Tembec announces recapitalization transaction



    MONTREAL, Dec. 19 /CNW Telbec/ - Tembec Inc. ("Tembec") announced today a
proposed recapitalization transaction (the "Recapitalization") with the
following key elements:

    
    - Conversion of US $1.2 billion of Tembec's debt into new equity.
    - Implementation of a new 4-year term loan of US $250 million to
      US $300 million (final amount to be determined by Tembec) to provide
      additional liquidity.
    - Reduction of Tembec's annual interest expense by approximately
      $67 million.
    - Business as usual for employees, trade creditors and customers. They
      will not be affected by the Recapitalization.
    - Implementation of the Recapitalization is expected to occur by the end
      of February 2008.

    The new capital structure will provide a stronger financial base for the
execution of Tembec's operating strategy and enhance the long-term value of
Tembec.
    Tembec's trade creditors, as well as its obligations to employees,
including under its pension and benefit plans, are unaffected by the
Recapitalization and will continue to be paid or satisfied in the ordinary
course of business.
    "This Recapitalization transaction is a significant and positive
development for Tembec and its stakeholders. It is a consensual solution that
is fair to both our noteholders and our shareholders, and it meets Tembec's
previously stated business objectives of improving its capital structure and
liquidity," said James Lopez, President and CEO of Tembec Inc. "This
transaction does not affect Tembec's customers, suppliers or workforce. It is
business as usual."
    Tembec's Board of Directors is unanimously recommending all noteholders
and shareholders support the transaction because it will reduce net debt by
approximately US $1.2 billion, normalizing Tembec's capital structure.
Tembec's financial advisor BMO Capital Markets has provided an opinion to
Tembec's Board of Directors that the terms of the Recapitalization are fair
from a financial point of view to the Company.
    "With this transaction, Tembec is delivering on its key commitment to
explore and pursue strategic alternatives to reduce its debt levels and
improve liquidity," said Guy Dufresne, Chairman of the Board of Directors.
"The Board and management believe this transaction accomplishes Tembec's
objectives. It is a comprehensive recapitalization that creates a stronger
company and allows for the pursuit of greater opportunities."
    An ad hoc committee of noteholders has executed support agreements with
Tembec whereby they have agreed to vote in favour of and support the
Recapitalization. The committee holds in excess of US $250 million of notes.
Tembec will continue to solicit and obtain additional noteholder support for
the Recapitalization.
    Tembec expects to hold separate noteholder and shareholder meetings on
February 22, 2008 in Montréal, Québec to obtain the required approvals for
certain steps necessary to implement the Recapitalization transaction,
including approval by the noteholders of a Plan of Arrangement under the
Canada Business Corporations Act. Details of the Recapitalization will be
provided in an information circular expected to be distributed to noteholders
and existing shareholders by the end of January 2008. In addition to
noteholder and shareholder approvals, implementation of the Plan of
Arrangement is subject to final approval of the Court and receipt of all
necessary regulatory and stock exchange approvals.
    A summary of the key terms of the Recapitalization is attached to this
press release. Further information about the Recapitalization will be
available on SEDAR (www.sedar.com) and the company's web page
(www.tembec.com).

    Conference Call
    ---------------

    A conference call intended for financial analysts and institutional
investors is scheduled for December 19, 2007 at 11:00 a.m. (EST).
Participants' dial-in number is 514-861-1681 or 866-299-8690.
    The call can be accessed on a listen only basis via the internet at
www.tembec.com in the "Investors" section.
    A recording of the conference call can be accessed after 1:00 p.m. (EST)
on December 19, 2007;

    - Via the internet at www.tembec.com in the "Investors" section.
    - Via recorded telephone call until midnight December 29, 2007 at
      1-800-408-3053 and by entering the password 3246674#.

    Tembec is a large, diversified and integrated forest products company.
With operations principally located in North America and in France, the
Company employs approximately 8,000 people. Tembec's common shares are listed
on the Toronto Stock Exchange under the symbol TBC. Additional information on
Tembec is available on its website at www.tembec.com.

    This press release and the attached document include "forward-looking
statements" within the meaning of securities laws. Such statements relate to
the Company's or management's objectives, projections, estimates,
expectations, or predictions of the future and can be identified by words such
as "will", "anticipate", "estimate", "expect" and "project" or variations of
such words. These statements are based on certain assumptions and analyses by
the Company that reflect its experience and its understanding of future
developments. Such statements are subject to a number of uncertainties,
including, but not limited to, receipt of the approvals necessary to implement
the Recapitalization, changes in foreign exchange rates, product selling
prices, raw material and operating costs, and other factors identified in the
Company's periodic filings with securities regulatory authorities in Canada
and the United States. Many of these uncertainties are beyond the Company's
control and, therefore, may cause actual actions or results to differ from
those expressed or implied herein. The Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

    This press release and the attached key recapitalization terms are not an
offer of securities for sale in the United States and securities may not be
offered or sold in the United States absent registration or exemption from
registration.


                      Key Terms of the Recapitalization
                      ---------------------------------

    All of the existing equity of Tembec will be surrendered and 100,000,000
new common shares ("New Shares") in the recapitalized Tembec will be issued.

    Treatment of Existing Unsecured Notes

    - The unsecured notes issued by Tembec Industries Inc. ("Notes") and
      listed below will be affected by the Recapitalization:

      - US $350,000,000 8.625% notes due June 2009
      - US $500,000,000 8.5% notes due February 2011
      - US $350,000,000 7.75% notes due March 2012

    - Existing holders of Notes ("Noteholders") will receive 95% of the
      recapitalized equity of Tembec as follows:

      (i)   Noteholders will surrender their Notes in exchange for their
            pro rata share, based on the face amount of Notes held, of 45% of
            the recapitalized equity of Tembec (37.5 New Shares for each
            US $1,000 of face amount of Notes);

      (ii)  Under the terms of the Recapitalization plan, Noteholders will be
            paid accrued interest on the Notes up to and including
            December 30, 2007;

      (iii) In addition, qualifying Noteholders will have an opportunity to
            participate (the "Loan Participation Process") as lenders in
            amounts up to their pro rata share, based on the face amount of
            Notes held, of a new term loan (the "New Loan") in a maximum
            principal amount of US $300 million. Those qualifying Noteholders
            who participate in the New Loan will receive their pro rata
            share, based on the amount of their participation in the New
            Loan, of 43% of the recapitalized equity of Tembec. The minimum
            participation amount shall be US $250,000.

            In effect, for every US $1,000,000 of face value of Notes held by
            an existing Noteholder, such Noteholder may participate in
            lending up to US $250,000 of the New Loan and will be entitled to
            receive up to approximately 35,833 additional New Shares.

            The deadline for making a commitment to participate in the New
            Loan is expected to be approximately mid-February 2008;

            JPMorgan has entered into commitment agreements with Tembec to
            the effect that any amount of the New Loan that is not provided
            by Noteholders, shall be provided by JPMorgan. Additional details
            with respect to the backstop arrangements are described below.

            On or prior to the date that is 15 business days prior to the
            implementation date of the Recapitalization, Tembec may elect to
            reduce the amount of the New Loan to no less than
            US $250,000,000. In such event, all New Loan participation
            amounts requested by Noteholders shall be adjusted downward in
            proportion to the reduction in the overall New Loan amount.

            To qualify to participate in the New Loan, Noteholders must meet
            one of the following criteria:

              a) In the case of a Noteholder resident in the United States,
                 such Noteholder qualifies as, or is a fund that is an
                 affiliate of and managed by the same fund manager as, a
                 "qualified institutional buyer" within the meaning of
                 Rule 144A under the US Securities Act of 1933, as amended;

              b) In the case of a Noteholder resident in a province or
                 territory of Canada, such Noteholder qualifies as an
                 "accredited investor" as such term is defined in National
                 Instrument 45-106 Prospectus and Registration Exemptions
                 (the "National Instrument"); and

              c) In the case of a Noteholder resident outside of Canada or
                 the United States, such Noteholder qualifies as an
                 "accredited investor" as such term is defined in the
                 National Instrument as if such Noteholder was resident in
                 Canada and can demonstrate to Tembec that it is qualified to
                 participate in the New Loan in accordance with the laws of
                 its jurisdiction of residence.

            Specific instructions on how to participate in the New Loan will
            be provided in an information circular which is expected to be
            available by January 31, 2008.

      (iv)  Existing Noteholders who participate in a backstop of the New
            Loan (as described below) will be entitled to an additional 7%
            of the recapitalized equity of Tembec.

    Support Agreements

    An ad hoc committee of Noteholders (the "Committee") has executed support
agreements with Tembec whereby they have agreed to vote in favour of and
support the Recapitalization. The Committee holds in excess of US $250 million
of Notes. Tembec will continue to solicit and obtain additional Noteholder
support for the Recapitalization. In addition, certain members of the
Committee have agreed to form part of the Initial Backstop (as described
below).

    Treatment of Certain Other Obligations

    As part of the implementation of the Recapitalization, Investissement
Québec ("IQ") and Société générale de financement du Québec ("SGF") will
receive a replacement 6% unsecured note of Cdn $18 million in exchange for the
Cdn $20.1 million note currently held by IQ and the Cdn $25.7 million of
preferred shares held by IQ and SGF. The approval of IQ and SGF will be
required as part of the Recapitalization transaction.

    Treatment of Existing Shares

    - Existing shareholders of Tembec Inc. will receive their pro rata share
      of:

      (i)  5,000,000 New Shares. For each 100 existing common shares in the
           capital of Tembec Inc., an existing shareholder will receive
           5.84 New Shares; and

      (ii) "cashless" warrants to acquire 11,111,111 New Shares issued from
            treasury. The warrants shall be deemed to be exercised and shall
            be automatically converted to New Shares if the 20-day volume
            weighted average trading price of the New Shares reaches
            Cdn $12.00 (the "Strike Price"). No consideration is payable by
            the warrant holder to acquire the New Shares once the Strike
            Price has been reached. For each 100 existing common shares in
            the capital of Tembec Inc., an existing shareholder will receive
            approximately 12.9778 warrants and each warrant will be
            convertible into one New Share. The warrants will expire four
            years after the implementation date of the Recapitalization.

    No fractional New Shares or warrants will be issued in the
Recapitalization.

    Terms of the New Loan

    The following is a summary of selected terms of the New Loan:

    Borrower:             Tembec Industries Inc. ("TII")
    Amount:               US $250,000,000 to US $300,000,000
                          - Tembec will give notice of the amount of the New
                            Loan (within the range noted above) at least
                            15 business days prior to the implementation date
                            of the Recapitalization
                          - The full amount of the New Loan will be drawn on
                            implementation date of the Recapitalization
    Use of proceeds:      - Repayment of working capital facilities, capital
                            expenditures and general corporate purposes
    Term:                 - Four years from the implementation date of the
                            Recapitalization
    Guarantors            - Tembec Inc.
                          - Tembec Enterprises Inc. ("TEI")
                          - All present and future material Canadian and
                            U.S. wholly-owned subsidiaries of Tembec Inc,
                            TII and TEI
    Security              - First charge on all assets other than receivables
                            and inventory of the Borrower and the Guarantors
                          - Second charge on all receivables and inventory,
                            subject to the prior charge of a working capital
                            facility
    Interest rate:        - Base Rate Loans: Base Rate + 6.0%
                          - LIBOR Loans: LIBOR + 7.0%
    Covenants             - Certain covenants with respect to debt
                            incurrence, permitted liens, fundamental changes,
                            limitations on guarantees and transactions with
                            affiliates
                          - A financial maintenance covenant that matches the
                            covenant in the company's existing working
                            capital facility, as amended from time to time
    Prepayment            - Prepayable at any time with a prepayment premium
                            of:
                               - Year 1: 4%
                               - Year 2: 3%
                               - Year 3: 2%
                               - Year 4: 0%


    Backstop Arrangements

    The following arrangements have been made to provide for the funding of
the New Loan in the event the Loan Participation Process described above, does
not raise the full amount of the New Loan:

    (i) Initial Backstop:

         - JPMorgan has entered into an agreement (the "Initial Backstop")
           with Tembec whereby it has, subject to certain conditions,
           committed to fund any portion of the New Loan that is not funded
           by the Loan Participation Process (the "Participation Shortfall").
         - JPMorgan has entered into arrangements with certain Noteholders
           who have agreed to participate in some or all of the Participation
           Shortfall that is funded by JPMorgan pursuant to the Initial
           Backstop. JPMorgan's obligation to fund the Participation
           Shortfall is not conditional on these Noteholders fulfilling their
           obligations to JPMorgan.
         - The Initial Backstop may be terminated upon the earlier of the
           occurrence of a material adverse change (as defined in the
           agreement) and March 31, 2008.

    (ii) Additional Backstop:

         - Under the terms of the Recapitalization, Tembec may, on or prior
           to January 31, 2008, enter into backstop arrangements with other
           Noteholders for up to US $201.5 million of the New Loan amount
           (the "Additional Backstop").
         - BMO Capital Markets, Tembec's financial advisor, will be
           coordinating arrangements with Additional Backstop parties on
           behalf of Tembec.
         - JPMorgan's obligation to fund the Participation Shortfall is not
           conditional on the Additional Backstop parties fulfilling their
           obligations to Tembec.

    The consideration payable for the backstop arrangements are as follows:

    (i)   JPMorgan shall receive a fee upon entering into the Initial
          Backstop commitment.

    (ii)  The Initial Backstop parties will receive, on a pro rata basis:
          a) US $2.015 million in cash; and
          b) 2 million New Shares.

    (iii) In addition, the Initial Backstop parties and the Additional
          Backstop parties will receive, on a pro rata basis:
          a) US $6.75 million in cash; and
          b) 5 million New Shares.

    A backstop termination fee in the amount of U.S. $8.5 million would be
    payable by Tembec in certain circumstances.

    Implementation Process

    Tembec expects to hold separate Noteholder and shareholder meetings on
February 22, 2008 in Montréal, Québec to obtain the required approvals for
certain steps necessary to implement the Recapitalization transaction,
including approval by the Noteholders of a Plan of Arrangement under the
Canada Business Corporations Act. Details of the Recapitalization will be
provided in an information circular expected to be distributed to Noteholders
and existing shareholders by the end of January 2008. In addition to
Noteholder and shareholder approvals, implementation of the Plan of
Arrangement is subject to final approval of the Court and receipt of all
necessary regulatory and stock exchange approvals.
    




For further information:

For further information: Investor Contacts: Michel J. Dumas, Executive
Vice President, Finance and Chief Financial Officer, (819) 627-4268,
michel.dumas@tembec.com; BMO Capital Markets , Financial Advisor to Tembec,
(416) 359-5210, (866) 668-6211 (toll free); Media Contacts: John Valley,
Executive Vice President, Business Development and Corporate Affairs, (416)
775-2819, john.valley@tembec.com; Tony Fratianni, Vice President, General
Counsel and Secretary, (514) 871-2310, tony.fratianni@tembec.com


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890