SAPPI LIMITED

North America
Wood
In connection with the 1998 sale of our US timberlands to Plum Creek Timber Company L.P., Sappi
Fine Paper North America and Plum Creek are parties to a fiber supply agreement with an initial term
expiring in December 2023 and with three, five-year renewal options. Under the supply agreement,
Sappi Fine Paper North America is required to purchase from Plum Creek, and Plum Creek is required to
sell to Sappi Fine Paper North America, a guaranteed annual minimum of 318,000 tonnes of hardwood
pulpwood, or approximately 11% of Sappi Fine Paper North America’s annual pulpwood requirements,
at prices calculated based on a formula linked to market prices. Sappi Fine Paper North America has the
option to purchase additional quantities of hardwood pulpwood harvested from these timberlands at
prices generally higher than the ones paid for the guaranteed quantities. The remainder of Sappi Fine
Paper North America’s pulpwood requirements are met through market purchases.
Pulp
Sappi Fine Paper North America’s mills, taken together, are fully integrated on an economic basis
with respect to hardwood pulp usage. Mills that are not fully integrated make market purchases, and
mills that produce more pulp than they utilize make market sales.
Sappi Fine Paper North America’s coated fine paper mills have achieved certification according to
the chain of custody standards of the Forest Stewardship Council (FSC), The Sustainable Forestry
Initiative (SFI) and the Programme for the Endorsement of Forest Certification (PEFC) and our wood
procurement group is certified to SFI’s Fiber Sourcing standard. The mills also use post consumer waste
and offer products containing up to 30% recycled content in addition to using reprocessed fiber
recovered from its existing operations.
Sappi Fine Paper North America manufactures, in aggregate, pulp and fiber equivalent to
approximately 117% of its own pulp requirements. This vertical integration reduces its exposure to
fluctuations in the market price for pulp.
Energy Requirements
Sappi Fine Paper North America’s energy requirements are satisfied through wood and by-products
derived from the pulping process, coal, fuel oils, purchased electricity, steam, natural gas, biomass and
other sources.
A substantial majority of Sappi Fine Paper North America’s electricity requirements are satisfied
through its own electricity generation or co-generation agreements. During 2002, Sappi Fine Paper
North America entered into a series of contracts with Central Maine Power (‘‘CMP’’) and a third party
energy provider. The contracts provide that Somerset mill is to produce power at its maximum
generation capacity, sell all of its excess generated power to CMP and purchase all of its power needs
beyond its generation capacity from the third party provider. However, Sappi Fine Paper North America
has entered into amendments to these contracts, pursuant to which Sappi Fine Paper North America
may, at its election, produce power at less than its maximum generation capacity for non-operational or
economic reasons and purchase additional power from the third party provider. The rates for part of the
purchases were pre-set in 2002 for the duration of the agreements and the remaining purchases are at
market rates. The price we receive for any sales of generated power is equal to the average price of our
monthly purchases of power.
The Westbrook mill sells excess electricity which is co-generated through a number of hydroelectric
facilities, in addition to its power boiler.
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