After Fusion Paperboard announced Wednesday that it plans to close its Sprague mill in September and lay off 140 employees, the state's Department of Economic and Community Development said Thursday that it would require Fusion Paperboard to repay its $3 million low-interest state loan with a $150,000 penalty.

"DECD includes measures in each business assistance agreement to safeguard the state's investments," DECD spokesman David Treadwell wrote in an email. "Agreements typically require businesses to maintain operations within the state for no less than 10 years. Failure to meet this provision automatically requires the recipient to immediately repay the financial assistance plus a penalty."

The company, which started in the 1960s, said in a press release on Thursday that it has withstood many changes in the paper industry and has been operating in increasingly difficult market conditions. Its operation in Hebron, Ky., shut down last year, according to a press release.

"Despite recent efforts, the operation can no longer be sustained," said Joel Laroche, chief operating officer of Fusion Paperboard, in the release. "We will make every effort to fulfill existing orders and help customers as they transition to alternate suppliers."

On Thursday, the state's Department of Labor website reported that Fusion Paperboard plans to lay off 145 workers and close by Sept. 22. Laroche did not immediately return phone calls on Thursday.

Rich Harrelle, president of Local 1840 of the United Steelworkers Union, said the company and union just went through an 18-month negotiation and signed a 6-year contract three months ago.

"I think that the company knew," Harrelle said. "They didn't just make a decision yesterday about closing the mill down. I think they knew when we were negotiating, and that's not fair."

The company produces high-performance coated, recycled boxboard, folding cartons and packaging for North American food and consumer product manufacturers, according to its website. It also produces 100 percent recycled, food-grade paperboard at its Sprague mill.

In a 2013 press release, former Fusion Paperboard Chief Operating Officer Ghislain Levesque said a multimillion-dollar project to upgrade equipment at the plant was the most important investment in the Sprague mill in the last 10 years. The plan was to overhaul and repair the machine that produces recycled paper products and a turbine that generates power for the paper machine.

"I think we worked really hard to keep the company in Sprague and in the state, so I am not happy that the plant made the decision to close," state Sen. Cathy Osten, D-Sprague said. She is also first selectwoman in Sprague. "I am looking at options to see if there is anything we can do to stop it."

The company had received $2 million of the $3 million loan from the state as of September to expand its operations and add 20 jobs. It began to repay the loan in December, according to the DECD. Fusion Paperboard still owes the state $1.8 million and a penalty of 7.5 percent of the total amount of funding received, according to the DECD.

The town also also worked to keep the business in Sprague. Osten said the town had forgiven a $50,000 building permit fee and had secured a three-year agreement with Norwich Public Utilities to exempt the company from a sewer rate increase.

"I don't think it is ever a bad decision to help people that help businesses stay in the area," Osten said. "... I think you should help businesses. Every state in the union is helping businesses out."

Typically in this situation, the state's Department of Labor would reach out to people and connect them with job training and employment opportunities Malloy's spokesman Andrew Doba said.

"What we have tried to do is make sure that we have a business climate that is innovative and growing jobs, and that is the underlying reason that we get into these deals," Doba said. "We always make sure that we are guarding taxpayers' dollars at the same time."

Harrelle said he would go to Fusion Paperboard today for a meeting with national representatives from United Steelworkers Union and the company.

"We are going to see what our options are, and, hopefully, I would like to see it not shut down," Harrelle said. "But we are going to see what our options are and try to save 140 jobs."

j.somers@theday.com