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Sino-Forest Announces CCAA Filing to Pursue Third Party Sale Transaction Or Restructuring with Noteholders; Commences Action Against Muddy Waters

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TORONTO, March 30, 2012 /PRNewswire/ - Sino-Forest Corporation ("Sino-Forest" or the "Company") (TSX:TRE) today
announced that it has reached agreement with an ad hoc committee of its
noteholders (the "Ad Hoc Committee") on the material terms of a
transaction (the "Transaction") which would involve either a sale of
the Company to a third party or a restructuring under which the
noteholders would acquire substantially all of the assets of the
Company, including the shares of all of its direct subsidiaries which
own, directly or indirectly, all of the business operations of the
Company. The Ad Hoc Committee represents a significant portion of the
holders of the Company's 5% Convertible Senior Notes due 2013, 10.25%
Guaranteed Senior Notes due 2014, 4.25% Convertible Senior Notes due
2016 and 6.25% Guaranteed Senior Notes due 2017 (collectively, the
"Notes" and holders of Notes, the "Noteholders").


The Company is initiating proceedings today in the Ontario Superior
Court of Justice (the "Court") under the Companies' Creditors Arrangement Act (the "CCAA") seeking approval for a Court supervised restructuring
process to implement the Transaction, including the immediate
initiation of a sale solicitation process and a stay of certain
creditor claims. Holders of approximately 40% of the aggregate
principal amount of Notes have executed a support agreement (the
"Support Agreement") in which they have agreed to support and vote for
the Transaction. The Company will continue to solicit additional
Noteholder support for the Transaction. Noteholders who wish to become
"Consenting Noteholders" and participate in the Early Consent
Consideration (as defined in the Support Agreement) are permitted to do
so until May 15, 2012, and further information will be available on the
website of the proposed monitor in the CCAA proceedings, FTI Consulting
Canada, Inc. at http://cfcanada.fticonsulting.com/sfc.


Sino-Forest made the decision to initiate CCAA proceedings with the
unanimous authorization of its Board of Directors after thorough
consultation with its advisors and extensive consideration of other
alternatives.


"We believe the full value of our assets will only be achieved if we are
able to continue operating the business, and repair and preserve
relationships with our customers and suppliers. We believe that the
CCAA restructuring process is the best method to secure our future and
will allow the time and stability required to normalize operations
following the allegations made against the Company by Muddy Waters, LLC
("Muddy Waters"). The Transaction we have negotiated is indicative of
the support of a significant portion of Sino-Forest's Noteholders,"
said Judson Martin, Vice-Chairman and Chief Executive Officer of
Sino-Forest.


Sale Process


The Support Agreement provides that the Company will make an application
to the Court under the CCAA for an order approving a sale solicitation
process pursuant to which Sino-Forest's financial advisor, Houlihan
Lokey ("Houlihan") will solicit from third parties offers to purchase
substantially all of Sino-Forest's assets (other than certain excluded
assets).


Further details regarding the sale solicitation process will be
announced by the Company following approval of a sale process order by
the Court.


Restructuring Transaction


The Support Agreement provides that if the Company does not obtain an
acceptable offer resulting from the sale solicitation process, the
Company will implement a restructuring transaction (the "Restructuring
Transaction") in which Sino-Forest will transfer substantially all of
its assets, other than certain excluded assets, to a newly formed
entity ("Newco") owned and controlled by the Noteholders in full and
final settlement of all claims of any person in respect of the Notes.
The assets transferred to Newco pursuant to the Restructuring
Transaction would include all of the shares of the Company's directly
owned subsidiaries and all of the receivables of the Company owed by
its direct and indirect subsidiaries, but exclude certain litigation
claims of the Company against third parties which will be transferred
to a litigation trust (the "Litigation Trust") established to pursue
such claims, including claims against Muddy Waters, and US$20 million
in cash, which will be transferred to and used to fund the Litigation
Trust.


If the Restructuring Transaction occurs, the Support Agreement provides
that Junior Constituents (as defined in the Support Agreement) will
receive: (a) their pro rata share of non-transferable "Contingent Value
Rights" of Newco which will entitle them to receive 15% of the value of
Newco, if any, in excess of U.S.$1.8 billion (being the approximate
principal amount of the Notes) plus accrued interest on the Notes up to
and including the CCAA filing date, for no additional consideration
upon the occurrence of a liquidity event of Newco within seven years
following the implementation date of the Restructuring Transaction, and
(b) a right to receive their pro rata share of (i) 100% of any proceeds
realized by the Litigation Trust for claims against or settlements with
Muddy Waters and its joint actors, and (ii) the first $25 million of
any proceeds realized from claims against or settlements with third
parties other than Muddy Waters and its joint actors. If at the time
proceeds are available for distribution from the Litigation Trust, the
enterprise value of Newco is less than 85% of the principal amount of
the Notes plus accrued interest on the Notes up to and including the
CCAA filing date (the "Threshold Amount"), 30% of the remaining
proceeds realized from claims against or settlements with third parties
other than Muddy Waters and its joint actors will be paid to
Noteholders (up to a maximum of the difference between the Threshold
Amount and the enterprise value of Newco) and the remaining proceeds
will be paid to Junior Constituents. If the enterprise value of Newco
at the time such proceeds are available for distribution from the
Litigation Trust is more than the Threshold Amount, Junior Constituents
will receive 100% of the remaining proceeds realized from claims
against or settlements with third parties other than Muddy Waters and
its joint actors.


Many of the terms of the Restructuring Transaction remain to be settled
between the parties in definitive documentation. The transactions
contemplated by this press release will be subject to various
conditions, including relevant creditor, regulatory and Court
approvals. Sino-Forest continues to be subject to a cease trade order
of the Ontario Securities Commission which prohibits trading in
Sino-Forest's securities.


Additional details regarding the Transaction are contained in the
Support Agreement, a copy of which will be available at www.sedar.com and on the proposed monitor's website at http://cfcanada.fticonsulting.com/sfc. There can be no assurance as to when or if a Transaction will be
completed, or as to the terms of any such Transaction.


Claim Against Muddy Waters, Carson Block and Others


The Company also announced that it has commenced an action in the Court
against Muddy Waters, Carson Block, and others, relating to the
allegations made against the Company by Muddy Waters, and trading in
Sino-Forest shares prior to and following the public release on June 2,
2011, of a report prepared by Muddy Waters. The action alleges that
public statements made by Muddy Waters and Carson Block were
defamatory. The action seeks damages in the amount of $4 billion and
the recovery of profits made by Muddy Waters and others in connection
with the Muddy Waters report.


Cash Balance, Cash Flow Projections and Third Quarter Financial
Statements


As part of its negotiations with the Ad Hoc Committee, and pursuant to
confidentiality agreements, the Company provided to certain Noteholders
who were parties to such agreements, information regarding the
Company's cash balance as of March 2, 2012 and its expected cash flow
needs for the remainder of 2012. The confidentiality agreements
require Sino-Forest to publicly disclose this information by the sooner
of the commencement of any proceedings under the CCAA and April 30,
2012. The cash balance and cash flow projections provided to such
Noteholders are attached to this news release as Schedule A.


The cash balance and cash flow projections are internal documents
prepared by management of the Company and are subject to the
assumptions set out in the projections. In addition, the cash balance
and cash flow projections were prepared as at March 2, 2012, and may no
longer reflect the Company's current circumstances or the current
estimates of management of the Company. Neither the Board of Directors
of Sino-Forest nor any of its committees has approved the cash balance
or cash flow projections. Sino-Forest does not, as a matter of course,
publish its budgets or make external projections or forecasts of its
anticipated financial position, expenditures, cash balances or cash
flows. The non-public information provided to the Ad Hoc Committee was
not prepared with a view to being disclosed publicly and is included in
this news release only because such information was made available to
the Ad Hoc Committee. Subject to applicable securities laws,
Sino-Forest does not intend to or anticipate that it will, and
disclaims any obligation to, furnish updated projections or forecasts
or similar forward looking information to holders of securities issued
by Sino-Forest or to include such information in documents required to
be filed with the applicable Canadian securities regulatory authorities
or otherwise make such information publicly available.


Sino-Forest will also file with the Court today in the CCAA proceedings,
draft copies of its financial statements for the three and nine months
ended September 30, 2011 (the "Draft Q3 Financial Statements"). The
Draft Q3 Financial Statements will not be filed with the Canadian
securities regulators, but will be available on the website of the
proposed monitor at http://cfcanada.fticonsulting.com/sfc. Sino-Forest
cautions readers that the Draft Q3 Financial Statements are in draft
form only, and they do not and are not intended to comply with the
requirements of applicable securities law or Canadian generally
accepted accounting principles. As previously disclosed, the Company
cautions readers that its historical financial statements, including
the Draft Q3 Financial Statements, may not be reliable and should not
be relied upon for any purpose. The Draft Q3 Financial Statements have
been prepared by management of the Company and have not been reviewed
or approved by the Board of Directors of the Company, any committee of
the Board of Directors or the Company's auditors.


Other Matters


Sino-Forest has determined that it will not be in a position to file its
audited annual financial statements for fiscal 2011 by the March 30,
2012 deadline. Sino-Forest has made considerable efforts to address
issues identified by its Audit Committee and the Independent Committee
and by its external auditor, Ernst & Young LLP, as requiring resolution
in order for Sino-Forest to be in a position to obtain an audit opinion
in relation to its 2011 annual financial statements. However, as yet,
Sino-Forest has not been able to satisfactorily address those issues
for audit purposes for the same reasons previously disclosed.
Sino-Forest has also determined not to file its annual information form
by the prescribed deadline and will apply to the Court for postponement
of its annual meeting of shareholders for the duration of the CCAA
proceedings.


Sino-Forest also announced that Albert Ip has resigned for health
reasons from his position as Senior Vice President, Development &
Operations North-East and South-West China. Mr. Ip has agreed to serve
as a consultant to Sino-Forest on a part-time basis. "I would like to
thank Albert for his service to Sino-Forest," said Judson Martin,
Vice-Chairman and Chief Executive Officer of Sino-Forest.


Houlihan is acting as financial advisor to Sino-Forest, Bennett Jones
LLP is acting as Canadian legal advisor to Sino-Forest and Osler Hoskin
& Harcourt LLP is acting as Canadian legal advisor to the Board of
Directors of Sino-Forest. The Ad Hoc Committee of Noteholders is being
advised by Moelis & Company, Goodmans LLP and Hogan Lovells LLP.