MERCER INTERNATIONAL INC

In connection with the Board's adoption of the proposed amendment to the 2022 Plan, subject to approval by the Shareholders, the Board and Human Resources Committee also reviewed past practices relating to the granting and vesting of Share awards and the impact of volatility of Share price on the number of PSUs under the 2022 Plan. This included reviewing the burn rate.

The amendment to the 2022 Plan will increase the number of Shares authorized for issuance under the 2022 Plan by 2,500,000 Shares from 2,755,501 Shares to 5,255,501 Shares (assuming that all existing performance share units will vest at 100% target level) or 346,756 Shares to 2,846,756 Shares (assuming that all existing performance share units granted will vest at the maximum of 200% target level). We believe this will provide sufficient Shares for the Company’s equity-based compensation needs through the 2028 annual meeting of Shareholders. This estimate is based on our historical usage, adjusted for growth and to allow flexibility around types of awards used, though actual issuances may be materially different from this estimate depending on certain variables, including our Share price, hiring activity, plan participation levels and compensation mix.

In setting the number of Shares authorized for issuance under the 2022 Plan, we considered our historic burn rate, which measures annual Share utilization. As shown in the following table, the Company’s three-year average burn rate was 0.46%, which is below the benchmarks applied to our industry by certain major proxy advisory firms. The Company continues to manage its burn rate of awards granted over time to levels it believes are reasonable in light of its business and number of outstanding Shares while ensuring that our overall executive compensation program is competitive, relevant and motivational.

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Value-Adjusted Burn Rate is calculated as the number of full value awards outstanding (earned and unvested) divided by the total weighted average number of Shares outstanding as at the end of the fiscal year.

We also considered overhang, which measures potential Shareholder dilution, in setting the number of additional Shares authorized for issuance under the 2022 Plan. As of the date hereof, there are 66,870,774 Shares outstanding, 5,240,491 Shares are subject to outstanding stock-based awards, and 2,755,501 Shares (assuming that all existing performance share units vest at 100% of target) or 346,756 Shares (assuming that all existing performance share units vest at the maximum 200% of target) are available for future awards under the 2022 Plan. Therefore, as of the date hereof, our overhang (calculated as the number of Shares subject to outstanding awards plus the number of Shares available to be granted, divided by the total number of outstanding Shares) is 8.4%. If the 2,500,000 additional Shares being requested under the 2022 Plan had been available for grant as of the date hereof, our overhang would have increased to 12.1%.