				(248	)								1,768			1,520
Director compensation				(43	)								206			163
Employee stock options exercised – net				(143	)								957			814
Balance at December 31, 2008		544		45,806			605,001			(176,133	)		(132,511	)		342,707
Comprehensive income
Net income							123,442									123,442
Foreign currency translation adjustments										11,941
Change in benefit plans’ net funded status, net of taxes of $27,164										44,307
Other comprehensive income										56,248						56,248
Comprehensive income																179,690
Cash dividends declared ($0.36 per share)							(16,678	)								(16,678	)
Share-based compensation expense				3,502												3,502
Delivery of treasury shares
RSUs				(1,483	)								1,280			(203	)
401(k) plans				(995	)								2,517			1,522
Director compensation				(84	)								248			164
Balance at December 31, 2009	$	544	$	46,746		$	711,765		$	(119,885	)	$	(128,466	)	$	510,704

The accompanying notes are an integral part of the consolidated financial statements.

Glatfelter 2009 Annual Report    31

P. H. GLATFELTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and engineered products. Headquartered in York, Pennsylvania, our manufacturing facilities are located in Spring Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gloucestershire (Lydney), England; Caerphilly, Wales, Gernsbach, Germany; Scaër, France; and the Philippines. Our products are marketed throughout the United States and in over 85 other countries, either through wholesale paper merchants, brokers and agents or directly to customers.

2.   ACCOUNTING POLICIES

Principles of Consolidation  The consolidated financial statements include the accounts of Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Accounting Estimates  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these consolidated financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.

Cash and Cash Equivalents  We classify all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents.

Inventories  Inventories are stated at the lower of cost or market. Raw materials, in-process and finished inventories of our domestic manufacturing operations are valued using the last-in, first-out (LIFO) method, and the supplies inventories are valued principally using the average-cost method. Inventories at our foreign operations are valued using a method that approximates average cost.

Plant, Equipment and Timberlands  For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the respective assets.

The range of estimated service lives used to calculate financial reporting depreciation for principal items of plant and equipment are as follows:

Buildings	10 – 45 Years
Machinery and equipment	7 – 35 Years
Other	4 – 40 Years

Maintenance and Repairs  Maintenance and repairs costs are charged to income and major renewals and betterments are capitalized. At the time property is retired or sold, the net carrying value is eliminated and any resultant gain or loss is included in income.

Valuation of Long-lived Assets, Intangible Assets and Goodwill  We evaluate long-lived assets for impairment when a specific event indicates that the carrying value of an asset may not be recoverable. Recoverability is assessed based on estimates of future cash flows expected to result from the use and eventual disposition of the asset. If the sum of expected undiscounted cash flows is less than the carrying value of the asset, the asset’s fair value is estimated and an impairment loss is recognized for any deficiencies. Goodwill is reviewed for impairment on a discounted cash flow basis at least annually. Impairment losses, if any, are recognized for the amount by which the carrying value of the asset exceeds its fair value.

Asset Retirement Obligations  In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 410, Asset Retirement and Environmental Obligations, we accrue asset retirement obligations, if any, in the period in which obligations relating to future asset retirements are incurred and when a reasonable estimate of fair value can be determined. Under these standards, costs are to be accrued at estimated fair value, and a related long-lived asset is capitalized. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related asset for which the obligation exists. Upon settlement of the liability, we recognize a gain or loss for any difference between the settlement amount and the liability recorded.

Income Taxes  Income taxes are determined using the asset and liability method of accounting for income taxes in accordance with FASB ASC 740 Income Taxes (“ASC 740”). Under ASC 740, tax expense includes U.S. and international income taxes plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Tax credits and other incentives reduce tax expense in the year the credits are claimed. Certain items of income and

32

expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported in deferred income taxes. Deferred tax assets are recognized if it is more likely than not that the assets will be realized in future years. We establish a valuation allowance for deferred tax assets for which realization is not more likely than not.

Effective January 1, 2007, income tax contingencies are accounted for in accordance with FASB ASC 740-10-20 Income Taxes (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”). Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is less than certain. We and our subsidiaries are examined by various Federal, State and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and record any necessary adjustments in the period in which the facts that give rise to a revision become known.

Treasury Stock  Common stock purchased for treasury is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the weighted-average cost basis.

Foreign Currency Translation  Our subsidiaries outside the United States use their local currency as the functional currency. Accordingly, translation gains and losses and the effect of exchange rate changes on transactions designated as hedges of net foreign investments are included as a component of other comprehensive income (loss). Transaction gains and losses are included in income in the period in which they occur.

Revenue Recognition  We recognize revenue on product sales when the customer takes title and assumes the risks and rewards of ownership. We record revenue net of an allowance for customer returns and rebates.

Revenue from energy sales is recognized when electricity is delivered to the customer. Certain costs associated with the production of electricity, such as fuel, labor, depreciation and maintenance are netted against energy sales for presentation on the Consolidated Statements of Income. Our current contract to sell electricity generated in excess of our own use expires in the year 2010 and requires that the customer purchase all of our excess electricity up to a certain level. The price for the electricity is determined pursuant to a formula and varies depending upon the amount sold in any given year.

Revenue from renewable energy credits is recognized when all risks, rights and rewards to the certificate are transferred to the counterparty.

Environmental Liabilities  Accruals for losses associated with environmental obligations are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. Costs related to environmental remediation are charged to expense. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Environmental costs are capitalized if the costs extend the life of the asset, increase its capacity and/or mitigate or prevent contamination from future operations. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is assured beyond a reasonable doubt.

Accumulated Other Comprehensive Income  The amounts reported on the consolidated Statement of Shareholders’ Equity for Accumulated Other Comprehensive Income at December 31, 2009 consisted of a loss of $136.3 million from additional defined benefit liabilities, net of tax, and $16.4 million of gains from foreign currency translation adjustments.

Earnings Per Share  Basic earnings per share are computed by dividing net income by the weighted-average common shares outstanding during the respective periods. Diluted earnings per share are computed by dividing net income by the weighted-average common shares and common share equivalents outstanding during the period. The dilutive effect of common share equivalents is considered in the diluted earnings per share computation using the treasury stock method.

Fair Value of Financial Instruments  Under the accounting for fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Glatfelter 2009 Annual Report    33

We use the following valuation techniques to measure fair value for our assets and liabilities:

Level 1	Quoted market prices in active markets for identical assets or liabilities;
Level 2	Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); and
Level 3	Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other assets, and short-term debt approximate fair value.

3.   RECENT PRONOUNCEMENTS

In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of GAAP, a replacement of SFAS No. 162” (“SFAS 168”) as codified under ASC 105 “Generally Accepted Accounting Principles.” SFAS No. 168 became the source of authoritative GAAP recognized by the FASB. SFAS No. 168 was effective for financial statements issued for interim and annual periods ending after September 15, 2009. On the effective date of SFAS No. 168, the ASC superseded all then-existing non-SEC accounting and reporting standards. The issuance of SFAS No. 168 requires references to authoritative US GAAP to coincide with the appropriate section of the ASC. Accordingly, this standard did not have an impact on our financial condition or results of operations.

4.   ACQUISITIONS

Metallised Products Limited  On November 30, 2007, through Glatfelter-UK Limited (“GLT-UK”), a wholly-owned subsidiary, we completed our acquisition of Metallised Products Limited (“MPL”), a privately owned company that manufactures a variety of metallized paper products for consumer and industrial applications. MPL is based in Caerphilly, Wales.

Under terms of the agreement, we agreed to purchase the stock of MPL for $7.2 million cash and assumed $5.8 million of debt in addition to $1.4 million of transaction costs. The acquisition was financed from our existing cash balance. This facility employed about 165 people at the time of the acquisition and had 2007 revenues of approximately $53.4 million.

The following table summarizes the allocation of the purchase price to assets acquired and liabilities assumed:

In thousands
Assets
Cash	$	730
Accounts receivable		7,718
Inventory		4,731
Property and equipment		9,663
Other assets		903
Goodwill		2,239
Total		25,984
Liabilities
Acquisition related liabilities including accounts payable and accrued expenses		11,783
Long term debt		5,830
Total		17,613
Total purchase price	$	8,371

5.   ALTERNATIVE FUEL MIXTURE CREDITS

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. On May 11, 2009, we were notified by the Internal Revenue Service that our application to be registered as an alternative fuel mixer was approved. We received a payment from the Internal Revenue Service on June 30, 2009 in the amount of $29.7 million for the alternative fuel mixture consumed at our Spring Grove, PA and Chillicothe, OH facilities during the period February 20, 2009 through May 17, 2009. Since we began mixing and burning eligible alternative fuels, we have earned $107.8 million of alternative fuel mixture credits of which $29.7 million has been received in cash, $20.1 million was used to reduce estimated interim tax payments and $58.0 million will be claimed as refundable income tax credits and is expected to be realized in cash primarily in the first half of 2010. We record all alternative fuel mixture credits as a reduction to cost of goods sold and the net credit to be claimed is recorded under the caption “Prepaid and other Current Assets” in the accompanying Consolidated Balance Sheets.

The alternative fuel mixture credit expired on December 31, 2009.

6.   ENERGY AND RELATED SALES, NET

We sell excess power generated by the Spring Grove, PA facility pursuant to a long-term contract that expires March 31, 2010. In addition we sell renewable energy credits generated by the Spring Grove, PA and

34

Chillicothe, OH facilities representing sales of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste.

The following table summarizes this activity for each of the past three years:

In thousands	2009			2008			2007
Energy sales		$20,128			$19,731			$19,683
Costs to produce		(11,883	)		(10,367	)		(10,238	)
Net energy sales		8,245			9,364			9,445
Renewable energy credits		5,087			–			–
Total energy and related sales , net		$13,332			$9,364			$9,445

7.   GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS

During 2009, 2008 and 2007, we completed sales of timberlands. The following table summarizes these transactions:

Dollars in thousands	Acres		Proceeds		Gain
2009
Timberlands		319	$	951	$	906
Other		n/a		–		(8	)
Total			$	951	$	898
2008
Timberlands		4,561	$	19,279	$	18,649
Other		n/a		–		(181	)
Total			$	19,279	$	18,468
2007
Timberlands		37,448	$	84,409	$	78,958
Other		n/a		377		(273	)
Total			$	84,786	$	78,685

The amounts set forth above for 2008 include a $2.9 million gain from the sale of 246 acres of timberlands for cash consideration to George H. Glatfelter II, our chairman and chief executive officer, and his spouse. The 246 acres of timberlands had been independently appraised and marketed for public sale by the Company. Based on those appraisals and the marketing process that was pursued, the Company and its Board believed that the sale price agreed to with the Glatfelters constituted fair market value for the timberland. In accordance with terms of our credit facility, we are required to use the proceeds from timberland sales to reduce amounts outstanding under our term loan.

In connection with the asset sales set forth above, we received cash proceeds with the exception of the sale of approximately 26,000 acres of timberland completed in November 2007. As consideration for the timberland sold in this transaction, we received a $43.2 million, 20-year interest-bearing note due from the buyer, Glawson Investments Corp. (“Glawson”), a Georgia corporation, and GIC Investments LLC, a Delaware limited liability company owned by Glawson. The note receivable is fully secured by a letter of credit issued by The Royal Bank of Scotland plc.

8.   EARNINGS PER SHARE

The following table sets forth the details of basic and diluted earnings per share (EPS):

In thousands, except per share	2009		2008		2007
Net income		$123,442		$57,888		$63,472
Weighted average common shares outstanding used in basic EPS		45,678		45,247		45,035
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards		96		325		387
Weighted average common shares outstanding and common share equivalents used in diluted EPS		45,774		45,572		45,422
Basic EPS		$2.70		$1.28		$1.41
Diluted EPS		2.70		1.27		1.40

The following table sets forth the potential common shares outstanding for stock options and restricted stock units that were not included in the computation of diluted EPS for the period indicated, because their effect would be anti-dilutive:

In thousands	2009		2008		2007
Potential common shares		2,215		1,132		438

9.   INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

The provision for income taxes from operations consisted of the following:

	Year Ended December 31
In thousands	2009			2008			2007
Current taxes
Federal		$29,848			$5,647			$8,388
State		4,050			2,609			4,422
Foreign		8,787			11,617			6,397
		42,685			19,873			19,207
Deferred taxes and other
Federal		(23,943	)		9,026			11,766
State		3,760			86			2,674
Foreign		(2,798	)		(5,847	)		(3,185	)
		(22,981	)		3,265			11,255
Income tax provision		$19,704			$23,138			$30,462

The amounts set forth above for total deferred taxes and other included a deferred tax benefit of $23.0 million in 2009 and a deferred tax provision of $3.0 million and $8.0 million in 2008 and 2007, respectively. Other taxes totaled $0, $0.2 million, and $3.3 million in 2009, 2008 and 2007, respectively, related to uncertain tax positions expected to be taken in future tax filings.

Glatfelter 2009 Annual Report    35

The following are the domestic and foreign components of pretax income from operations:

	Year Ended December 31
In thousands	2009		2008		2007
United States		$122,657		$61,387		$70,051
Foreign		20,489		19,639		23,883
Total pretax income		$143,146		$81,026		$93,934

A reconciliation between the income tax provision, computed by applying the statutory federal income tax rate of 35% to income before income taxes, and the actual income tax is as follows:

	Year Ended December 31
	2009			2008			2007
Federal income tax provision at statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		0.7			3.1			3.5
Foreign income tax rate differential		(0.5	)		(2.5	)		0.2
Change in statutory tax rates		(0.3	)		–			(5.8	)
Tax credits		(1.8	)		(5.7	)		(2.8	)
Alternative fuel mixture credits		(26.4	)		–			–
Change in unrecognized tax benefits, net		8.0			2.5			4.0
Valuation allowance release		–			(1.8	)		–
Other		(0.9	)		(2.0	)		(1.7	)
Total provision for income taxes		13.8	%		28.6	%		32.4	%

The sources of deferred income taxes were as follows at December 31:

	2009						2008
				Non						Non-
	Current			current			Current			current
	Asset			Asset			Asset			Asset
In thousands	(Liability)			(Liability)			(Liability)			(Liability)
Reserves	$	7,404		$	9,677		$	8,983		$	11,086
Compensation		3,367			3,934			3,292			3,368
Post-retirement benefits		1,708			19,637			1,619			18,748
Property		12			(100,071	)		13			(107,921	)
Pension		660			(38,000	)		781			(13,507	)
Installment sales		(4	)		(14,070	)		–			(25,148	)
Inventories		438			–			(803	)		–
Other		258			4,608			475			6,909
Tax carryforwards		–			29,238			–			28,006
Subtotal		13,843			(85,047	)		14,360			(78,459	)
Valuation allowance		(2,379	)		(9,789	)		(2,547	)		(10,215	)
Total	$	11,464		$	(94,836	)	$	11,813		$	(88,674	)

Current and non-current deferred tax assets and liabilities are included in the following balance sheet captions:

	December 31
In thousands	2009		2008
Prepaid expenses and other current assets	$	11,519	$	14,421
Other long term assets		1,832		1,484
Other current liabilities		55		2,608
Deferred income taxes		96,668		90,158

At December 31, 2009, we had state and foreign tax net operating loss (“NOL”) carryforwards of $92.0 million and $37.0 million, respectively. These NOL carryforwards are available to offset future taxable income, if any. The state NOL carryforwards expire between 2015 and 2027; the foreign NOL carryforwards do not expire.

In addition, we had federal foreign tax credit carryforwards of $0.3 million, which expire in 2013, and various state tax credit carryforwards totaling $0.4 million, which expire between 2014 and 2027.

During 2009, we claimed the alternative fuel mixture credits as a combination of cash refunds through excise tax refund claims and income tax credits on the federal income tax return to be filed for the 2009 tax year. For purposes of calculating federal and state income taxes, we treat the credits claimed as cash refunds of excise tax and the credits claimed on the federal income tax return as nontaxable income. In 2009, we recorded a tax benefit of $27.1 million, net of unrecognized tax benefits, due to the nontaxable nature of the alternative fuel mixture credits claimed on the federal and certain state income tax returns.

We have established a valuation allowance of $12.2 million against the net deferred tax assets, primarily due to the uncertainty regarding the ability to utilize state tax carryforwards and certain deferred foreign tax credits.

Tax credits and other incentives reduce tax expense in the year the credits are claimed. In 2009, we recorded tax credits of $2.6 million related to Research and Development credits, fuels tax, and the electricity production tax credits. In 2008 and 2007 similar tax credits of $4.7 million and $2.6 million, respectively, were recorded.

At December 31, 2009 and 2008, unremitted earnings of subsidiaries outside the United States deemed to be permanently reinvested totaled $134.6 million and $107.4 million, respectively. Because the unremitted earnings of subsidiaries are deemed to be permanently reinvested as of December 31, 2009, no deferred tax liability has been recognized in our consolidated financial statements.

As of December 31, 2009 and December 31, 2008, we had $40.1 million and $29.2 million of gross unrecognized tax benefits respectively. As of December 31, 2009, if such benefits were to be recognized, approximately $36.1 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

In millions	2009			2008			2007
Balance at January 1	$	29.2		$	26.1		$	20.7
Increases in tax positions for prior years		0.7			0.4			0.3
Decreases in tax positions for prior years		–			–			(0.5	)
Increases in tax positions for current year		11.2			3.2			6.1
Settlements		(0.8	)		–			–
Lapse in statute of limitations		(0.2	)		(0.5	)		(0.5	)
Balance at December 31	$	40.1		$	29.2		$	26.1

36

The current year increase was primarily due to tax positions expected to be taken, on the U.S. federal and certain state income tax returns, related to the alternative fuel mixture credit.

We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities. The following table summarizes tax years that remain subject to examination by major jurisdiction:

	Open Tax Year
	Examination in	Examination not yet
Jurisdiction	progress	initiated
United States
Federal	N/A	2007 – 2009
State	2004	2004 – 2009
Germany(1)	2003 – 2006	2007 – 2009
France	N/A	2006 – 2009
United Kingdom	N/A	2006 – 2009
Philippines	2005 – 2008	2009

(1) – includes provincial or similar local jurisdictions, as applicable.

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $8.8 million. Substantially all of this range relates to tax positions taken in the U.S. and in Germany.

We recognize interest and penalties related to uncertain tax positions as income tax expense. Interest expense recognized in 2009 and 2008, respectively, totaled $3.8 million and $2.6 million. We did not record any penalties associated with uncertain tax positions during 2009 or 2008.

10.   STOCK-BASED COMPENSATION

On April 29, 2009, our shareholders approved the P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) to authorize, among other things, the issuance of up to 5,500,000 shares of Glatfelter common stock to eligible participants. The LTIP provides for the issuance of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units. As of December 31, 2009, 3,141,047 shares of common stock were available for future issuance under the 2005 Plan.

During 2009, 2008 and 2007, we recognized non-cash stock-based compensation expense totaling $4.6 million, $4.4 million and $3.8 million, respectively. Since the approval of the 2005 Plan, we have issued to eligible participants restricted stock units and stock only stock appreciation rights.

Restricted Stock Units (“RSU”)  Awards of RSUs are made under our 2005 Plan. Under terms of the awards, the RSUs vest based solely on the passage of time on a graded scale over a three, four, and five-year period. The following table summarizes RSU activity during the past three years:

Units	2009			2008			2007
Beginning balance		486,988			505,173			411,154
Granted		205,360			137,649			127,423
Forfeited		(8,700	)		(25,214	)		(33,404	)
Restriction lapsed/shares delivered		(119,611	)		(130,620	)		–
Ending balance		564,037			486,988			505,173
Dollars in thousands
Compensation expense	$	1,622		$	1,772		$	1,768

The weighted average grant fair value per unit for awards in 2009, 2008 and 2007 was $10.11, $14.82, and $15.32, respectively. As of December 31, 2009, unrecognized compensation expense for outstanding RSUs totaled $2.9 million. The weighted average remaining period over which the expense will be recognized is 3.5 years.

Non-Qualified Stock Options  The following table summarizes the activity with respect to non-qualified stock options:

	2009					2008					2007
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
Non-Qualified Options	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Outstanding at beginning of year		537,700		$	14.08		700,270		$	13.81		906,210		$	14.06
Granted		–			–		–			–		–
Exercised		–			–		(64,400	)		12.64		(105,190	)		13.78
Canceled		(84,650	)		13.46		(98,170	)		13.08		(100,750	)		17.07
Outstanding and exercisable at end of year		453,050		$	14.20		537,700		$	14.08		700,270		$	13.81

Glatfelter 2009 Annual Report    37

	Options Outstanding
			Weighted-				Options Exercisable
			Average		Weighted-				Weighted-
			Remaining		Average				Average
Non-Qualified Options	Shares		Contractual Life		Exercise Price		Shares		Exercise Price
$10.78 to $12.41		37,750		3.9	$	11.22		37,750	$	11.22
12.95 to 14.44		219,700		2.2		13.42		219,700		13.42
15.44 to 17.16		178,100		2.0		15.47		178,100		15.47
17.54 to 18.78		17,500		2.3		17.54		17,500		17.54
		453,050		2.2				453,050

All options expire on the earlier of termination or, in some instances, a defined period subsequent to termination of employment, or ten years from the date of grant. The exercise price represents the quoted market price of Glatfelter common stock on the date of grant, or the average quoted market prices of Glatfelter common stock on the first day before and after the date of grant for which quoted market price information was available if such information was not available on the date of grant.

Under terms of the SOSAR, the recipients received the right to receive a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the strike price. The SOSARs vest ratably over a three year period.

The following table sets forth information related to outstanding SOSARS.

	2009					2008
			Wtd Avg						Wtd Avg
			Exercise						Exercise
SOSARS	Shares		Price			Shares			Price
Outstanding at Jan. 1,		718,810	$	14.63			484,800		$	15.30
Granted		1,043,210		9.91			284,240			13.49
Exercised		–		–			–			–
Canceled		–		–			(50,230	)		14.63
Outstanding at Dec. 31,		1,762,020	$	11.84			718,810		$	14.63
Exercisable at Dec. 31,		390,575					150,967			15.30
Vested and expected to vest		1,676,227					690,418
Weighted average grant date fair value per share			$	2.83					$	3.77
Aggregate grant date fair value (in thousands)			$	2,957					$	1,002
Black-Scholes Assumptions
Dividend yield				3.63	%					2.67	%
Risk free rate of return				2.26						3.71
Volatility				40.59						32.09
Expected life				6 yrs						6 yrs

11.   RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

We have both funded and, with respect to our international operations, unfunded noncontributory defined-benefit pension plans covering substantially all of our employees. The benefits are based, in the case of certain plans, on average salary and years of service and, in the case of other plans, on a fixed amount for each year of service. U.S. Plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974. We use a December 31-measurement date for all of our defined benefit plans.

We also provide certain health care benefits to eligible retired employees. These benefits include a comprehensive medical plan for retirees prior to age 65 and fixed supplemental premium payments to certain retirees over age 65 to help defray the costs of Medicare. The plan is partially funded and claims are paid as reported.

	Pension Benefits						Other Benefits
In millions	2009			2008			2009			2008
Change in Benefit Obligation
Balance at beginning of year	$	386.3		$	373.3			$58.6			$55.3
Service cost		8.6			8.3			2.6			2.1
Interest cost		23.4			23.1			3.5			3.2
Plan amendments		1.9			6.5			–			–
Actuarial (gain)/loss		12.9			2.6			1.3			2.5
Participant contributions		–			–			–			0.9
Benefits paid		(27.0	)		(27.5	)		(3.4	)		(5.4	)
Balance at end of year	$	406.1		$	386.3			$62.6			$58.6
Change in Plan Assets
Fair value of plan assets at beginning of year	$	400.6		$	603.6			$5.7			$9.9
Actual return on plan assets		110.0			(177.7	)		1.6			(2.9	)
Employer contributions		2.1			2.2			2.4			3.2
Participant contributions		–			–			–			0.9
Benefits paid		(27.0	)		(27.5	)		(3.4	)		(5.4	)
Fair value of plan assets at end of year		485.7			400.6			6.3			5.7
Funded status at end of year	$	79.6		$	14.3			$(56.3	)		$(52.9	)

The net prepaid pension cost for qualified pension plans is primarily included in “Other assets,” and the accrued pension cost for non-qualified pension plans and accrued post-retirement benefit costs are primarily included in “Other long-term liabilities” on the Consolidated Balance Sheets at December 31, 2009 and 2008.

Amounts recognized in the consolidated balance sheets consist of the following as of December 31:

	Pension Benefits						Other Benefits
In millions	2009			2008			2009			2008
Other long-term assets	$	112.9		$	44.5			$–			$–
Current liabilities		(1.8	)		(1.2	)		(4.6	)		(4.2	)
Other long-term liabilities		(31.5	)		(29.0	)		(51.7	)		(48.7	)
Net amount recognized	$	79.6		$	14.3			$(56.3	)		$(52.9	)

The components of amounts recognized as “Accumulated other comprehensive income” consist of the following on a pre-tax basis:

	Pension Benefits				Other Benefits
In millions	2009		2008		2009			2008
Prior service cost/(credit)	$	16.5	$	16.5	$	(5.3	)	$	(6.5	)
Net actuarial loss		189.2		259.9		21.5			23.4

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The accumulated benefit obligation for all defined benefit pension plans was $390.9 million and $367.3 million at December 31, 2009 and 2008, respectively.

The weighted-average assumptions used in computing the benefit obligations above were as follows:

	Pension Benefits						Other Benefits
	2009			2008			2009			2008
Discount rate – benefit obligation		6.10	%		6.25	%		5.90	%		6.25	%
Future compensation growth rate		4.0			4.0			4.0			4.0

The discount rates set forth above were estimated based on the modeling of expected cash flows for each of our benefit plans and selecting a portfolio of high-quality debt instruments with maturities matching the respective cash flows of each plan. The resulting discount rates ranged from 5.90% to 6.20% for the pension plans and were 5.90% for the other benefit plans.

Information for pension plans with an accumulated benefit obligation in excess of plan assets was as follows:

In millions	2009		2008
Projected benefit obligation	$	33.3	$	30.2
Accumulated benefit obligation		29.2		27.2
Fair value of plan assets		–		–

Net periodic benefit cost (income) includes the following components:

	Year Ended December 31
In millions	2009			2008			2007
Pension Benefits
Service cost		$8.6			$8.3			$9.6
Interest cost		23.4			23.1			21.8
Expected return on plan assets		(39.8	)		(50.1	)		(47.5	)
Amortization of prior service cost		2.2			2.3			2.4
Amortization of actuarial loss		12.6			0.3			0.8
Total net periodic benefit cost (income)		$7.0			$(16.1	)		$(12.9	)
Other Benefits
Service cost		$2.6			$2.1			$2.0
Interest cost		3.5			3.2			3.0
Expected return on plan assets		(0.5	)		(0.8	)		(0.9	)
Amortization of prior service cost		(1.2	)		(1.3	)		(1.0	)
Amortization of actuarial loss		2.1			1.3			1.0
Total net periodic benefit cost		$6.5			$4.5			$4.1

The estimated net loss and prior service cost for our defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $13.6 million and $2.4 million, respectively. The comparable amounts of expected amortization for other benefit plans are $1.8 million and $(1.2) million, respectively.

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were as follows:

	Year Ended December 31
In millions	2009			2008
Pension Benefits
Actuarial (gain) loss	$	(57.7	)		$230.6
Prior service cost		1.9			7.0
Amortization of prior service cost		(2.2	)		(2.4	)
Amortization of actuarial losses		(12.6	)		(0.4	)
Total recognized in other comprehensive (income) loss	$	(70.6	)		$234.8
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	(63.6	)		$218.7
Other Benefits
Actuarial (gain) loss	$	0.2			$6.4
Amortization of prior service cost		1.2			1.3
Amortization of actuarial losses		(2.1	)		(1.3	)
Total recognized in other comprehensive (income) loss		(0.7	)		6.4
Total recognized in net periodic benefit cost and other comprehensive loss	$	5.8			$10.9

The weighted-average assumptions used in computing the net periodic benefit (income) cost information above were as follows:

	Year Ended December 31
In millions	2009			2008			2007
Pension Benefits
Discount rate – benefit expense		6.25	%		6.25	%		5.75	%
Future compensation growth rate		4.0			4.0			4.0
Expected long-term rate of return on plan assets		8.5			8.5			8.5
Other Benefits
Discount rate – benefit expense		6.25	%		6.25	%		5.75	%
Expected long-term rate of return on plan assets		8.5			8.5			8.5

To develop the expected long-term rate of return assumption, we considered the historical returns and the future expected returns for each asset class, as well as the target asset allocation of the pension portfolio.

Assumed health care cost trend rates used to determine benefit obligations at December 31 were as follows:

	2009			2008
Health care cost trend rate assumed for next year		8.75	%		8.75	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.5			4.5
Year that the rate reaches the ultimate rate		2021			2021

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:

	One Percentage Point
In millions	increase		decrease
Effect on:
Post-retirement benefit obligation	$	4.1	$	3.7
Total of service and interest cost components		0.5		0.4

Plan Assets On December 31, 2009, we prospectively implemented new disclosure requirements which expand disclosure for assets held by employer defined benefit pension and other postretirement benefit plans.

All pension plan assets in the U.S. are invested through a single master trust fund. The strategic asset

Glatfelter 2009 Annual Report    39

allocation for this trust fund is selected by management, reflecting the results of comprehensive asset liability modeling. The general principles guiding U.S. pension asset investment policies are those embodied in the Employee Retirement Income Security Act of 1974 (ERISA). These principles include discharging our investment responsibilities for the exclusive benefit of plan participants and in accordance with the “prudent expert” standard and other ERISA rules and regulations. We establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk.

Investments and decisions will be made solely in the interest of the Plan’s participants and beneficiaries, and for the exclusive purpose of providing benefits accrued there under. The primary goal of the Plan is to ensure the solvency of the Plan over time and thereby meet its distribution objectives. Plan assets will be diversified. All investments in the Plan will be made in accordance with ERISA and other applicable statutes.

Risk is minimized by diversification by asset class by style of each manager and by sector and industry limits when applicable. The target allocation for the Plan assets are:

Domestic Equity –
Large cap	39	%
Small and mid cap	13
International equity	13
Real Estate Investment Trust (REIT)	5
Fixed income	30

Diversification is achieved by:

i.	placing restrictions on the percentage of equity investments in any one company, percentage of investment in any one industry, limiting the amount of assets placed with any one manager; and
ii.	setting targets for duration of fixed income securities, maintaining a certain level of credit quality, and limiting the amount of investment in non-investment grade paper.

A formal asset allocation review is done periodically to ensure that the Plan has an appropriate asset allocation based on the Plan’s projected benefit obligations. The target return for each equity and fixed income manager will be one that places the manager’s performance in the top 40% of its peers and on a gross basis, exceeds that of the manager’s respective benchmark index. The target return for cash and cash equivalents is a return that at least equals that of the 90-day T-bills.

The Investment Policy statement lists specific categories of securities or activities that are prohibited – examples are options, futures, commodities, hedge funds, limited partnerships, and our stock.

The table below presents the fair values of our pension assets by level within the fair value hierarchy, as described in Note 2:

	Fair Value Measurements at December 31,
	2009
In millions	Total		Level 1		Level 2		Level 3
Domestic Equity
Large cap	$	176.0	$	175.6		$0.4		$–
Small and mid cap		77.6		77.6		–		–
International equity		64.2		33.1		31.1		–
REIT		25.7		25.7		–		–
Fixed income		134.5		71.0		63.5		–
Cash and equivalents		14.0		14.0		–		–
Total	$	492.0	$	397.0		$95.0		$–

Cash Flow  We did not make contributions to our qualified pension plans in 2009. Contributions expected to be made in 2010 under our non-qualified pension plans and other benefit plans are summarized below:

In thousands
Nonqualified pension plans	$	1,287
Other benefit plans		4,327

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

In thousands	Pension Benefits		Other Benefits
2010	$	30,316	$	6,009
2011		29,918		6,182
2012		30,166		6,052
2013		30,459		5,958
2014		30,743		6,182
2015 through 2019		160,153		32,133

Defined Contribution Plans  We maintain 401(k) plans for certain hourly and salaried employees. Employees may contribute up to 15% of their salary to these plans, subject to certain restrictions. We will match a portion of the employee’s contribution, subject to certain limitations, in the form of shares of Glatfelter common stock. The expense associated with our 401(k) match was $0.9 million, $0.9 million and $1.5 million in 2009, 2008 and 2007, respectively.

12.   INVENTORIES

Inventories, net of reserves were as follows:

In thousands	2009		2008
Raw materials	$	44,150	$	49,083
In-process and finished		78,340		97,390
Supplies		45,880		46,881
Total	$	168,370	$	193,354

If we had valued all inventories using the average-cost method, inventories would have been $6.4 million and $16.9 million higher than reported at December 31, 2009 and 2008, respectively. During 2009 and 2008, we

40

liquidated certain LIFO inventories, the effect of which did not have a significant impact on results of operations.

13.   PLANT, EQUIPMENT AND TIMBERLANDS

Plant, equipment and timberlands at December 31 were as follows:

In thousands	2009			2008
Land and buildings	$	136,260		$	131,258
Machinery and equipment		970,708			964,502
Furniture, fixtures, and other		101,327			90,535
Accumulated depreciation		(773,057	)		(722,630	)
		435,238			463,665
Construction in progress		23,947			17,141
Asset retirement – Lagoons		10,300			11,085
Timberlands, less depletion		1,147			1,673
Total	$	470,632		$	493,564

14.   GOODWILL AND INTANGIBLE ASSETS

The following table sets forth information with respect to goodwill and other intangible assets which are recorded in the caption “Other long-term assets” in the accompanying Consolidated Balance Sheets:

	December 31
In thousands	2009			2008
Goodwill – Composite Fibers	$	17,331		$	16,513
Specialty Papers
Customer relationships	$	6,155		$	6,155
Composite Fibers
Technology and related		4,373			3,931
Customer relationships and related		1,867			291
Total intangibles		12,395			10,377
Accumulated amortization		(3,525	)		(2,534	)
Net intangibles	$	8,870		$	7,843

The increase in goodwill was due to foreign currency translation adjustments. Other than non-amortizable goodwill, intangible assets are amortized on a straight-line basis. Customer relationships are amortized over periods ranging from 3 years to 14 years and technology and related intangible assets are amortized over a 14 year period.

During 2009, we purchased certain intangible assets primarily consisting of Russian-based customer lists previously served by a distributor.

In thousands	2009		2008
Aggregate amortization expense:	$	981	$	999
Estimated amortization expense:
2010		1,436
2011		1,436
2012		1,395
2013		940
2014		940

The remaining weighted average useful life of intangible assets was 8 years at December 31, 2009.

15.   OTHER LONG-TERM ASSETS

Other long-term assets consist of the following:

	December 31
In thousands	2009		2008
Pension	$	112,903	$	44,460
Installment notes receivable		43,183		81,033
Goodwill and intangibles		26,201		24,356
Other		17,319		22,077
Total	$	199,606	$	171,926

16.   OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

	December 31
In thousands	2009		2008
Accrued payroll and benefits	$	46,141	$	39,672
Other accrued compensation and retirement benefits		6,476		6,560
Income taxes payable		4,684		6,163
Accrued rebates		14,195		16,205
Other accrued expenses		28,753		32,304
Total	$	100,249	$	100,904

17.   LONG-TERM DEBT

Long-term debt is summarized as follows:

	December 31
In thousands	2009			2008
Revolving credit facility, due April 2011	$	–		$	6,724
Term Loan, due April 2011		14,000			30,000
71/8% Notes, due May 2016		200,000			200,000
Term Loan, due January 2013		36,695			36,695
Note payable due March 2013		–			34,000
Total long-term debt		250,695			307,419
Less current portion		(13,759	)		(13,759	)
Long-term debt, excluding current portion	$	236,936		$	293,660

On April 3, 2006, we, along with certain of our subsidiaries as borrowers and certain of our subsidiaries as guarantors, entered into a credit agreement with certain financial institutions. Pursuant to the credit agreement, we may borrow, repay and reborrow revolving credit loans in an aggregate principal amount not to exceed $200 million outstanding at any time. All borrowings under our credit facility are unsecured. The revolving credit commitment expires on April 2, 2011.

In addition, on April 3, 2006, pursuant to the credit agreement, we received a term loan in the principal amount of $100 million. Quarterly repayments of principal outstanding under the term loan began on March 31, 2007 with the final principal payment due on April 2, 2011. In addition, if certain prepayment events occur, such as a sale of assets, the incurrence of additional indebtedness in excess of $30.0 million in the aggregate, or issuance of additional equity; we must repay a specified portion of the term loan within five days of the prepayment event.

Glatfelter 2009 Annual Report    41

Borrowings under the credit agreement bear interest, at our option, at either (a) the bank’s base rate described in the credit agreement as the greater of the prime rate or the federal funds rate plus 50 basis points, or (b) the EURO rate based generally on the London Interbank Offer Rate, plus an applicable margin that varies from 67.5 basis points to 137.5 basis points according to our corporate credit rating determined by S&P and Moody’s.

We have the right to prepay the term loan and revolving credit borrowings in whole or in part without premium or penalty, subject to timing conditions related to the interest rate option chosen.

The credit agreement contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios, each as defined in the credit agreement, including a consolidated minimum net worth test and a maximum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. A breach of these requirements, of which we were not aware of any at December 31, 2009, would give rise to certain remedies under the credit agreement as amended, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.

On April 28, 2006 we completed an offering of $200.0 million aggregate principal amount of our 71/8% Senior Notes due 2016 (“71/8% Notes”). Net proceeds from this offering totaled approximately $196.4 million, after deducting the commissions and other fees and expenses relating to the offering. The proceeds were primarily used to redeem $150.0 million aggregate principal amount of our then outstanding 67/8% notes due July 2007, plus the payment of applicable redemption premium and accrued interest.

Interest on these Senior Notes accrues at the rate of 71/8% per annum and is payable semiannually in arrears on May 1 and November 1.

Prior to May 1, 2011, we may redeem all, but not less than all, of the notes at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, plus a “make-whole” premium. On or after May 1, 2011, we may redeem some or all of the notes at specified redemption prices. This feature expired in 2009.

Our credit agreement, as amended, contains a number of customary compliance covenants. In addition, both the Notes and our previously issued $200 million in aggregate principal amount of 71/8% Senior Notes due 2016 contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity or a default under the credit agreement, that accelerates the debt outstanding thereunder. As of December 31, 2009, we met all of the requirements of our debt covenants.

In November 2007, we sold approximately 26,000 acres of timberland. In connection with that transaction, we formed GPW Virginia Timberlands LLC (“GPW Virginia”) as an indirect, wholly owned and bankruptcy-remote subsidiary of ours. GPW Virginia received as consideration for the timberland sold in that transaction a $43.2 million, interest-bearing note that matures in 2027 from the buyer, Glawson Investments Corp. (“Glawson”), a Georgia corporation, and GIC Investments LLC, a Delaware limited liability company owned by Glawson. The Glawson note receivable is fully secured by a letter of credit issued by The Royal Bank of Scotland plc. In January 2008, GPW Virginia monetized the Glawson note receivable by entering into a $36.7 million term loan agreement (the “2008 Term Loan”) with a financial institution. The 2008 Term Loan is secured by all of the assets of GPW Virginia, including the Glawson note receivable, the related letter of credit and additional notes with an aggregate principal amount of $9.2 million that we issued in favor of GPW Virginia (the “Company Note”). The 2008 Term Loan bears interest at a six month reserve adjusted LIBOR rate plus a margin rate of 1.20% per annum. Interest on the 2008 Term Loan is payable semiannually. The principal amount of the 2008 Term Loan is due on January 15, 2013, but GPW Virginia may prepay the 2008 Term Loan at any time, in whole or in part, without premium or penalty. During 2009, GPW Virginia received aggregate interest payments of $1.5 million under the Glawson note receivable and the Company Note and, in turn, made interest payments of $1.1 million under the 2008 Term Loan.

On March 21, 2003, we sold timberlands and received as consideration a $37.9 million 10-year interest bearing note receivable from the timberland buyer Sustainable Conservation, Inc. (the “Sustainable Note”). We pledged this note as collateral under a $34.0 million promissory note payable to a financial institution (the “Note Payable”). The Note Payable, as amended was scheduled to mature in March 2013 and was secured by a letter of credit issued in our favor by SunTrust Bank backing the collectability of the Sustainable Note.

42

Under terms of each of the above transactions, minimum credit ratings must be maintained by the respective financial institution issuing the letters of credit. If, after 60 days from the date such credit rating falls below the specified minimum, an “event of default” is deemed to have occurred under the respective debt instrument owed by us to the financial institution unless actions are taken to cure such default. Potential remedial actions include: (i) amending the terms of the applicable debt instrument; (ii) a replacement of the letter of credit with an appropriately rated institution; or (iii) repaying the Note Payable.

On April 23, 2009, the credit rating of the financial institution that issued the letter of credit behind the Sustainable Note fell below the required minimum level. To avoid the occurrence of an event of default associated with the credit downgrade of SunTrust, on June 10, 2009, we, Sustainable Conservation and SunTrust agreed to collapse the transaction, the effect of which was: i) the acceleration of the maturity date of the Sustainable Note to June 10, 2009; (ii) satisfaction in full of the $37.9 million Sustainable Note owed to us; and iii) the satisfaction in full of the $34 million indebtedness owed by us to SunTrust under the Term Loan Agreement. As a result, we received net proceeds of approximately $3.5 million, after transaction costs.

The following schedule sets forth the maturity of our long-term debt during the indicated year.

In thousands
2010	$13,759
2011	241
2012	–
2013	36,695
2014	–
Thereafter	200,000

P. H. Glatfelter Company guarantees all debt obligations of its subsidiaries. All such obligations are recorded in these consolidated financial statements.

At December 31, 2009 and 2008, we had $5.7 million and $12.1 million, respectively, of letters of credit issued to us by a financial institution. Such letters of credit reduce amounts available under our revolving credit facility. The letters of credit provide financial assurances for i) the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program, and ii) assurance related to the purchase of certain utilities for our manufacturing facilities. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements.

18.   ASSET RETIREMENT OBLIGATION

During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, lagoons were used to dispose of residual waste material. Closure of the lagoons, which is expected to occur over the next seven years, will be accomplished by filling the lagoons, installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The amount referred to above, in addition to the upward revision in 2009, was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized is being amortized as a charge to operations on the straight-line basis in relation to the expected closure period. Following is a summary of activity recorded during 2009 and 2008:

In thousands	2009			2008
Beginning balance	$	(11,606	)	$	(11,487	)
Upward revision		(600	)		–
Payments		1,535			110
Accretion		(621	)		(229	)
Ending balance	$	(11,292	)	$	(11,606	)

Of the total liability at the end of 2009, $2.4 million is recorded in the accompanying consolidated balance sheet under the caption “Other current liabilities” and $8.9 million is recorded under the caption “Other long-term liabilities.” The comparable amounts as of December 31, 2008 were $1.6 million and $10.0 million, respectively.

19.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable and short-term debt approximate fair value. The following table sets forth carrying value and fair value of long-term debt:

	December 31, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
In thousands	Value		Value		Value		Value
Fixed-rate Bonds	$	200,000	$	196,750		$200,000		$167,727
Fixed rate note payable		–		–		34,000		36,164
Variable rate debt		50,695		51,209		73,419		75,202
Total	$	250,695	$	247,959		$307,419		$279,093

As of December 31, 2009 and 2008, we had $200.0 million of 71/8% fixed rate debt that is publicly registered, but is thinly traded. Accordingly, the values set forth above are based on debt instruments with similar characteristics, or Level 2. The fair value of the remaining debt instruments was estimated using discounted cash flow models based on interest rates obtained from readily available, independent sources, or Level 3.

Glatfelter 2009 Annual Report    43

20.   SHAREHOLDERS’ EQUITY

The following table summarizes outstanding shares of common stock:

	Year Ended December 31,
In thousands	2009		2008		2007
Shares outstanding at beginning of year		45,434		45,143		44,821
Treasury shares issued for:
Restricted stock performance awards		86		94		–
401(k) plan		169		119		206
Director compensation		17		14		11
Employee stock options exercised		–		64		105
Shares outstanding at end of year		45,706		45,434		45,143

21.   COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Contractual Commitments  The following table summarizes the minimum annual payments due on noncancelable operating leases and other similar contractual obligations having initial or remaining terms in excess of one year:

In thousands	Leases		Other
2010	$	5,022	$	93,646
2011		3,098		40,563
2012		1,905		28,550
2013		1,685		—
2014		1,059		—
Thereafter		7,480		—

Other contractual obligations primarily represent minimum purchase commitments under energy and pulp wood supply contracts and other purchase obligations.

At December 31, 2009, required minimum annual payments due under operating leases and other similar contractual obligations aggregated $20.2 million and $162.8 million, respectively.

Fox River – Neenah, Wisconsin

Background  We have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River and in the Bay of Green Bay Wisconsin (“Site”). As part of the 1979 acquisition of the Bergstrom Paper Company we acquired a facility located at the Site (the “Neenah Facility”). In part, the Neenah Facility used wastepaper as a source of fiber. At no time did the Neenah Facility utilize PCBs in the pulp and paper making process, but discharges to the lower Fox River from the Neenah Facility which may have contained PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that our Neenah Facility discharged into the lower Fox River resulted from the presence of PCBs in NCR^®-brand carbonless copy paper in the wastepaper that was recycled at the Neenah Facility. We closed the Neenah Facility in June 2006.

The United States, the State of Wisconsin and various state and federal governmental agencies (collectively, the “Governments”), as well as private parties, have found PCBs in sediments in the bed of the Fox River, apparently from a number of sources at municipal and industrial facilities along the upstream and downstream portions of the Site. The Governments have identified manufacturing and recycling of NCR^®-brand carbonless copy paper as the principal source of that contamination.

The United States Environmental Protection Agency (“EPA”) has divided the lower Fox River and the Bay of Green Bay site into five “operable units” numbered from the most upstream (“OU1”) to the most downstream (“OU5”). OU1 is the reach from primarily Lake Winnebago to the dam at Appleton, and is comprised of Little Lake Butte des Morts. Our Neenah Facility discharged its wastewater into OU1. OU2 extends from the dam at Appleton to the dam at Little Rapids, OU3 from the dam at Little Rapids to the dam at De Pere, OU4 from the dam at De Pere to the mouth of the river, and OU5 from the mouth into the lower portion of Green Bay. The river extends 39 miles from the upstream end of OU1 to the downstream end of OU4.

Our liabilities, if any, for this contamination primarily arise under the federal Comprehensive Environmental, Response, Compensation and Liability Act (“CERCLA” or “Superfund”). The Governments have sought to recover “response actions” or “response costs,” which are the costs of studying and cleaning up contamination, from various “responsible parties.” In addition, various natural resource trustee agencies of the United States, the States of Wisconsin and Michigan, and several Indian Tribes (the “Natural Resources Trustees” or “Trustees”) have sought to recover natural resource damages (“NRDs”), including natural resource damage assessment costs. Parties that have incurred response costs or NRDs either voluntarily or in response to the governments’ and Trustees’ demands may have an opportunity to seek contribution or other recovery of some or all of those costs from other parties who are jointly and severally responsible under Superfund for those costs. Therefore, as we incur costs, we also acquire a claim against other parties who may not have paid their equitable share of those costs. As others incur costs, they acquire a claim against us to the extent that they claim that we have not paid our equitable share of the total. Any party that resolves its liability to the United States or a state in a judicially or administratively approved settlement agreement obtains protection from contribution claims for matters addressed in the settlement.

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For these reasons, all of the parties who are potentially responsible (“PRPs”) under CERCLA for response costs or NRDs have exposure to liability for: (a) the cost of past response actions taken by anyone else, (b) the cost of past NRD payments or restoration projects incurred by anyone else, (c) the cost of response actions to be taken in the future, and (d) NRDs. All of this exposure is subject to substantial defenses, including, for example, that the PRP is not liable or not jointly and severally liable for any particular cost or damage, that the cost or damage is not recoverable under CERCLA or any other law, or that the recovery is barred by the passage of time. In addition, a party that has incurred or committed to incur costs or has paid NRDs may be able to claim credit for that cost or payment in any equitable allocation of response costs or NRDs in any action for reallocation of costs.

Cleanup Decisions.  Our liability exposure depends importantly on the decisions made by EPA and the Wisconsin Department of Natural Resources (“WDNR”) as to how the Site will be cleaned up, and consequently the costs and timing of those response actions. The nature of the response actions has been highly controversial. EPA issued a record of decision (“ROD”) selecting response actions for OU1 and OU2 in December 2002. EPA issued a separate ROD selecting response actions for OU3, OU4, and OU5 in March 2004 and in June 2007.

EPA amended the RODs for OUs 2-5 in June 2007 to require less dredging and more capping and covering of sediments containing PCBs. The governments have concluded that these methods will result in a reduction in the costs for this portion of the cleanup. Others disagree. Likewise, in June 2008, EPA also amended the ROD for OU1.

NRD Assessment.  The Natural Resources Trustees have engaged in work to assess NRDs at and arising from the Site. However, they have not completed a required NRD Assessment under the pertinent regulations. The Trustees’ 2009 estimate of NRDs and associated costs ranges from $287 million to $423 million, some of which has already been satisfied. With specific respect to NRD claims, we and others contended that the Trustees’ claims are barred by the applicable 3 year statute of limitations.

Past Costs Demand.  By letter dated January 15, 2009, EPA demanded that we and six other parties reimburse EPA for approximately $17.6 million in costs that EPA claims it incurred as necessary costs of response not subject to any other agreement in this matter. In response, we and the other parties which were contacted, notified the EPA that the supporting documentation provided by EPA did not allow us to fully evaluate this demand and we requested that the EPA provide additional supporting information for the claimed costs. EPA has not yet responded to this request. Accordingly, we are unable to reasonably estimate our potential liability for these costs.

Work Under Agreements, Orders, and Decrees.  As we mention above, our exposure to liability depends on the amount of work done, costs incurred, and damages paid both by us and by others. The procedural context of any work done, costs incurred, and damages paid also impact are ultimate exposure.

Since 1991, the Governments and various groups of potentially responsible parties, including us, have entered into a series of agreements, orders, and decrees under which we and others have performed work, incurred costs, or paid damages in connection with the Site. As a result, some parties have contributed or performed substantial work at the Site and at least one party, Fort Howard Corporation (whose successor is either the Fort James Operating Company or Georgia Pacific Corporation) has resolved its NRD liability at the Site.

Notably, in April 2004, the United States District Court for the Eastern District of Wisconsin entered a consent decree (“OU1 Consent Decree”) in United States v. P.H. Glatfelter Co., No. 2:03-cv-949, under which we and WTM I Corp. have been implementing the remedy in OU1, dividing costs evenly in addition to a $7 million contribution from Menasha Corp. and a $10 million contribution that the United States contributed from a separate settlement in United States v. Appleton Papers Inc., No. 2:01-cv-816, obligating NCR and Appleton Papers to contribute to certain NRD projects. In June 2008, the parties entered into an amendment to the OU1 Consent Decree (“Amended OU1 Consent Decree”). That amendment allowed for implementation of the amended remedy for OU1 and committed us and WTM I to implement that remedy without a cost limitation on that commitment. We and WTM I have substantially completed the amended remedy for OU1. We anticipate that the remaining tasks, other than monitoring and maintenance, will be completed by the second quarter of 2010.

Further, in November 2007, EPA issued an administrative order for remedial action (“UAO”) to Appleton Papers Inc., CBC Coating, Inc. (formerly known as Riverside Paper Corporation), Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation, us, U.S. Paper Mills Corp., and WTM I Company directing those respondents to implement the amended remedy in OU2-5. Shortly following issuance of the UAO, Appleton Papers Inc. and NCR Corp. commenced litigation against us and others, as described below. Accordingly, we have

Glatfelter 2009 Annual Report    45

no vehicle for complying with the UAO’s overall requirements other than answering a judgment in the litigation, and we have so informed EPA. However, in February 2009, the EPA sent a demand to each of the respondents on the UAO other than WTM I demanding payment of the government’s oversight costs under the UAO for the period from November 2007 through August 2008. In February 2009, we notified the EPA that we believed that its demand could prove distracting to litigation commenced by Appleton Papers and NCR against the other UAO respondents. In order to remove this distraction, and in the spirit of cooperation, we stated that we would satisfy the EPA’s demand, an amount which was insignificant, in full. We paid this amount.

Cost estimates.  Estimates of the Site remediation change over time as we, or others, gain additional data and experience at the Site. In addition, disagreement exists over the likely costs for some of this work. The Governments estimate that the total cost of implementing the amended remedy in OU1 will be approximately $102 million. Because we have completed a significant amount of work in this portion of the river, we believe the costs of completing the remedial actions specified in the amended ROD can be completed for this amount. On February 26, 2010, EPA issued an “explanation of Significant Differences” – a document explaining changes to a remedy, including changes in cost, that are significant but which do not require the issuance of a new Record of Decision. In that ESD, EPA estimated the cost for the OU 2-5 remedy to be $701 million. EPA estimates costs as a range, in this case from $491 million to $1.05 billion. This estimate is slightly different than, but not inconsistent with, an estimate of the total cost for remediation of the Site that the Governments prepared for purposes of justifying a recent “de minimis” settlement with certain parties whose liability at the Site the United States and the Governments believe to be insignificant. That settlement was approved by the federal court in Green Bay on December 16, 2009. In their brief in support of that settlement, the Governments estimated the total past costs incurred at the Site – including the OU1 project – to be $200 million. In addition, they estimated the cost of implementing the remedy set forth in the amended ROD for OU2-5 (the downstream portions of the Site) to total between $600 million and $700 million exclusive of amounts already spent. For purposes of the settlement, the Governments took the high end of that range and applied a 50% contingency to arrive at a cost estimate for future cleanup work of $1.05 billion. Based upon independent estimates commissioned by various potentially responsible parties, we have no reason to disagree with the Governments’ assertion that future costs to implement the amended remedy for OU2-5 are likely to fall between $700 million and $1.05 billion.

NRDs.  The Trustees claimed that we were jointly and severally responsible for NRDs with a value between $176 million and $333 million. In their recently filed brief, they further claim that this range should be inflated to 2009 dollars and then certain unreimbursed past assessment costs should be added, so that the range of their claim would be $287 million to $423 million. We deny (a) liability for most of these NRDs, (b) that if anyone is liable, that we are jointly and severally liable for the full amount; and (c) that the Trustees can pursue this claim at this late date as the limitations period for NRD claims is three years from discovery.

Allocation.  Since 1991, various potentially responsible parties have, without success, attempted to agree on a binding, final, allocation of costs and damages among themselves. All costs that they have incurred to date have been incurred individually, or under interim, nonbinding allocations. However, the consent decree in United States v. P. H. Glatfelter Co. affords us and WTM I contribution protection for claims seeking to reallocate costs of implementing the OU1 remedy, and Fort James Operating Co. (now Georgia-Pacific) has certain rights under its consent decree. Otherwise, the parties have not litigated their internal allocation with us except as described below.

NCR and Appleton Papers Inc. commenced litigation in the United States District Court for the Eastern District of Wisconsin captioned Appleton Papers Inc. v. George A. Whiting Paper Co., No. 2:08-cv-16, seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or Appleton Papers (the “Whiting Litigation”). They have to date joined a number of defendants, dismissed some of those, filed a parallel action, and consolidated the two cases. At present, the case involves allocation claims among the two plaintiffs and 28 defendants: us, George A. Whiting Paper Co., Menasha Corporation, Green Bay Packaging Inc., International Paper Company, Leicht Transfer & Storage Company, Neenah Foundry Company, Newpage Wisconsin System Inc., The Procter & Gamble Paper Products Company, Wisconsin Public Service Corp., the Cities of Appleton, De Pere, and Green Bay, Brown County, Green Bay Metropolitan Sewerage District, Heart of the Valley Metropolitan Sewerage District, Neenah-Menasha Sewerage Commission, WTM I Company, U.S. Paper Mills Corporation, Georgia-Pacific Consumer Products LP, Georgia-Pacific LLC, Fort James Operating Company, CBC Coating Company, Inc., Fort James Corporation, Kimberly-Clark Corporation, LaFarge North America Inc., Union Pacific Railroad Company, and the United States Army Corps of Engineers. As the result of certain third-party claims,

46

federal agencies other than the Corps of Engineers are also involved in this allocation.

On December 16, 2009, the Court granted motions for summary judgment in our favor on the contribution claims brought by NCR and Appleton Papers Inc. in the Whiting litigation. The Court held that neither NCR nor Appleton Papers may seek contribution from us or other recyclers under CERCLA. The Court made no ruling as to any other allocation, the liability of NCR or Appleton Papers to us for costs we have incurred, or our liability to the governments or Trustees. NCR and Appleton Papers have stated their intention to appeal, but an appeal is not yet timely because the Court has not entered a final judgment.

As described above, we have counterclaims against NCR and Appleton Papers Inc. to recover the costs we have incurred and may later incur and the damages we have paid and may later pay in connection with the Fox River site. Other defendants have similar claims. On January 20, 2010, the Court issued an order inviting submissions from the parties as to whether the counterclaims of the defendants, as well as certain additional claims, could be resolved without a trial within approximately six months. If the Court is convinced that the case may be resolvable on that basis, it will establish a briefing schedule and attempt to decide the remaining issues on our claims before an appeal will become timely.

As noted above, on December 16, 2009, the Court approved a de minimis party consent decree (“Consent Decree”) settlement among the United States, the State of Wisconsin, and eleven defendants resolving those defendants’ liability for this site. The eleven settling defendants are: George A. Whiting Paper Co.; Green Bay Metropolitan Sewerage District; Green Bay Packaging, Inc.; Heart of the Valley Metropolitan Sewerage District; International Paper Co.; LaFarge North America Inc.; Leicht Transfer and Storage Co.; Neenah Foundry Co.; Procter & Gamble Paper Products Co.; Union Pacific Railroad Co.; and Wisconsin Public Service Corp. (collectively, the “Eleven Settling Defendants”). The Consent Decree reflects the conclusion by the United States and the State of Wisconsin that each of the Eleven Settling Defendants qualifies for treatment as a de minimis party under CERCLA. The Consent Decree requires the Settling Defendants to make a collective payment of $1,875,000. Those Eleven Settling Defendants have moved for judgment in the Whiting Litigation based upon the protections in the Consent Decree. In addition, the Governments on September 25, 2009, lodged a separate consent decree in the same case that would, if entered, resolve the liabilities of the City of DePere. Under that consent decree, the City of DePere would pay $210,000 to resolve its liability at the Site. That Consent Decree has not yet been approved.

We contend that we are not jointly and severally liable for costs or damages arising from the presence of PCBs downstream of OU1. In addition, we contend that NCR or other sources of NCR^®-brand carbonless copy paper that our Neenah Mill recycled bear most of the responsibility for costs and damages arising from the presence of PCBs in OU1. Other parties disagree. Our counterclaims for a re-allocation of costs we have incurred or may incur remain pending.

Reserves for the Fox River Site.  As of December 31, 2009, our reserve for our claimed liability at the Fox River, including our remediation and ongoing monitoring obligations at OU1, our claimed liability for the remediation of OU2-5, our claimed liability for NRDs associated with PCB contamination at the Site and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site totaled $17.4 million. No additional amounts were accrued during 2009 or 2008. Of our total reserve for the Fox River, $0.4 million is recorded in the accompanying consolidated balance sheets under the caption “Environmental liabilities” and the remaining $17.0 million is recorded under the caption “Other long term liabilities.”

Under the OU1 Consent Decree which was signed in 2004, we contributed $27.0 million to past and future costs and NRDs. We later contributed $6.0 million under an agreed supplement to the OU1 Consent Decree and have since contributed an additional $9.5 million under the Amended Consent Decree. WTM I has contributed parallel amounts. These funds are placed into an escrow account from which we and WTM I pay for work on the project. As required by the Amended Consent Decree, in a quarterly report submitted to EPA in November 2009, we and WTM I concluded that the amounts in the escrow account would be sufficient to pay for the estimated cost of the work at OU1, including operation, maintenance, and other post-construction expenses. However, there can be no assurance that these amounts will in fact suffice. WTM I has filed a bankruptcy petition in the Bankruptcy Court in Richmond. There can be no assurance should additional amounts be required to complete the project that WTM I will be able to fulfill its obligation to pay half the additional cost.

We believe that we have strong defenses to liability for remediation of OU2-5 including the existence of ample data that indicate that PCBs did not leave OU1 in concentrations that could have caused or contributed to the need for cleanup in OU2-5. Others, including the EPA and other PRPs, disagree with us and, as a result, the EPA has issued a UAO to us and to others to perform the OU2-5 work. NCR and Appleton Papers commenced

Glatfelter 2009 Annual Report    47

the Whiting Litigation and joined us and others as defendants, but did not prevail. Additional litigation associated with the remediation of the Site is likely. As illustrated by the Whiting Litigation, we believe that there are additional potentially responsible parties other than the PRPs who were named in the UAO or who have been joined in the Whiting Litigation, including the owners of public wastewater treatment facilities who discharged PCB-contaminated wastewater to the Fox River and entities providing PCB-containing wastepaper to each of the recycling mills.

Even if we are not successful in establishing that we are not liable for the remediation of OU2-5, we do not believe that we would be allocated a significant percentage share of liability in any equitable allocation of the remediation costs and other potential damages associated with OU2-5. The accompanying consolidated financial statements do not include reserves for defense costs for the Whiting Litigation or any future defense costs related to our involvement at the Fox River which could be significant.

In setting our reserve for the Fox River, we have assessed our legal defenses, including our successful defenses to the allegations made in the Whiting Litigation, and assumed that we will not bear the entire cost of remediation and damages to the exclusion of other known PRPs at the Site who are also potentially jointly and severally liable. The existence and ability of other PRPs to participate has also been taken into account in setting our reserve, and is generally based on our evaluation of recent publicly available financial information on each PRP, and any known insurance, indemnity or cost sharing agreements between PRPs and third parties. In addition, our assessment is based upon the magnitude, nature, location and circumstances associated with the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We will continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs, if any, associated with the Fox River site.

Other than with respect to the Amended OU1 Consent Decree, the amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liabilities cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the response actions that may ultimately be required, the availability of remediation equipment, and landfill space, and the number and financial resources of any other PRPs.

Other Information.  Based in part upon the Court’s December 16, 2009, ruling and the Court’s January 10, 2010 order in the Whiting Litigation, we continue to believe that a volumetric allocation would not constitute an equitable allocation of the potential liability for the contamination at the Fox River. We contend that other factors, such as the location of contamination, the location of discharge, and a party’s role in causing discharge, must be considered in order for the allocation to be equitable.

The Wisconsin DNR and FWS have each published studies, the latter in draft form, estimating the amount of PCBs discharged by each identified PRP’s facility to the lower Fox River and the Bay of Green Bay. These reports estimate the Neenah Facility’s share of the volumetric discharge to be as high as 27%. We do not believe the volumetric estimates used in these studies are accurate because (a) the studies themselves disclose that they are not accurate and (b) the volumetric estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that the Neenah Facility’s volumetric contribution is significantly lower than the estimates set forth in these studies.

We previously entered into interim cost-sharing agreements with four of the other PRPs, which provided for those PRPs to share certain costs relating to scientific studies of PCBs discharged at the Site (“Interim Cost Sharing Agreements”). These interim cost-sharing agreements do not establish the final allocation of remediation costs incurred at the Site. Based upon our evaluation of the Court’s December 16, 2009, ruling in the Whiting Litigation as well as the volume, nature and location of the various discharges of PCBs at the Site and the relationship of those discharges to identified contamination, we believe our allocable share of liability at the Site is less than our share of costs under the Interim Cost Sharing Agreements.

While the Amended OU1 Consent Decree provides a negotiated framework for resolving both our and WTM I’s liability for the remediation of OU1, it does not resolve our exposure at the Site. The OU1 Consent Decree does not address response costs necessary to remediate the remainder of the Site and only addresses NRDs and claims for reimbursement of government expenses to a limited extent. Because CERCLA imposes strict and often joint and several liability, uncertainty persists regarding our exposure with respect to the remainder of the Fox River site. In addition, as mentioned previously, EPA has issued a UAO to us and others calling for further work in OU2-5, and Appleton Papers and NCR have commenced the Whiting Litigation that may become more complicated and involve additional parties. We cannot predict the ultimate outcome of the Whiting Litigation or any other litigation or regulatory actions related to this matter.

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Range of Reasonably Possible Outcomes.  Our analysis of the range of reasonably possible outcomes is derived from all available information, including but not limited to official documents such as RODs, discussions with the United States and other PRPs, as well as legal counsel and engineering consultants. Based on our analysis of the current RODs and cost estimates for work to be performed at the Site, we believe that it is reasonably possible that our liability associated with the Fox River matter may exceed the aggregate amounts which we have accrued for the Fox River matter by amounts that are insignificant or that could range up to $265 million over a period that is currently undeterminable but that could range beyond 15 years. We believe that the likelihood of an outcome in the upper end of the monetary range is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote. The summary judgment in our favor in the Whiting Litigation, if sustained on appeal, suggests that outcomes in the upper end of the monetary range have become somewhat less probable, while increases in cost estimates for some of the work may militate in the opposite direction.

All remedial work in OU-1 has been completed and we and WTM I are in the process of decommissioning and performing the restoration of the staging area from which the remediation activity occurred and completing all required reports for the project. We believe that these activities can be completed with the funds that remain in the OU1 Escrow Account.

Summary.  Our current assessment is that we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to this matter, that our share of costs and/or damages will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. If we are not successful in obtaining acknowledgment that the remedial work at OU1 has been substantially completed and/or should the United States seek to enforce the UAO for OU2-5 against us which requires us either to perform directly or to contribute significant amounts towards the performance of that work, those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.

Ecusta Environmental Matters  Beginning in April 2003, government authorities, including the North Carolina Department of Environment and Natural Resources (“NCDENR”), initiated discussions with us and other parties regarding, among other environmental issues, certain landfill closure liabilities associated with our former Ecusta mill and its properties (the “Ecusta Property”). The discussions focused on NCDENR’s desire to establish a plan and secure financial resources to close three landfills located at the Ecusta Property and to address other environmental matters at the facility. During the third quarter of 2003, the discussions ended with NCDENR’s conclusion to hold us responsible for the closure of three landfills. Accordingly, in 2003 we established reserves totaling approximately $7.6 million representing estimated landfill closure costs. During 2009, we completed the closure of the last of those three landfills (collectively, the “Landfill Closure and Post-Closure Obligations”).

In September 2005, we established an additional $2.7 million reserve for potential environmental liabilities associated with the Ecusta Property relating to: (i) mercury releases from the Electro-Chemical Building; (ii) contamination in and operation of the aeration and stabilization basin (the “ASB”), which is part of the Ecusta Property’s wastewater treatment system; (iii) a previously closed ash landfill (“Brown #1 Landfill”); and (iv) contamination in the vicinity of a former caustic building.

On January 25, 2008, we entered into a series of agreements with, among others, Davidson River Village, LLC (“DRV”)- the current owner of the Ecusta Property pursuant to which we transferred potential liabilities for certain environmental matters at the Ecusta Property to DRV (the “DRV Transaction”). In connection with the DRV Transaction, DRV assumed, and indemnified us for, liability arising from environmental matters and conditions at the Ecusta Property with certain exceptions, including the Landfill Closure and Post-Closure Obligations and investigation and remediation (if necessary) of any pollutants that may have migrated from the Ecusta Property to the Davidson and French Broad Rivers (the “River Areas”), which liabilities were retained by us.

Glatfelter 2009 Annual Report    49

22.   SEGMENT AND GEOGRAPHIC INFORMATION

The following table sets forth profitability and other information by business unit for the year ended December 31:

	Specialty Papers						Composite Fibers						Other and Unallocated									Total
In thousands	2009		2008		2007		2009		2008		2007		2009			2008			2007			2009			2008			2007
Net sales		$791,915		$833,899		$802,293		$392,095		$429,952		$346,030		$–			$(1	)		$–			$1,184,010			$1,263,850			$1,148,323
Energy sales, net		13,332		9,364		9,445		–		–		–		–			–			–			13,332			9,364			9,445
Total revenue		805,247		843,263		811,738		392,095		429,952		346,030		–			(1	)		–			1,197,342			1,273,214			1,157,768
Cost of products sold		693,949		739,481		721,216		334,378		366,791		287,606		(100,749	)		(10,840	)		(7,366	)		927,578			1,095,432			1,001,456
Gross profit		111,298		103,782		90,522		57,717		63,161		58,424		100,749			10,839			7,366			269,764			177,782			156,312
SG&A		55,408		54,596		56,561		35,779		38,206		32,541		19,070			5,095			27,042			110,257			97,897			116,144
Restructuring charges		–		–		–		–		–		–		–			(856	)		35			–			(856	)		35
Gains on dispositions of plant, equipment and timberlands		–		–		–		–		–		–		(898	)		(18,468	)		(78,685	)		(898	)		(18,468	)		(78,685	)
Total operating income		55,890		49,186		33,961		21,938		24,955		25,883		82,577			25,068			58,974			160,405			99,209			118,818
Nonoperating income (expense)		–		–		–		–		–		–		(17,259	)		(18,183	)		(24,884	)		(17,259	)		(18,183	)		(24,884	)
Income before income taxes		$55,890		$49,186		$33,961		$21,938		$24,955		$25,883		$65,318			$6,885			$34,090			$143,146			$81,026			$93,934
Supplemental Data
Plant, equipment and timberlands, net		$262,807		$284,689		$287,107		$207,825		$208,875		$232,759		$–			$–			$–			$470,632			$493,564			$519,866
Capital expenditures		14,077		20,878		17,395		12,080		31,591		11,565		–			–			–			26,257			52,469			28,960
Depreciation, depletion and amortization		37,520		35,010		34,882		23,736		25,601		21,119		–			–			–			61,256			60,611			56,001

Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services.

Management evaluates results of operations of the business units before pension income or expense, alternative fuel mixture credits, charges related to the Fox River environmental reserves, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is aligned with the management and operating structure of our company. It is also on this basis that our performance is evaluated internally and by our Board of Directors.

Our North America-based Specialty Papers business unit focuses on producing papers for the following markets:

•  Carbonless and forms papers for credit card receipts, multi-part forms, security papers and other end-user applications;

•  Book publishing papers for the production of high quality hardbound books and other book publishing needs;

•  Envelope and converting papers for the direct mail market, shopping bags, and other converting applications; and

•  Engineered products for digital imaging, transfer, casting, release, postal, playing card and other niche specialty applications.

Specialty Papers’ revenue composition by market consisted of the following for the years indicated:

In thousands	2009		2008		2007
Carbonless & forms	$	320,088	$	338,067	$	345,785
Book publishing		176,646		201,040		185,343
Envelope & converting		146,812		138,293		116,797
Engineered products		143,490		149,372		136,785
Other		4,879		7,127		17,583
Total	$	791,915	$	833,899	$	802,293

50

Our Composite Fibers business unit, based in Gernsbach, Germany, serves customers globally and focuses on higher-value-added products in the following markets:

•  Food & Beverage paper used for tea bags and coffee pods/pads and filters;

•  Metallized products used in the labeling of beer bottles, innerliners, gift wrap, self-adhesive labels and other consumer products applications;

•  Composite Laminates papers used in production of decorative laminates for furniture and flooring; and

•  Technical Specialties is a diverse line of paper products used in batteries, medical masks and other highly engineered applications.

Composite Fibers’ revenue composition by market consisted of the following for the years indicated:

In thousands	2009		2008		2007
Food & beverage	$	233,899	$	252,545	$	218,961
Metallized		81,388		85,719		45,426
Composite laminates		46,442		58,705		52,972
Technical specialties and other		30,366		32,983		28,671
Total	$	392,095	$	429,952	$	346,030

We sell a significant portion of our specialty papers through wholesale paper merchants. No individual customer accounted for more than 10% of our consolidated net sales in 2009, 2008 or 2007.

Our net sales to external customers and location of net plant, equipment and timberlands are summarized below. Net sales are attributed to countries based upon origin of shipment.

	2009				2008				2007
			Plant,				Plant,				Plant,
			Equipment and				Equipment and				Equipment and
In thousands	Net sales		Timberlands – Net		Net sales		Timberlands – Net		Net sales		Timberlands – Net
United States	$	824,833	$	262,807	$	869,325	$	284,689	$	832,724	$	287,107
Germany		191,660		124,881		216,011		131,304		190,796		133,505
United Kingdom		125,047		60,104		134,212		53,054		87,054		74,000
Other		42,470		22,840		44,302		24,517		37,749		25,254
Total	$	1,184,010	$	470,632	$	1,263,850	$	493,564	$	1,148,323	$	519,866

Glatfelter 2009 Annual Report    51

23.   GUARANTOR FINANCIAL STATEMENTS

Our 71/8% Notes have been fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC.

The following presents our consolidating statements of income and cash flow for the years ended December 31, 2009, 2008 and 2007 and our consolidating balance sheets as of December 31, 2009 and 2008. These financial statements reflect P. H. Glatfelter Company (the parent), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated basis.

Condensed Consolidating Statement of Income for the
year ended December 31, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net sales		$791,915			$46,796			$392,095			$(46,796	)		$1,184,010
Energy sales – net		13,332			–			–			–			13,332
Total revenues		805,247			46,796			392,095			(46,796	)		1,197,342
Costs of products sold		597,693			42,320			334,544			(46,979	)		927,578
Gross profit		207,554			4,476			57,551			183			269,764
Selling, general and administrative expenses		71,484			2,304			36,469			–			110,257
Gains on dispositions of plant, equipment and timberlands, net		9			(907	)		–			–			(898	)
Operating income		136,061			3,079			21,082			183			160,405
Non-operating income (expense)
Interest expense		(16,324	)		5,025			(2,810	)		(3,225	)		(17,334	)
Other income (expense) – net		15,000			1,470			(144	)		(16,251	)		75
Total other income (expense)		(1,324	)		6,495			(2,954	)		(19,476	)		(17,259	)
Income (loss) before income taxes		134,737			9,574			18,128			(19,293	)		143,146
Income tax provision (benefit)		11,295			3,382			6,171			(1,144	)		19,704
Net income (loss)		$123,442			$6,192			$11,957			$(18,149	)		$123,442

Condensed Consolidating Statement of Income for the
year ended December 31, 2008

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net sales		$833,900			$45,640			$429,950			$(45,640	)		$1,263,850
Energy sales – net		9,364			–			–			–			9,364
Total revenues		843,264			45,640			429,950			(45,640	)		1,273,214
Costs of products sold		729,425			44,448			367,005			(45,446	)		1,095,432
Gross profit		113,839			1,192			62,945			(194	)		177,782
Selling, general and administrative expenses		56,425			1,910			39,562			–			97,897
Reversal of shutdown and restructuring charges		(856	)		–			–			–			(856	)
Gains on dispositions of plant, equipment and timberlands, net		183			(18,651	)		–			–			(18,468	)
Operating income (loss)		58,087			17,933			23,383			(194	)		99,209
Non-operating income (expense)
Interest expense		(19,940	)		(14	)		(3,206	)		–			(23,160	)
Other income (expense) – net		36,376			11,130			(4,383	)		(38,146	)		4,977
Total other income (expense)		16,436			11,116			(7,589	)		(38,146	)		(18,183	)
Income (loss) before income taxes		74,523			29,049			15,794			(38,340	)		81,026
Income tax provision (benefit)		16,635			11,486			4,211			(9,194	)		23,138
Net income (loss)		$57,888			$17,563			$11,583			$(29,146	)		$57,888

52

Condensed Consolidating Statement of Income for the
year ended December 31, 2007

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net sales		$802,293			$42,801			$346,030			$(42,801	)		$1,148,323
Energy sales – net		9,445			–			–			–			9,445
Total revenues		811,738			42,801			346,030			(42,801	)		1,157,768
Costs of products sold		716,015			40,181			287,931			(42,671	)		1,001,456
Gross profit		95,723			2,620			58,099			(130	)		156,312
Selling, general and administrative expenses		80,112			1,845			34,187			–			116,144
(Reversal of) Shutdown and restructuring charges		201			–			(166	)		–			35
Gains on dispositions of plant, equipment and timberlands, net		76			(78,761	)		–			–			(78,685	)
Operating income		15,334			79,536			24,078			(130	)		118,818
Non-operating income (expense)
Interest expense		(26,980	)		(3	)		(2,039	)		–			(29,022	)
Other income (expense) – net		75,806			15,910			(5,939	)		(81,639	)		4,138
Total other income (expense)		48,826			15,907			(7,978	)		(81,639	)		(24,884	)
Income (loss) before income taxes		64,160			95,443			16,100			(81,769	)		93,934
Income tax provision (benefit)		688			35,992			555			(6,773	)		30,462
Net income (loss)		$63,472			$59,451			$15,545			$(74,996	)		$63,472

Condensed Consolidating Balance Sheet as of December 31, 2009

	Parent				Non		Adjustments/
In thousands	Company		Guarantors		Guarantors		Eliminations			Consolidated
Assets
Cash and cash equivalents		$76,970		$985		$57,465		$–			$135,420
Other current assets		275,490		260,834		148,090		(299,778	)		384,636
Plant, equipment and timberlands – net		255,886		6,921		207,825		–			470,632
Other assets		600,116		145,304		75,731		(621,545	)		199,606
Total assets		$1,208,462		$414,044		$489,111		$(921,323	)		$1,190,294
Liabilities and Shareholders’ Equity
Current liabilities		$301,908		$1,357		$179,273		$(296,428	)		$186,110
Long-term debt		200,241		–		36,695		–			236,936
Deferred income taxes		71,035		15,347		26,284		(15,998	)		96,668
Other long-term liabilities		124,574		13,531		9,654		12,117			159,876
Total liabilities		697,758		30,235		251,906		(300,309	)		679,590
Shareholders’ equity		510,704		383,809		237,205		(621,014	)		510,704
Total liabilities and shareholders’ equity		$1,208,462		$414,044		$489,111		$(921,323	)		$1,190,294

Glatfelter 2009 Annual Report    53

Condensed Consolidating Balance Sheet as of December 31, 2008

	Parent				Non			Adjustments/
In thousands	Company		Guarantors		Guarantors			Eliminations			Consolidated
Assets
Cash and cash equivalents		$8,860		$756		$22,618			$–			$32,234
Other current assets		266,899		256,834		88,288			(252,436	)		359,585
Plant, equipment and timberlands – net		277,215		7,470		208,879			–			493,564
Other assets		510,144		175,927		(29,767	)		(484,378	)		171,926
Total assets		$1,063,118		$440,987		$290,018			$(736,814	)		$1,057,309
Liabilities and Shareholders’ Equity
Current liabilities		$336,182		$17,072		$85,668			$(248,820	)		$190,102
Long-term debt		222,965		–		70,695			–			293,660
Deferred income taxes		53,976		24,615		26,272			(14,705	)		90,158
Other long-term liabilities		107,288		13,838		8,941			10,615			140,682
Total liabilities		720,411		55,525		191,576			(252,910	)		714,602
Shareholders’ equity		342,707		385,462		98,442			(483,904	)		342,707
Total liabilities and shareholders’ equity		$1,063,118		$440,987		$290,018			$(736,814	)		$1,057,309

Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net cash provided (used) by
Operating activities		$102,891			$17,534			$46,668			$(3,225	)		$163,868
Investing activities
Purchase of plant, equipment and timberlands		(14,040	)		(137	)		(12,080	)		–			(26,257	)
Proceeds from disposal plant, equipment and timberlands		–			951			–			–			951
Proceeds from timberland installment note receivable		–			–			37,850			–			37,850
Repayments from (advances of) intercompany loans, net		9,186			(9,394	)		–			208			–
Total investing activities		(4,854	)		(8,580	)		25,770			208			12,544
Financing activities
Net (repayments of) proceeds from indebtedness		(22,725	)		–			(36,008	)		–			(58,733	)
Payment of dividends to shareholders		(16,596	)		–			–			–			(16,596	)
(Repayments) borrowings of intercompany loans, net		9,394			(5,500	)		(3,686	)		(208	)		–
Payment of intercompany dividends		–			(3,225	)		–			3,225			–
Total financing activities		(29,927	)		(8,725	)		(39,694	)		3,017			(75,329	)
Effect of exchange rate on cash		–			–			2,103			–			2,103
Net increase (decrease) in cash		68,110			229			34,847			–			103,186
Cash at the beginning of period		8,860			756			22,618			–			32,234
Cash at the end of period		$76,970			$985			$57,465			$–			$135,420

54

Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2008

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net cash provided (used) by
Operating activities		$15,641			$26,929			$34,455			$(23,600	)		$53,425
Investing activities
Purchase of plant, equipment and timberlands		(19,998	)		(880	)		(31,591	)		–			(52,469	)
Proceeds from disposal plant, equipment and timberlands		19,279			–			–			–			19,279
Repayments from (advances of) intercompany loans, net		4,593			(19,678	)		(17,502	)		32,587			–
Return (contributions) of intercompany capital, net		–			24,997			–			(24,997	)		–
Total investing activities		3,874			4,439			(49,093	)		7,590			(33,190	)
Financing activities
Net (repayments of) proceeds from indebtedness		(39,196	)		–			41,621			–			2,425
Payment of dividends to shareholders		(16,469	)		–			–			–			(16,469	)
(Repayments) borrowings of intercompany loans, net		39,280			(7,174	)		481			(32,587	)		–
Return of intercompany capital, net		–			–			(24,997	)		24,997			–
Payment of intercompany dividends		–			(23,600	)		–			23,600			–
Proceeds from stock options exercised and other		1,165			–			–			–			1,165
Total financing activities		(15,220	)		(30,774	)		17,105			16,010			(12,879	)
Effect of exchange rate on cash		(2,128	)		–			(2,827	)		–			(4,955	)
Net increase (decrease ) in cash		2,167			594			(360	)		–			2,401
Cash at the beginning of period		6,693			162			22,978						29,833
Cash at the end of period		$8,860			$756			$22,618			$–			$32,234

Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2007

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations		Consolidated
Net cash provided (used) by
Operating activities		$92,366			$(40,334	)		$48,300			$–		$100,332
Investing activities
Purchase of plant, equipment and timberlands		(16,334	)		(1,091	)		(11,535	)		–		(28,960	)
Proceeds from disposal plant, equipment and timberlands		199			41,041			376			–		41,616
Acquisitions, net of cash acquired		–			–			(7,923	)		–		(7,923	)
Total investing activities		(16,135	)		39,950			(19,082	)		–		4,733
Financing activities
Net (repayments of) proceeds from indebtedness		(71,570	)		–			(19,002	)		–		(90,572	)
Payment of dividends		(16,350	)		–			–			–		(16,350	)
Proceeds from stock options exercised and other		7,551			–			–			–		7,551
Total financing activities		(80,369	)		–			(19,002	)		–		(99,371	)
Effect of exchange rate on cash		604			–			1,550			–		2,154
Net increase (decrease) in cash		(3,534	)		(384	)		11,766			–		7,848
Cash at the beginning of period		10,227			546			11,212			–		21,985
Cash at the end of period		$6,693			$162			$22,978			–		$29,833

Glatfelter 2009 Annual Report    55

24.   SUBSEQUENT EVENTS

On February 5, 2010, we and certain of our subsidiaries (the “Guarantors”) issued and sold $100 million in aggregate principal amount of 7¹/₈% Senior Notes due 2016 (the “Notes”). The Notes were issued at 95.0% of the principal amount. We used the net proceeds from the sale, along with borrowings under our revolving credit facility and cash on hand, to fund the acquisition of Concert Industries Corp. (“Concert”).

The Notes and the guarantees thereof (the “Guarantees”) were issued pursuant to an indenture dated as of February 5, 2010 (the “Indenture”) among us, the Guarantors and HSBC Bank USA, National Association, as trustee (the “Trustee”). The Indenture contains covenants that, among other things, limits the ability of us and the Guarantors to incur debt, make restricted payments, create certain liens, sell assets, enter into certain sale and leaseback transactions, and consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis. The Indenture provides for customary events of default.

We will pay interest on the Notes on May 1 and November 1 of each year, beginning on May 1, 2010. The Notes will mature on May 1, 2016. The Notes are senior unsecured obligations and will rank equally with our other and future senior unsecured obligations. The Notes are guaranteed, jointly and severally, on a senior unsecured basis, by certain of our current and future domestic subsidiaries.

We may redeem some or all of the notes at any time and from time to time on or after May 1, 2011 at the applicable redemption price plus accrued and unpaid interest to the date of redemption. We have the option to redeem the Notes in whole, but not in part, prior to May 1, 2011 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest and a make-whole premium.

On February 12, 2010, we completed the acquisition (Concert) of all of the issued and outstanding shares of Concert from Brookfield Special Situations Management Limited (f/k/a Tricap Management Limited) (” Vendor”) pursuant to a share purchase agreement entered into among us and Vendor on January 4, 2010, as amended on February 12, 2010. The purchase price paid was approximately $234.4 million based on the currency exchange rates on the closing date, subject to a post-closing working capital adjustment. Concert is a leading global supplier of highly absorbent cellulose-based airlaid non-woven materials, used to manufacture a diverse range of consumer and industrial products for growing global end-use markets, including feminine hygiene and adult incontinence products, specialty wipes and food pads. In 2009, Concert’s revenues were approximately $203.0 million.

25.   QUARTERLY RESULTS (UNAUDITED)

													Diluted
													Earnings
	Net sales				Gross Profit				Net Income (loss)				Per Share
In thousands,
except per share	2009		2008		2009		2008		2009		2008		2009		2008
First	$	291,552	$	305,499	$	43,314	$	44,258	$	11,538		$19,675	$	0.25	$	0.43
Second		278,979		320,224		59,001		32,398		19,870		3,156		0.43		0.07
Third		312,358		339,822		82,465		57,172		45,994		21,662		1.00		0.47
Fourth		301,121		298,305		84,984		43,954		46,040		13,395		1.00		0.29

The information set forth above includes the following, on an after-tax basis:

					Gains (losses) on Sales of Plant,
	Alternative Fuel Mixture Credits				Equipment and Timberlands						Acquisition Integration Costs
In thousands	2009		2008		2009			2008			2009			2008
First	$	–	$	–	$	378		$	8,662		$	–			$(411	)
Second		30,418		–		(441	)		–			–			(177	)
Third		32,890		–		(5	)		2,371			–			(240	)
Fourth		32,456		–		65			(9	)		(1,768	)		(61	)

56

ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A   CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of December 31, 2009, have concluded that, as of the evaluation date, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

Management’s report on the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and the related report of our independent registered public accounting firm are included in Item 8 – Financial Statements and Supplementary Data.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended December 31, 2009, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. In the course of completing our evaluation of internal control over financial reporting we implemented certain changes and enhancements to our controls.

ITEM 9B   OTHER INFORMATION

None.

PART III

ITEM 10   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors  The information with respect to directors required under this Item is incorporated herein by reference to our Proxy Statement, to be dated on or about March 29, 2010. Our board of directors has determined that, based on the relevant experience of the members of the Audit Committee, all members are audit committee financial experts as this term is set forth in the applicable regulations of the SEC.

Executive Officers of the Registrant  The information with respect to the executive officers required under this Item incorporated herein by reference to “Executive Officers” as set forth in Part I, page 12 of this report.

We have adopted a Code of Business Ethics for the CEO and Senior Financial Officers in compliance with applicable rules of the Securities and Exchange Commission that applies to our chief executive officer, chief financial officer and our principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethical Business Conduct is filed as an exhibit to this Annual Report on Form 10-K and is available on our website, free of charge, at www.glatfelter.com.

ITEM 11   EXECUTIVE COMPENSATION

The information required under this Item is incorporated herein by reference to our Proxy Statement, to be dated on or about March 29, 2010.

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this Item is incorporated herein by reference to our Proxy Statement, to be dated on or about March 29, 2010.

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item is incorporated herein by reference to our Proxy Statement, to be dated on or about March 29, 2010.

ITEM 14   PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required under this Item is incorporated herein by reference to our Proxy Statement, to be dated on or about March 29, 2010.

Our Chief Executive Officer has certified to the New York Stock Exchange that he is not aware of any violations by the Company of the NYSE corporate governance listing standards.

Glatfelter 2009 Annual Report    57

PART IV

ITEM 15   EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)	1.		Our Consolidated Financial Statements as follows are included in Part II, Item 8:
		i.	Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007
		ii.	Consolidated Balance Sheets as of December 31, 2009 and 2008
		iii.	Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
		iv.	Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007
		v.	Notes to Consolidated Financial Statements for the Years Ended December 31, 2009, 2008 and 2007
	2.		Financial Statement Schedules (Consolidated) are included in Part IV:
		i.	Schedule II – Valuation and Qualifying Accounts – For Each of the Three Years in the Period Ended December 31, 2009

(b)   Exhibit Index

Exhibit Number				Description of Documents	Incorporated by Reference to
					Exhibit	Filing
	2	(a)		Share Purchase Agreement, dated January 4, 2010, among Brookfield Special Situations Management Limited, P. H. Glatfelter Company and Glatfelter Canada, Inc., (the schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request) filed herewith.
		(b)		Amendment to the Share Purchase Agreement, dated February 12, 2010, filed herewith.
		(c)		Asset Purchase Agreement, dated February 21, 2006, among NewPage Corporation, Chillicothe Paper Inc. and P. H. Glatfelter Company	2.1	February 21, 2006 Form 8-K
		(d)		Agreement for Sale of Assets (Lydney), dated March 8, 2006, by and among J R Crompton Limited, Nicholas James Dargan and Willian Kenneth Dawson, as administrators and Glatfelter-UK Limited and the Company	10	March 31, 2006 Form 10-Q
		(e)		Agreement, dated as of November 30, 2007, between Metallised Products Limited (“MPL”) and Glatfelter Lydney Limited, a wholly-owned indirect subsidiary of P. H. Glatfelter Company to acquire MPL, (the schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request) filed herewith.	2(c)	2007 Form 10-K
	3	(a)		Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of filing on EDGAR)	3(b)	2007 Form 10-K
		(b)		By-Laws as amended through February 18, 2009	3.1	June 30, 2009 Form 10-Q
	4	(a)		Indenture, dated as of February 5, 2010 by and between the Company and HSBC Bank USA, National Association, as trustee relating to 71/8 Notes due 2016.	4.1	February 5, 2010 Form 8-K
		(b)		Indenture, dated as of April 28, 2006, by and between the Company and SunTrust Bank, as trustee relating to 71/8 Notes due 2016	4.1	May 3, 2006 Form 8-K
		(c)		First Supplemental Indenture, dated as of September 22, 2006, among Glatfelter Holdings, LLC, Glatfelter Holdings II, LLC, the Existing Subsidiary Guarantors named therein and SunTrust Bank relating to 71/8 Notes due 2016	4.3	September 22, 2006 Form S-4/A
	10	(a)		P. H. Glatfelter Company Management Incentive Plan, effective January 1, 1982, as amended and restated effective January 1, 1994**	10(a)	2000 Form 10-K**
		(b)		P. H. Glatfelter Company 2005 Management Incentive Plan, adopted as of April 27, 2006**	10.4	April 27, 2006 Form 8-K
		(c)		P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated effective April 23, 1998 and further amended December 20, 2000**	10(c)	2000 Form 10-K**
		(d)		Description of Executive Salary Continuation Plan**	10(g)	1990 Form 10-K**
		(e)		P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23, 1998**	10(f)	1998 Form 10-K**
		(f)		P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended December 20, 2000**	10(g)	2000 Form 10-K**
		(g)		P. H. Glatfelter Company 2005 Long-Term Incentive Plan, adopted as of April 27, 2006**	10.1	April 27, 2006 Form 8-K
		(g)	(A)	Form of Top Management Restricted Stock Unit Award Certificate.**	10.2	April 27, 2006 Form 8-K
		(g)	(B)	Form of Non-Employee Director Restricted Stock Unit Award Certificate**	10.3	April 27, 2006 Form 8-K
		(h)		P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22, 1998**	10(h)	1998 Form 10-K**
		(i)		Change in Control Employment Agreement by and between P. H. Glatfelter Company and George H. Glatfelter II, dated as of December 8, 2008**	10(i)	2008 Form 10-K**

58

Exhibit Number					Description of Documents	Incorporated by Reference to
						Exhibit	Filing
			(j)		Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain employees, dated as of December 8, 2008**	10(j)	2008 Form 10-K**
			(j)	(A)	Schedule of Change in Control Employment Agreements, filed herewith**
			(k)		Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin	10(i)	1996 Form 10-K
			(l)		Credit Agreement, dated as of April 3, 2006, by and among the Company, certain of the Company’s subsidiaries as guarantors, the banks party thereto, PNC Bank, National Association, as agent for the banks under the Credit Agreement, PNC Capital Markets LLC and Credit Suisse Securities (USA) LLC, as joint arrangers and bookrunners, and Credit Suisse Securities (USA) LLC, as syndication agent	10.1	April 7, 2006 Form 8-K
			(l)	(A)	First Amendment to Credit Agreement among the Company, certain of the Company’s subsidiaries, certain lenders party thereto and PNC Bank, National Association, in its capacity as agent for such lenders, dated April 25, 2006	10.1	June 30, 2007 Form 10-Q
			(l)	(B)	Second Amendment to Credit Agreement among the Company, certain of the Company’s subsidiaries, certain lenders party thereto and PNC Bank, National Association, in its capacity as agent for such lenders, dated December 22, 2006	10.2	June 30, 2007 Form 10-Q
			(l)	(C)	Third Amendment to Credit Agreement among the Company, certain of the Company’s subsidiaries, certain lenders party thereto and PNC Bank, National Association, in its capacity as agent for such lenders, dated June 8, 2007*	10.3	June 30, 2007 Form 10-Q
			(m)		Contract for the Purchase and Bargain Sale of Property, dated as of December 16, 2002, by and among Glatfelter Pulp Wood Company (a wholly owned subsidiary of the Registrant), the Conservation Fund and Fidelity National Title Insurance Company	10(o)	2002 Form 10-K
			(n)		Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox River and Green Bay site by and among the United States of America and the State of Wisconsin v. P. H. Glatfelter Company and WTMI Company (f/k/a Wisconsin Tissue Mills, Inc.)	10.2	October 1, 2003 Form 8-K/A – No. 1
			(n)	(A)	Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin vs. P.H. Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)	10(o)	2007 Form 10-K
			(n)	(B)	Second Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin vs. P.H. Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)	10.1	Nov 15, 2008 Form 8-K
			(o)		Administrative Order for Remedial Action dated November 13, 2008; issued by the United States Environmental Protection Agency	10.2	Nov 15, 2008 Form 8-K
			(p)		Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox River and Green Bay Site by and among the United States of America and the State of Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.), certain Appendices have been intentionally omitted, copies of which can be obtained free of charge from the Registrant)	10.1	June 30, 2008 Form 8-K
			(q)		Compensatory Arrangements with Certain Executive Officers, filed herewith**
			(r)		Summary of Non-Employee Director Compensation (effective January 1, 2007), filed herewith**
			(s)		Service Agreement, commencing on August 1, 2007, between the Registrant (through a wholly owned subsidiary) and Martin Rapp**	10(r)	2006 Form 10-K
			(t)		Retirement Pension Contract, dated October 31, 2008, between Registrant (through a wholly owned subsidiary) and Martin Rapp**	10(t)	2007 Form 10-K
			(u)		Form of Stock-Only Stock Appreciation Right Award Certificate**	10(s)	2006 Form 10-K
			(v)		Form of 2007 Top Management Restricted Stock Unit Award Certificate**	10(t)	2006 Form 10-K
			(w)		Separation Agreement and General Release entered into between Jeffrey J. Norton and P. H. Glatfelter Company dated as of October 25, 2008	10.1	Sept. 30, 2008 Form 10-Q
			(x)		Timberland Purchase & Sale Agreement – Virginia Timberlands, entered into by and among Glawson Investments Corp., GIC Investments LLC and Glatfelter Pulp Wood Company, dated and effective as of August 8, 2007	10.1	Sept. 30, 2007 Form 10-Q
			(y)		Term Loan Agreement dated January 15, 2008, among GPW Virginia Timberlands LLC, certain lenders party thereto and SunTrust Bank, in its capacity as agent for such lenders	10(x)	2007 Form 10-K
			(z)		Contract for Sale for Sale of Real Estate between Glatfelter Pulp Wood Company, a wholly owned subsidiary of the Company, and George H. Glatfelter II and Beverly G. Glatfelter, dated May 8, 2008	10.2	June 30, 2008 Form 10Q
	14				Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter	14	2003 Form 10-K
	21				Subsidiaries of the Registrant, filed herewith
	23				Consent of Independent Registered Public Accounting Firm, filed herewith.
	31	.1			Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302 (a) of the Sarbanes-Oxley Act Of 2002, filed herewith

Glatfelter 2009 Annual Report    59

Exhibit Number			Description of Documents	Incorporated by Reference to
				Exhibit	Filing
	31	.2	Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 302 (a) of the Sarbanes-Oxley Act Of 2002, filed herewith
	32	.1	Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed herewith
	32	.2	Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed herewith

*	Portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.
**	Management contract or compensatory plan

60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

P. H. GLATFELTER COMPANY

(Registrant)

March 16, 2010

By  /s/  George H. Glatfelter II

George H. Glatfelter II

Chairman and

  Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

Date	Signature	Capacity
March 16, 2010	/s/  George H. Glatfelter II George H. Glatfelter II Chairman and Chief Executive Officer	Principal Executive Officer and Director
March 16, 2010	/s/  John P. Jacunski John P. Jacunski Senior Vice President and Chief Financial Officer	Principal Financial Officer
March 16, 2010	/s/  David C. Elder David C. Elder Vice President and Corporate Controller	Controller and Chief Accounting Officer
March 16, 2010	/s/  Kathleen A. Dahlberg Kathleen A. Dahlberg	Director
March 16, 2010	/s/  Nicholas DeBenedictis Nicholas DeBenedictis	Director
March 16, 2010	/s/   Richard C. Ill Richard C. Ill	Director
March 16, 2010	/s/  J. Robert Hall J. Robert Hall	Director
March 16, 2010	/s/  Ronald J. Naples Ronald J. Naples	Director
March 16, 2010	/s/  Richard L. Smoot Richard L. Smoot	Director
March 16, 2010	/s/  Lee C. Stewart Lee C. Stewart	Director

Glatfelter 2009 Annual Report    61

Schedule II

P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE

For each of the three years ended December 31, 2009
Valuation and Qualifying Accounts

	Allowance for
In thousands	Doubtful Accounts									Sales Discounts and Deductions
	2009			2008			2007			2009			2008			2007
Balance, beginning of year		$2,633			$3,117			$3,613			$3,369			$4,345			$2,585
Provision		506			(36	)		781			3,575			6,620			6,723
Write-offs, recoveries and discounts allowed		(306	)		(296	)		(1,319	)		(4,197	)		(6,045	)		(5,195	)
Other(a)		55			(152	)		42			42			(1,551	)		232
Balance, end of year		$2,888			$2,633			$3,117			$2,789			$3,369			$4,345

The provision for doubtful accounts is included in selling, general and administrative expense and the provision for sales discounts and deductions is deducted from sales. The related allowances are deducted from accounts receivable.

(a) Relates primarily to changes in currency exchange rates and, in 2008, a change in presentation of certain customer rebates.

64

EX-2.(A)

Exhibit 2 (a)

EXECUTION VERSION

BROOKFIELD SPECIAL SITUATIONS MANAGEMENT LIMITED

- and -

P.H. GLATFELTER COMPANY

- and -

GLATFELTER CANADA INC.

SHARE PURCHASE AGREEMENT

January 4, 2010

TABLE OF CONTENTS

	Page No.
Article 1 INTERPRETATION		2
1.1 Definitions		2
1.2 Time of the Essence		14
1.3 Calculation of Time		14
1.4 Business Days		14
1.5 Currency		15
1.6 Headings		15
1.7 Plurals and Gender		15
1.8 References to Law		15
1.9 Other References		15
1.10 Accounting Terms		15
Article 2 PURCHASE AND SALE OF PURCHASED SHARES		16
2.1 Purchase and Sale of Purchased Shares		16
2.2 Payment of Purchase Price		16
2.3 Place of Closing		17
2.4 Working Capital Adjustment		17
Article 3 REPRESENTATIONS AND WARRANTIES		19
3.1 Representations and Warranties of Vendor		19
3.2 Representations and Warranties of Parent and Buyer		41
3.3 Nature and Survival of Vendor’s Representations, Warranties and Agreements		43
3.4 Nature and Survival of Parent’s and Buyer’s Representations, Warranties and Agreements		44
Article 4 CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE PARTIES OF THEIR OBLIGATIONS UNDER THIS AGREEMENT		45
4.1 Buyer’s Conditions		45
4.2 Conditions of Vendor		48
4.3 Waiver by Parent and Buyer		49
4.4 Waiver by Vendor		49
Article 5 OTHER COVENANTS OF THE PARTIES		50
5.1 Conduct of Business Prior to Closing		50
5.2 Access for Investigation		53
5.3 Notice by Vendor of Certain Matters		54
5.4 Notice by Buyer of Certain Matters		54
5.5 Confidentiality		54
5.6 Further Action		55
5.7 Preservation of Records		55
5.8 Regulatory Matters; Notices and Consents		56
5.9 Taxation Matters		57
5.10 Tax Allocation		59

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	Page No.
5.11 German Real Estate Transfer Tax		59
5.12 Non-Solicitation of Employees		60
5.13 Financing Related Co-Operation		60
5.14 Guarantees		62
5.15 No Solicitation of the Company		63
5.16 Release of Directors and Officers of German Subsidiaries		63
5.17 Employee Bonus Amounts		64
Article 6 INDEMNIFICATION		64
6.1 Indemnification by Vendor		64
6.2 Indemnification by Parent and Buyer		64
6.3 Procedure for Indemnification		65
6.4 Additional Rules and Procedures		67
Article 7 TERMINATION AND ABANDONMENT		69
7.1 Termination		69
7.2 Effect of Termination		69
Article 8 GENERAL		70
8.1 Public Notices		70
8.2 Expenses		70
8.3 Further Assurances		70
8.4 Assignment and Enurement		70
8.5 Entire Agreement; Amendment		71
8.6 Waiver		71
8.7 Notices		71
8.8 Severability		73
8.9 Counterparts; Facsimile and Electronic Signatures		74
8.10 Governing Law and Jurisdiction		74
8.11 Consent		74
8.12 Undisputed Amount		74
8.13 Specific Performance		75
8.14 Interpretation Clause (Quebec)		75

SHARE PURCHASE AGREEMENT

THIS AGREEMENT made as of the 4th day of January, 2010.

AMONG:

BROOKFIELD SPECIAL SITUATIONS MANAGEMENT LIMITED (f/k/a TRICAP MANAGEMENT LIMITED), a corporation governed by the laws of Ontario

(“Vendor”)

- and -

P.H. GLATFELTER COMPANY, a corporation governed by the laws of Pennsylvania

(“Parent”)

- and -

GLATFELTER CANADA INC., a corporation governed by the laws of Canada

(“Buyer”)

RECITALS:

1. Vendor is the registered owner of all of the issued and outstanding shares in the capital of Concert Industries Corp. (the “Company”).

2. Buyer wishes to purchase and Vendor wishes to sell the Purchased Shares (as defined below), upon and subject to the conditions of this Agreement.

3. As a condition and inducement to Parent and Buyer entering into this Agreement, concurrently with the execution and delivery of this Agreement, the Company or an applicable Subsidiary of the Company is entering into a letter amendment to the employment agreement with Rolf Hovelmann, which letter amendment shall be effective as of, and conditioned upon, the Closing.

NOW THEREFORE, in consideration of the mutual covenants in this Agreement and for other consideration (the receipt and sufficiency of which are acknowledged), the Parties hereby agree as follows:

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ARTICLE 1
INTERPRETATION

1.1 Definitions

In this Agreement:

(a)	“Accounting Firm” means PricewaterhouseCoopers LLP (or, if such firm shall decline or is unavailable or is not, at the time of such submission, independent of each of the Parties, another independent nationally recognized accounting firm engaged by Vendor and agreed to by Buyer, each acting reasonably);
(b)	“Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person;
(c)	“Agreement”, “this Agreement”, “the Agreement”, “hereof”, “herein”, “hereto”, “hereby”, “hereunder” and similar expressions mean this Agreement, including all of its schedules and all instruments supplementing, amending or confirming this Agreement. All references to “Articles” or “Sections” refer to the specified Article or Section of this Agreement;
(d)	“Alternative Financing” has the meaning attributed thereto in Section 5.13(b);
(e)	“Alternative Financing Agreements” has the meaning attributed thereto in Section 5.13(b);
(f)	“Alternative Financing Commitment Letter” has the meaning attributed thereto in Section 5.13(b);
(g)	“Annual Financial Statements” means the audited consolidated financial statements of the Company and its Subsidiaries for the fiscal years ended December 31, 2008, 2007 and 2006, consisting of an audited consolidated balance sheet as of those dates and the related audited consolidated statements of income, retained earnings and cash flows for the years ended as of those dates, in each case together with all related notes and schedules thereto and accompanied by the reports thereon of the Company’s accountants;
(h)	“arm’s length” has the meaning attributed to that term in the Tax Act and the related jurisprudence;
(i)	“Authority” means any instrumentality, subdivision, court, tribunal, judicial or arbitral body, ministry, governmental, regulatory, administrative authority, agency or commission, or official statutory body or other authority of Canada or any other country or any state, province, municipality, or locality, or any other government or political subdivision thereof (including the European Union), or any non-governmental self-regulatory agency, or quasi-governmental or private

- 3 -

	body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority;
(j)	“Benefit Plans” means all plans, agreements, programs, or policies, whether funded or unfunded, registered or unregistered, which the Company or any of its Subsidiaries is a party to or bound by or under which the Company or any of its Subsidiaries has any liability or contingent liability or which have any application to Employees relating to retirement savings, pensions or benefits, including any defined benefit pension plan, defined contribution pension plan, group registered retirement savings plan or supplemental pension or retirement plan, or any bonus, deferred profit-sharing, profit-sharing, stock option, share purchase, stock appreciation, deferred compensation, incentive compensation, supplemental unemployment benefits, hospitalization, health, dental, disability, life insurance, death or survivor’s benefit, employment insurance, vacation pay, severance or termination pay or other benefit plan with respect to any of their Employees, or eligible dependents of any Employees;
(k)	“Business” means the business of the Company and its Subsidiaries as currently conducted, including the development, manufacture and sale of airlaid non-woven fabrics and related technology for use in the global non-woven fabric industry;
(l)	“Business Day” means any day which is not a Saturday, a Sunday or a day on which the principal commercial banks located in each of (i) the City of Toronto, Ontario, and (ii) the City of New York, New York and are not open for business during normal banking hours;
(m)	“Buyer” has the meaning attributed thereto in the preamble to this Agreement;
(n)	“Buyer Indemnified Parties” has the meaning attributed thereto in Section 6.1;
(o)	“Canadian GAAP” means Canadian generally accepted accounting principles applied on a consistent basis in accordance with the principles stated in the Handbook of the Canadian Institute of Chartered Accountants as they exist on the date of this Agreement;
(p)	“CIBC” has the meaning attributed thereto in Section 3.1(x);
(q)	“Claim” means any administrative, regulatory or judicial action, suit, dispute, petition, appeal, application for review, demand, demand letter, claim, assessment, lien, notice of noncompliance or violation, formal investigation, proceeding, consent order or consent agreement by or before any Authority;
(r)	“Closing” has the meaning attributed thereto in Section 2.3;
(s)	“Closing Date” has the meaning attributed thereto in Section 2.3;
(t)	“Closing Date Statement” has the meaning attributed thereto in Section 2.4(b);

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(u)	“Closing Working Capital” means Working Capital as of 12:01 AM on the Closing Date, giving effect to the transactions contemplated to occur in connection with the Closing as described in Sections 4.1(h), (i), (j), (n), Section 5.11, Section 5.17 and Section 8.2;
(v)	“Commitment Letter” has the meaning attributed thereto in Section 3.2(h);
(w)	“Company” has the meaning attributed thereto in the Recitals hereto;
(x)	“Company Intellectual Property” means the Owned Intellectual Property and the Licensed Intellectual Property;
(y)	“Company IP Agreements” means all contracts concerning Intellectual Property Rights or IT Assets that are material to the operation of the Business to which the Company or any of its Subsidiaries is a party or beneficiary or by which the Company or any of its Subsidiaries, or any of its properties or assets, may be bound, including any of the following, but only to the extent that they are material to the operation of the Business: (i) licenses of Intellectual Property Rights by the Company or any of its Subsidiaries to any Person, (ii) licenses of Intellectual Property Rights by any Person to the Company or any of its Subsidiaries, (iii) contracts between any Person and the Company or any of its Subsidiaries relating to the transfer, development, maintenance or use of Intellectual Property Rights or IT Assets, the development or transmission of data, or the use, modification, framing, linking, advertisement or other practices with respect to Internet websites, and (iv) consents, settlements, decrees, orders, injunctions, judgments or rulings governing the use, validity or enforceability of Intellectual Property Rights or IT Assets;
(z)	“Company Products” means all service offerings or products made commercially available or otherwise distributed by the Company or any of its Subsidiaries;
(aa)	“Company Shares” means all of the authorized shares in the capital of the Company;
(bb)	“Competition Act” means the Competition Act (Canada);
(cc)	“Confidentiality Agreement” means the confidentiality agreement dated June 23, 2009 signed by Parent and Tricap Partners Ltd. in respect of confidential information of the Company and its Subsidiaries;
(dd)	“Core Representations” has the meaning attributed thereto in Section 3.3(a)(i);
(ee)	“Corresponding Interim Financial Statements” means the unaudited consolidated balance sheet of the Company and its Subsidiaries as at September 30, 2008 and the related unaudited consolidated statements of income, retained earnings and cash flows for the nine-month period ended September 30, 2008, together with all related notes and schedules thereto;

- 5 -

(ff)	“Credit Suisse” has the meaning attributed thereto in Section 3.2(f);
(gg)	“Damages” has the meaning attributed thereto in Section 6.1;
(hh)	“Debt Financing” has the meaning attributed thereto in Section 3.2(h);
(ii)	“Disclosure Letter” means the disclosure letter dated the date hereof prepared by Vendor and delivered to Buyer and Parent;
(jj)	“Employee Bonus Amount” means any amounts paid or payable by the Company or any of its Subsidiaries to employees of the Company or any of its Subsidiaries in respect of annual performance bonuses for 2009 and any special bonuses or other amounts payable in connection with the transactions contemplated by this Agreement;
(kk)	“Employees” has the meaning attributed thereto in Section 3.1(s)(i);
(ll)	“Encumbrance” means any mortgage, lien (including environmental and Tax liens), pledge, hypothecation, charge, security interest, restriction, claim, option to purchase, set-off, encumbrance, servient easement, adverse claim, reversion, reverter, preferential arrangement, restrictive covenant or restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership;
(mm)	“End Date” has the meaning attributed thereto in Section 7.1(b);
(nn)	“Environmental Laws” means all federal, provincial, state, municipal or other applicable Laws, statutes, regulations, by-laws, Environmental Permits, ordinances, rules, orders (including Environmental Orders) and, if legally binding, directives of any Authority relating to environmental or health and safety matters, including those governing the handling, disposal, labelling, use, storage of and exposure to Hazardous Substances;
(oo)	“Environmental Orders” means applicable orders or decisions rendered by any Authority under or pursuant to any Environmental Laws;
(pp)	“Environmental Permits” means all permits, certificates, approvals, registrations, consents, licenses and similar authorizations issued by any Authority and relating to or required for the operation of the Company’s and its Subsidiaries’ properties, or the Business, in compliance with all Environmental Laws;
(qq)	“Escrow Agent” means a national banking association with assets of at least $100 million selected by Parent and reasonably acceptable to Vendor;
(rr)	“Escrow Agreement” means the escrow agreement to be entered into on the Closing Date by and among Vendor, Buyer, Parent and the Escrow Agent, substantially in the form of Exhibit A hereto;

- 6 -

(ss)	“Escrow Amount” means $15,000,000;
(tt)	“Escrow Fund” means the Escrow Amount deposited with the Escrow Agent, as such amount may increase or decrease as provided herein or in the Escrow Agreement;
(uu)	“Estimated Closing Working Capital” has the meaning attributed thereto in Section 2.4(a);
(vv)	“Final Closing Working Capital” has the meaning attributed thereto in Section 2.4(d);
(ww)	“Financial Statements” means, collectively, the Annual Financial Statements and the Interim Financial Statements;
(xx)	“Financing Agreements” has the meaning attributed thereto in Section 5.13(a);
(yy)	“German Merger Control Approval” means (i) explicit approval (Freigabe) of the consummation of the transactions contemplated by this Agreement by the German Federal Cartel Authority (Bundeskartellamt) without conditions or obligations being imposed, or (ii) notification by the German Federal Cartel Authority that it has not entered into a formal investigation (Hauptprüfverfahren), or (iii) pursuant to Section 40 paragraph 1 of the German Act Against Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen), expiry of the period of one month without notification by the German Federal Cartel Authority that it has entered into a formal investigation, or (iv) in the case of a formal investigation, pursuant to Section 40 paragraph 2 of the German Act Against Restraints on Competition, expiry of the period of four months without a decision by the German Federal Cartel Authority with the consequence of a deemed approval by the German Federal Cartel Authority;
(zz)	“German Subsidiaries” means Concert Europe GmbH and its Subsidiaries;
(aaa)	“Guarantees” means any agreements entered into by Vendor or any of its Affiliates pursuant to which it or they, as the case may be, guarantee the performance of any obligations of the Company or any of its Subsidiaries;
(bbb)	“HSBC” has the meaning attributed thereto in Section 3.1(x);
(ccc)	“Hazardous Substances” means pollutants, contaminants, PCBs, radon, asbestos, urea formaldehyde foam insulation, mold, greenhouse gases, waste or any other material, substance, solid, liquid, gas, heat, odour, sound, vibration, radiation or combination of any of them that is defined, prohibited, controlled or regulated under any Environmental Laws;
(ddd)	“ICA” means the Investment Canada Act (Canada);

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(eee)	“Improvements” means all buildings, fixtures, parking lots, roadways, structures, erections, fixed machinery, fixed equipment and appurtenances situated on, in, under, over or forming part of, any Real Property;
(fff)	“Indebtedness” means, with respect to any Person, without duplication, the principal of, accrued and unpaid interest on, and any prepayment or similar penalties and expenses in respect of, (i) all indebtedness of such Person, whether or not contingent, for borrowed money, (ii) all obligations of such Person for the deferred purchase price of property or services, (iii) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (iv) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (v) all Indebtedness of others referred to in clauses (i) through (v) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person.
(ggg)	“Indemnified Party” has the meaning attributed thereto in Section 6.3(a);
(hhh)	“Indemnifying Party” has the meaning attributed thereto in Section 6.3(a);
(iii)	“Indemnified Taxes” means: (i) any and all Taxes payable by the Company and its Subsidiaries for (A) taxable periods ending on or prior to the Closing Date, and (B) portions of taxable periods ending on or prior to the Closing Date as determined under Section 5.10; (ii) all Taxes payable by the Company and its Subsidiaries (including any predecessors) by reason of being a member of a consolidated, combined, unitary, affiliated or other group or otherwise being included in a Tax Return, as a transferee or successor, by contract or otherwise for any taxable periods described in the foregoing clause (i); and (iii) Taxes imposed as a result of any breach of warranty or representation relating to Taxes or breach of any covenant relating to Taxes;
(jjj)	“Intellectual Property Rights” means (i) inventions, “know-how”, pending patent applications (including divisionals, reissues, renewals, re-examinations, continuations, continuations-in-part and extensions) and issued patents, (ii) trade-marks, service marks, trade names, trade dress and domain names, (iii) copyrights, including copyrights in computer software, (iv) industrial designs and similar rights, and (v) registrations and applications for registration of the foregoing;
(kkk)	“Intercompany Agreements” means all contracts and agreements between the Company or any of its Subsidiaries, on the one hand, and Vendor or any Affiliate of Vendor (other than the Company or any of its Subsidiaries), on the other hand;
(lll)	“Interim Financial Statements” means the unaudited consolidated balance sheet of the Company and its Subsidiaries as at September 30, 2009 and the related unaudited consolidated statements of income, retained earnings and cash flows for the nine-month period ended September 30, 2009, together with all related notes and schedules thereto;

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(mmm)	“Inventory” means all inventories of stock-in-trade and merchandise, including materials, supplies, work-in-progress, finished goods, tooling, service parts and purchased finished goods related to the Business, including those in possession of third parties;
(nnn)	“IT Assets” means Software, systems, servers, computers, hardware, firmware, middleware, networks, data communications lines, routers, hubs, switches and all other information technology equipment, and all associated documentation;
(ooo)	“Judgment” means any judgment, decision, order, decree, writ, injunction, determination, consent or ruling entered or issued by any Authority;
(ppp)	“KPMG” means the office of KPMG located in Ottawa, Canada;
(qqq)	“knowledge of Vendor” means the actual knowledge of Pierre McNeil, Rolf Hövelmann, Don Habbick, Barry Downing, Dr. Henning Röttger, Jörg Schlautmann, Torsten Gärtner and Alain Mercier after reasonable inquiry of those Employees who would reasonably be expected to have knowledge of the matter in question;
(rrr)	“Laws” means any statute, ordinance, code or other law (including the common law), rule, regulation, award, decree, ruling, directive, decision, injunction, judgment, order, writ, notice, standard procedure, policy, tariff or other requirement, applied, issued, entered or otherwise adopted or enacted by any Authority, including judicial decisions applying or interpreting any such Law;
(sss)	“Leases” has the meaning attributed thereto in Section 3.1(n);
(ttt)	“Lender” has the meaning attributed thereto in Section 3.2(h);
(uuu)	“Licensed Intellectual Property” means all Intellectual Property Rights that the Company and/or its Subsidiaries is licensed or otherwise permitted by other Persons to use pursuant to the Company IP Agreements;
(vvv)	“Material Adverse Change” means any event, condition, circumstance, change or effect that, individually or in the aggregate with all other events, conditions, circumstances, changes or effects, causes, or would reasonably be expected to cause, a materially adverse change in or on (i) the business, assets, liabilities, results of operation, condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of Vendor or the Company to consummate the transactions contemplated by this Agreement, excluding, in the case of (i) above, any event, condition, circumstance, change or effect that results directly from or relates directly to changes in or arising from (A) Canadian, German or global economic conditions, financial markets, credit markets or capital markets, (B) the industry in which the Company and its Subsidiaries or the Business operates, (C) the announcement or pendancy of the transactions contemplated under this Agreement (provided, however, that this clause (C) shall not diminish the effect of, and shall be disregarded for purposes of, the

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	representations and warranties contained in Article 3 (other than Section 3.1(l)(ii)), (D) any changes in any applicable Laws or the interpretation, application or non application of any applicable Laws by any Authority, including any changes in applicable accounting requirements or principles, (E) fluctuations in foreign exchange rates, or (F) war, acts of terrorism, civil unrest or similar event, provided, in the case of clauses (A), (B), (D), (E) or (F) that any such event, condition, circumstance, change or effect does not affect the Company and its Subsidiaries in a manner that is disproportionate (other than to an immaterial extent) to its effect on other companies operating in the same industries as the Company and its Subsidiaries;
(www)	“Material Contracts” has the meaning attributed thereto in Section 3.1(r)(i);
(xxx)	“New Line” means the new production line at the Company’s facility in Falkenhagen, Germany;
(yyy)	“Off-the-Shelf Software” means all Software that is commercially available off-the-shelf Software that (i) is not material to the Company or any of its Subsidiaries and (ii) has not been modified or customized for the Company or any of its Subsidiaries;
(zzz)	“Option Plan” means the Management Share Option Plan, effective August 29, 2006;
(aaaa)	“Owned Intellectual Property” means all Intellectual Property Rights owned by or under obligation of assignment to the Company or any of its Subsidiaries;
(bbbb)	“Outstanding Shares” has the meaning attributed thereto in Section 3.1(g)(i);
(cccc)	“Owned Real Property” means Real Property owned by the Company or any of its Subsidiaries;
(dddd)	“Parent” has the meaning attributed thereto in the preamble to this Agreement;
(eeee)	“Parties” means, collectively, Vendor, Parent and Buyer and “Party” means any of them;
(ffff)	“Permits” has the meaning attributed thereto in Section 3.1(h)(ii);
(gggg)	“Permitted Encumbrances” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced and as to which neither the Company nor any of its Subsidiaries is otherwise subject to civil or criminal liability due to its existence:

(i) liens for Taxes, assessments or governmental charges which relate exclusively to the Company or any of its Subsidiaries and are not yet due and delinquent, for which adequate reserves have been established and

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	maintained in accordance with Canadian GAAP or any other applicable accounting principles;
(ii)	minor survey exceptions, customary utility easements benefiting the real property encumbered thereby and other minor customary encumbrances on title to Real Property that (A) were not incurred in connection with any Indebtedness, (B) do not render title to the property encumbered thereby unmarketable and (C) do not, individually or in the aggregate, materially and adversely affect the value of or the use or occupancy of such property for its current and anticipated purposes;
(iii)	pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations;
(iv)	carriers’ liens, builders’ liens, warehousemen’s liens, mechanics’ liens, materialmens’ liens, landlords’ liens and other liens, privileges or other charges of a similar nature arising in the ordinary course of business which relate exclusively to the Company or any of its Subsidiaries and securing obligations as to which (A) there is no default on the part of Vendor, the Company or its Subsidiaries or the validity or amount of which is being contested in good faith by appropriate proceedings and (B) are not in excess of $15,000 in the case of a single property or $100,000 in the aggregate at any time;
(v)	unregistered purchase money security interests (including by way of reservation of title) arising under contracts for the supply of goods and materials entered into in the ordinary course of business which secure the unpaid balance of the purchase price for goods and/or materials purchased thereunder which are due and payable (and have been outstanding) for not more than 90 days after delivery of the invoice therefor; and
(vi)	the Encumbrances set forth in Section 1.1(gggg) of the Disclosure Letter;

(hhhh)	“Per Option Closing Amount” means, with respect to each option of Company Shares granted under the Option Plan, an amount equal to amount required to be paid upon completion of the transactions contemplated by this Agreement under the terms of the Option Plan;
(iiii)	“Person” means any individual, body corporate with or without share capital, partnership, joint venture, entity, association, unincorporated organization or other entity, syndicate, firm, sole proprietorship, trust, union, and the heirs, beneficiaries, executors, legal representatives or administrators of an individual;
(jjjj)	“Personal Information” means information about an identifiable individual as defined in Privacy Law;
(kkkk)	“Personal Property” has the meaning attributed thereto in Section 3.1(m);

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(llll)	“Personal Property Leases” means all leases, rental agreements, conditional sales contracts and other similar agreements or arrangements for the Personal Property that provide for payment by the Company or any of its Subsidiaries of in excess of $250,000 annually and any and all material ancillary documents pertaining thereto (including all amendments, consents and evidence of commencement dates and expiration dates) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is otherwise bound;
(mmmm)	“Prime Rate” means the rate of interest per annum, expressed on the basis of a year of 365 or 366 days, as the case may be, established from time to time by the Canadian Imperial Bank of Commerce as the reference rate of interest for the determination of interest rates that such bank will charge for commercial loans (in Canadian Dollars) made in Canada;
(nnnn)	“Privacy Law” means the Personal Information Protection and Electronic Documents Act (Canada), the Freedom of Information and Protection of Privacy Act (Ontario) and any comparable Law of any other province or territory of Canada;
(oooo)	“Proposed Final Closing Working Capital” has the meaning attributed thereto in Section 2.4(b);
(pppp)	“Public Grants” has the meaning attributed thereto in Section 3.1(y)(i);
(qqqq)	“Purchase Price” has the meaning attributed thereto in Section 2.1;
(rrrr)	“Purchased Shares” means the Outstanding Shares and the common shares issued by the Company on the conversion of the Vendor Loans in accordance with Section 4.1(h);
(ssss)	“Real Property” means any real property, whether owned or leased, and currently used for the conduct of the Business, including plants, buildings, structures, fixtures, erections, improvements, and other appurtenances situate on or forming part of such real property;
(tttt)	“Receivables” means any and all accounts receivable, bills receivable, trade accounts, book debts, insurance claims, notes and other amounts receivable by the Company and its Subsidiaries from any Person, including customers and employees, arising from the conduct of the Business before the Closing, whether or not in the ordinary course, together with any unpaid interest or financing charges accrued thereon and any security or collateral for such items, including recoverable deposits;
(uuuu)	“Reference Balance Sheet” means the balance sheet dated as of September 30, 2009 included in the Interim Financial Statements;
(vvvv)	“Refund” has the meaning attributed thereto in Section 5.9(g);

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(wwww)	“Registered” means issued by, registered, recorded or filed with, renewed by or the subject of a pending application before any Authority or Internet domain name registrar;
(xxxx)	“Required Financial Information” has the meaning attributed thereto in Section 5.13(d);
(yyyy)	“Regulatory Approvals” means German Merger Control Approval, and any additional approvals, authorizations, filings and notifications that the Parties determine are required under any other applicable antitrust, competition or trade regulation Law;
(zzzz)	“Related Party Transactions” has the meaning attributed thereto in Section 3.1(q)(i);
(aaaaa)	“Release” means a releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping;
(bbbbb)	“Representatives” has the meaning attributed thereto in Section 5.2(a);
(ccccc)	“Software” means all (i) computer programs, applications, systems and code, including software implementations of algorithms, models and methodologies, program interfaces, and source code and object code, (ii) Internet and intranet websites, databases and compilations, including data and collections of data, whether machine-readable or otherwise, (iii) development and design tools, library functions and compilers, (iv) technology supporting websites, and the contents and audiovisual displays of websites, and (v) media, documentation and other works of authorship, including user manuals and training materials, relating to or embodying any of the foregoing or on which any of the foregoing is recorded;
(ddddd)	“Subsidiary” means, with respect to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is owned by such Person directly or indirectly through one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through one or more Subsidiaries of such Person has more than a 50% equity interest;
(eeeee)	“Subsidiary Securities” has the meaning attributed thereto in Section 3.1(g)(ii);
(fffff)	“Target Closing Working Capital” means (i) $43,000,000, which is calculated on the basis set forth on Schedule 1.1(fffff), using the same accounting methods, standards, policies, practices, classifications, estimations, methodologies, assumptions and procedures as were used to prepare the Reference Balance Sheet plus (ii) the Employee Bonus Amount minus (iii) any annual performance

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	bonuses for 2009 paid or payable by the Company or any of its Subsidiaries to employees of the Company or any of its Subsidiaries, up to a maximum aggregate amount of $1,000,000;
(ggggg)	“Tax” means all taxes, levies, duties, assessments, reassessments, premiums and other similar charges imposed by any Authority, whether direct or indirect, including income tax, profits tax, gross receipts tax, corporation tax, sales and use tax, wage tax, payroll tax, solidarity surcharge, worker’s compensation levy, employer health tax, capital tax, stamp duty, real and personal property tax, land transfer tax, customs or excise duty, excise tax, turnover or value added tax on goods sold or services rendered, withholding tax, social security and unemployment insurance charges or retirement contributions, and any interest, fines, additions to tax and penalties thereon;
(hhhhh)	“Tax Act” means the Income Tax Act (Canada) and the regulations promulgated thereunder, as amended;
(iiiii)	“Tax Return” means any return (including an information return), declaration, report, statement, claim for a refund, rebate or credit, amended return, declaration of estimated Taxes or other document (including any attached schedule and any attached related or supporting information) relating to Taxes required to be filed, or in fact filed, with any Authority;
(jjjjj)	“Third Party Claim” has the meaning attributed thereto in Section 6.3(b);
(kkkkk)	“Transaction Financing” has the meaning attributed thereto in Section 5.13(d);
(lllll)	“Transaction Personal Information” means any Personal Information in the possession, custody or control of Vendor, the Company or any of its Subsidiaries at the Closing, including Personal Information about Employees, suppliers, customers, directors, officers or shareholders of the Company and its Subsidiaries that is:

(i)	disclosed to Buyer or Parent or any Representative of Buyer or Parent prior to the Closing by Vendor, the Company or any of its Subsidiaries, their respective Representatives or otherwise; or
(ii)	collected by Buyer or Parent or any Representative of Buyer or Parent prior to the Closing from Vendor, the Company or any of its Subsidiaries, their respective Representatives or otherwise;
in either case in connection with the transactions contemplated by this Agreement;

(mmmmm) “2009 Annual Financial Statements” means the audited consolidated financial statements of the Company and its Subsidiaries for the fiscal year ended December 31, 2009, consisting of an audited consolidated balance sheet as of such date and the related audited consolidated statements of income, retained

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earnings and cash flows for the year ended as of such date, in each case, together with all related notes and schedules thereto and accompanied by the report thereon of KPMG;

(nnnnn)	“Vendor” has the meaning attributed thereto in the preamble to this Agreement;
(ooooo)	“Vendor Indemnified Parties” has the meaning attributed thereto in Section 6.2;
(ppppp)	“Vendor Limited Guarantee” means a limited guarantee of Vendor’s obligations under Article 6 of this Agreement to be executed on the Closing Date by Brookfield Asset Management Inc. in favour of Parent and Buyer, substantially in the form of Exhibit B hereto;
(qqqqq)	“Vendor Loans” means (i) the unsecured, non-interest bearing Canadian dollar credit facility provided by Vendor to a Subsidiary of the Company and originally established on January 26, 2005, subsequently increased on April 5, 2006 and later converted to a US dollar denominated facility on July 14, 2006 with a maximum borrowing limit of US$13,305,000 and (ii) the loan by Vendor to the Company secured by a demand promissory note in the principal amount of $4,473,800 bearing interest at the rate of 0.1% per annum; and
(rrrrr)	“Working Capital” means (i) accounts receivables, inventory and prepaid expenses less (ii) accounts payable and accrued liabilities, in each case, of the Company and its Subsidiaries; provided, that (i) the following items shall be excluded from the calculation of Working Capital: (x) any Indemnified Taxes, (y) any current derivative related assets and current derivative related liabilities and (z) the Employee Bonus Amount, and (ii) for purposes of calculating the Estimated Closing Working Capital and the Final Closing Working Capital, the amount of Inventory shall not exceed $34,412,000.

1.2 Time of the Essence

Time shall be of the essence of each provision of this Agreement. Any extension, waiver or variation of any provision of this Agreement shall not be deemed to affect any other provision of this Agreement in such respect and there shall be no implied waiver thereby.

1.3 Calculation of Time

Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends.

1.4 Business Days

Whenever any action to be taken or payment to be made pursuant to this Agreement would otherwise be required to be taken or made on a day that is not a Business Day, such action shall be taken or such payment shall be made on the first Business Day following such day. Interest

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on all amounts due hereunder shall, however, be calculated for all days on which such amounts are outstanding, including each day that is not a Business Day.

1.5 Currency

Unless otherwise specified, all references to amounts of money in this Agreement refer to Canadian currency.

1.6 Headings

The descriptive headings preceding Articles and Sections of this Agreement are inserted solely for convenience of reference and are not intended as complete or accurate descriptions of the content of such Articles or Sections. The division of this Agreement into Articles and Sections shall not affect the interpretation of this Agreement.

1.7 Plurals and Gender

Words in the singular include the plural and vice versa and words in one gender include all genders.

1.8 References to Law

Any reference to any Law shall mean such Law in force as at the date of this Agreement (together with all regulations promulgated thereunder) as the same may be amended, re-enacted, consolidated or replaced from time to time, and any successor Law thereto, unless otherwise expressly provided.

1.9 Other References

(a)	“Include,” “includes” and “including” shall be deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of like import;
(b)	references to a Person are also to its successors and permitted assigns;
(c)	the use of “or” is not intended to be exclusive unless expressly indicated otherwise; and
(d)	all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein.

1.10 Accounting Terms

All accounting terms used in this Agreement that are not otherwise specifically defined shall be interpreted in accordance with Canadian GAAP.

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ARTICLE 2
PURCHASE AND SALE OF PURCHASED SHARES

2.1 Purchase and Sale of Purchased Shares

Subject to the terms and conditions of this Agreement, at the Closing, Vendor shall sell, assign, transfer, convey and deliver the Purchased Shares to Buyer, free and clear of all Encumbrances, and Buyer shall purchase the Purchased Shares. Subject to Section 2.4 and Section 5.11, the aggregate purchase price payable by Buyer to Vendor for the Purchased Shares shall be: (a) $246,500,000 and (b) either: (i) plus, if the Estimated Closing Working Capital is greater than the Target Closing Working Capital, the difference between the Estimated Closing Working Capital and the Target Closing Working Capital, or (ii) minus, if the Estimated Closing Working Capital is less than the Target Closing Working Capital, the difference between the Estimated Closing Working Capital and the Target Closing Working Capital (the sum or the difference, as applicable, of clauses (a) and (b) being the “Purchase Price”).

2.2 Payment of Purchase Price

(a)	At the Closing, Buyer shall satisfy the Purchase Price by (i) payment of the Escrow Amount to the Escrow Agent and (ii) payment to Vendor by wire transfer of immediately available funds in an amount equal to the Purchase Price less the Escrow Amount to a bank account designated in writing by Vendor to Parent at least three Business Days prior to the Closing Date.
(b)	At the Closing, Vendor shall deliver to Buyer a certificate or certificates representing the Purchased Shares, each duly endorsed for transfer or accompanied by a duly executed stock power, all in appropriate form and sufficient for transfer of all of the Purchased Shares to Buyer or to such other Persons as Buyer may otherwise direct in writing, in each case free and clear of all Encumbrances.
(c)	At the Closing, Vendor, Buyer and Parent shall deliver such other documents contemplated by this Agreement or as may otherwise be necessary to complete the transactions provided for in this Agreement.
(d)	Notwithstanding anything to the contrary contained in this Agreement, Buyer shall be entitled to deduct and withhold from any amounts payable to Vendor pursuant to this Section 2.2 such amounts as Buyer is entitled or required to deduct or withhold under any provision of any applicable Tax Law, provided that Buyer shall give Vendor written notice of its intention to make any such deductions or withholdings, together with an explanation of the basis for such action, at least two Business Days prior to the Closing Date. To the extent such amounts are so deducted or withheld and properly paid over to the appropriate Authority, such amounts shall be treated for all purposes as having been paid to Vendor.

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2.3 Place of Closing

Subject to the terms and conditions set forth in this Agreement, the closing of the purchase and sale of the Purchased Shares (the “Closing”) shall take place at the offices of Goodmans LLP, counsel for Vendor, at 333 Bay Street, Suite 3400, Toronto, Ontario, M5H 2S7, as promptly as possible after the execution and delivery of this Agreement but in any event no later than five Business Days after the satisfaction or waiver of all of the conditions set forth in Article 4 (other than those conditions that by their nature can only be satisfied at Closing, but subject to the satisfaction or waiver of those conditions) or at such other location and on such other date as the Parties may mutually agree. The date on which the Closing shall occur is sometimes referred to herein as the “Closing Date”.

2.4 Working Capital Adjustment

(a)	Not less than three Business Days prior to the Closing Date, Vendor shall prepare and submit to Buyer, in writing, a statement of its good faith estimate of the Closing Working Capital (the “Estimated Closing Working Capital”), prepared and calculated on a basis consistent with the calculation of the $43,000,000 component of the Target Closing Working Capital. Buyer shall have an opportunity to review such statement of Estimated Closing Working Capital, and Vendor will cooperate with Buyer in good faith to agree upon the Estimated Closing Working Capital in the event that Buyer disputes any item set forth on such statement.
(b)	Promptly following the Closing Date, but in no event later than 60 days after the Closing Date, Buyer shall prepare and submit to Vendor a statement (the “Closing Date Statement”) setting forth Buyer’s calculation of the Closing Working Capital (the “Proposed Final Closing Working Capital”) which shall be prepared and calculated on a basis consistent with the calculation of the $43,000,000 component of the Target Closing Working Capital.
(c)	In the event Vendor disputes any aspect of the Proposed Final Closing Working Capital, Vendor shall notify Buyer in writing of its objections within 30 days after receipt of the Closing Date Statement and shall set forth, in writing and in reasonable detail, the reasons for Vendor’s objections and the dollar amounts involved (and shall include reasonable supporting documentation). If Vendor fails to deliver a notice of objections within 30 days after receipt of the Closing Date Statement, Vendor shall be deemed to have accepted the Closing Date Statement as prepared by Buyer in its entirety and the Closing Date Statement shall be final, conclusive and binding on the Parties.
(d)	If any such notice of objections is timely delivered by Vendor to Buyer in the manner described in Section 2.4(e), any items as to which there is no disagreement shall be final, conclusive and binding on the Parties, and Vendor and Buyer shall endeavor in good faith to resolve any disputed matters set forth in such notice within 30 days (or such longer period as they may mutually agree in writing) after Buyer’s receipt of Vendor’s notice of objections. If, at the end of

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	such period, Vendor and Buyer are unable to resolve the disputed matters, (i) if such remaining disputed matters involve an aggregate disputed amount of $50,000 or more, they shall be referred by Vendor and Buyer to the Accounting Firm or (ii) if such remaining disputed matters involve an aggregate disputed amount of less than $50,000, the mid-point between Vendor’s and Buyer’s positions with respect to such disputed items shall be final, conclusive and binding on the Parties. The Accounting Firm shall review only those items remaining in dispute and any determination of the Accounting Firm in respect of each such matter remaining in dispute shall be final, conclusive and binding on Vendor and Buyer and not subject to collateral attack for any reason absent manifest error or fraud. The Accounting Firm shall be instructed that (A) with respect to each disputed item, the Accounting Firm shall either accept the position taken by Vendor or the position taken by Buyer and (B) its review shall be limited to determining whether the Proposed Final Closing Working Capital was calculated in a manner consistent with the calculation of Target Closing Working Capital or was arrived at based on mathematical error. The Accounting Firm shall prepare and deliver to Vendor and Buyer a written report explaining its determination. The determination of the Accounting Firm shall be based solely on written submissions by Vendor and Buyer and shall not be based on any independent review by the Accounting Firm. The Closing Working Capital, as finally determined pursuant to this Section 2.4 (whether by failure of Vendor to deliver notice of objection, by agreement of Vendor and Buyer or by determination of the Accounting Firm), is referred to herein as the “Final Closing Working Capital.”
(e)	If the Final Closing Working Capital exceeds the Estimated Closing Working Capital, Buyer shall pay to Vendor the amount of such difference with simple interest thereon from the Closing Date to the date of payment at a rate per annum equal to the Prime Rate at such time plus 2%. If the Estimated Closing Working Capital exceeds the Final Closing Working Capital, Vendor and Buyer shall, within two Business Days of the determination of the Final Closing Working Capital pursuant to this Section 2.4, deliver a joint written notice to the Escrow Agent specifying the amount of such difference, and the Escrow Agent shall, in accordance with the terms of the Escrow Agreement, pay such amount with simple interest thereon from the Closing Date to the date of payment at a rate per annum equal to the Prime Rate at such time plus 2% by wire transfer of immediately available funds to an account designated in writing by Buyer to the Escrow Agent in accordance with the terms of the Escrow Agreement; provided that to the extent that the amount of the Escrow Fund available for such payment is less than such amount, the remaining amount of such payment shall be paid to Buyer by Vendor. Such payment, net of any applicable withholding Tax, shall be made not later than five Business Days after the determination of the Final Closing Working Capital by wire transfer of immediately available funds to a bank account designated in writing to the Party entitled to receive the payment.
(f)	Subject to any applicable privileges (including the solicitor-client privilege), Buyer shall make available to Vendor and, upon request, to the Accounting Firm

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retained in accordance with Section 2.4(d), the books, records, documents and work papers underlying the preparation of the Closing Date Statement. Subject to any applicable privileges (including the solicitor-client privilege), Vendor shall make available to Buyer and, upon request, to the Accounting Firm retained in accordance with Section 2.4(d) the books, records, documents and work papers created or prepared by or for Vendor in connection with the review of the Closing Date Statement.

(g)

The fees, costs and expenses of the Accounting Firm shall be paid by the Party whose Closing Working Capital calculation was different by the greater amount from that of the final determination of the Accounting Firm.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of Vendor

Vendor hereby represents to Parent and Buyer (and acknowledges that Parent and Buyer are relying upon the following representations and warranties in completing the transactions contemplated hereby), that, except as disclosed in the Disclosure Letter:

(a)	Formation and Authority of Vendor
	Vendor is a corporation duly incorporated and validly existing under the laws of Ontario and has all necessary power and authority to enter into and perform its obligations under this Agreement and the Escrow Agreement, and to carry out the transactions contemplated hereby and thereby.
(b)	Title to Shares

(i)

As of the date hereof, the Outstanding Shares constitute all of the issued and outstanding Company Shares, and as of the Closing Date, the Purchased Shares shall constitute all of the issued and outstanding Company Shares or other equity securities of the Company. Vendor is, and at Closing shall be, the registered owner of all of such shares, free and clear of all Encumbrances other than Permitted Encumbrances that shall be released prior to Closing. Section 3.1(b)(i) of the Disclosure Letter sets forth the names of each beneficial owner of (A) the Outstanding Shares as of the date hereof and (B) the Purchased Shares immediately prior to the Closing, in each case, together with the number of shares owned by each of them.

(ii)

Upon consummation of the transactions contemplated by this Agreement, including the conversion of the Vendor Loans into common shares of the Company, and registration of the Purchased Shares in the name of Buyer in the stock records of the Company, Buyer will own, beneficially and of record, all the issued and outstanding Company Shares free and clear of all

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Encumbrances (other than any Encumbrances arising out of actions taken by Buyer).

(c) Organization of the Company and its Subsidiaries

(i)	Each of the Company and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all necessary power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the Business as it has been and is presently conducted and contemplated to be conducted. Each of the Company and each of its Subsidiaries is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the assets and properties owned, operated or leased by it, or the operation of its business, makes such licensing or qualification necessary or desirable, except to the extent that the failure to be so licensed or qualified and in good standing would not have a Material Adverse Change.
(ii)	True and correct copies of the articles of incorporation and bylaws (or other comparable organizational instruments) of the Company and each of its Subsidiaries, each as in effect on the date hereof, have been delivered by Vendor to Buyer. Such articles of incorporation and bylaws (or other comparable organizational instruments) are in full force and effect. None of the Company or any of its Subsidiaries is in violation of any of the provisions of its articles of incorporation or bylaws (or other comparable organizational instruments).
(iii)	The minute books of the Company and each of its Subsidiaries contain accurate records of all meetings and accurately reflect, in all material respects, all other actions taken by the stockholders, boards of directors and all committees of the boards of directors of the Company and each of its Subsidiaries. Complete and accurate copies of all such minute books and of the stock register of the Company and each of its Subsidiaries have been provided by Vendor to Buyer prior to the date hereof.

(d)	Non Contravention
	Except for the Regulatory Approvals, and except as set forth on Section 3.1(d) of the Disclosure Letter, the execution, delivery and performance by Vendor of this Agreement and the Escrow Agreement do not and will not:

(i) conflict with, violate or result in the breach of any of the terms or provisions of the articles of incorporation, bylaws (or other comparable organizational instruments) or resolutions of the board of directors (or any committees thereof) or securityholders, of Vendor, the Company or any of its Subsidiaries;

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(ii)	conflict with or violate any Judgment or award of any Authority having jurisdiction over Vendor, the Company or any of its Subsidiaries or any of their respective assets, properties or businesses;
(iii)	conflict with, contravene, result in a breach or violation of, or conflict with or result in a default (or an event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or allow any Person to exercise any rights, including any right of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any right of first refusal of other Encumbrance on any of the Purchased Shares or any other assets or properties of the Company or any of its Subsidiaries pursuant to, any Material Contract or Permit, except as would not cause a Material Adverse Change; or
(iv)	conflict with or violate (or cause a Material Adverse Change under), any Law applicable to Vendor, the Company or any of its Subsidiaries or any of their respective assets, properties or businesses.

(e)	Enforceability of Obligations
	The execution and delivery of this Agreement by Vendor and the Escrow Agreement has been duly authorized by all necessary corporate action on the part of Vendor and the registered and beneficial owners of the Outstanding Shares. This Agreement has been duly executed and delivered by or on behalf of Vendor and, at or prior to the Closing, Vendor will have duly executed and delivered the Escrow Agreement, and this Agreement constitutes, and the Escrow Agreement, when duly executed and delivered at Closing by Vendor, will constitute, a legal, valid and binding obligation of Vendor enforceable against Vendor in accordance with their respective terms; provided that enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally and that specific performance, injunctive relief and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction.
(f)	Consents
	Except for German Merger Control Approval, the execution, delivery and performance of this Agreement and the Escrow Agreement, and the consummation of the transactions contemplated hereby and thereby, do not and will not require any consent, approval or authorization of, or declaration, filing or registration with, any Authority to be made or obtained by Vendor, the Company or any of its Subsidiaries prior to the consummation of the transactions contemplated in this Agreement, except where the failure to obtain a Regulatory Approval would not be material to the Company and its Subsidiaries or would not prevent or materially delay the consummation by Vendor of the transactions contemplated by this Agreement and the Escrow Agreement.

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(g) Capitalization

(i)	The authorized capital of the Company consists of: (A) an unlimited number of common shares, of which 32,723,351 shares are issued and outstanding as of the date hereof and (B) an unlimited number of restricted voting shares, of which 12,776,649 shares are issued and outstanding as of the date hereof (all such issued and outstanding Company Shares, collectively, the “Outstanding Shares”).
(ii)	Section 3.1(g)(ii) of the Disclosure Letter sets forth a complete and accurate list of each of the Subsidiaries of the Company, together with (A) their jurisdiction of incorporation or formation, (B) the authorized and issued and outstanding shares of capital and other equity securities of each of the Subsidiaries of the Company (the “Subsidiary Securities”), and (C) the name of each record holder of such Subsidiary Securities. All such Subsidiary Securities are held by such holders free and clear of all Encumbrances other than Permitted Encumbrances that shall be released prior to Closing, and all of the outstanding Subsidiary Securities are owned of record or beneficially by the Company. Other than the Subsidiaries listed in Section 3.1(g)(ii) of the Disclosure Letter, there are no other corporations, partnerships, joint ventures, associations or other entities in which the Company or any of its Subsidiaries owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent or otherwise) to acquire the same.
(iii)	None of Vendor, the Company nor any of its Subsidiaries has granted any preemptive rights, rights of first refusal or similar rights with respect to any of the Company Shares or the Subsidiary Securities, and other than the Option Plan, there are no offers, options, warrants, rights, agreements or commitments of any kind granted by Vendor, the Company or any of its Subsidiaries relating to the issuance, conversion, registration, voting, sale or transfer of Company Shares or Subsidiary Securities or obligating Vendor, the Company or any of its Subsidiaries to issue, sell, purchase or redeem any of such Subsidiary Securities. There are no voting trusts, securityholder agreements, voting trust agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of the Company Shares or any Subsidiary Securities or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person. The Outstanding Shares and all outstanding Subsidiary Securities have been, and the Purchased Shares will be, issued and granted in compliance with (A) all applicable securities Laws and other applicable Laws and (B) all requirements set forth in applicable contracts.

(h) Compliance with Law; Licenses, Permits and Authorizations

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(i)	Neither the Company nor any of its Subsidiaries is in violation in any material respect of any Law applicable to the Company, any of its Subsidiaries or the Business, and the Company and each of its Subsidiaries have conducted the Business in compliance with all applicable Laws in all material respects. During the five years prior to the date hereof, neither the Company nor any of its Subsidiaries has received any written communication from any Authority of any alleged failure to comply with any applicable Laws in any material respect which is pending or remains unresolved.
(ii)	The Company and each of its Subsidiaries is in possession of all authorizations, licenses, permits, grants, easements, variances, exceptions, consents, certificates, approvals and orders of any Authority necessary or desirable for them to own, lease and otherwise hold and operate their properties and other assets and to carry on the Business (the “Permits”) except for any Permits the absence of which would not cause a Material Adverse Change. All such Permits are listed on Section 3.1(h) of the Disclosure Letter and, to the knowledge of Vendor, all such Permits are in full force and effect and no suspension, cancellation or withdrawal of any such Permit is pending or threatened.
(iii)	None of the Company, any of its Subsidiaries, or, to the knowledge of Vendor, any director, officer, agent, employee, partner or Affiliate of the Company or any of its Subsidiaries is aware of, has taken any action, directly or indirectly, that would result in: (A) a violation by such persons of any applicable Laws and regulations relating to bribery or corruption, including with respect to making any offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any official of any Authority or any foreign political party or official thereof or any candidate for foreign political office or (B) a violation or operation in noncompliance with any export restrictions, anti-boycott regulations, embargo regulations or other applicable Laws and regulations.

(i) Financial Statements

(i) True and complete copies of the Financial Statements have been delivered by Vendor to Buyer. All of Financial Statements (including the notes thereto) (A) were prepared in accordance with the books of account and other financial records of the Company and its Subsidiaries, (B) present fairly and accurately, in all material respects, the assets, liabilities (whether accrued, absolute, contingent or otherwise), financial position, results of operations and cash flows of the Company and its Subsidiaries, on a consolidated basis, as of the dates thereof and for the periods covered thereby, (C) were prepared in accordance with Canadian GAAP applied on a consistent basis in accordance with the past practices of the Company and its Subsidiaries except as otherwise disclosed in Section 3.1(i)(i) of

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	the Disclosure Letter with respect to the Interim Financial Statements and (D) include all adjustments (consisting only of normal recurring accruals, to the extent applicable) that are necessary for a fair presentation of the consolidated financial condition of the Company and its Subsidiaries as of the dates thereof or for the periods covered thereby, except for customary year-end adjustments not reflected on the Interim Financial Statements.
(ii)	The books of account and other financial records of the Company and its Subsidiaries: (A) reflect all items of income and expense and all assets and liabilities required to be reflected therein in accordance with Canadian GAAP applied on a consistent basis in accordance with the past practices of the Company and its Subsidiaries, (B) are in all material respects complete and correct, and do not contain or reflect any material inaccuracies or discrepancies, and (C) have been maintained in accordance with good business and accounting practices.
(iii)	The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorizations, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with Canadian GAAP and to maintain asset accountability, (C) access to assets is permitted only in accordance with management’s general or specific authorization, and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(iv)	Since December 31, 2008, neither the Company nor any of its Subsidiaries nor, to the knowledge of Vendor, any director, officer, employee, auditor, accountant or representative of Vendor, the Company or any of its Subsidiaries, has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or Claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or its Subsidiaries or their respective internal accounting controls, including any complaint, allegation, assertion or Claim that the Company or any of its Subsidiaries has engaged in questionable accounting or auditing practices. Since December 31, 2008, there have been no internal investigations regarding accounting or revenue recognition discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer, general counsel, the board of directors of the Company or any committee thereof.
(v)	Section 3.1(i)(v) of the Disclosure Letter sets forth a true, correct and complete list and description of all bank accounts used by the Company and its Subsidiaries as well as the name of each Person with signing authority or access thereunder.

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(j)	Absence of Undisclosed Liabilities
	The Company and its Subsidiaries have not incurred any liabilities or obligations (whether accrued, absolute, contingent or otherwise) of any kind that would have been required to be reflected on, reserved against, or otherwise disclosed on a consolidated balance sheet of the Company and its Subsidiaries or the notes thereto prepared in accordance with Canadian GAAP, except (i) as reflected on, reserved against or otherwise disclosed in the balance sheets included in the annual consolidated financial statements of the Company for the fiscal year ended December 31, 2008 or the Interim Financial Statements; (ii) as set forth on Section 3.1(j) of the Disclosure Letter; or (iii) as incurred in the ordinary course of business, consistent with past practice, since September 30, 2009.
(k)	Tax Matters
	Except as set forth on Section 3.1(k) of the Disclosure Letter:

(i)	The Company and each of its Subsidiaries has duly and timely filed all material Tax Returns required to be filed by it with the appropriate Authority and all such Tax Returns were accurate and complete in all material respects.
(ii)	The Company and each of its Subsidiaries have duly and timely paid all Taxes, including all installments on account of Taxes for the current year, that are due and payable by it.
(iii)	Adequate provision has been made in the Reference Balance Sheet for any Taxes of the Company and each of its Subsidiaries due and unpaid at the date of the balance sheet of the Reference Balance Sheet.
(iv)	There are no Encumbrances against the Company or any of its Subsidiaries or any of their assets for unpaid Taxes.
(v)	Neither the Company nor any of its Subsidiaries is liable for Taxes of any other Person.
(vi)	The provisions for Taxes in the Reference Balance Sheet are sufficient to cover all liabilities for Taxes (including Tax installments) that have been assessed, whether or not disputed, or that are accruing in respect of the Business and/or the property or operations of the Company and its Subsidiaries for all periods ending on or before the date of the Reference Balance Sheet.
(vii)	There are no notices of objection or appeals outstanding with respect to any assessment, reassessment or determination of the Taxes of Company or any of its Subsidiaries by any Authority. There are no actions, suits, audits, investigations, claims or other proceedings pending or, to the knowledge of Vendor, threatened, against the Company or any of its

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	Subsidiaries in respect of any Taxes. There are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any Tax Return or the payment of any Taxes by the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has waived or otherwise extended any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. The Company and each of its Subsidiaries has withheld or collected all amounts in respect of Taxes required to be withheld or collected by them and have timely remitted such amounts withheld or collected in the form required under the appropriate Tax Law. The Company and each of its Subsidiaries has charged, collected and remitted on a timely basis all Taxes as required under applicable Tax Law on any sale, supply or delivery whatsoever made by the Company or any of its Subsidiaries.
(viii)	No written Claim has been received from a jurisdiction in which Tax Returns have not been filed by the Company or any of its Subsidiaries to the effect that the Company or any of its Subsidiaries is or may be subject to taxation by such jurisdiction.
(ix)	All sales and license transactions between the Company and any of its Subsidiaries or between any such Subsidiaries have been conducted in accordance with applicable transfer pricing rules and all material documentation to substantiate such transactions has been preserved and is maintained by the Company and its Subsidiaries. There is no taxable income of the Company or any of its Subsidiaries that will be required under applicable Tax Law to be reported for a taxable period beginning after the Closing Date as a result of a change in method of accounting or a transaction that occurred, and pursuant to which a payment was received, prior to the Closing Date.
(x)	The Company has delivered to Buyer, or otherwise made available for review by Buyer, all Tax Returns in respect of income, franchise and similar Taxes and all other material Tax Returns required to be filed by the Company and its Subsidiaries for taxable periods for which the statute of limitations has not expired.
(xi)	Each beneficial owner of the Outstanding Shares is, and at Closing, each beneficial owner of the Purchased Shares will be, a person resident in Canada for purposes of the Tax Act.

(l)	Absence of Changes
	Since December 31, 2008 to the date hereof:

(i) the Company and each of its Subsidiaries have conducted the Business in the ordinary course consistent with past practice;

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(ii)	none of the Company or any of its Subsidiaries has taken any action that, if taken after the date hereof, would require the prior written consent of Buyer pursuant to Sections 5.1(e)(i), (ii), (iii), (iv), (viii), (ix), (x) (other than in connection with the construction of the New Line), (xiv) or (xx); and
(iii)	there has not been any Material Adverse Change.

(m)	Title to Personal Properties
	Except as set forth on Section 3.1(m) of the Disclosure Letter, each of the Company and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, all of their respective personal properties and assets that are material to the Business (collectively, the “Personal Property”), in each case free and clear of all Encumbrances other than Permitted Encumbrances.

(n)	Leases of Real Property
	Section 3.1(n) of the Disclosure Letter sets forth the address of each leased Real Property and all leases, assignments or subleases for the leased Real Property, including all amendments and modifications in connection therewith (the “Leases”). Each Lease is valid and binding on the Company or its Subsidiaries, as applicable and, to the knowledge of Vendor, each other party thereto. Neither the Company nor any of its Subsidiaries is in breach of, or default under any Lease to which it is a party and, to the knowledge of Vendor, none of the other parties to any of the Leases is in breach of or default under any Lease, except in any case for such breaches or defaults, which would not cause a Material Adverse Change.
(o)	Real Property

(i)

Section 3.1(o) of the Disclosure Letter sets forth a complete list of Owned Real Property in each case by reference to the owner and municipal address. Except as set forth on Section 3.1(o) of the Disclosure Letter, the Company or the applicable Subsidiary of the Company, as the case may be, is the legal and beneficial owner of the Owned Real Property in fee simple, with good and marketable title thereto, free and clear of all Encumbrances other than Permitted Encumbrances.

(ii)

The Real Property and the current use of it comply in all material respects with all applicable Laws, including zoning Laws. During the last five years, no written notice of violation of any applicable Laws or of any covenant, restriction or easement affecting the Real Property or any part of it or with respect to the use or occupancy of the Real Property or any part of it has been given by any Authority having jurisdiction over the Real Property which is pending or remains unresolved.

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(iii)	There are no existing or, to the knowledge of Vendor, proposed, contemplated or threatened, expropriation proceedings that would result in the taking of all or any part of the Real Property or that would materially adversely affect the current or contemplated use of the Real Property or any part of it.
(iv)	There is no encroachment onto the Real Property by buildings or improvements from any adjoining lands that would materially adversely affect the current or contemplated use of the Real Property or any part of it.
(v)	The Real Property and the Improvements are in good operating condition and repair in all material respects, and are suitable and adequate for the purposes for which they have been designed.
(vi)	All amounts for labour and materials relating to the construction and repair of the Improvements on the Real Property have been or will be paid in the ordinary course of business and, except for Permitted Encumbrances, no one has a right to file a construction, builders’, mechanics’ or similar lien under any applicable Laws in respect of the Improvements or the Real Property.
(vii)	No part of the Real Property has been designated or is threatened to be designated pursuant to applicable Laws: (A) as an historical site or building or (B) for regulation by any conservation authority.
(viii)	The Real Property has full and free legally enforceable access to and from public roads, which access is sufficient for the purposes of the operation of the Business, and, to the knowledge of Vendor, there is no fact or condition that would result in the interruption or termination of such access.

(p)	Litigation
	Except as set forth on Section 3.1(p) of the Disclosure Letter, there is no Claim by or against the Company or any of its Subsidiaries (or by or against Vendor or any Affiliate thereof relating to the Business, the Company or any of its Subsidiaries) or affecting the Business, properties or the assets of the Company or any of its Subsidiaries, pending, or, to the knowledge of Vendor, threatened to be brought, by or before any Authority. None of the matters set forth on Section 3.1(p) of the Disclosure Letter has a Material Adverse Change or could affect the legality, validity or enforceability of this Agreement. There are no Judgments against, or affecting the Business, properties or the assets of, the Company or any of its Subsidiaries that would result in a Material Adverse Change.
(q)	Non-Arm’s Length Transactions

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(i)	Neither the Company nor any of its Subsidiaries has made any payment or loan to, or borrowed any monies from or is otherwise indebted to, any officer, director, employee, shareholder or any other Person with whom such Person is not dealing at arm’s length or any Affiliate of any of the foregoing, except as disclosed in the Financial Statements or as set forth on Section 3.1(q) of the Disclosure Letter and except for usual compensation to officers, directors and employees (in their respective capacities as such) paid in the ordinary and normal course of the Business, consistent with past practice.
(ii)	To the knowledge of the Vendor, no employee, officer, director, shareholder or Affiliate of the Company or any of its Subsidiaries (A) has or has had, directly or indirectly, an economic interest in any Person that has furnished or sold, or furnishes or sells, services or products that the Company or any of its Subsidiaries furnishes or sells, or proposes to furnish or sell; (B) has or has had, directly or indirectly, an economic interest in any Person that purchases from or sells or furnishes to, the Company or any of its Subsidiaries, any goods or services; (C) has or has had, directly or indirectly, a beneficial interest in any contract or agreement disclosed on Section 3.1(r) of the Disclosure Letter; or (D) is a party to any current material agreement, contract, commitment or transaction with the Company or any of its Subsidiaries or has any interest in any material property or material asset of the Company or any Subsidiary of the Company.
(iii)	Except as disclosed in the Financial Statements or set forth on Section 3.1(q) of the Disclosure Letter, there are no contracts, agreements, arrangements, transactions or proposed transactions between the Company or any of its Subsidiaries, on the one hand, and Vendor or any officer, director or Affiliate of the Company or Vendor, on the other hand (“Related Party Transactions”), other than pursuant to employment agreements or arrangements made available or described to Parent and Buyer prior to the date hereof. All Related Party Transactions were on terms and conditions as favourable to the Company or such Subsidiary of the Company, as the case may be, as would have been obtainable by it at the time in a comparable arm’s length transaction with an unrelated party.

(r) Material Contracts

(i) Except as set forth on Section 3.1(r) of the Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to or bound by any of the following (collectively, the “Material Contracts”):

(A) any contract, agreement, purchase or sale order, including the terms and conditions governing such purchase or sale order, for the manufacture, sale or distribution of any Company Products (except for purchase orders for the sale of Inventories on terms and

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	conditions substantially similar to the terms and conditions previously provided to Buyer or the purchase of raw materials or supplies in the ordinary course of the Business consistent with past practice) or other commitment or arrangement that (i) contemplates any exchange of consideration with an aggregate value greater than $250,000 during the calendar year ended December 31, 2009 or over the remaining term set forth therein, and (ii) may not be terminated by the Company or any of its Subsidiaries without penalty or further payment upon 30 days’ or less prior written notice;
(B)	any contract, agreement or commitment for the purchase or sale of any equipment or fixed or capital assets having a fair market value in excess of $250,000;
(C)	any trust indenture, mortgage, promissory note, loan agreement or other contract, agreement or commitment for the borrowing of money;
(D)	any leasing transaction of the type required to be capitalized in accordance with Canadian GAAP;
(E)	any contract, agreement or commitment limiting the freedom of any Person to engage in any line of business, compete with any other Person (including any limitation on competition in any geographic area or during any period of time) or otherwise conduct the Business, including any restrictions relating to “exclusivity” or any similar requirement in favour of any Person other than the Company or its Subsidiaries;
(F)	any Company IP Agreement (other than licenses of Off-the-Shelf Software licensed pursuant to shrink-wrap or click-wrap agreements);
(G)	any joint venture, limited liability company, partnership or other similar contracts (and amendments thereto) involving the sharing of profits, losses, costs or liabilities or in which the Company or any of its Subsidiaries otherwise holds an interest in any other Person;
(H)	any contract, agreement or other arrangement with any Authority other than the Public Grants;
(I)	any contract, agreement or other arrangement pursuant to which the Company or any of its Subsidiaries grant another Person “most favoured nation” or similar status;

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(J)	all contracts relating to the acquisition or disposition of any material business, operations or division (whether by merger, sale of stock, sale of assets or otherwise);
(K)	any contracts relating to the settlement of any Claim material to the Company or any of its Subsidiaries;
(L)	any contract granting an Encumbrance other than Permitted Encumbrances upon all or any part of any material asset of the Company or any of its Subsidiaries;
(M)	all contracts set forth on Section 3.1(q) of the Disclosure Letter;
(N)	all contracts which grant any right of first refusal, right of first offer or similar right with respect to any material assets of properties of the Company or any of its Subsidiaries;
(O)	the Guarantees;
(P)	all Leases and Personal Property Leases;
(Q)	any contract, agreement, arrangement or other commitment of the Company or any Subsidiary relating to any interest rate, currency or commodity derivative, hedge or similar transaction; and
(R)	all other contracts and agreements, whether or not made in the ordinary course of business, which are material to the Company, any of its Subsidiaries or the conduct of the Business, or the absence of which would have a Material Adverse Change.

(ii)

Each Material Contract is valid and binding on the Company and its Subsidiaries, as the case may be, and, to the knowledge of Vendor, the other parties thereto, and is in full force and effect. Neither the Company nor any of its Subsidiaries nor, to the knowledge of Vendor, any of the other parties thereto, are in material breach of, or material default under, or has received any written notice of termination, cancellation, breach or default under, any Material Contract to which it is a party.

(iii)

Vendor has made available to Buyer true and complete copies of all Material Contracts.

(s) Employment Matters

(i) Section 3.1(s)(i) of the Disclosure Letter contains a complete and accurate list (subject to such redactions as are required or appropriate pursuant to applicable privacy Laws) of all managing directors and other employees of the Company and its Subsidiaries who currently earn base annual compensation in excess of $150,000, including any managing directors or

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	other employees of the Company or any of its Subsidiaries who are, or as of the Closing Date will be, on any authorized leave of absence, short-term disability, workers’ compensation leave, maternity or parental leave, vacation leave or other dismissal protection (collectively, the “Employees”), including their respective positions, current remuneration (including bonuses or other incentives), notice periods for termination, special protection against dismissal, change-of-control clauses and post-contractual non-compete covenants. No Employee has given notice or otherwise terminated or, to the knowledge of Vendor, intends to give notice or otherwise terminate, his or her employment relationship with the Company or any of its Subsidiaries.
(ii)	Except as set forth on Section 3.1(s)(ii) of the Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to or bound by any agreements with past or present employees, agents or independent contractors which are not terminable by the Company or its applicable Subsidiary on the giving of notice in accordance with applicable Laws. There are no oral contracts of employment entered into with any Employees other than contracts of indefinite hire terminable by the Company or its applicable Subsidiary in accordance with applicable Law and on reasonable notice and neither the Company nor any of its Subsidiaries has entered into any agreements with any employees or independent contractors with respect to the termination of employment or other relationship. Neither the Company nor any of its Subsidiaries has an obligation to re-instate any employees or independent contractors. Other than as set forth on Section 3.1(s)(ii) of the Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to or bound by any oral or written contract or commitment providing for severance, notice of termination or pay in lieu of notice of termination or termination, severance, retention or similar payments.
(iii)	Except as set forth on Section 3.1(s)(iii) of the Disclosure Letter, there are no agreements obligating the Company or any of its Subsidiaries to provide any cash or other compensation or benefits to any managing director, director, officer, employee, consultant or agent upon or as a result of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement.
(iv)	All liabilities and obligations in respect of all Employees and all other employees of the Company and its Subsidiaries have, in all material respects, been timely fulfilled, paid or accrued in the ordinary course of business, including premium contributions, bonus and incentive payments, remittance and assessments for employment insurance, employer health tax, social security payments (Sozialabgaben), Canada Pension Plan, Quebec Pension Plan, income tax, workplace safety and insurance and any other employment-related legislation, accrued wages, Taxes, salaries,

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	commissions and employee benefit plan payments, contributions and premiums.
(v)	Except as set forth on Section 3.1(s)(v) of the Disclosure Letter, there are no outstanding, pending, or to the knowledge of Vendor, threatened assessments, actions, causes of action, claims, complaints, grievances, demands, orders, prosecutions or suits against the Company or any of its Subsidiaries or their respective managing directors, executives, officers or agents pursuant to or under any applicable employment Laws, including Canada Pension Plan, Quebec Pension Plan, unemployment insurance, Tax, employer health tax, employment standards, labour relations, language legislation, occupational health and safety, human rights, workplace safety and insurance and pay equity laws.
(vi)	Except as set forth on Section 3.1(s)(vi) of the Disclosure Letter, neither the Company nor any of its Subsidiaries has made any contract or agreements with, or commitment to, whether directly or indirectly, any labour union, employee association or other similar entity or made commitments to or conducted negotiations with any labour union or employee association or similar entity with respect to any past, current or future agreements. Except as set forth on Section 3.1(s)(vi) of the Disclosure Letter, no works agreement (Betriebsvereinbarung), reconciliation of interests (Intessenausgleich) or social plan (Sozialplan) exist by which the Company or any of its Subsidiaries is bound. Except as set forth on Section 3.1(s)(vi) of the Disclosure Letter, no trade or labour union, employee association or other similar entity has any bargaining rights acquired by accreditation, certification or voluntary recognition with respect to the employees of the Company or any of its Subsidiaries. None of the German Subsidiaries is a member of any employer’s association or has entered into any collective bargaining agreements (Tarifverträge), nor do any collective bargaining agreements apply to any employment relationship with any of the German Subsidiaries.
(vii)	There has been no and, to the knowledge of Vendor, there is no threat of any (A) strike, lock-out, work stoppage, work slow down or labour dispute in the past three years, or (B) material outstanding labour or employment proceedings of any kind (including unfair labour practice complaints, grievances, arbitrations or applications for declaration of related or successor employer) in respect of the employees of the Company or any of its Subsidiaries.
(viii)	Section 3.1(s)(viii) of the Disclosure Letter contains a complete and accurate list of all establishments (Betriebe) or other locations of any of the German Subsidiaries and of all existing works councils (Betriebsräte). No company works council (Gesamtbetriebsrat) or group works council (Konzernbetriebsrat) is established at one of the German Subsidiaries.

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(ix) None of the German Subsidiaries was involved in any transfer of a business (Betriebsübergang) or transfer of part of a business (Betriebsteilübergang) during the last five years.

(t) Benefit Plans

(i)	Section 3.1(t)(i) of the Disclosure Letter contains a complete and accurate list of all Benefit Plans. Except as set forth on Section 3.1(t)(i) of the Disclosure Letter, no Benefit Plan is a pension plan that is required to be registered under applicable pension legislation or a multi-employer plan as defined by applicable legislation.
(ii)	Each of the Benefit Plans has been established, maintained, funded, invested and administered in compliance in all material respects with its terms, with all plan summaries and booklets and with applicable Laws and fiduciary standards. To the extent required, all of the Benefit Plans have been approved by the appropriate authorities.
(iii)	All material obligations of the Company and each of its Subsidiaries required to be performed in connection with the Benefit Plans and funding media established therefor, including the making or payment of contributions or premiums, have been performed, and there are no material outstanding defaults or violations by the Company or its Subsidiaries.
(iv)	There are no outstanding material claims pending or, to the knowledge of Vendor, threatened against, concerning or affecting the Benefit Plans.
(v)	There are no outstanding material liabilities under the Tax Act or any other Tax Laws with respect to the Benefit Plans.
(vi)	There have been no withdrawals of, or applications made to withdraw, surplus from any Benefit Plan. No contribution or premium holidays have been taken in respect of any Benefit Plan.
(vii)	No Benefit Plan provides benefits to retirees or to Employees after termination of employment or provides for retroactive charges or premium increases.
(viii)	There are no participants or other individuals entitled to participate in any Benefit Plan other than current or former employees, directors or officers of the Company and its Subsidiaries.
(ix)	With regard to the German Subsidiaries, no pension or retirement schemes or similar commitments or arrangements with any managing directors or other employees exist or have been made or promised by the Company or any of its Subsidiaries, except for statutory pension rights (Gesetzliche Rentenversicherung) or as set forth on Section 3.1(t)(ix) of the Disclosure Letter.

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(x)

None of the employees or managing directors of the German Subsidiaries have any Claims against the Company or any of its Subsidiaries based on occupational customs and practices (betriebliche Übung) or general commitments by the employer (Gesamtzusagen).

(xi)

The execution of this Agreement and the completion of the transactions contemplated hereby will not constitute an event under any Benefit Plan that would result in any payment (whether of severance pay or otherwise), acceleration of payment, or vesting of benefits, forgiveness of indebtedness, vesting, distribution, restriction on funds, increase in benefits or obligation to fund benefits with respect to any Employee.

(u)	Insurance
	All material assets and properties of the Company and each of its Subsidiaries are, and for the past five years have been, covered by valid and, except for insurance policies that have expired under their terms in the ordinary course, currently effective insurance policies or binders of insurance (including general liability insurance, property insurance and workers’ compensation insurance) issued in favour of the Company or one of its Subsidiaries, as the case may be. Section 3.1(u) of the Disclosure Letter sets forth a list of all insurance policies and bonds with respect to which the Business, the Company and each of its Subsidiaries is an insured and, except as otherwise specified therein, such coverages are in full force and effect, all due premiums have been paid and the Company or the relevant Subsidiary of the Company is the sole beneficiary of such policies. None of the insurers on this list for any such policy or bond has, to the knowledge of the Vendor, been declared insolvent or placed in receivership, conservatorship or liquidation. Neither the Company nor any of its Subsidiaries has taken any action or failed to take any action which, with notice or the lapse of time, or both, would constitute a default in any material respect, whether as to payment of premium or otherwise, under the terms of any such insurance policy or bond, or has failed to give any material notice or file or present any material claim under any such insurance policy or bond in a due and timely fashion or received notice or otherwise has knowledge of any intent of an insurer to either claim any default on its part or to terminate or cancel any policy of insurance prior to its expiration date, or fail to renew any policy of insurance on its expiry.
(v)	Intellectual Property

(i)	Section 3.1(v)(i) of the Disclosure Letter sets forth a list of all Registered Company Intellectual Property.
(ii)	The Company and its Subsidiaries have sufficient rights to use the Company Intellectual Property in connection with the conduct of the Business, all of which rights shall survive unchanged the consummation of the transactions contemplated by this Agreement. The Company Intellectual Property includes all Intellectual Property Rights used or held

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	for use in connection with the conduct of the Business, and there are no other items of Intellectual Property Rights that are material to or necessary for the conduct of the Business. Except as set forth on Section 3.1(v)(ii) of the Disclosure Letter, Company or its Subsidiaries are the exclusive owner of all right, title and interest in and to each item of Owned Intellectual Property, free and clear of any Encumbrances other than Permitted Encumbrances. The Company and each of its Subsidiaries have a valid license to use the Licensed Intellectual Property in connection with the conduct of the Business, subject only to the terms of the Company IP Agreements.
(iii)	The Owned Intellectual Property is (A) valid, subsisting and enforceable, (B) currently in compliance in all material respects with any and all formal legal requirements necessary to maintain the validity and enforceability thereof, and (C) not subject to any outstanding order, judgment, injunction, decree, ruling or agreement adversely affecting the Company’s or any of the Company’s Subsidiaries’ use thereof or rights thereto, or that would impair the validity or enforceability thereof. The Registered Owned Intellectual Property is currently in compliance in all material respects with any and all formal legal requirements necessary to record and perfect the Company’s and the Company’s Subsidiaries’ interest therein and the chain of title thereof.
(iv)	Except as set forth on Section 3.1(v)(iv) of the Disclosure Letter, there is no Claim pending, asserted or, to the knowledge of Vendor threatened, by or against the Company or any of its Subsidiaries concerning the ownership, validity, registerability, enforceability or use of, or licensed right to use, any Owned Intellectual Property.
(v)	The Company and its Subsidiaries, the conduct of the Business and the use of the Company Intellectual Property and Company Products (including any method of manufacturing thereof) in connection therewith do not, and have not in the last six years, infringed, misappropriated or otherwise violated or conflicted with the Intellectual Property Rights of any other Person. To the knowledge of Vendor, no Person is engaging, or has engaged in the last six years, in any activity that infringes, misappropriates or otherwise violates or conflicts with any Owned Intellectual Property.
(vi)	The Company and its Subsidiaries have taken all reasonable measures to maintain the confidentiality and value of all confidential information used or held for use in the conduct of the Business. To the knowledge of Vendor, no confidential information, trade secrets or other confidential Company Intellectual Property have been disclosed by the Company or any of its Subsidiaries or, discovered by any Person except pursuant to appropriate non-disclosure and/or license agreements that (A) obligate such Person to keep such confidential information, trade secrets or other confidential Company Intellectual Property confidential both during and

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after the term of such agreement, and (B) are valid, subsisting, in full force and effect and binding on the parties thereto and with respect to which no party thereto is in material default thereunder and no condition exists that with notice or the lapse of time or both could constitute a material default thereunder.

(vii)

To the extent that any Intellectual Property Rights that are material to the Business have been conceived, developed or created for the Company or any of its Subsidiaries by any other Person, the Company and/or such Subsidiary, as applicable, have executed valid and enforceable written agreements with such Person with respect thereto transferring to the Company and/or such Subsidiary the entire and unencumbered right, title and interest therein and thereto by operation of law or by valid written assignment. The Company and its Subsidiaries have timely and effective exercised any and all claims under Section 6.1 of the German Act on Employee Inventions, by means of an unlimited claim, in relation to service inventions (Diensterfindungen) that are material to the Business by any of its current or former employees, whether notified in accordance with Section 5.1 of the German Act on Employee Inventions or otherwise come to the knowledge of the Company or any of its Subsidiaries.

(w)	Environmental Matters
	Except as set forth on Section 3.1(w) of the Disclosure Letter:

(i)	The Business has been and is being carried on in compliance with all applicable Environmental Laws in all material respects and no notice of alleged non-compliance or liability has been received nor, to the knowledge of Vendor, are there any facts and circumstances that would reasonably be expected to give rise to such a notice.
(ii)	Since such time as the relevant Real Property has been used, operated or occupied by the Company or any of its Subsidiaries, as applicable (nor, to the knowledge of Vendor, prior to such time), there has not been a Release of any Hazardous Substances on, under or emanating to or from any Real Property where the Company or any of its Subsidiaries, as applicable, conduct or has conducted the Business, and all Hazardous Substances generated, disposed of, treated, handled, transported or stored by the Company or any of its Subsidiaries have been generated, disposed of, treated, handled, transported and stored in compliance with all Environmental Laws and are not reasonably expected to result in a material liability.
(iii)	There are no civil, judicial, administrative or regulatory proceedings or investigations against or involving the Company or any of its Subsidiaries or in connection with the Business pending or, to the knowledge of

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Vendor, threatened, which allege non-compliance with Environmental Laws or liability relating to Hazardous Substances.

(x)

Brokers

Except for CIBC World Markets Inc. (“CIBC”) and HSBC Securities (Canada) Inc. (“HSBC”), neither Vendor nor any of its Affiliates has engaged any broker or other agent in connection with the transactions contemplated in this Agreement and, accordingly, there is no commission, fee or other remuneration payable, or other liability incurred, by Vendor, the Company or any of its Subsidiaries to any broker, underwriter or agent in connection with any of the transactions contemplated by this Agreement other than CIBC and HSBC. Vendor or one of its Affiliates (other than the Company or one of its Subsidiaries) is solely responsible for any fees and expenses of CIBC, HSBC, Goodmans LLP and each other professional firm, consultant, agent or other service provider retained by Vendor or its Affiliates in connection with the transactions contemplated hereby.

(y) Government Grants

(i)

Section 3.1(y) of the Disclosure Letter contains a complete and accurate list of all subsidies, allowances, aides and other public grants, including those within the meaning of Article 87 of the EC Treaty or comparable applicable Laws of other jurisdictions which have been granted to (involving any obligations, accrued or contingent), or applied for by, the Company or any of its Subsidiaries and in respect of which there are any funds that remain to be disbursed or ongoing conditions or covenants that continue to apply to the Company or its Subsidiaries (together, the “Public Grants”), in each case specifying the type, total amount granted, amount already received and material terms of such Public Grants. The Company and its Subsidiaries, as the case may be, have applied for, received and used all Public Grants only in accordance with the applicable requirements, conditions, regulations and provisions thereof and of any documentation related thereto. All Public Grants are in full force and effect, and are available for use, in each case on terms and conditions applicable thereto as set forth in the Public Grants and in any documentation related thereto. Neither the Company nor any of its Subsidiaries is or will be (A) under an obligation to repay any of the Public Grants, either in whole or in part, or (B) subject to any other materially adverse consequence relating to the Public Grants, as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby. Vendor has made available to Parent and Buyer prior to the date hereof complete and correct copies of all documentation containing the material terms of the Public Grants.

(ii)

None of the Company or any of its Subsidiaries is under any obligation to maintain a certain number of employees at any location or in any region, or to maintain any business at all or in any region, under the terms of any

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	of the Public Grants, except as set forth on Section 3.1(y)(ii) of the Disclosure Letter.
(iii)	None of the Company or any of its Subsidiaries has claimed or received any payment under any suretyship or guarantee granted by any Authority to any Person other than the Company or any of its Subsidiaries which may constitute a Public Grant.

(z) Privacy Laws

(i)

Except as set out in Section 3.1(z) of the Disclosure Letter, the Company and its Subsidiaries have complied at all times in all material respects with all Privacy Laws in connection with the collection, use and disclosure of Personal Information; and all Personal Information has been collected, used and disclosed with the consent of each individual to whom such Personal Information relates and has been used only for the purposes for which it was initially collected.

(ii)

Vendor has disclosed to Buyer only such Transaction Personal Information as is necessary for the purpose of Buyer determining whether to proceed with the transactions contemplated by this Agreement and that, if the determination is to proceed with such transactions, is required for the Parties to carry out and complete the transactions.

(aa)	Customers
	Listed on Section 3.1(aa) of the Disclosure Letter are the names and addresses of each of the ten most significant customers (by revenue) of the Company and its Subsidiaries for the nine-month period ended September 30, 2009, and the amount for which each such customer was invoiced during such period. None of Vendor, the Company or any of its Subsidiaries has received any notice or has any reason to believe that any such customer has ceased, or will cease, to use the products, goods or services of the Company or any of its Subsidiaries, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time.
(bb)	Suppliers
	Listed on Section 3.1(bb) of the Disclosure Letter are the names and addresses of each of the ten most significant suppliers of raw materials, supplies, merchandise and other goods to the Company and its Subsidiaries (excluding suppliers of fixed assets in connection with the New Line) for the nine-month period ended September 30, 2009 and the amount for which each such supplier invoiced the Company and its Subsidiaries, as the case may be, during such period. None of Vendor, the Company or any of its Subsidiaries has received any notice or has any reason to believe that any such supplier will not sell raw materials, supplies, merchandise and other goods to the Company or any of its Subsidiaries at any time after the Closing on terms and conditions substantially similar to those used

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	in its current sales to the Business, subject only to general and customary price increases. None of Vendor, the Company or any of its Subsidiaries is engaged in any material dispute with any such supplier.
(cc)	Receivables and Inventories

(i)

Section 3.1(cc)(i) of the Disclosure Letter contains an aged list of the Receivables as of December 31, 2008, showing separately those Receivables that as of such date had been outstanding for (A) 30 days or less, (B) 31 to 60 days, (C) 61 to 90 days, and (D) more than 90 days. None of the Receivables is due from an Affiliate of the Company or of any Subsidiary of the Company.

(ii)

The Inventories consist of items that are current and of good and merchantable quality and not subject to any material write-down or material write-off. The portion of the Inventories consisting of finished products is saleable in the ordinary course of business. The portion of the Inventories consisting of raw materials and work-in-progress is of a quality useable in the production of finished products.

(dd)	Products
	There are no liabilities for product returns other than those arising in the ordinary course of the Business in an aggregate amount of less than $1,000,000. In the three years prior to the date hereof, none of the products sold by the Company or any of its Subsidiaries have, to the knowledge of Vendor, been the subject of a manufacturer’s product recall. Neither the Company nor any of its Subsidiaries has, within the last three years, incurred any material expenses related to Claims for warranty obligations, product liability claims, product returns or product services. To the knowledge of Vendor, there are no material threatened Claims against the Company or any of its Subsidiaries, and to the knowledge of Vendor, the Company is not aware of any information that any such potential threats are imminent or reasonably likely to occur, for (i) warranty obligations, (ii) product liability claims, (iii) product returns or (iv) product services, other than in the ordinary course of business.
(ee)	Sufficiency of Assets
	Each of the Company and each of its Subsidiaries owns, leases or has the legal right to use all the properties and assets used or intended to be used in the conduct of the Business, and, with respect to contract rights, is a party to and enjoys the right to the benefits of all contracts, agreements and other arrangements used or intended to be used by the Company or any of its Subsidiaries or in or relating to the conduct of the Business. The assets described in this Section 3.1(ee) constitute all the properties, assets and rights forming a part of, used, held or intended to be used in, and all such properties, assets and rights as are necessary in the conduct of, the Business.

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(ff)	Acquisition of Parent Securities
	Neither Vendor nor, to Vendor’s knowledge, any Person set forth on Section 3.1(b)(i) of the Disclosure Letter, has any current intention to acquire, directly or indirectly, any shares or other securities issued by Parent.
(gg)	Competition Act
	Vendor, together with its affiliates (as such term is defined under the Competition Act), neither has aggregate assets in Canada, nor aggregate gross revenues from sales in, from or into Canada, in excess of $300 million for the purposes of, and in accordance with, the determination to be made under subsection 109(1) of the Competition Act and the Notifiable Transactions Regulations thereto.

Except as expressly set forth in this Section 3.1, Vendor makes no representation or warranty, express or implied, at law or in equity, in respect of the Purchased Shares or the Company or any of its Subsidiaries and any such other representations, warranties or conditions are expressly disclaimed.

3.2 Representations and Warranties of Parent and Buyer

Parent and Buyer hereby jointly and severally represent and warrant to Vendor (and acknowledge that Vendor is relying on the representations and warranties in completing the transactions contemplated hereby) that:

(a)	Formation and Authority
	Each of Parent and Buyer is a corporation duly organized or incorporated and validly existing under the laws of its jurisdiction of formation or incorporation and has all necessary power and authority to enter into and perform its obligations under this Agreement and the Escrow Agreement and to carry out the transactions contemplated hereby and thereby.
(b)	Non Contravention
	Except for the Regulatory Approvals, the execution, delivery and performance by Parent and Buyer of this Agreement and the Escrow Agreement do not and will not:

(i)	conflict with, violate or result in the breach of any of the terms or provisions of the constating documents, by-laws or resolutions of the board of directors (or any committees thereof) or securityholders, of Parent or Buyer; or
(ii)	materially conflict with or violate any Law applicable to Parent or Buyer.

(c) Enforceability of Obligations

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	The execution and delivery of this Agreement (and the Escrow Agreement) by or on behalf of each of Parent and Buyer, and the consummation by each of Parent and Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of each of Parent, Buyer and, to the extent applicable, their respective securityholders. This Agreement has been duly executed and delivered by or on behalf of each of Parent and Buyer and, at or prior to the Closing, each of Parent and Buyer will have duly executed and delivered the Escrow Agreement. This Agreement is, and the Escrow Agreement, when duly executed and delivered at Closing by Parent and Buyer, will be, the legal, valid and binding obligation of Parent and Buyer, as the case may be, enforceable against Parent and Buyer, as the case may be, in accordance with its respective terms, provided that enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally, and that specific performance, injunctive relief and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction.
(d)	Consents
	Except for German Merger Control Approval, the execution, delivery and performance of this Agreement and the Escrow Agreement, and the consummation of the transactions contemplated hereby and thereby, do not and will not required any consent, approval or authorization of, or declaration, filing or registration with, any Authority to be made or obtained by Parent or Buyer prior to the consummation of the transactions contemplated by this Agreement, except where the failure to obtain a Regulatory Approval would not be material to Parent and Buyer or would not prevent or materially delay the consummation by Parent and Buyer of the transactions contemplated by this Agreement and the Escrow Agreement.
(e)	Buyer is a WTO Investor
	Buyer is a “WTO Investor” within the meaning of the ICA.
(f)	Brokers
	Except for Credit Suisse Securities (USA) LLC (“Credit Suisse”), neither Parent nor Buyer has engaged any broker or other agent in connection with the transactions contemplated in this Agreement and, accordingly, there is no commission, fee or other remuneration payable, or other liability incurred, by Parent or Buyer to any broker, underwriter or agent in connection with any of the transactions contemplated by this Agreement other than Credit Suisse. Parent and Buyer, together, are solely responsible for any fees and expenses of Credit Suisse.
(g)	Litigation
	There are no Claims by or against Parent or Buyer pending, or to the knowledge of Parent, threatened to be brought, by or before any Authority which, if determined adversely to Parent or Buyer, would, individually or in the aggregate,

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	have a material adverse effect on Parent’s and/or Buyer’s ability to perform its obligations under this Agreement.
(h)	Sufficiency of Funds
	Parent or Buyer has delivered to Vendor a true and complete copy of an executed commitment letter (the “Commitment Letter”) from Credit Suisse (the “Lender”) pursuant to which the Lender has committed to provide Parent with debt financing in an aggregate amount of up to USD$100,000,000 (the “Debt Financing”). The Commitment Letter, in the form so delivered, is in full force and effect and, as of the date hereof, has not been amended, modified, withdrawn or rescinded in any respect, and is a legal, valid and binding obligation of Parent and, to the knowledge of Parent, the other parties thereto. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, would constitute a default or breach on the part of Parent under the Commitment Letter. The Debt Financing, along with cash otherwise available to Parent or Buyer at Closing, is sufficient to enable Parent and Buyer to pay the Purchase Price and to pay any other amounts payable by Parent or Buyer pursuant to this Agreement. There are no conditions precedent or other contingencies relating to funding of the full amount of the Debt Financing other than as set forth in the Commitment Letter (including any references to other agreements as contained therein) and, as of the date hereof, neither Parent nor Buyer has any reason to believe that any of the conditions to the Debt Financing will not be satisfied or that the Debt Financing or, if applicable, Alternative Financing, will not be available to Parent and Buyer on the Closing Date.
(i)	Due Diligence
	Parent acknowledges that it has conducted to its satisfaction an independent investigation of the financial condition, liabilities, results of operations and projected operations of the Company and each of its Subsidiaries and the nature and condition of their respective properties and assets and, in making the determination to proceed with the transactions contemplated by this Agreement, has relied solely on the results of its own independent investigation and the representations and warranties in Section 3.1.
(j)	Competition Act
	Buyer, together with its affiliates (as such term is defined under the Competition Act), neither has aggregate assets in Canada, nor aggregate gross revenues from sales in, from or into Canada, in excess of $100 million for the purposes of, and in accordance with, the determination to be made under subsection 109(1) of the Competition Act and the Notifiable Transactions Regulations thereto.

3.3 Nature and Survival of Vendor’s Representations, Warranties and Agreements

(a) Representations and Warranties

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The representations and warranties of Vendor contained in this Agreement shall survive the Closing for the benefit of Parent and Buyer as follows:

(i)	as to the representations and warranties contained in Sections 3.1(a), 3.1(b), 3.1(e), 3.1(g) (other than the last sentence of Section 3.1(g)(ii)) and 3.1(x) (the “Core Representations”), indefinitely;
(ii)	as to the representations and warranties contained in Section 3.1(k), until 90 days after the later of the expiration of (A) all periods during which any Tax assessment may be issued by a Tax Authority and (B) all periods allowed for objecting to and appealing the determination of any proceedings relating to any assessment or reassessment of the Company or any of its Subsidiaries, as the case may be, by any Authority in respect of, in the case of (A) or (B), any Taxation period ending on or prior to the Closing or in which the Closing occurs;
(iii)	as to the representations and warranties contained in Sections 3.1(s), 3.1(t) and 3.1(w), until three years following the Closing Date; and
(iv)	as to all other representations and warranties not specified in Sections 3.3(a)(i), (ii) and (iii), until 18 months following the Closing Date,

	in each case unless a bona fide notice of a Claim shall have been given in writing before the expiry of that period, in which case the representation and warranty to which such notice applies shall survive in respect of that Claim until the final determination or settlement of that Claim.
(b)	Covenants and Agreements
	The covenants and agreements of Vendor contained in this Agreement shall survive the Closing for the benefit of Parent and Buyer indefinitely.

3.4 Nature and Survival of Parent’s and Buyer’s Representations, Warranties and Agreements

(a)	Representations and Warranties
	The representations and warranties of Parent and Buyer contained in this Agreement shall survive the Closing for the benefit of Vendor as follows:

(i) as to the representations and warranties contained in Sections 3.2(a), 3.2(c) and 3.2(f), indefinitely; and

(ii) as to all other representations and warranties not specified in Section 3.4(a)(i), until 18 months following the Closing Date,

in each case unless a bona fide notice of a Claim shall have been given in writing before the expiry of that period, in which case the representation and warranty to

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	which such notice applies shall survive in respect of that Claim until the final determination or settlement of that Claim.
(b)	Covenants and Agreements
	The covenants and agreements of Parent and Buyer contained in this Agreement shall survive the Closing for the benefit of Vendor indefinitely.

ARTICLE 4
CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE PARTIES OF THEIR
OBLIGATIONS UNDER THIS AGREEMENT

4.1 Buyer’s Conditions

The obligation of Buyer to complete the purchase of the Purchased Shares hereunder shall be subject to the satisfaction of or compliance with, at or before the Closing, each of the following conditions (each of which is hereby acknowledged to be inserted for the exclusive benefit of Buyer):

(a)	Representations and Warranties
	Disregarding any Material Adverse Change or materiality qualifiers contained therein, each of the representations and warranties of Vendor set forth in this Agreement (other than the Core Representations) shall be true and correct in all respects as of the date of this Agreement and on and as of the Closing Date (except to the extent such representations and warranties address matters only as of a particular date, in which case such representations and warranties shall be true and correct as of such particular date), except to the extent the failure of such representations or warranties to be so true and correct would not result in a Material Adverse Change. The Core Representations shall be true and correct in all respects as of the date of this Agreement and on and as of the Closing Date (except to the extent such representations and warranties address matters only as of a particular date, in which case such representations and warranties shall be true and correct as of such particular date). Vendor shall deliver to Buyer at Closing a certificate signed by a senior officer of Vendor confirming compliance with this condition.
(b)	Performance of Obligations
	Vendor shall have performed or complied (i) in all material respects with each of its obligations, covenants and agreements in this Agreement which are to be performed or complied with by it at or prior to the Closing and (ii) in all respects with its obligations, covenants and agreements in Section 5.17, and Vendor shall deliver to Buyer at Closing a certificate signed by a senior officer of Vendor confirming compliance with this condition.
(c)	Directors and Officers

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	All directors and officers of the Company and each of its Subsidiaries (other than the German Subsidiaries of the Company), except for such Persons as shall have been designated in writing not later than three Business Days prior to the Closing by Buyer to Vendor, shall have executed effective as of the Closing Date (A) resignation letters and (B) a form of release, in each case satisfactory to Buyer, acting reasonably.
(d)	Share Certificates
	Buyer shall have received from Vendor a certificate or certificates representing the Purchased Shares, duly endorsed in blank or with duly executed stock powers, as contemplated in Section 2.2(b).
(e)	Additional Closing Deliveries
	Buyer shall have received the following additional closing deliveries:

(i)	a certificate, dated as of the Closing Date, from Vendor and certifying as to (A) its constating documents and the incumbency of officers executing this Agreement and the Escrow Agreement and (B) the resolutions of the board of directors of Vendor, authorizing the execution, delivery and performance by Vendor of this Agreement and the Escrow Agreement;
(ii)	a receipt from the Escrow Agent acknowledging receipt of the Escrow Amount;
(iii)	a receipt from Vendor acknowledging receipt of the Purchase Price less the Escrow Amount;
(iv)	the Escrow Agreement, executed by the Escrow Agent and Vendor; and
(v)	the Vendor Limited Guarantee, executed by Brookfield Asset Management Inc.

(f)	No Action to Restrain
	No Claim shall be pending by or before any Authority against any of the Parties seeking to, and no applicable Law shall be in force which shall, restrain, prohibit or materially and adversely alter the transactions contemplated by this Agreement or the Escrow Agreement, provided that this Section 4.1(f) shall not apply if Parent or any of its Affiliates has directly or indirectly solicited or encouraged any such Claim.
(g)	Competition Approval
	German Merger Control Approval shall have been obtained.
(h)	Vendor Loans

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(i)	Prior to Closing, the outstanding balance under the Vendor Loans shall have been, directly or indirectly, repaid through, or exchanged for, the issuance of common shares of the Company and all of such common shares shall have been issued solely to, and as of the Closing shall be held solely by, Vendor; and
(ii)	the Vendor Loans shall have been terminated prior to the Closing and neither the Company nor any of its Subsidiaries shall have any further liability or obligations thereunder.

(i)	Intercompany Agreements
	All of the Intercompany Agreements shall have been terminated on or prior to the Closing and neither the Company nor any of its Subsidiaries shall have any further liability or obligations thereunder.
(j)	Repayment of Indebtedness
	All Indebtedness of the Company and its Subsidiaries shall have been repaid on or prior to the Closing, all hedges, derivative or similar agreements (including interest rate swaps), whether associated with any such Indebtedness or otherwise, shall have been terminated and all Encumbrances on the Purchased Shares or any other properties, rights or assets of the Company or any of its Subsidiaries or otherwise relating to the Business arising out of or otherwise incurred in connection with any such Indebtedness shall have been released, and Parent and Buyer shall have received payoff letter(s) or invoice(s) relating to the payment of all such Indebtedness, together with any fees, expenses or other costs (including any “breakage” costs) associated with such repayment and such termination of all derivative or similar agreements (including interest rate swaps) associated therewith, and such other documentation as is reasonably necessary to evidence the termination of all such associated derivative or similar agreements (including interest rate swaps) and the release of all such Encumbrances, in each case, in form and substance reasonably satisfactory to Parent.
(k)	Employment Agreements
	The letter amendment and the employment agreement described in the third recital hereof have not been terminated and Mr. Hovelmann has not provided written notice of termination of such employment agreement, which notice has not been revoked, and Mr. Hovelmann shall be an employee of Concert Europe GmbH as of the Closing Date.
(l)	No Material Adverse Change
	No Material Adverse Change shall have occurred.
(m)	Financing

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	Parent and/or Buyer shall have received debt financing in an amount up to US$100,000,000 on the terms and condition set forth in the Commitment Letter or such other debt financing in an amount up to US$100,000,000 that Parent and/or Buyer shall have determined to pursue in their sole discretion, so long as the terms and conditions of such other debt financing (i) do not impose additional conditions precedent to such other debt financing other than those set forth in the Commitment Letter and (ii) will not materially delay Closing.
(n)	Option Plan
	Prior to Closing, Vendor shall have, and shall have caused the Company and its Subsidiaries to have (i) taken all actions necessary to cancel all options for Company Shares granted under the Option Plan in exchange for the right to receive the Per Option Closing Amount, in each case in accordance with the terms of the Option Plan, as a result of which, there shall be no options, whether or not vested or exercised, outstanding under the Option Plan, and the holders thereof shall cease to have any rights with respect thereto, other than the right to receive the Per Option Closing Amount, (ii) paid each of such holders the Per Option Closing Amount in full, and (iii) terminated the Option Plan, and Parent and Buyer shall have received a written certification from Vendor confirming that each of the foregoing has occurred.

4.2 Conditions of Vendor

The obligation of Vendor to complete the sale of the Purchased Shares hereunder shall be subject to the satisfaction of or compliance with, at or before the Closing, of each of the following conditions (each of which is hereby acknowledged to be inserted for the exclusive benefit of Vendor):

(a)

Representations and Warranties

All representations and warranties of Parent and Buyer set forth in this Agreement (i) shall have been true and correct in all respects as of the date of this Agreement and (ii) shall be true and correct in all respects on and as of the Closing (except to the extent such representations and warranties address matters only as of a particular date, in which case such representations and warranties shall be true and correct as of such particular date), in each case with the same force and effect as if made as of the Closing (other than such representations and warranties that are made as of another date), except to the extent the failure of such representations or warranties to be so true and correct would not, individually or in the aggregate, have a material adverse effect on Buyer’s ability to consummate the transactions contemplated under this Agreement (other than the representations and warranties set forth in Sections 3.2(a), 3.2(c) and 3.2(f) which shall be true and correct in all respects as of the date hereof and on and as of the Closing Date) and Parent shall deliver to Vendor at Closing a certificate signed by a senior officer of Parent confirming compliance with this condition.

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(b)	Performance of Agreement
	Parent and Buyer shall have performed or complied in all material respects with each of their respective obligations, covenants and agreements in this Agreement which are to be performed or complied with by Parent and Buyer, as applicable, at or prior to the Closing, and Parent shall deliver to Vendor at Closing a certificate signed by an officer of Parent confirming compliance with this condition.
(c)	No Action to Restrain
	No Claim shall be pending by or before any Authority against any of the Parties seeking to, and no applicable Law shall be in force which shall, restrain, prohibit or materially and adversely alter the transactions contemplated by this Agreement, provided that this Section 4.2(c) shall not apply if Vendor or any of its Affiliates has directly or indirectly solicited or encouraged any such Claim.
(d)	Competition Approval
	German Merger Control Approval shall have been obtained.
(e)	Escrow
	Vendor shall have received the Escrow Agreement, executed by Buyer, Parent and the Escrow Agent.

4.3 Waiver by Parent and Buyer

To the extent permitted by applicable Law, the conditions set forth in Section 4.1 may be waived in whole or in part by Parent and Buyer by instrument in writing in compliance with Section 8.6 given to Vendor without prejudice to any of Parent’s or Buyer’s rights of termination in the event of non-performance of any other condition, obligation or covenant in whole or in part, and without prejudice to their respective rights to complete the transaction of purchase and sale contemplated by this Agreement and claim damages for breach of representation, warranty or covenant (in each case, to the extent permitted under Section 7.2).

4.4 Waiver by Vendor

To the extent permitted by applicable Law, the conditions set forth in Section 4.2 may be waived in whole or in part by Vendor by instrument in writing in compliance with Section 8.6 given to Parent and Buyer, without prejudice to any of Vendor’s rights of termination in the event of non-performance of any other condition, obligation or covenant in whole or in part, and without prejudice to its right to complete the transaction of purchase and sale contemplated by this Agreement and claim damages for breach of representation, warranty or covenant.

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ARTICLE 5
OTHER COVENANTS OF THE PARTIES

5.1 Conduct of Business Prior to Closing

During the period from the date of this Agreement to the Closing, Vendor covenants and agrees that it shall cause the Company and each of its Subsidiaries to do each of the following:

(a)	Conduct Business in the Ordinary Course – except as expressly permitted by this Agreement, conduct its business in all material respects in the ordinary course, consistent with past practice;
(b)	Preservation of Business – use its reasonable best efforts to preserve intact their respective business organizations and the business organization and goodwill of the Business;
(c)	Continue Insurance – use its reasonable best efforts to continue in force and effect without material modification all policies or binders of insurance maintained by, in respect of, or for the benefit of the Company, each of its Subsidiaries and the Business;
(d)	Commercial Arrangements – use its reasonable best efforts to preserve its current relationships and goodwill with their respective customers, suppliers, employees and all other Persons with which it has had significant business relationships;
(e)	Prevent Certain Changes – except as set forth in Section 5.1(e) of the Disclosure Letter, not, without the prior written consent of Buyer (not to be unreasonably withheld or delayed):

(i)	cause, adopt or propose any amendments to the terms of any of its outstanding securities or articles of incorporation or by-laws (or other comparable organizational instruments);
(ii)	issue, sell, pledge, dispose of, encumber, agree or offer to issue, sell, pledge, dispose of or encumber any additional securities, or any options, warrants, calls, conversion privileges or rights of any kind to acquire any of its securities or any security convertible into capital stock of the Company or any of its Subsidiaries;
(iii)	split, combine, reclassify, issue, sell or make any other acquisition or disposition, directly or indirectly, of any shares of the capital stock of the Company or any of its Subsidiaries, or declare, set aside or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to any of its securities; provided that there shall be no restriction on declaring, setting aside or paying any cash dividends or other cash distributions by the Company or by any of its Subsidiaries;

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(iv)	amend any material term of any outstanding security of the Company or any of its Subsidiaries;
(v)	incur or assume any obligation or liability (fixed or contingent) in excess of $250,000 individually or $1,000,000 in the aggregate, except unsecured current obligations and liabilities incurred in the ordinary course of business;
(vi)	make any loan or advance to, or guarantee any Indebtedness of, or incur any other Indebtedness on behalf of, any Person;
(vii)	adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;
(viii)	make any change in the independent accountants of the Company or any of its Subsidiaries or, except as may be required as a result of a change in Law or Canadian GAAP, change any of the accounting principles or practices used by it which would materially affect its reported consolidated assets, liabilities or results of operations;
(ix)	amend, terminate, cancel, settle or compromise any pending Claim of or in respect of the Company or any of its Subsidiaries, other than solely for a cash settlement amount not in excess of $250,000 individually, or $1,000,000 in the aggregate;
(x)	(i) acquire (by merger, consolidation, or acquisition of shares or assets or otherwise) any corporation, partnership or other business organization or division thereof or any material equity interest therein or (ii) authorize or make any new capital expenditure or expenditures or investments exceeding $250,000 individually or $1,000,000 in the aggregate, other than as necessary and advisable to maintain the assets of the Company and its Subsidiaries in good working order;
(xi)	enter into, amend or terminate any employment, labour, consulting or service contract or Benefit Plan, or increase the compensation payable to any Employee, in each case except in the ordinary course of business consistent with past practice and in accordance with applicable Law;
(xii)	change any method of Tax accounting, make, change or rescind any material Tax election, settle or compromise any material Tax liability or consent to any claim or assessment relating to a material amount of Taxes, file of any amended Tax Return or claim for refund, enter into any closing agreement relating to Taxes, or waive or extend the statute of limitations in respect of Taxes;
(xiii)	fail to (A) prepare and timely file all Tax Returns required to be filed, (B) timely pay all Taxes shown to be due and payable on such Tax Returns,

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	and (C) promptly notify Buyer of any notice of any Claim or audit in respect of any Tax matters of the Company and its Subsidiaries (or any significant developments with respect to ongoing suits, claims, actions, investigations, audits or proceedings in respect of such Tax matters);
(xiv)	sell, transfer, lease, sublease, license or otherwise dispose of any properties or assets, real, personal, tangible or intangible, or mixed (including leasehold interests and intangible property), other than the sale of Inventories in the ordinary course of business consistent with past practice;
(xv)	(A) grant any increase, or announce any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by the Company or any of its Subsidiaries to any of their respective employees (other than as required by the terms of existing employment contracts or Benefit Plans and salary increases to non-officer employees earning less than $150,000 per year in the ordinary course of business consistent with past practice) or (B) establish or increase or promise to increase any benefits under any Benefit Plan (other than as required by the terms of any such Benefit Plans), in either case except as required applicable Law or any collective bargaining agreement;
(xvi)	enter into, amend, renew, fail to renew or terminate any Material Contract or any agreement which if entered into prior to the date hereof would be a Material Contract;
(xvii)	hire any new employees or transfer any employees from any other operations of Vendor except (A) as may be required to replace any employees who terminate voluntarily or who were terminated involuntarily in the ordinary course of business or (B) in the ordinary course of business;
(xviii)	(A) allow to lapse or terminate any Permit or Environmental Permit that was issued to or relates to the Company or any of its Subsidiaries or otherwise relates to the Business or (B) fail to renew any insurance policy, Permit or Environmental Permit that is scheduled to terminate or expire within 45 calendar days of the Closing;
(xix)	(A) abandon, disclaim, dedicate to the public, sell, assign or grant any security interest in, to or under any Company Intellectual Property or Company IP Agreement, including failing to perform or cause to be performed all applicable filings, recordings and other acts, or to pay or cause to be paid all required fees and Taxes, to maintain and protect its interest in the Company Intellectual Property and Company IP Agreements, (B) grant to any third party any license, or enter into any covenant not to sue, with respect to any Company Intellectual Property, except in the ordinary course of business consistent with past practice, (C)

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develop, create or invent any Intellectual Property Rights jointly with any third party, (D) disclose or allow to be disclosed any confidential information or confidential Company Intellectual Property to any Person, other than employees of the Company or its Subsidiaries that are subject to a confidentiality or non-disclosure covenant protecting against further disclosure thereof, or (E) fail to notify Buyer promptly of any infringement, misappropriation or other violation of or conflict with any Company Intellectual Property of which the Company or any Subsidiary of the Company becomes aware and to consult with Buyer regarding the actions (if any) to take to protect such Company Intellectual Property; or

(xx)

agree, whether in writing or otherwise, to take any of the actions specified in this Section 5.1(e), except as expressly contemplated by this Agreement and the Escrow Agreement.

5.2 Access for Investigation

(a)

Vendor shall permit Parent and Buyer and their respective officers, directors, employees, agents, representatives, accountants, financing sources, advisors, consultants and counsel (collectively, “Representatives”), upon at least one Business Day’s prior written notice, between the date of this Agreement and the Closing, without interference to the ordinary conduct of business, to have reasonable access (supervised by a representative of the Company) during normal business hours to the offices, properties, plants, facilities and other assets of the Company and its Subsidiaries. Vendor shall furnish to Parent and Buyer, and their respective Representatives, copies of the books and records of the Company and its Subsidiaries (subject to any confidentiality agreements or covenants relating to any such books and records), and such additional financial and operating data and other information regarding the assets, properties, liabilities and goodwill of the Company, the Subsidiaries of the Company and the Business, as Parent and Buyer, and their respective Representatives, shall from time to time reasonably request. No investigation by Parent or Buyer after the date of this Agreement shall diminish or obviate any of the representation, warranties, covenants or agreements of Vendor contained in this Agreement. Notwithstanding the foregoing, without the prior written consent of Vendor, Parent and Buyer shall not contact, and shall instruct their Representatives not to contact, any of the suppliers, customers, clients, financing sources or Employees of the Company and its Subsidiaries with respect to the Company and its Subsidiaries or the transactions contemplated by this Agreement.

(b)

Notwithstanding Section 5.2(a), Vendor shall not be required to disclose any information, records, files or other data to Buyer where prohibited by any agreement or applicable Laws.

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5.3 Notice by Vendor of Certain Matters

Prior to the Closing, Vendor shall give prompt written notice to Parent and Buyer of (a) the occurrence, or failure to occur, of any event, circumstance or other fact arising after the date of this Agreement, which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement or in any Schedule to be untrue or inaccurate in any material respect or (b) any failure of Vendor to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement or any Schedule. Vendor shall also keep Parent and Buyer reasonably apprised in writing of any material developments affecting the assets, liabilities, Business, financial condition, operations, result of operations, customer or supplier relations, employee relations, projections or prospects of the Company or any of its Subsidiaries. For the avoidance of doubt, no notice or updated information provided to Parent and Buyer in accordance with this Section 5.3 shall be deemed to cure any breach of representation, warranty or covenant made in this Agreement.

5.4 Notice by Buyer of Certain Matters

Prior to the Closing, Buyer shall give Vendor prompt written notice of (a) the occurrence, or failure to occur, of any event, circumstance or other fact arising after the date of this Agreement, which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect, (b) any failure of Parent or Buyer to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by either of them under this Agreement prior to the Closing. For the avoidance of doubt, no notice or updated information provided to Vendor in accordance with this Section 5.4 shall be deemed to cure any breach of representation, warranty or covenant made in this Agreement.

5.5 Confidentiality

(a)

Parent and Buyer hereby agree that, unless and until the Closing occurs, they will be bound by the terms of the Confidentiality Agreement in accordance with the terms thereof.

(b)

Vendor agrees to, and shall cause its Representatives to (i) treat and hold as confidential (and not disclose or provide access to any Person to) all information relating to trade secrets, processes, inventions and patent applications, product development, costs, prices, personnel, customer and supplier lists, competitors, pricing and marketing plans, policies and strategies, details of client and consultant contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans and all other confidential or proprietary information with respect to the Business, the Company and each of its Subsidiaries, (ii) in the event that Vendor or any of its Representatives becomes legally compelled to disclose any such information, provide Parent and Buyer with prompt written notice of such requirement so that Parent, Buyer, the Company or any of its Subsidiaries may seek a protective order or other remedy or waive compliance with this Section 5.5(b), (iii) in the event that such protective order or other remedy is not obtained or Parent and Buyer

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waive compliance with this Section 5.5(b), furnish only that portion of such confidential information which is legally required to be provided and exercise its reasonable best efforts to obtain assurances that confidential treatment will be accorded such information, and (iv) promptly furnish (prior to, at, or as soon as practicable following, the Closing) to the Company or Buyer any and all copies (in whatever form or medium) of all such confidential information then in the possession of Vendor or any of its Representatives and, except as otherwise required by Section 5.7(b), destroy any and all additional copies then in the possession of Vendor or any of its Representatives of such information and of any analyses, compilations, studies or other documents prepared, in whole or in part, on the basis thereof; provided that this sentence shall not apply to any information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by Vendor or its Representatives; and provided, further that, with respect to Company Intellectual Property, specific information shall not be deemed to be within the foregoing exception merely because it is embraced in general disclosures in the public domain. In addition, with respect to Company Intellectual Property, any combination of features shall not be deemed to be within the foregoing exception merely because the individual features are in the public domain unless the combination itself and its principle of operation are in the public domain.

(c)

Effective as of the Closing Date, Vendor shall, and shall cause its Affiliates to, assign to the Company all of its or their respective rights under all confidentiality agreements entered into by Vendor or any of its Affiliates with any Person prior to the date hereof in connection with any transaction involving or otherwise relating to the Company or any of its Subsidiaries.

5.6 Further Action

(a)

None of the Parties shall engage in any practice, take any action, fail to take any action or enter into any transaction which could (i) cause any of its representations or warranties to be untrue or (ii) result in a breach of any covenant made by such Party in this Agreement.

(b)

Each of the Parties shall use reasonable best efforts to take all such actions as are within its power to control, and to cause other actions to be taken which are not within its power to control, and to do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and any other papers, as may be required to carry out the provisions of this Agreement and the Escrow Agreement and to consummate and make effective the transactions contemplated hereby and thereby.

5.7 Preservation of Records

(a) Buyer shall, for a period of six years from the Closing Date, (i) take all reasonable steps to preserve and keep the records of the Company and its Subsidiaries delivered to it in connection with the completion of the transactions contemplated

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by this Agreement and relating to periods prior to the Closing, and (ii) as may be reasonably requested by Vendor upon reasonable notice, make such records available to Vendor during normal business hours.

(b)

Vendor shall, for a period of six years from the Closing Date, (i) take all reasonable steps to retain the records of the Company and its Subsidiaries relating to periods prior to the Closing and which shall not otherwise have been delivered to Buyer, the Company or any Subsidiary of the Company, and (ii) as may be reasonably requested by Vendor upon reasonable notice, make such records available to Vendor during normal business hours.

5.8 Regulatory Matters; Notices and Consents

(a)

Each Party shall use its reasonable best efforts to obtain (or cause the Company and its Subsidiaries to obtain) all authorizations, consents, orders and approvals of all Authorities that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the Escrow Agreement and will co-operate fully with the other Parties in promptly seeking to obtain all such authorizations, consents, orders and approvals. Without limiting the generality of Section 5.6, each Party shall use its reasonable best efforts (i) as promptly as practicable, to make or cause the Company and its Subsidiaries and Affiliates to make any filing under applicable German Law that is necessary to insure that the conditions set forth in Section 4.1(g) and Section 4.2(d) are satisfied as promptly as practicable, but in any event within five Business Days after the date of this Agreement and (ii) as promptly as practicable, to provide any supplemental information requested in connection with such filing as promptly as practicable after such request is made.

(b)

Each Party shall, and shall cause its respective Subsidiaries and Affiliates to, furnish to the other such information and assistance as the other may reasonably request in connection with its preparation of any filing or submission which is necessary or considered by Buyer advisable to make under any antitrust, trade regulation, competition, communications or other Law applicable to this Agreement or which is otherwise requested by any Authority in the course of any review of the transaction contemplated by this Agreement. Each Party shall keep each other apprised of the status of any communications with, and inquiries or requests for additional information from, any Authority. Subject to applicable Law and the attorney-client and similar applicable privileges, each Party shall (i) have the right to review in advance, and, to the extent reasonably practicable, each Party will consult the other on, all the information relating to the other and each of its respective Subsidiaries and Affiliates that appear in any filing made with, or written materials submitted to, any Authority with respect to the transaction contemplated by this Agreement, (ii) cause its respective counsel to supply to each other copies of all correspondence, filings or written communications by or to such Party or the Subsidiaries and Affiliates of the Company with or from any Authority or staff members thereof, with respect to the transaction contemplated by this Agreement, except that the correspondence, filings or written

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communications may be redacted to the extent that such information reveals Buyer’s or Vendor’s negotiating objectives or strategies or purchase price expectations and (iii) not participate in or agree to participate in any substantive meeting, telephone call or discussion with any Authority in respect of any filings, investigation or inquiry concerning this Agreement or the transactions contemplated by this Agreement unless it consults with the other Party in advance and, to the extent permitted by the Authority, gives the other Party the opportunity to attend and participate in such meeting, telephone call or discussion.

(c)

As promptly as practicable after the date hereof, Vendor shall, or shall cause the Company’s Subsidiaries and Affiliates to, make appropriate requests and shall use commercially reasonable efforts to obtain as expeditiously as possible any third party consents required under the Material Contracts or make any notices required under the Material Contracts or the Public Grants, including, in each case, as set forth on Section 5.8(c) of the Disclosure Letter, in each case in a form reasonably acceptable to Buyer. Vendor shall not be required to make any material payments to any third parties in order to obtain any such consent. Vendor shall keep Buyer reasonably informed as to the status of obtaining any such consents. Buyer will not be required to accept or agree or accede to any consents that modify or amend any of the terms or provisions of any such Material Contracts in a way that would make, or would be reasonably likely to make, the underlying Material Contract materially more onerous, or that would materially reduce or would be reasonably likely to materially reduce the benefits available under such Material Contract in respect of which the consent relates.

5.9 Taxation Matters

(a)

Buyer shall prepare and file or cause to be prepared and filed all Tax Returns required to be filed by the Company or any of its Subsidiaries after the Closing Date (with respect to periods beginning prior to the Closing Date) and shall pay or cause to be paid all Taxes shown as due on such Tax Returns, all in a manner that is consistent with applicable Tax Laws and the Company’s prior practice and within any applicable time limits. For the avoidance of doubt, and notwithstanding Section 5.9(b), at Buyer’s sole option such Tax Returns may include an election under subsection 256(9) of the Tax Act (or a comparable election under analogous provisions of any applicable provincial Tax Laws).

(b)

No later than 30 days prior to the due date (including extensions obtained) for the filing of a Tax Return described in Section 5.9(a), Buyer shall make such Tax Return available for review by Vendor to provide Vendor with an opportunity to comment on such Tax Return. Buyer shall incorporate all reasonable comments that Vendor may have on such Tax Return prior to filing; provided that Vendor shall acknowledge its indemnity obligations with respect to Indemnified Taxes resulting from any increase in Taxes payable by the Company and its Subsidiaries in respect of periods ending on or before the Closing Date as a result of such comments (and any related indemnification payment shall be made on or before the due date for the applicable Tax Return).

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(c)	Buyer shall promptly notify Vendor in writing upon receipt by the Company or any of its Subsidiaries of written notice of any Tax audits, examinations, assessments or reassessments that could give rise to indemnification under Section 6.1. Vendor, at its expense, shall be entitled to control the defence of any Claim or audit relating to Taxes that are indemnified against under Section 6.1 with respect to taxable periods ending on or prior to the Closing Date, provided, that Vendor shall acknowledge its indemnity obligations with respect to the full amount of any adjustment which may be made as a result of such proceeding (and provide security reasonably satisfactory to Buyer for any liability that would arise under Section 6.1 if the Claim were determined adversely to the Company and its Subsidiaries) and provided, further, that Vendor shall not agree to settle any such proceeding without the prior written consent of Buyer (such consent not to be unreasonably withheld or delayed). Buyer may also participate in any such proceeding at Buyer’s expense and, if Vendor does not assume the defence of the proceeding, Buyer may defend the proceeding in such manner as it may deem appropriate, including the settlement or compromise thereof.
(d)	For the avoidance of doubt, the provisions of this Section 5.9 shall apply with respect to Claims for Taxes and the provisions of Section 6.3 shall not apply with respect to Claims for Taxes.
(e)	Vendor and Buyer shall cooperate fully, as and to the extent reasonably requested by, and at the expense of, the other Party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes relating to taxable periods ending on or before or that otherwise include the Closing Date. Such co-operation shall include the retention (as set forth in Section 5.7) and (upon the other Party’s request) the provision of records and information reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder; provided that in no event shall Buyer be required to provide any Tax Return or other information of Parent, Buyer or any of their Affiliates (other than the Company and its Subsidiaries).
(f)	Except as required by applicable Law, neither Buyer nor any of its Affiliates (including, after the Closing Date, the Company or any of its Subsidiaries) shall, without the prior written consent of Vendor (which consent shall not be unreasonably withheld or delayed), (i) make or change any Tax election affecting any taxable period of the Company or any of its Subsidiaries ending on or before the Closing Date other than an election under Section 338 of the U.S. Internal Revenue Code or (ii) amend, refile or otherwise modify (or grant an extension of any applicable statute of limitations with respect to) any Tax Return prepared by the Company or any of its Subsidiaries relating to a taxable period of the Company or any of its Subsidiaries on or before the Closing Date or (iii) take any action outside the ordinary course of business that could reasonably be expected to result in any increased Tax liability (including a reduction in a refund) or reduction of any Tax asset or attribute of the Company or any of its Subsidiaries

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(or Vendor) in respect of a taxable period ending on or before the Closing Date or any portions of taxable periods ending on or prior to the Closing Date as determined under Section 5.10 (but, in each case, only to the extent it could reasonably be expected to result, directly or indirectly, in Vendor making an indemnity payment hereunder).

(g)

If any refund of Taxes (a “Refund”) is received by or credited to the account of Buyer or the Company or any of its Subsidiaries in respect of any period ending on or prior to the Closing Date (or portion thereof as determined under Section 5.10), Buyer shall pay the amount of the Refund to Vendor, after deduction of an amount equal to the amount of Taxes, if any, to which the recipient, or any of Buyer or the Company or any of its Subsidiaries, would be subject as a result of the receipt or crediting of such Refund, provided that in the event of a subsequent disallowance or other reduction of a Refund that has been paid to Vendor pursuant to this clause (g), Vendor shall promptly pay the amount of the Refund or refund of Taxes disallowed together with any applicable interest to Buyer.

5.10 Tax Allocation

For purposes of this Agreement, in the case of a taxable period that begins on or before, and ends after, the Closing Date, Taxes of the Company and its Subsidiaries shall be allocated to the portion of the period ending on the Closing Date as follows: (a) all income Taxes, sales Taxes, employment Taxes and other Taxes that are readily apportionable based on an actual or deemed closing of the books shall be allocated based on the amount that would be payable if the taxable year ended on the Closing Date, and (b) all property and other Taxes that are imposed on a periodic basis and not described in clause (a) shall be allocated based on the amount of such Tax for the entire period multiplied by a fraction, the numerator of which is the number of days in the portion of a period ending on the Closing Date and the denominator of which is the number of days in the taxable period; provided that, in the case of any Taxes determined on an arrears basis, such Taxes shall be allocated to the taxable period to which such Taxes relate. For purposes of this Agreement, any Refunds with respect to a taxable period that begins on or before, and ends after, the Closing Date shall be allocable based on the manner in which the corresponding Taxes are allocable pursuant to this Section 5.10.

5.11 German Real Estate Transfer Tax

(a)	Buyer shall file, within the applicable time limits, the declaration required under the German Act on Real Estate Transfer Tax (Grunderwerbsteuergesetz) as a result of its execution of this Agreement and the transactions contemplated hereby.
(b)	Each of Vendor and Buyer shall pay, within the applicable time limits, one half of any transfer Taxes assessed as payable under the German Act on Real Estate Transfer Tax (Grunderwerbsteuergesetz) as a result of Buyer’s execution of this Agreement and the transactions contemplated hereby, provided that if this Agreement is terminated prior to Closing in accordance with Article 7 hereof,

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	Buyer shall be entitled to receive one half of any amounts reimbursed by the German Tax Authorities as a result of such termination.
(c)	In the event that the amounts payable under Section 5.11(b) are not due prior to the Closing Date, the Purchase Price (and the amount otherwise required to be paid by Vendor pursuant to Section 5.11(b)) shall be reduced by an amount equal to 50% of the amount shown on the declaration referred to in Section 5.11(a).

5.12 Non-Solicitation of Employees

For a period of three years from and after the Closing Date, Vendor shall not, and shall cause its Affiliates and its and their respective Representatives not to, directly or indirectly cause, solicit or induce (other than through general advertising in publications or media of general circulation, including trade journals and similar media) any executive officer of the Company or any executive officer of any of the Subsidiaries of the Company to leave their employment (provided that this Section 5.12 shall not apply to those individuals set forth on Schedule 5.12 attached hereto). The covenants and undertakings contained in this Section 5.12 relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Section 5.12 will cause irreparable injury to Parent and Buyer, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of this Section 5.12 will be inadequate. Therefore, Parent and Buyer will be entitled to a temporary and permanent injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of this Section 5.12 without the necessity of proving actual damage or posting any bond whatsoever. The rights and remedies provided by this Section 5.12 are cumulative and in addition to any other rights and remedies which Parent or Buyer may have hereunder or at law or in equity.

5.13 Financing Related Co-Operation

(a)

Parent shall use reasonable best efforts to arrange the Debt Financing on the terms and conditions described in the Commitment Letter (or, at Parent’s option, on other terms, so long as such terms do not impose any additional condition precedent to, and will not materially delay the initial funding of the Debt Financing), which shall include using its reasonable best efforts (i) to maintain in effect the Commitment Letter, (ii) to enter into definitive agreements with respect thereto on terms and conditions contained therein (the “Financing Agreements”), (iii) to satisfy on a timely basis all conditions in the Financing Agreements that are within its control and (iv) assuming all conditions to the Commitment Letter have been satisfied or waived or, upon funding, will be satisfied or waived, using its reasonable best efforts to cause the Lender to consummate the Debt Financing at or prior to the Closing.

(b)

In the event any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated in the Commitment Letter and/or the Financing Agreements, or in the event that Parent determines to pursue alternative financing (as long as such alternative financing will not impose any additional conditions precedent to, and will not materially delay, the Closing), Parent shall use

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	reasonable best efforts to arrange (i) to obtain any such financing from alternative sources on terms no less favorable to Parent in the aggregate (as determined in the reasonable judgment of Parent) than the terms provided for in Commitment Letter, in an amount sufficient to consummate the transactions contemplated by this Agreement (“Alternative Financing”) and (ii) to obtain, and, when obtained, promptly provide Vendor with a copy of, a new financing commitment that provides for such Alternative Financing in an amount that is sufficient to consummate the transactions contemplated by this Agreement (the “Alternative Financing Commitment Letter”). To the extent applicable, Parent shall use reasonable best efforts to arrange the Alternative Financing on the terms and conditions described in the Alternative Financing Commitment Letter, which shall include using its reasonable best efforts to (w) enter into definitive agreements with respect thereto on terms and conditions contained therein (the “Alternative Financing Agreements”), (x) to satisfy on a timely basis all conditions in the Alternative Financing Agreements within its control and (y) to consummate the Alternative Financing at or prior to the Closing.
(c)	Parent shall give Vendor notice promptly upon becoming aware of any (i) material breach by any party to, or termination of, the Commitment Letter and/or the Financing Agreements and, if applicable, the Alternative Financing Commitment Letter and/or the Alternative Financing Agreements or (ii) refusal by the Lender or lender under an Alternative Financing Commitment Letter to provide, or stated intent by such lender to refuse to provide, or any other expression, concern or reservation by such lender regarding the enforceability of the Commitment Letter or Alternative Financing or its ability or willingness to provide, the full amount of the financing contemplated therein. Parent shall keep Vendor informed on a reasonably current basis in reasonable detail of the status of its efforts to arrange the Financing and, if applicable, the Alternative Financing. Parent shall not amend, modify, supplement, restate, substitute, terminate or replace the Commitment Letter or any Alternative Financing Commitment Letter in a manner that would materially impair, delay or prevent the consummation of the transactions contemplated by this Agreement and the Escrow Agreement without the prior written consent of Vendor (which consent shall not be unreasonably withheld or delayed).
(d)	Until the Closing Date, Vendor shall provide, and shall cause the Company, its Subsidiaries and its and their respective officers, directors, employees and Representatives to provide, and shall use its reasonable best efforts to cause the other Affiliates of Vendor and their respective officers, directors, employees and Representatives to provide, all cooperation and assistance as may be reasonably requested by Parent in connection with Parent’s efforts to obtain prior to Closing the Debt Financing, if applicable, the Alternative Financing, or any refinancing of the outstanding Indebtedness of the Company and its Subsidiaries (collectively, the “Transaction Financing”), including to: (i) participate in customary meetings (including lender meetings), presentations, road shows, due diligence and drafting sessions and sessions with rating agencies; (ii) assist with the preparation of materials for rating agency presentations, bank information memoranda,

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prospectuses and similar documents necessary in connection with the Transaction Financing, including (A) to provide Parent no later than January 11, 2010 (1) the Annual Financial Statements for the fiscal year ended December 31, 2008, (2) the Interim Financial Statements, and (3) the Corresponding Interim Financial Statements, in each case with a reconciliation to U.S. generally accepted accounting principles and, in the case of each of such reconciliations and each of the Interim Financial Statements and the Corresponding Interim Financial Statements, which shall have all been reviewed by KPMG (collectively, the “Required Financial Information”), or (B) if the Vendor shall have not provided the Required Financial Information to Parent on or before January 11, 2010, to provide the 2009 Annual Financial Statements, which shall be prepared in accordance with Canadian GAAP applied on a consistent basis in accordance with the past practices of the Company and its Subsidiaries, together with a reconciliation of the 2009 Annual Financial Statements to U.S. generally accepted accounting principles, which reconciliation shall have been reviewed by KPMG, no later than February 26, 2010; (iii) subject to Section 5.5(a) of this Agreement, furnish Parent and its financing sources financial and other pertinent information regarding the Business as may be reasonably requested by Parent to consummate the Transaction Financing; (iv) request from the appropriate Person, and use commercially reasonable efforts to obtain, such consents, legal opinions, and such other documents as reasonably requested by Buyer, and in each case, as required to consummate the Transaction Financing; (v) co-operate with prospective lenders involved in the Transaction Financing to provide access to the properties, assets, and books and records of the Company and its Subsidiaries; and (vi) execute and deliver at the Closing any customary pledge and security documents, other definitive financing documents or other customary documents, in each case as may be reasonably requested by Buyer to the extent necessary to consummate the Transaction Financing; provided, that Vendor shall not be required to provide co-operation under this Section 5.13 that: (A) unreasonably interferes with the ongoing Business; (B) causes any representation, warranty or covenant in this Agreement to be breached; (C) causes any closing condition set forth in Article 4 to fail to be satisfied or otherwise causes the breach of this Agreement; or (D) requires Vendor, the Company and its Subsidiaries or other Affiliates of Vendor to pay any fees or incur any liabilities prior to Closing for which they are not reimbursed when such fees or liabilities are incurred or adequately indemnified. Parent shall (1) promptly after the earlier of Closing and the date this Agreement is terminated in accordance with Section 7.1, reimburse Vendor for all reasonable, documented out-of-pocket costs and expenses incurred by Vendor or any of its Affiliates in connection with their compliance with this Section 5.13 and (2) indemnify and hold Vendor and its Affiliates harmless against any losses suffered by Vendor or any of its Affiliates directly as a result of or in connection with its co-operation under this Section 5.13.

5.14 Guarantees

The Parties shall use their respective commercially reasonable efforts to terminate and replace the Guarantees on or prior to the Closing, and release and discharge Vendor and its Affiliates

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from all obligations thereunder. In the event that any such Guarantees are not terminated on or prior to the Closing, the Parties shall use their commercially reasonable efforts to terminate such Guarantees as promptly as practical following the Closing. Pending any termination of such Guarantees, Parent shall indemnify Vendor and its Affiliates for all damages of Vendor and its Affiliates arising after the Closing under such Guarantees in their capacity as guarantors thereunder.

5.15 No Solicitation of the Company

Vendor agrees that between the date of this Agreement and the earlier of (a) the Closing and (b) the termination of this Agreement, none of the Vendor, the Company, any of the Company’s Subsidiaries or any of their respective Representatives will (i) solicit, initiate, consider, encourage or accept any other proposals or offers from any Person (A) relating to any acquisition or purchase of all or any portion of the shares of capital or other equity securities of the Company, any of its Subsidiaries or any assets of such parties (other than Inventory to be sold in the ordinary course of business consistent with past practice) or (B) to enter into any merger, consolidation, business combination, recapitalization, reorganization or other extraordinary business transaction involving or otherwise relating to the Company or any of its Subsidiaries or (ii) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other Person any information with respect to, or enter into any agreement, contract, arrangement or understanding with respect to, or otherwise co-operate in any way with, assist or participate in, or facilitate or encourage any effort or attempt by any other Person to seek to do any of the foregoing. Vendor immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any of the foregoing. Vendor shall notify Parent and Buyer promptly in writing if any such proposal or offer, or any inquiry or other contact with any Person with respect thereto, is made and shall, in any such notice to Parent and Buyer, indicate in reasonable detail the identity of the Person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contact. Vendor agrees not to, and to cause the Company and each of its Subsidiaries and its Affiliates (as it relates to the Company and its Subsidiaries) not to, without the prior written consent of Parent, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which Vendor and its Affiliates (as it relates to the Company and its Subsidiaries), the Company or any of its Subsidiaries is a party.

5.16 Release of Directors and Officers of German Subsidiaries

Prior to the Closing, the shareholders and, if applicable, advisory board of the German Subsidiaries shall pass an unrestrained resolution of exoneration (Entlastungsbeschluss), effective as of the Closing Date, in relation to the managing directors (Geschäftsführer) of the German Subsidiaries in accordance with the provisions of the respective articles of association; provided that such resolutions shall not release or otherwise exonerate any of the managing directors of the German Subsidiaries for any actions or conduct that such managing director would not otherwise be entitled to indemnification for under the articles of association of the applicable German Subsidiary or under applicable Law.

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5.17 Employee Bonus Amounts

Vendor shall cause the Company or a Subsidiary of the Company to pay or cause to be paid the Employee Bonus Amounts as follows: (i) in the case of annual performance bonuses for 2009, the earlier of (A) in the ordinary course of business in a manner consistent with the Company’s past practice and (B) the Closing Date but prior to the Closing; and (ii) in the case of special bonuses or other amounts payable in connection with the transactions contemplated by this Agreement, on the Closing Date but prior to the Closing.

ARTICLE 6
INDEMNIFICATION

6.1 Indemnification by Vendor

If the Closing occurs, Vendor covenants and agrees with Parent and Buyer to indemnify and hold harmless Parent and Buyer, their Affiliates (including the Company and its Subsidiaries) and their respective shareholders, partners, directors, officers, employees, agents, representatives, successors and assignors (the “Buyer Indemnified Parties”) from and against any Claim, cause of action, damage, loss, Taxes, cost, liability, expense, fines, awards, judgments and penalties (including reasonable professionals’ fees and disbursements) (“Damages”) which may be made or brought against any of the Buyer Indemnified Parties or which they may suffer or incur in respect of, as a result of, relating to or arising out of or with respect to, without duplication:

(a)	any non-performance or breach of any covenant or agreement on the part of Vendor or the Company contained in this Agreement;
(b)	any inaccuracy in or breach of any representation or warranty of Vendor contained in this Agreement (it being understood that such representations and warranties shall be interpreted without giving effect to any limitations or qualifications as to “materiality” (including the word “material”) or “Material Adverse Change” set forth therein);
(c)	any Indemnified Taxes (provided that, for greater certainty, no double recovery shall be permitted in respect of Taxes that constitute both Damages and Indemnified Taxes); or
(d)	any amounts payable by the Company or its Subsidiaries to their respective employees following the Closing Date in respect of (i) annual performance bonuses for 2009 or (ii) any special bonuses or other amounts payable in connection with the transactions contemplated by this Agreement.

6.2 Indemnification by Parent and Buyer

If the Closing occurs, Parent and Buyer, jointly and severally, covenant and agree with Vendor and its Affiliates and its shareholders, directors, officers, employees, agents, representatives, successors and assignors (the “Vendor Indemnified Parties”) to indemnify and hold harmless each of Vendor Indemnified Parties, from and against any Damages which may be made or

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brought against any of the Vendor Indemnified Parties or which they may suffer or incur in respect of, as a result of, or arising out of or with respect to, without duplication:

(a)	any non-performance or breach of any covenant or agreement on the part of Parent or Buyer under this Agreement; or
(b)	any inaccuracy in or breach of any of Parent’s or Buyer’s representations or warranties contained in this Agreement (it being understood that such representations and warranties shall be interpreted without giving effect to any limitations or qualifications as to “materiality” (including the word “material”) set forth therein).

6.3 Procedure for Indemnification

(a)	Claims Other Than Third Party Claims
	In order for a Vendor Indemnified Party, on the one hand, or a Buyer Indemnified Party, on the other hand, as the case may be (each, an “Indemnified Party”) to be entitled to indemnification pursuant to this Article 6 for a Claim which has not arisen in respect of a Third Party Claim (as defined in Section 6.3(b) below), the Indemnified Party shall notify the other Party or Parties from which such indemnification is sought (the “Indemnifying Party”) in writing promptly after the occurrence of the event giving rise to such Indemnified Party’s claim for indemnification, provided that failure to give such notification shall not affect the indemnification provided hereunder unless (and only to the extent that) the Indemnifying Party shall have been materially prejudiced as a result of such failure. The Indemnifying Party shall have 30 days to make such investigation of the claim as the Indemnifying Party considers desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the claim. If the Indemnified Party and the Indemnifying Party agree at or prior to the expiration of such 30-day period (or any mutually agreed upon extension thereof) to the validity and amount of the claim, the Indemnifying Party shall immediately pay or cause to be paid such amount to the Indemnified Party by wire transfer of immediately available funds to a bank account designated in writing by the Indemnified Party. If the Indemnified Party and the Indemnifying Party do not agree within such period (or any mutually agreed upon extension thereof), such dispute shall, subject to the terms of this Agreement, be resolved by litigation in an appropriate court of competent jurisdiction in accordance with Section 8.10.
(b)	Third Party Claims
	The Indemnified Party shall notify the Indemnifying Party in writing as soon as is reasonably practicable after being informed that facts exist which may result in a claim originating from a Person other than the Indemnified Party (a “Third Party Claim”) and in respect of which a right of indemnification given pursuant to Section 6.1 or 6.2 may apply which notice shall specify in reasonable detail the

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facts known to the Indemnified Party and the events giving rise to such Third Party Claim; provided that failure to provide such notice shall not relieve the Indemnifying Party of any of its obligations under this Agreement unless (and only to the extent that) the Indemnifying Party shall have been materially prejudiced as a result of such failure. The Indemnifying Party shall have the right to elect, by written notice delivered to the Indemnified Party within ten days of receipt by the Indemnifying Party of the notice from the Indemnified Party in respect of the Third Party Claim, at the sole expense of the Indemnifying Party, to participate in or assume control of the negotiation, settlement or defence of the Third Party Claim with counsel of its choice (which counsel shall be reasonably satisfactory to the Indemnified Party); provided that:

(i)	such will be done at all times in a diligent and bona fide manner;
(ii)	the Indemnifying Party acknowledges in writing its obligation to indemnify the Indemnified Party in accordance with the terms contained in this Agreement in respect of that Third Party Claim; and
(iii)	notwithstanding anything in this Section 6.3(b) to the contrary, if the claim for indemnification with respect to a Third Party Claim relates to or arises in connection with any criminal Claim, the Indemnified Party shall be entitled to jointly control the defence thereof with the Indemnifying Party (and to employ counsel reasonably acceptable to the Indemnifying Party, at its own expense) for so long as such criminal Claim has not been finally resolved.

If the Indemnifying Party elects to assume such control, (A) the Indemnified Party shall reasonably co-operate with the Indemnifying Party and its counsel in the defence or prosecution thereof and (B) the Indemnified Party shall have the right to participate in the negotiation, settlement or defence of such Third Party Claim at its own expense; provided, however, that such Indemnified Party shall be entitled to participate in any such defence with separate counsel at the expense of the Indemnifying Party if (1) so requested by the Indemnifying Party to participate with separate counsel, (2) the named parties to the Third Party Claim include the Indemnified Party and the Indemnifying Party and, in the reasonable opinion of counsel to the Indemnified Party there exists or is reasonably likely to exist a conflict of interest between the Indemnified Party and the Indemnifying Party that would make such separate representation advisable, or (3) in the reasonable opinion of the Indemnified Party, the Indemnifying Party is not conducting the defence of such Third Party Claim diligently and in a bona fide manner. Notwithstanding the foregoing, the Indemnifying Party shall be liable for the fees and expenses of the Indemnified Party reasonably necessary to defend such Third Party Claim incurred by the Indemnified Party for any period during which the Indemnifying Party has not assumed the defence thereof, and such fees and expenses shall constitute Damages for purposes of this Agreement. If the Indemnifying Party does not elect to assume such control, the Indemnified Party shall be entitled to assume such control. In the event that the Indemnified Party is, directly or indirectly, conducting the defence against any such Third Party Claim in accordance with this Section 6.3(b), the Indemnifying Party shall reasonably co-operate with the Indemnified Party and its counsel in the defence or prosecution thereof and, subject to Section 6.3(a) the

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Indemnifying Party shall be bound by the results obtained by the Indemnified Party with respect to such Third Party Claim.

6.4 Additional Rules and Procedures

The obligation of the Parties to indemnify each other pursuant to this Article 6 shall also be subject to the following:

(a)	an Indemnified Party shall only be entitled to make a claim for indemnification pursuant to Section 6.1(b) or 6.2(b), as the case be, if written notice containing reasonable particulars of such claim is delivered to the Indemnifying Party within the applicable time period provided for in Sections 3.3(a) or 3.4(a), as the case may be;
(b)	the Indemnified Party shall not settle or compromise any Third Party Claim except with the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld). A failure by the Indemnifying Party to respond in writing to a written request by the Indemnified Party for consent for a period of ten days or more, shall be deemed a consent by the Indemnifying Party to such request;
(c)	the Parties acknowledge that the provisions of this Agreement relating to the period of time during which representations, warranties, covenants and agreements, including the obligation to indemnify, remain in effect are a fundamental term of this Agreement and the Parties waive the benefit of any applicable Law which may affect the enforceability of such provisions;
(d)	an Indemnifying Party will have no liability to indemnify under Section 6.1(b) or 6.2(b), as the case may be, in respect of Damages resulting from a single claim or set of related claims, where the Damages resulting from each such claim or set of related claims is less than $40,000, and an Indemnifying Party will have no liability to indemnify for any claim for indemnification under Section 6.1(b) or 6.2(b), as the case may be, until the aggregate of all Damages exceeds $1,500,000, in which case the Indemnified Parties shall be entitled to indemnification only for the amount of such Damages that exceed such amount; provided that the limitations set forth in this Section 6.4(d) shall not apply to Damages based on (i) claims for indemnification of Indemnified Taxes, (ii) a breach or inaccuracy of any of the Core Representations or (iii) the representations and warranties in Sections 3.2(a), 3.2(c) and 3.2(f), for which, in each case, there shall be no minimum threshold before recovery;
(e)	the maximum aggregate liability of an Indemnifying Party to indemnify under Section 6.1(b) or 6.2(b), as the case may be, shall be an amount equal to $25 million, provided that this limitation shall not apply with respect to (i) claims for indemnification for Indemnified Taxes, (ii) claims for indemnification for breaches or inaccuracies of the Core Representations or the representations and warranties in Sections 3.2(a), 3.2(c) and 3.2(f) (and the maximum aggregate

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	liability of an Indemnifying Party in respect of the items in this clause (ii) shall be an amount equal to the Purchase Price) or (iii) for claims attributable to or resulting from an Indemnifying Party’s intentional misconduct, intentional misrepresentation or fraud;
(f)	Claims for indemnification shall be equitably adjusted to take into account any insurance proceeds received (less any increase in premiums and costs associated with receipt of such insurance proceeds) and any net Tax benefits actually realized by the Indemnified Party or its Affiliates attributable or relating to such claims provided that (i) all other Tax items of the Indemnified Party that reduce liabilities for Taxes shall be taken into account prior to taking into account any Tax items that are attributed directly to the Damages, (ii) the amount of any Tax benefit shall be reduced by any Tax costs actually realized by the Indemnified Party that are attributed directly to an indemnification payment received by the Indemnified Party in respect of Damages, and (iii) in the event of a subsequent disallowance by an Authority of a Tax benefit that has been paid to an Indemnifying Party or that otherwise reduced Damages, the Indemnifying Party shall promptly pay the Indemnified Party the amount of such Tax benefit together with any applicable interest, penalties or other additions. If after an indemnification payment is made under this Agreement, the Party to which such payment is made receives insurance proceeds with respect to the Damages for which the indemnification payment was made, such amount shall be promptly remitted to the Indemnifying Party (less any increase in premiums and costs associated with receipt of such insurance proceeds);
(g)	from and after the Closing Date, other than as provided in Section 5.9(a) or Section 5.12, the provisions of this Article 6 shall be the sole and exclusive remedy for monetary Damages arising out of or resulting from breach of any representations, warranties or agreements made in this Agreement, absent intentional misrepresentation or fraud by the Party against which a remedy is sought;
(h)	any payment under this Article 6 shall constitute an adjustment to the Purchase Price;
(i)	any payment made under this Article 6 shall be paid free and clear of any Tax deduction or withholding and, if any deduction or withholding is required by applicable Tax Law, the Indemnifying Party shall increase the amount of the payment by such additional amount as is necessary to ensure that the net amount received by the Indemnified Party is equal to the amount which the Indemnified Party would have received had the payment in question not been subject to any deductions or withholding; and
(j)	no double recovery shall be permitted in respect of any matter giving rise to a Claim under more than one provision of Sections 6.1 or 6.2.

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ARTICLE 7
TERMINATION AND ABANDONMENT

7.1 Termination

This Agreement may be terminated and the transactions contemplated hereby may be abandoned, at any time prior to the Closing:

(a)	by mutual consent of Vendor, on the one hand, and Parent and Buyer, on the other hand;
(b)	by either Vendor or Parent if the Closing shall not have occurred by March 15, 2010 (the “End Date”), provided that if the Company has not delivered to Parent the Required Financial Information on or before January 11, 2010, the End Date shall be April 30, 2010, provided further, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any Party whose failure to fulfill any obligation under this Agreement (or, in the case of Parent, any failure by Buyer to fulfill any of its obligations under this Agreement) shall have been the cause of, or shall have resulted in the failure of, the Closing to occur on or before such date;
(c)	by either Vendor, on the one hand, or Parent and Buyer, on the other hand, if there has been a breach of any covenant or a breach of any representation or warranty of Parent and Buyer or Vendor, respectively, in each case which breach would cause the failure of any condition precedent set forth in Article 4 to be satisfied, provided that, with respect to any such breach of a covenant or representation or warranty that is curable, such breach has not been cured within 30 days following receipt by the breaching Party of written notice of such breach;
(d)	by any Party, if there shall be any applicable Law that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or if any order of any Authority restraining, enjoining or otherwise prohibiting such transactions is entered and such order shall become final and non-appealable.

7.2 Effect of Termination

A Party seeking to terminate this Agreement pursuant to Section 7.1, shall provide written notice thereof to the other Party or Parties specifying the provision of Section 7.1 pursuant to which such termination is made, and this Agreement shall be terminated immediately upon delivery of such notice and, except as otherwise provided herein or in the immediately following sentence, this Agreement shall forthwith become void and there shall be no liability or other obligation hereunder on the part of Parent or Buyer on the one hand or Vendor on the other hand, except that the provisions of Section 5.5(a) (Confidentiality), Section 5.11 (German Real Estate Transfer Tax), the last sentence of Section 5.13 (Financing Related Co-operation), Section 7.1 (Termination), this Section 7.2 and Article 8 (General) shall survive any termination of this Agreement. Notwithstanding the foregoing, nothing in this Section 7.2 shall relieve any Party of liability for any damages arising out of fraud or a knowing breach of any provision of this Agreement.

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ARTICLE 8
GENERAL

8.1 Public Notices

All public notices to third parties and all other publicity concerning this Agreement and the matters contemplated hereby shall be jointly planned and coordinated by the Parties and no Party shall act unilaterally in this regard without the prior written approval of the other Parties (such approval not to be unreasonably withheld or delayed), except to the extent that the Party making such notice is required to do so by applicable Law, court process or by the applicable regulations or policies of any regulatory agency of competent jurisdiction or any stock exchange in circumstances where prior consultation with the other Parties is not practicable, provided that in such case concurrent notice to the other Parties is provided.

8.2 Expenses

Each Party to this Agreement shall pay its respective legal, accounting and other professional advisory fees, costs and expenses incurred in connection with the negotiation, preparation or execution of this Agreement and all documents and instruments executed or delivered pursuant to this Agreement, and the transactions contemplated hereby and thereby, whether or not the Closing shall have occurred, provided that (i) any filing fees required in connection with any Regulatory Approvals shall be borne equally by the Vendor, on the one hand, and Parent and Buyer, on the other hand and (ii) except as set forth in Section 5.11, Buyer shall pay any transfer, stamp, documentary and similar Taxes incurred in connection with the sale of the Purchased Shares by Vendor to Buyer pursuant to this Agreement. Vendor will cause the Company and its Subsidiaries not to incur any out-of-pocket expenses in connection with this Agreement and the transactions contemplated hereby that are not otherwise paid by Vendor prior to Closing.

8.3 Further Assurances

The Parties shall do all such things and provide all such reasonable assurances as may be reasonably required to consummate the transactions contemplated by this Agreement, and each Party shall provide such further documents or instruments required by any other Party as may be reasonably necessary or desirable to effect the purpose of this Agreement and carry out its provisions, whether before or after Closing. In particular, without limitation, Vendor and Buyer shall forthwith after the Closing Date cooperate in order to duly notify the German Federal Cartel Authority (Bundeskartellamt) of the occurrence of the Closing in accordance with the provisions of applicable Laws.

8.4 Assignment and Enurement

Neither this Agreement nor any benefits or duties accruing under this Agreement shall be assignable by any Party without the prior written consent of each of the other Parties, which consent shall not be unreasonably withheld or delayed and any such assignment or attempted assignment without such consent shall be void; provided, however, that each of Parent and Buyer may assign this Agreement or any of its rights and obligations hereunder in whole or in part to one or more of its Affiliates or designate one or more of its Affiliates to perform its obligations thereunder without the consent of Vendor and in any or all of which cases Parent shall remain

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responsible for all of its obligations hereunder. Subject to the foregoing, this Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation of any Party) and permitted assigns.

8.5 Entire Agreement; Amendment

This Agreement, the Escrow Agreement, the Vendor Limited Guarantee and any agreement or document delivered pursuant to this Agreement and such agreements, constitutes the entire agreement among the Parties with respect to the matters herein and therein and supersedes all prior agreements, understandings, undertakings, negotiations and discussions relating to the subject matter hereof. There are no other covenants, agreements, representations, warranties, conditions, whether direct or collateral, express or implied, that form part of or affect this Agreement except as otherwise provided in this Agreement, the Escrow Agreement and the Vendor Limited Guarantee. This Agreement shall not be amended, added to or qualified except by (a) written agreement signed by, or on behalf of, all of the Parties or (b) by a waiver in accordance with Section 8.6.

8.6 Waiver

Each Party may (a) extend the time for the performance of any of the obligations or other acts of the other Parties, (b) waive any inaccuracies in the representations and warranties of the other Parties contained herein or in any document delivered by the other Parties pursuant hereto, or (c) to the extent permitted by applicable Law, waive compliance with any of the agreements of the other Parties or conditions to such Parties’ obligations contained herein. Except as otherwise expressly set out herein, no such waiver of any provision of this Agreement shall be binding unless it is in writing and signed by the Party or Parties to be bound thereby. No indulgence or forbearance by a Party to assert any of its rights hereunder shall constitute a waiver of such Party’s right to insist on performance in full and in a timely manner of all covenants in this Agreement. Waiver of any provision shall not be deemed to waive the same provision thereafter, or any other provision of this Agreement, at any other time.

8.7 Notices

All notices, requests, Claims, demands or other communications required or permitted to be given by one Party to another under this Agreement shall be given in writing and delivered by personal delivery or delivery by an internationally recognized commercial courier, sent by facsimile or delivered by registered or certified mail (postage prepaid, return receipt requested) or by electronic communication (including e-mail but excluding Internet or intranet websites), addressed as follows:

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To Vendor:

Brookfield Special Situations Management Limited (f/k/a Tricap Management Limited)
Brookfield Place, Suite 300
181 Bay Street
P.O. Box 762
Toronto ON M5J 2T3

Attention:	Sam Ramadori
Facsimile No.:	(416) 365-9642
E-mail:	sramadori@brookfield.com

with a copy to:

Goodmans LLP
333 Bay Street, Suite 3400
Toronto, ON M5H 2S7

Attention:	Michael Partridge
Facsimile No.:	(416) 979-1234
E-mail:	mpartridge@goodmans.ca

To Parent and Buyer:

P.H. Glatfelter Company
96 South George Street
Suite 500
York, PA 17401-1434
USA

Attention:	Thomas Jackson
Facsimile No.:	(717) 225-2745
E-mail:	thomas.jackson@glatfelter.com

with a copy to:

Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
USA

Attention:	Clare O’Brien
Facsimile No.:	(646) 848-8966
E-mail:	cobrien@shearman.com

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and:

Shearman & Sterling LLP
Commerce Court West
Suite 4405
P.O. Box 247
Toronto, Ontario M5L 1E8
Canada

Attention:	Adam Givertz
Facsimile No.:	(416) 360-2132
E-mail:	agivertz@shearman.com

or at such other address, fax number or e-mail address of which the addressee may from time to time notify the addressor. Any notice delivered by personal delivery or by courier to the Party to whom it is addressed as provided above shall be deemed to have been given and received on the day it is so delivered at such address. If such day is not a Business Day, or if the notice is received after 4:00 p.m. (addressee’s local time), then the notice shall be deemed to have been given and received on the next Business Day. Any notice sent by prepaid registered or certified mail shall be deemed to have been given and received on the fourth Business Day following the date of its mailing. Any notice transmitted by facsimile shall be deemed to have been given and received on the day in which such transmission is confirmed. If such day is not a Business Day or if the facsimile transmission is received after 4:00 p.m. (addressee’s local time), then the notice shall be deemed to have been given and received on the first Business Day after its transmission. Notices sent to an e-mail address shall be deemed to be received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice is not sent on a Business Day or is sent after 4:00 p.m. (addressee’s local time) on a Business Day, such notice shall be deemed to have been given and received on the first Business Day after its transmission.

8.8 Severability

If any term or other provision of this Agreement or portion thereof or the application thereof to any Person or circumstance shall to any extent be restricted, invalid, illegal or unenforceable by any applicable Law: (a) the remainder of this Agreement or the application of such provision or portion thereof to any other Person or circumstance shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party; and (b) the Parties will negotiate in good faith to amend this Agreement to implement the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by applicable Law.

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8.9 Counterparts; Facsimile and Electronic Signatures

This Agreement may be executed and delivered in one or more counterparts, each of which once executed shall be deemed to be an original. All such counterparts together shall constitute one and the same instrument. Notwithstanding the date of execution of any counterpart, each counterpart shall be deemed to bear the effective date first written above. This Agreement, any and all agreements and instruments executed and delivered in accordance herewith, along with any amendments hereto or thereto, to the extent executed and delivered by means of a facsimile machine, scanned email or internet transmission copy or other means of electronic transmission, shall be treated in all manner and respects and for all purposes as an original signature, agreement or instrument and shall be considered to have the same binding legal effect as if it were the original executed version thereof delivered in person.

8.10 Governing Law and Jurisdiction

This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and shall be treated, in all respects, as an Ontario contract. Subject to Section 8.13, all Claims arising out of this Agreement or the Escrow Agreement or any of the transactions contemplated hereby or thereby, including any question regarding the existence, validity or termination of this Agreement and any dispute relating to a Party’s entitlement to indemnification under Article 6, shall be heard and determined exclusively by the courts of the Province of Ontario. Consistent with the preceding sentence, each Party hereby (i) irrevocably submits to the exclusive jurisdiction of the Superior Court of Justice of the Province of Ontario located in the City of Toronto for purposes of any such Claim arising out of or relating to this Agreement brought by any Party hereto and (ii) irrevocably waives, and agrees not to assert by way of motion, defence, or otherwise, in any such Claim, any Claim that it is not subject personally to the jurisdiction of the above-named court, that its property is exempt or immune from attachment or execution, that such Claim is improper, or that this Agreement or the transactions contemplated hereby may not be enforced in or by the above-named court.

8.11 Consent

Where a provision of this Agreement requires an approval or consent by a Party to this Agreement and written notification of such approval or consent is not delivered within the applicable time in accordance with this Agreement (except as otherwise expressly provided herein or where the Parties have mutually agreed to extend the time for the provision of such written notification), then the Party whose consent or approval is required shall be conclusively deemed to have withheld its approval or consent.

8.12 Undisputed Amount

Subject to the express provisions of this Agreement, where there is any dispute as to the amount of money owing by any Party to any other Party hereunder, the portion of the amount owing that is not in dispute or otherwise contested or challenged, if any, shall be paid within the time required herein of if the required time has elapsed, shall be paid immediately, without deduction

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or abatement, but without prejudice to the rights of the Parties to contest, challenge or otherwise dispute the appropriate disposition of the remaining portion of the money claimed hereunder.

8.13 Specific Performance

Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or violated. Accordingly, each of the Parties agrees that, without posting bond or other undertaking, the other Parties will be entitled to seek an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any Claim (whether at law or in equity, whether civil or criminal), cause of action (whether in contract or tort or otherwise), hearing, charge, complaint, demand or notice to, from, by or before any Authority having jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity.

8.14 Interpretation Clause (Quebec)

For purposes of any assets, liabilities or entities located in the Province of Québec and for all other purposes pursuant to which the interpretation or construction of this Agreement may be subject to the laws of the Province of Québec or a court or tribunal exercising jurisdiction in the Province of Québec, (a) “personal property” shall include “movable property”, (b) “real property” or “real estate” shall include “immovable property”, (c) “tangible property” shall include “corporeal property”, (d) “intangible property” shall include “incorporeal property”, (e) “security interest”, “mortgage” and “lien” shall include a “hypothec”, “right of retention”, “prior claim” and a “resolutory clause”, (f) all references to “perfection” of or “perfected” liens or security interest shall include a reference to an “opposable” or “set up” lien or security interest as against third parties, (g) any “right of offset”, “right of setoff” or similar expression shall include a “right of compensation”, (h) “common law” shall include “civil law”, (i) “tort” shall include “delict”; (j) “bailor” shall include “depositor” and “bailee” shall include depositary”; (k) “goods” shall include “corporeal movable property” other than chattel paper, documents of title, instruments, money and securities, (l) an “agent” shall include a “mandatary”, (m) “construction liens” shall include “legal hypothecs”; (n) “joint and several” shall include “solidary”; (o) “gross negligence or wilful misconduct” shall be deemed to be “intentional or gross fault”; (p) “beneficial ownership” shall include “ownership on behalf of another as mandatary”; (q) “easement” shall include “servitude”; (r) “priority” shall include “prior claim”; (s) “survey” shall include “certificate of location and plan”; (t) “fee simple title” shall include “absolute ownership”; (u) “accounts” shall include “claims”.

[remainder of page intentionally blank]

IN WITNESS WHEREOF the Parties have hereunto duly executed this Agreement on the date first above written.

BROOKFIELD SPECIAL SITUATIONS MANAGEMENT LIMITED
Per:	/s/ Pierre McNeil
	Name:	Pierre McNeil
	Title:	Senior Vice President
Per:	/s/ Sam Ramadori
	Name:	Sam Ramadori
	Title:	Vice President
P. H. GLATFELTER COMPANY
Per:	/s/ George H. Glatfelter II
	Name:	George H. Glatfelter II
	Title:	Chairman and Chief Executive Officer
GLATFELTER CANADA INC.
Per:	/s/ Thomas G. Jackson
	Name:	Thomas G. Jackson
	Title:	President
Per:	/s/ Donald R. Gross
	Name:	Donald R. Gross
	Title:	Treasurer

Subject to the satisfaction of the conditions in Article 4, Brookfield Asset Management Inc. hereby covenants and agrees to execute and deliver at Closing the Vendor Limited Guarantee. The first sentence of Section 8.10 and the provisions of Section 8.13 shall apply to this covenant.

BROOKFIELD ASSET MANAGEMENT INC.
Per:	/s/ Kelly Marshall
	Name:	Kelly Marshall
	Title:	Managing Partner
Per:	/s/ Brian Lawson
	Name:	Brian Lawson
	Title:	Chief Financial Officer

Schedule 1.1(eeee)

Target Closing Working Capital Calculation

See attached.

Schedule 5.12

Non-Solicitation of Employees

Pierre McNeil

EXHIBIT A

FORM OF ESCROW AGREEMENT

EXHIBIT B

FORM OF VENDOR LIMITED GUARANTEE

EX-2.(B)

Exhibit 2 (b)

AMENDMENT TO THE
SHARE PURCHASE AGREEMENT

THIS AMENDMENT to the Share Purchase Agreement (as defined below) made as of the 12^th day of February, 2010.

AMONG:

BROOKFIELD SPECIAL SITUATIONS MANAGEMENT LIMITED (f/k/a TRICAP MANAGEMENT LIMITED), a corporation governed by the laws of Ontario

(“Vendor”)

- and –

P.H. GLATFELTER COMPANY, a corporation governed by the laws of Pennsylvania

(“Parent”)

- and –

GLATFELTER CANADA INC., a corporation governed by the laws of Canada

(“Buyer”)

RECITALS:

1. Vendor, Buyer and Parent are parties to that certain Share Purchase Agreement, dated as of January 4, 2010 (the “Share Purchase Agreement”). Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, shall have the meanings provided in the Share Purchase Agreement.

2. In connection with Vendor’s obligations pursuant to Section 4.1(j) of the Share Purchase Agreement, the Company intends to issue to Vendor, and Vendor intends to subscribe for from the Company, 15,814,639 new common shares of the Company (the “Share Issuance”).

3. Pursuant to Section 5.1(e)(ii) of the Share Purchase Agreement, the prior written consent of Buyer is required in order for the Company to effect the Share Issuance, and Buyer hereby grants its consent to the Share Issuance.

4. The parties have agreed to make certain other changes to the Share Purchase Agreement in connection with the Closing.

NOW THEREFORE, in consideration of the mutual covenants in this Amendment and for other consideration (the receipt and sufficiency of which are acknowledged), the Parties hereby agree as follows:

     1. The following definition shall be added to Section 1.1 of the Share Purchase Agreement as Section 1.1(zz) and all other definitions shall be renumbered accordingly:

“German Real Estate Transfer Tax Amount” means the amount payable under the German Act on Real Estate Transfer Tax (Grunderwerbsteuergesetz), which amount the parties agree shall be $616,476 for purposes of this Agreement.

     2. The definition of “Purchased Shares” set forth in Section 1.1(rrrr) of the Share Purchase Agreement shall be deleted and replaced with the following:

“Purchased Shares” means (i) the Outstanding Shares, (ii) all of the common shares issued by the Company on the conversion of the Vendor Loans in accordance with Section 4.1(h), and (iii) all of the common shares issued by the Company to Vendor in connection with the actions to be taken by Vendor in order to fulfill its obligations pursuant to Section 4.1(j).

     3. The definition of “Working Capital” set forth in Section 1.1(rrrrr) of the Share Purchase Agreement shall be deleted and replaced with the following:

“Working Capital” means (i) cash, accounts receivables, inventory and prepaid expenses less (ii) accounts payable and accrued liabilities, in each case, of the Company and its Subsidiaries; provided, that (i) the following items shall be excluded from the calculation of Working Capital: (x) any Indemnified Taxes, (y) any current derivative related assets and current derivative related liabilities and (z) the Employee Bonus Amount, and (ii) for purposes of calculating the Estimated Closing Working Capital and the Final Closing Working Capital, (A) the amount of Inventory shall not exceed $34,412,000 and (B) the amount of cash shall not exceed $2,750,000.

     4. The second sentence of Section 2.1 of the Share Purchase Agreement shall be deleted and replaced with the following:

Subject to Section 2.4, the aggregate purchase price payable by Buyer to Vendor for the Purchased Shares shall be equal to: (a) $246,500,000, (b) less an amount equal to one half of the German Real Estate Transfer Tax Amount and (c) either: (i) plus, if the Estimated Closing Working Capital is greater than the Target Closing Working Capital, the difference between the Estimated Closing Working Capital and the Target Closing Working Capital, or (ii) minus, if the Estimated Closing Working Capital is less than the Target Closing Working Capital, the difference between the Estimated Closing Working Capital and the Target Closing Working Capital (the “Purchase Price”).

     5. The last sentence of Section 3.1(b)(i) of the Share Purchase Agreement shall be deleted and replaced with the following:

Section 3.1(b)(i) of the Disclosure Letter sets forth the names of each beneficial owner of (A) the Outstanding Shares as of the date hereof and (B) the Purchased Shares

2

immediately prior to the Closing, in each case, together with their corresponding ownership percentages.

     6. Sections 5.11(b) and (c) shall be deleted from the Share Purchase Agreement in their entirety.

     7. Schedule 1.1(eeee) to the Share Purchase Agreement shall be deleted and replaced with Schedule 1.1(eeee) attached hereto.

     8. By executing this Amendment, Buyer hereby consents to the Share Issuance in accordance with Section 5.1(e)(ii) of the Share Purchase Agreement.

     9. References to the Share Purchase Agreement. All references to the Share Purchase Agreement in any agreement or document entered into or delivered in connection with the Share Purchase Agreement shall be deemed to refer to the Share Purchase Agreement as amended hereby.

     10. Ratification of the Share Purchase Agreement. Notwithstanding anything to the contrary herein contained or any claims of the parties to the contrary, the Parties agree that the Share Purchase Agreement is in full force and effect and shall remain in full force and effect, as amended by this Amendment, and each of the Parties thereto, hereby ratifies and confirms its obligations thereunder.

     11. References; No Waiver. All references in the Share Purchase Agreement to “this Agreement,” “hereof,” “hereto” and “hereunder” shall be deemed to be references to the Share Purchase Agreement as amended hereby.

     12. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and shall be treated, in all respects, as an Ontario contract. Subject to Section 8.13 of the Share Purchase Agreement, all Claims arising out of this Amendment or any of the transactions contemplated hereby, including any question regarding the existence, validity or termination of this Amendment and any dispute relating to a Party’s entitlement to indemnification under Article 6 of the Share Purchase Agreement, shall be heard and determined exclusively by the courts of the Province of Ontario. Consistent with the preceding sentence, each Party hereby (i) irrevocably submits to the exclusive jurisdiction of the Superior Court of Justice of the Province of Ontario located in the City of Toronto for purposes of any such Claim arising out of or relating to this Amendment brought by any Party hereto and (ii) irrevocably waives, and agrees not to assert by way of motion, defence, or otherwise, in any such Claim, any Claim that it is not subject personally to the jurisdiction of the above-named court, that its property is exempt or immune from attachment or execution, that such Claim is improper, or that this Amendment or the transactions contemplated hereby may not be enforced in or by the above-named court.

[Remainder of Page Intentionally Left Blank]

3

IN WITNESS WHEREOF the Parties have hereunto duly executed this Amendment on the date first above written.

BROOKFIELD SPECIAL SITUATIONS MANAGEMENT LIMITED
Per:	/s/ Pierre McNeil
	Name:	Pierre McNeil
	Title:	Senior Vice President
Per:	/s/ Sam Ramadori
	Name:	Sam Ramadori
	Title:	Vice President
P. H. GLATFELTER COMPANY
Per:	/s/ Thomas G. Jackson
	Name:	Thomas G. Jackson
	Title:	Vice President, General Counsel and Secretary
GLATFELTER CANADA INC.
Per:	/s/ Thomas G. Jackson
	Name:	Thomas G. Jackson
	Title:	President
Per:	/s/ Donald R. Gross
	Name:	Donald R. Gross
	Title:	Treasurer

EX-10.(J)(A)

EXHIBIT 10(J)(A)

SCHEDULE OF CHANGE IN CONTROL EMPLOYMENT AGREEMENTS

          In accordance with the Instructions to Item 601 of Regulation S-K, the Registrant has omitted filing Change in Control Employment Agreements by and between P. H. Glatfelter Company and the following employees as exhibits to this Form 10-K because they are identical to the Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain employees, which is filed as Exhibit 10 (j) to our Form 10-K for the year ended December 31, 2008.

David C. Elder
Thomas G. Jackson
John P. Jacunski
Debabrata Mukherjee
Dante C. Parrini
Martin Rapp
Mark A. Sullivan
William T. Yanavitch II

EX-10.(Q)

EXHIBIT 10(q)

COMPENSATORY ARRANGEMENTS WITH CERTAIN EXECUTIVE OFFICERS

     Set forth below are the base salaries of the individuals for 2010 who will be identified as named executive officers(1) of the Company in the Company’s 2010 proxy statement.

NAME AND TITLE	SALARY
George H. Glatfelter II	$	700,500
Chairman and Chief Executive Officer
John P. Jacunski	$	352,372
Senior Vice President and Chief Financial Officer
Dante C. Parrini	$	535,327
Executive Vice President and Chief Operating Officer
Debarata Mukherjee	$	311,607
Vice President and General Manager, Specialty Papers Business Unit
Martin Rapp(1)	$	383,954
Vice President and General Manager, Composite Fibers Business Unit

(1) Mr. Rapp’s annual salary is 266,635 euros. The amount set forth above is based on the currency exchange rate at December 31, 2009.

     The annual base salaries are subject to adjustment pursuant to the Company’s employee compensation policies in effect from time to time. Each of the above executive officers has a change in control employment agreement, which is included as exhibits to this Form 10-K. Also, each executive officer participates in the Company’s 2005 Long-Term Incentive Plan and in its Management Incentive Plan, each of which are incorporated by reference as exhibits to this Form 10-K.

EX-10.(R)

EXHIBIT 10(r)

NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

P.H. Glatfelter Company (the “Company”) pays fees to each non employee director of the Company. Each non-employee director receives an annual retainer fee of $35,000 (two-thirds in shares of Glatfelter common stock and one-third in cash) and an additional $10,000 annual retainer if the non-employee director serves as chairperson of either the Audit Committee or the Compensation Committee of the board of directors. Each non-employee director receives an additional $5,000 if they serve as chairperson of either the Finance Committee or the Nominating and Corporate Governance Committee. Each non-employee director will also receive $2,000 for attending the annual board retreat, and $1,500 for each attended board or committee meeting. In addition, each non-employee director will receive an annual Restricted Stock Unit award valued at $30,000 that will vest ratably over a three-year period.

EX-21

EXHIBIT 21

LIST OF SUBSIDIARIES

	State or Country of
	Incorporation
PHG Tea Leaves, Inc.	Delaware
The Glatfelter Pulp Wood Company	Maryland
Glatfelter Holdings, LLC	Delaware
GPW Virginia Timberlands LLC	Delaware
GW Partners, LLC (50% partnership interest)	Wisconsin
Mollanvick, Inc.	Delaware
Glatfelter Composite Fibers NA, Inc.	Delaware
Glatfelter Gernsbach GmbH & Co.KG	Germany
Papcel-Papier und Cellulose, Technologie und Handels-GmbH	Germany
Glatfelter Auslandsbeteiligungen mbH	Germany
PHG Verwaltungsgesellschaft mbH	Germany
Glatfelter Verwaltungsgesellschaft mbH	Germany
TL Verwaltungsgesellschaft mbH	Germany
Glatfelter Scaer SAS	France
Glatfelter Lydney, LTD	England & Wales
Glatfelter Caerphilly Ltd.	England & Wales
Balo-I Industrial, Inc.	Philippines
Newtech Pulp Inc.	Philippines
Glatfelter Russia, LLC	Russia
Glatfelter Canada, Inc	Canada
Glatfelter Gatinueau, Ltee	Canada
Glatfelter Falkenhagen Holdings GmbH	Germany
Glatfelter Falkenhagen GmbH	Germany
Glatfelter Falkenhagen Engineering GmbH	Germany

EX-23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements Nos. 33-49660, 33-62331, 333-12089, 333-26587, 333-124485, and 333-160310 on Form S-8 of our reports dated March 16, 2010, relating to the financial statements and financial statement schedule of P. H. Glatfelter Company and subsidiaries, and the effectiveness of P. H. Glatfelter Company’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of P. H. Glatfelter Company for the year ended December 31, 2009.

/s/DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
March 16, 2010

EX-31.1

CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002

I, George H. Glatfelter II, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2009 of P. H. Glatfelter Company (“Glatfelter”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4.	Glatfelter’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Glatfelter and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Glatfelter, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of Glatfelter’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in Glatfelter’s internal control over financial reporting that occurred during Glatfelter’s most recent fiscal quarter (the fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, Glatfelter’s internal control over financial reporting; and

5.  Glatfelter’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Glatfelter’s auditors and the audit committee of Glatfelter’s board of directors or persons performing the equivalent functions:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Glatfelter’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in Glatfelter’s internal control over financial reporting.

Date: March 16, 2010 By: /s/  George H. Glatfelter II
George H. Glatfelter II
Chairman and Chief Executive Officer

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EX-31.2

CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002

I, John P. Jacunski, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2009 of P. H. Glatfelter Company (“Glatfelter”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	Glatfelter’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Glatfelter and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Glatfelter, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of Glatfelter’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in Glatfelter’s internal control over financial reporting that occurred during Glatfelter’s most recent fiscal quarter (the fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, Glatfelter’s internal control over financial reporting; and

5.  Glatfelter’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Glatfelter’s auditors and the audit committee of Glatfelter’s board of directors or persons performing the equivalent functions:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Glatfelter’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in Glatfelter’s internal control over financial reporting.

Date: March 16, 2010 By: /s/  John P. Jacunski
John P. Jacunski
Senior Vice President and Chief Financial Officer

Glatfelter 2009 Annual Report    63

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K for the year ended December 31, 2009 of P. H. Glatfelter Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George H. Glatfelter II, Chairman and Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Glatfelter and will be retained by Glatfelter and furnished to the Securities and Exchange Commission or its staff upon request.

Date: March 16, 2010	By:	/s/ George H. Glatfelter II
		George H. Glatfelter II
		Chairman and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K for the year ended December 31, 2009 of P. H. Glatfelter Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Jacunski, Senior Vice President and Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Glatfelter and will be retained by Glatfelter and furnished to the Securities and Exchange Commission or its staff upon request.

Date: March 16, 2010	By:	/s/ John P. Jacunski
		John P. Jacunski
		Senior Vice President and Chief Financial Officer