LETTER LOAN AGREEMENT

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LETTER LOAN AGREEMENT
DIP FACILITY

THE PARTIES

Borrowers:

ACI and Donohue (collectively, the “ Borrowers ”)

Lender:

Bank of Montreal (together with its successors and permitted assigns, the “ Lender ”)

Subsidiary Guarantors:

The following subsidiaries of ACI shall guarantee the Obligations of the Borrowers (collectively, the “ Subsidiary Guarantors ”):

(i)

Abitibi-Consolidated Company of Canada (“ACCC”);

(ii)

3224112 Nova Scotia Limited;

(iii)

Marketing Donohue Inc.;

(iv)

Abitibi-Consolidated Canadian Office Products Holdings Inc.;

(v)

3834328 Canada Inc.;

(vi)

6169678 Canada Incorporated;

(vii)

4042140 Canada Inc.;

(viii)

Donohue Recycling Inc.;

(ix)

1508756 Ontario Inc.;

(x)

Abitibi-Consolidated Nova Scotia Incorporated;

(xi)

Saguenay Forest Products Inc.;

(xii)

Les Explorations Terra Nova Ltd.;

(xiii)

The Jonquiere Pulp Company;

(xiv)

The International Bridge and Terminal Company;

(xv)

Scramble Mining Ltd.; and

(xvi)

9150-3383 Québec Inc.

Sponsor:

Investissement Quebec

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LETTER LOAN AGREEMENT
DIP FACILITY

THE DIP FACILITY

DIP Facility:

The Lender hereby makes available a DIP Facility of up to US$100,000,000 to the Borrowers upon the terms and conditions hereof. The DIP Facility shall be made available by way of Loans bearing interest at a rate determined by reference to the LIBO Rate (each a “ LIBOR Loan ”) and/or loans based on the BMO US Base Rate (each a “ Base Rate Loan ”) in accordance with the terms and conditions of this Agreement.

Purpose:

The proceeds of the Loans advanced under the DIP Facility shall be used only for the following purposes:

(i)

to provide for working capital for and for other general corporate purposes of (x) ACI, (y) Donohue and (z) the Subsidiary Guarantors;

(ii)

to pay fees and expenses associated with the DIP Facility, including without limitation all reasonable legal and other out-of-pocket expenses incurred by the Lender and by the Sponsor in connection with the execution, maintenance and enforcement of this Agreement and the other DIP Loan Documents (collectively, the “DIP Expenses”); and

(iii)

to pay costs and expenses in connection with the CCAA Cases.

The Borrowers shall not transfer any proceeds of the Loans to any subsidiary or Affiliate other than ACI and the Subsidiary Guarantors or, if the US DIP Order has been obtained, to Donohue.

None of the proceeds of the Loans shall directly be used in any way, to repay any of the obligations under the Existing Securitization Facility or any Replacement Securitization Facility.

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LETTER LOAN AGREEMENT
DIP FACILITY

Availability:

Subject to the satisfaction of the Initial Availability Conditions (as set forth below), the DIP Facility shall be available to the Borrowers, up to but excluding November 1, 2009 (the “ Expected Repayment Date ”), by way of multiple borrowings; provided that the aggregate amount of Loans made to Donohue shall not exceed US$10 million.

For greater certainty, (i) Donohue may not borrow any Loans under the DIP Facility unless and until Donohue is granted an order from the US Bankruptcy Court (the “ US DIP Order ”) authorizing and approving the DIP Facility and granting the Lender a super-priority charge over the assets and undertaking of Donohue and the Chapter 11 Debtors which are subsidiaries of Donohue (collectively, the “ US Subsidiary Guarantors ”) and (ii) the failure to satisfy any condition herein relating to the availability of the DIP Facility insofar as Donohue is concerned (other than the absence of Specified Events of Default or Termination Events) shall not preclude ACI from borrowing hereunder.

Each borrowing of Loans under the DIP Facility shall be subject to the satisfaction of the Drawdown Conditions (as set forth below).

Loans under the DIP Facility will cease to be available and the Lender shall have no further obligation to advance Loans to the Borrowers (i) if the Further Availability Conditions (as set forth below) have not been satisfied or waived within 30 days of the Effective Date or (ii) on and after the occurrence of a Specified Event of Default and a Termination Event; provided that the Lender, in its sole discretion, may advance Base Rate Loans in the amount of any interest, fees or expenses then due and payable, which Loans shall be deemed to have been requested by ACI, and apply the proceeds of such Loans to the payment of such interest, fees or expenses.

Any amounts borrowed and repaid under the DIP Facility may not be re-borrowed.

Minimum Availability:

Notwithstanding the foregoing, a minimum availability of US$12.5 million of the Commitment Amount shall be maintained under the DIP Facility at all times.

Minimum Amounts:

Each Loan under the DIP Facility shall be in a minimum amount of US$10,000,000 (or the available undrawn amount of the Commitment Amount if it is less than US$10,000,000) and, if in excess of such amount, in multiples of US$1,000,000.

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LETTER LOAN AGREEMENT
DIP FACILITY

Notice of Borrowing:

The Borrowers shall provide to each of the Lender and the Sponsor a borrowing request in the form attached as Schedule F (a “ Borrowing Request ”), in which, among other things, the Borrowers shall represent and warrant to the Lender that all of the Drawdown Conditions have been satisfied, at least six (6) Business Days prior to each borrowing of Loans under the DIP Facility.

Manner of Borrowing:

The Borrowers shall have the option, subject to the terms and conditions of this Agreement, to specify the type of Loan which they wish to borrow in their borrowing request; provided that (i) LIBOR Loans shall not be available if the Interest Period of such LIBOR Loan would extend past the Maturity Date and (ii) no more than five (5) LIBO Rate contracts in respect of Loans may be outstanding at any one time. If the Borrowers do not specify the type of Loan which they wish to borrow in their borrowing request, they shall be deemed to have requested a LIBOR Loan (subject to the availability of LIBOR Loans at such time). Subject to the terms and conditions hereof, and provided that no Default or Specified Event of Default has occurred and is then continuing, unless the Borrowers have otherwise given written notice to the Lender, the Borrowers shall be deemed to have elected to continue a LIBOR Loan for another Interest Period upon the termination of the current Interest Period in respect of such LIBOR Loan.

After any Specified Event of Default or Termination Event, all LIBOR Loans shall, at the option of the Lender, be converted to Base Rate Loans and the Borrowers shall be responsible for any Breakage Costs associated with such conversion.

Disbursement of Loan Proceeds:

The proceeds of all Loans advanced to the Borrowers pursuant to this Agreement shall be paid to a US Dollar account of ACI to be opened and maintained with the Lender at its main branch located at Montreal(the “ Loan Account ”) and such Loan proceeds shall be kept segregated from other funds of the Borrowers.

Term and Termination:

All Loans advanced hereunder shall be repaid in full and the DIP Facility shall terminate at the earliest of (each, a “ Termination Event ”):

(i)

April 30, 2010 (the “Maturity Date”);

(ii)

he effective date of a plan of compromise and arrangement of the CCAA Debtors pursuant to the CCAA or a plan of compromise and arrangement of the Chapter 11 Debtors under Chapter 11 of the US Bankruptcy Code;

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LETTER LOAN AGREEMENT
DIP FACILITY

(iii)

upon acceleration of the DIP Facility in accordance with the terms hereof or upon the occurrence of a Specified Event of Default; and

(iv)

upon any actual or asserted invalidity, impairment or unenforceability of the Sponsor Guarantee.

Evidence of Borrowings:

The Lender’s accounts and records shall constitute, in the absence of manifest error, prima facie evidence of the indebtedness of the Borrowers to the Lender.

REPAYMENT, INTEREST RATES AND FEES

Interest Payment Dates:

Interest on the Loans advanced hereunder shall accrue daily and shall be payable in arrears on each Interest Payment Date at the rate applicable to such Loans.

Account for Payment:

Each payment under this Agreement shall be made for value on the day the payment is due, provided that if that day is not a Business Day, the payment shall be due on the immediately preceding Business Day (unless otherwise specified herein). All interest and other fees shall continue to accrue until payment has been received by the Lender. The Lender shall debit the Loan Account in the amount of each payment due hereunder at or before 12:00 noon (Montreal time) on the day that such payment is due.

Applicable Rates:

Each LIBOR Loan shall bear interest at the LIBO Rate for the Interest Period in effect for such LIBOR Loan plus the Applicable Margin.

Each Base Rate Loan shall bear interest at the BMO US Base Rate in effect for each day such Loan is outstanding plus the Applicable Margin.

The “ Applicable Margin ” shall mean, as applicable:

(i)

with respect to LIBOR Loans, 1.75% per annum; and

(ii)

with respect to Base Rate Loans, 0.75% per annum.

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LETTER LOAN AGREEMENT
DIP FACILITY

Overdue Payments:

In the event that the Borrowers fail to make any payment hereunder when due, as a late charge, interest on such overdue payment shall accrue at an annual rate equal to the interest rate applicable otherwise applicable hereunder in respect of such payment plus 2% per annum, from the due date thereof to the date of actual payment. If there is no interest rate specified hereunder in respect of any such payment, then the per annum interest rate for such payment shall be deemed to be the BMO US Base Rate plus 0.75% per annum.

Provisions Relating to Interest Payments:

Calculation of Interest. Any and all interest payable hereunder shall accrue from day to day and the amounts thereof shall be calculated on the basis of a year of 360 days.

Interest Act Disclosure. Solely for purposes of the Interest Act (Canada), (i) whenever any interest or fee under this Agreement is calculated using a rate based on a year of 360 days or 365 days, as the case may be, the rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to the applicable rate based on a year of 360 days or 365 days, as the case may be, multiplied by a fraction, the numerator of which is the actual number of days in the calendar year in which the period for which such interest or fee is payable (or compounded) ends and the denominator of which is 360 or 365, as the case may be, (ii) the rates of interest under this Agreement are nominal rates and not effective rates or yields and (iii) the principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement.

Criminal Rate of Interest. If any provision of this Agreement or the DIP Loan Documents would obligate the Borrowers to make any payment of interest or other amount payable to the Lender in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by the Lender of interest at a criminal rate (as such terms are construed under the Criminal Code (Canada)) then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by law or so result in a receipt by the Lender of interest at a criminal rate and any such amounts actually paid by the Borrowers in excess of the adjusted amount shall be forthwith refunded to the Borrowers.

Miscellaneous. Interest payable under this provision is payable both before and after any or all of default, demand and judgement.

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LETTER LOAN AGREEMENT
DIP FACILITY

Alternate Rate of Interest:

If prior to the commencement of any Interest Period for a LIBOR Loan: (a) the Lender determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period, then the Lender shall give notice thereof to the Borrowers by telephone or facsimile as promptly as practicable thereafter and, until the Lender notifies the Borrowers that the circumstances giving rise to such notice no longer exist, (i) any borrowing request that requests the continuation of any Loan as a LIBOR Loan shall be ineffective, and (ii) if any borrowing request requests a LIBOR Loan, such Loan shall be made as Base Rate Loan.

Break Funding Payments:

In the event of (a) the payment of any principal of any LIBOR Loan other than on the last day of an Interest Period applicable thereto (including as a result of a Specified Event of Default) or (b) the failure to borrow, continue or prepay any LIBOR Loan on the date specified in any notice delivered pursuant hereto, then, in any such event, the Borrowers shall compensate the Lender for the loss, cost and expense attributable to such event (“ Breakage Costs ”) as determined by the Lender in its sole discretion. A certificate of the Lender setting forth any amount or amounts that the Lender is entitled to receive pursuant to this provision shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay the Lender the amount shown as due on any such certificate within five Business Days after receipt thereof.

Voluntary Prepayment:

The Borrowers shall have the right to prepay any or all of the Loans at any time without premium or penalty, provided that the Borrowers shall indemnify the Lender for any Breakage Costs resulting from such prepayment in accordance with this Agreement.

Mandatory Prepayments:

The Borrowers shall be required to make mandatory prepayments of the outstanding Loans to the extent of 100% of the net cash proceeds of:

(i)

sales of assets of the Borrowers and Subsidiary Guarantors, other than (x) sales of eligible accounts receivable directly or indirectly to the Existing Securitization Facility or any Replacement Securitization Facility, (y) sales of working capital Collateral in the ordinary course of business, and (z) the sale of any and all lots of timberlands listed in Schedule G hereto;

(ii)

insurance proceeds in respect of Collateral in the case where the insured Collateral is considered a total loss;

(iii)

any payment by a Governmental Authority in respect of any expropriation claim; and

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LETTER LOAN AGREEMENT
DIP FACILITY

(iv)

any direct or indirect sale of the Borrowers’ interest in the assets of the Manicouagan Power Company.

For greater certainty, the Borrowers shall indemnify the Lender for any Breakage Costs resulting from such mandatory prepayment in accordance with this Agreement.

Undrawn Fee:

The Borrowers shall pay a fee to the Lender, from the date of this Agreement until the Maturity Date, payable in arrears on the last Business Day of each month and on the Termination Date, at the rate of 0.525% per annum on the average daily undrawn portion of the Commitment Amount.

Structuring Fee:

The Borrowers shall pay the following structuring fees to the Lender:

(i)

1.0% of the Commitment Amount upon the Lender’s execution and delivery of this Agreement;

(ii)

1.0% of the Commitment Amount upon the Effective Date; and

(iii)

1.0% of the Commitment Amount if any Obligations are still outstanding hereunder as of the Expected Repayment Date.

Sponsor’s Upfront Fee:

The Borrowers shall pay a fee in the amount of US$656,250 to the Sponsor upon the acceptance by ACI of this Agreement.

Sponsor’s Guarantee Fee:

The Borrowers shall pay a fee in the amount of 1.75% of the Commitment Amount to the Sponsor upon the Effective Date and upon each anniversary of the Effective Date.

SECURITY AND PRIORITY

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LETTER LOAN AGREEMENT
DIP FACILITY

Security:

To secure all Obligations of the Borrowers and each of the Subsidiary Guarantors under or in connection with the DIP Facility, the Lender shall be granted and will receive, pursuant to the CCAA DIP Order (and the US DIP Order, if applicable) and the DIP Loan Documents, a fully perfected first ranking (except as otherwise contemplated herein) hypothec, security interest and court-ordered superpriority charge on or applicable equivalents thereto outside of the Province of Quebec (such hypothec, security interest and charge, collectively, the “ DIP Liens ”) all of the existing and after acquired real and personal, tangible and intangible, assets of each of ACI (and Donohue if a Loan is advanced to it hereunder) and the Subsidiary Guarantors, including, without limitation, all cash, cash equivalents, bank accounts, accounts, other receivables, chattel paper, contract rights, inventory, instruments, documents, securities (whether or not marketable), equipment, fixtures, real property interests, franchise rights, patents, tradenames, trademarks, copyrights, intellectual property, general intangibles, capital stock, investment property, supporting obligations, letter of credit rights, causes of action and all substitutions, accessions and proceeds of the foregoing, wherever located, including insurance or other proceeds (collectively, the “ Collateral ”). For greater certainty, the Collateral shall, in no circumstances, extend to any assets sold or transferred pursuant to the Existing Securitization Facility or any Replacement Securitization Facility (whether before or after the date hereof) or any assets of ACUSFC (as defined below).

Carve-Out:

Notwithstanding the foregoing, the DIP Liens in the Collateral shall be subject and subordinate to:

(i)

an administration charge ordered by the CCAA Court (the “Administration Charge”) in an aggregate amount not exceeding US$6.0 million for the payment of (x) allowed and unpaid professional fees and disbursements incurred by professionals retained by ACI and its subsidiaries in respect of the CCAA Cases and the associated business and financial restructuring and (y) allowed professional fees and disbursements of the Monitor appointed in the CCAA Cases, including allowed legal fees and expenses of such monitor; and

(ii)

a directors’ charge (a “Directors’ Charge”) in favour of the directors and officers of ACI and Donohue and their respective subsidiaries in an amount not to exceed US$22.5 million and upon terms reasonably satisfactory to the Lender and the Sponsor.

Permitted Encumbrances:

All Collateral shall be free and clear of other liens, encumbrances and claims, except for the following (collectively, the “ Permitted Encumbrances ”):

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LETTER LOAN AGREEMENT
DIP FACILITY

(i)

charges, including without limitation the Administration Charge and the Directors’ Charge, created under the CCAA Initial Order and the CCAA DIP Order;

(ii)

existing validly perfected liens granted by the Borrowers and the Subsidiary Guarantors prior to the CCAA Initial Order Date, which shall rank after the DIP Liens; and

(iii)

those Liens listed on Schedule C hereto.

Notwithstanding the foregoing or anything to the contrary contained in this Agreement or any DIP Loan Document (including any provision for, reference to, or acknowledgement of, any Lien or Permitted Encumbrance), nothing herein and no approval by the Lender of any Lien or Permitted Encumbrance (whether such approval is oral or in writing) shall be construed as or deemed to constitute a subordination by the Lender of any security interest or other right, interest or Lien in or to the Collateral or any part thereof in favour of any Lien or Permitted Encumbrance or any holder of any Lien or Permitted Encumbrance, except to the extent specifically set forth herein or in such approval.

CONDITIONS TO EFFECTIVENESS AND AVAILABILITY

Initial Availability Conditions:

The effectiveness of the DIP Facility and the Lender’s obligation to advance the initial Loan hereunder (which must be advanced to ACI) shall be subject to and conditional upon the satisfaction of the following:

(i)

receipt of a certified signed copy of the CCAA Initial Order, which shall not have been vacated, reversed, modified, amended or stayed;

(ii)

receipt of a certified signed copy of the order of the CCAA Court (the “CCAA DIP Order”), in form and substance satisfactory to the Lender, the Lender’s counsel, the Sponsor and the Sponsor’s counsel, approving and authorizing the DIP Facility and the granting of the DIP Liens, and which CCAA DIP Order (i) shall authorize extensions of credit in amounts not in excess of US$100 million, (ii) shall authorize the payment by the Loan Parties of all of the DIP Expenses provided for in respect of the DIP Facility in this Agreement and (iii) shall not have been vacated, reversed, modified, amended or stayed;

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LETTER LOAN AGREEMENT
DIP FACILITY

(iii)

each of this Agreement and the other DIP Loan Documents (including for greater certainty the Sponsor Guarantee) shall have been duly executed and delivered to the Lender;

(iv)

receipt by the Lender of a certified copy of the signed order in council of the Government of Quebec authorizing the Sponsor to grant the Sponsor Guarantee;

(v)

the Loan Account shall have been opened by the Borrowers;

(vi)

receipt by the Lender of a duly executed Perfection Certificate, although a Perfection Certificate in respect of Donohue and its subsidiaries shall only be required prior to the initial advance of a Loan to Donohue;

(vii)

receipt by the Lender of satisfactory certificates of status, certificates of compliance, certificates of good standing or other equivalent certificates, issued in respect of each Loan Party by the applicable Governmental Authority in each Loan Party’s respective jurisdiction of incorporation or organization, which certificates shall be dated no earlier than five (5) Business Days prior to the Effective Date;

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LETTER LOAN AGREEMENT
DIP FACILITY

(viii)

receipt by the Lender of a certificate and/or certificates of each Loan Party signed on behalf of such Loan Party by its respective President, Chief Executive Officer, Treasurer or Secretary, dated the Effective Date (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to: (A) the accuracy and completeness of the articles or other charter documents of such Loan Party attached to such certificate and the absence of any changes thereto; (B) the accuracy and completeness of the bylaws or equivalent governing documents of such Loan Party attached to such certificate and the absence of any changes thereto; (C) the accuracy and completeness of the resolutions of the board of directors or of the shareholders (or persons performing similar functions) of such Loan Party attached to such certificate, approving the DIP Facility and each of the DIP Loan Documents, and that such resolutions are in effect and have not been rescinded or amended; (D) the incumbency and specimen signatures of the officers and directors of such Loan Party authorized to execute the DIP Loan Documents on behalf of such Loan Party; and (E) the absence of any proceeding known to be pending for the dissolution, liquidation or other termination of the existence of such Loan Party;

(ix)

receipt by the Lender of such certificates representing certificated securities of the wholly-owned subsidiaries of the Borrowers other than ACUSFC whose equity interests are pledged to the Lender pursuant to a security document required hereunder (the “Wholly-Owned Pledged Securities”) accompanied by undated transfer powers of attorney, duly executed in blank, as the Loan Parties may be able to deliver using their best efforts;

(x)

receipt by the Lender of a signed legal opinion from Gowling Lafleur Henderson LLP, counsel to the Sponsor, in form and substance acceptable to the Lender, as to (a) the existence and capacity of the Sponsor, (b) the authorization, execution and delivery by the Sponsor of the Sponsor Guarantee, (c) the enforceability of the Sponsor Guarantee, (d) the non-contravention of Requirements of Law, and all other matters which the Lender or the Lender consider necessary in their sole absolute discretion;

(xi)

the Borrowers shall have paid all accrued and unpaid fees and DIP Expenses;

(xii)

receipt by the Lender of a rolling 13 week cash forecast of receipts and disbursements of the Borrowers and their respective subsidiaries, in form and substance reasonably satisfactory to the Lender;

(xiii)

no Default, Specified Event of Default or Termination Event under the DIP Loan Documents shall have occurred and be continuing;

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LETTER LOAN AGREEMENT
DIP FACILITY

(xiv)

evidence of the continuance of the Existing Securitization Facility until at least 45 days following the earlier of (i) the CCAA Initial Order Date and (ii) the date that the Chapter 11 Debtors commenced proceedings before the US Bankruptcy Court;

(xv)

receipt by the Lender of written confirmation from the Sponsor, in the form attached as Schedule H hereto, that it is satisfied that all of the Initial Availability Conditions and all of the conditions under the Sponsor Guarantee have been met; and

(xvi)

receipt by the Lender of evidence acceptable to the Lender that all other actions that the Lender may deem necessary or desirable in order to perfect and protect the DIP Liens has been taken, including without limitation, receipt by the Lender of proper financing statements, publications and equivalent registration statements under the personal property legislation of all jurisdictions that the Lender may deem necessary or desirable in order to perfect and protect the DIP Liens in the Collateral created or purported to be created hereunder or under the DIP Loan Documents, in each case completed in a manner reasonably satisfactory to the Lender;

(xvii)

the Lender being named as additional insured under the liability insurance coverages maintained by the Loan Parties and loss payee on any casualty insurances in existence and required by the Lender, including insurance with respect to any real property Collateral; and

(xviii)

such other documents, conditions or evidences as the Lender may request, acting reasonably.

Further Availability Conditions:

The Lender’s obligation to advance Loans to the Borrowers under this Agreement shall be subject to and conditional upon the satisfaction of the following on or before 30 days after the Effective Date:

(i)

the Initial Availability Conditions shall continue to be satisfied;

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LETTER LOAN AGREEMENT
DIP FACILITY

(ii)

not later than May 15, 2009, the term of the stay of proceedings against the CCAA Debtors shall have been extended by the CCAA Court (the “CCAA Extension Order”) beyond the term initially set out in the CCAA Initial Order, and the CCAA Extension Order shall be in full force and effect without any variation, amendment, stay or other modification to which Lender has not consented in writing in its sole discretion;

(iii)

receipt by the Lender of all Wholly-Owned Pledged Securities not previously delivered accompanied by undated transfer powers of attorney, duly executed in blank;

(iv)

receipt by the Lender of such certificates representing the issued and outstanding equity interests of Manicouagan Power Company and ACH Limited Partnership held by Abitibi-Consolidated Company of Canada accompanied by undated transfer powers of attorney, duly executed in blank, as the Loan Parties may be able to deliver using commercially reasonable best efforts;

(v)

receipt by the Lender of the current Cash Flow Forecast;

(vi)

receipt by the Lender of satisfactory results of Lien searches in each of the jurisdictions where the Borrowers and the Subsidiary Guarantors are organized and where assets of Borrowers or Subsidiary Guarantors are located, and such search shall reveal no liens or encumbrances on any of the Collateral other than Permitted Encumbrances;

(vii)

receipt by the Lender of written confirmation from the Sponsor, in the form attached as Schedule H hereto, that it is satisfied that all of the Further Availability Conditions and all of the conditions under the Sponsor Guarantee have been met; and

(viii)

payment of all accrued and unpaid fees and DIP Expenses.

Drawdown Conditions:

The obligation of the Lender to make a Loan to the Borrowers (or to continue a LIBOR Loan) on any date is subject to the satisfaction of the following conditions:

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LETTER LOAN AGREEMENT
DIP FACILITY

(i)

the Loan requested pursuant to the Borrowing Request shall have been authorized by the Sponsor (as evidenced by the confirmation referred to in paragraph (ii) below) and the Lender based on the needs of ACI and the Subsidiary Guarantors given the most recent Cash Flow Forecast reviewed and taken into consideration by the Monitor (it being understood that such Cash Flow Forecast, as of the date hereof, provides for a first Loan of US$30 million to be disbursed in the week of May 3, 2009);

(ii)

receipt by the Lender, no later than three (3) Business Days prior to the requested date of the borrowing, of written confirmation from the Sponsor, in the form attached as Schedule H hereto, (i) that it is satisfied that all of the Drawdown Conditions and all of the conditions under the Sponsor Guarantee have been met and (ii) authorizing the Lender to advance the requested Loan to the Borrowers;

(iii)

there shall be minimum availability of US$12.5 million of the Commitment Amount;

(iv)

receipt by the Lender of a duly executed Borrowing Request;

(v)

the representations and warranties contained in each of the DIP Loan Documents shall be correct in all material respects on and as of such date, before and after giving effect to such Loan (or continuance), as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Loan (or continuance);

(vi)

the Loan Parties shall not be in any material breach of any covenant under this Agreement or the other DIP Loan Documents;

(vii)

each of the Orders (if applicable) shall be executory notwithstanding appeals and have not been vacated, reversed, modified, amended or stayed in any respect without the prior written consent of the Lender and the Sponsor acting in their sole discretion;

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LETTER LOAN AGREEMENT
DIP FACILITY

(viii)

the net cash (determined after taking into account the availability under the DIP Facility) of the Borrowers, as disclosed in the Cash Flow Forecast, for the following four weeks is sufficient to meet the anticipated obligations of the Borrowers during such time period as disclosed in the Cash Flow Forecast;

(ix)

no Default, Specified Event of Default or Termination Event under the DIP Loan Documents shall have occurred or be continuing;

(x)

with respect to Loans to be made to Donohue and the Chapter 11 Debtors only, the Lender shall have received a certified copy of the US DIP Order, in form and substance satisfactory to the Lender, the Lender’s counsel, the Sponsor and the Sponsor’s counsel, approving and authorizing the DIP Facility and the granting of the DIP Liens, and which US DIP Order (i) shall authorize extensions of credit in amounts not in excess of US$100 million, (ii) shall authorize the payment by the Loan Parties of all of the DIP Expenses provided for in respect of the DIP Facility in this Agreement and (iii) shall not have been vacated, reversed, modified, amended or stayed; and

(xi)

for all Loans other than the initial Loan hereunder, the Monitor shall have approved, in writing, the requested Loan.

REPRESENTATIONS; COVENANTS; EVENTS OF DEFAULT

Representations and Warranties:

See Schedule D.

Covenants:

See Schedule E.

Specified Events of Default:

The occurrence of any of the following shall constitute a “Specified Event of Default” under this Agreement:

(i)

failure of the Borrowers to pay (i) the principal of any Loan when due (including any mandatory prepayments thereof) or (ii) any interest on any Loan or any other amount within three business days after such interest or other amount becomes due;

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LETTER LOAN AGREEMENT
DIP FACILITY

(ii)

any of the Orders are stayed, vacated or otherwise cease to be in full force and effect or are modified or amended in a manner which could have a Material Adverse Effect, as determined by the Lender and the Sponsor in their sole discretion;

(iii)

any Borrower or their respective subsidiaries (other than Bridgewater Paper Company Limited) becomes subject to a proceeding under the Bankruptcy and Insolvency Act (Canada) or equivalent bankruptcy statutes or any Borrower or Subsidiary Guarantor shall file a motion or other pleading seeking the dismissal of the CCAA Cases or US Bankruptcy Cases;

(iv)

any material provision (as determined by the Lender in its sole discretion) of any DIP Loan Document (other than the Sponsor Guarantee) shall for any reason cease to be valid and binding on or enforceable against any Loan Party intended to be a party to it, or any such Loan Party shall so state in writing;

(v)

the Existing Securitization Facility is terminated without replacement by a Replacement Securitization Facility or there occurs a default which continues unwaived beyond the applicable grace period under the Existing Securitization Facility or under a Replacement Securitization Facility; or

(vi)

The failure of the Borrowers to repay the DIP Facility on or before November 1, 2009.

Remedies:

Upon the occurrence of a Specified Event of Default or Termination Event, whether or not there is availability under the DIP Facility, without any notice or demand whatsoever, the right of the Borrower to receive any Loan or other accommodation of credit shall be terminated, subject to any applicable notice provision in any Order (as the case may be) in the case of remedies against Collateral (which notice provisions shall be acceptable to the Lender) and the Lender shall be entitled, in addition to all other remedies at law and under any security or other agreement, to sweep the Loan Account and to apply any credit balance in such Loan Account against any outstanding Obligations owing to the Lender, in any order as the Lender may determine in its sole discretion.

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LETTER LOAN AGREEMENT
DIP FACILITY

Without limiting the foregoing, upon the occurrence of a Specified Event of Default or Termination Event the Lender shall have the right to exercise all other customary remedies, including, without limitation, the right to realize on all Collateral and to call upon the Monitor to file a report with the Court stating the occurrence of such an event and the fact of the DIP being immediately due and payable (and, as the case may be, unpaid) under provisions of Section 11.7 of the CCAA apply.

PROTECTIVE PROVISIONS

Increased Costs:

If, due to either (i) the introduction of or any change in or in the interpretation of any Requirement of Law or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to the Lender of agreeing to make or of making, funding or maintaining LIBOR Loans, then the Borrowers shall from time to time, upon demand by the Lender, pay to the Lender additional amounts sufficient to compensate the Lender for such increased costs; provided, however, that the Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different lending office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost that may thereafter accrue and would not, in the reasonable judgment of the Lender, be otherwise disadvantageous to the Lender. A certificate as to the amount of such increased cost, submitted to the Borrowers by the Lender, shall be conclusive and binding for all purposes, absent manifest error.

If the Lender determines that com