2.7. “Option” means any option granted pursuant to the Plan and evidenced by an agreement in suchform and not inconsistent with the Plan as the President of the Corporation shall approve fromtime to time. 2.8. “Optionee” means an Employee or Director who has been granted an Option.2.9. “Option Price” means the price per Share at which Optioned Shares may be subscribed forpursuant to an Option as determined pursuant to section 6 (Option Price) subject to adjustmentin accordance with the provisions of section 14 (Changes in Capitalization or Number ofOutstanding Shares). 2.10. “Optioned Shares” means the Shares subject to an Option or Options, as the case may be.2.11. “Plan” means this Stock Option Plan as embodied herein and as from time to time amended inaccordance with the provisions hereof, and the guidelines, rules and regulations from time totime in effect hereunder.2.12. “Shares” means Common Shares without par value in the capital of the Corporation, asconstituted at the effective date hereof.2.13. “Subsidiary” means any corporation or company of which outstanding securities to which areattached more than 50% of the votes that may be cast to elect directors thereof are held(provided that such votes are sufficient to elect a majority of such directors), other than byway of security only, by or for the benefit of the Corporation and/or by or for the benefit ofany other corporation or company in like relation to the Corporation, and includes anycorporation or company in like relation to a Subsidiary.2.14. If at any time when the Market Price is required to be determined under the Plan the Sharesare not then listed and posted for trading on The Toronto Stock Exchange, such determinationsshall be made on the basis of trading on such stock exchange on which the Shares are thenlisted as may be selected by the Committee or if not then listed on any stock exchange, in theover-the-counter market as determined by the Committee (in any such case, if expressed inother than Canadian funds, then converted to Canadian funds at the noon rate of exchangereported by the Bank of Canada for the most recently preceding day for which the rate ofexchange between Canadian currency and the currency in which such price is expressed isavailable).2.15. The masculine gender shall include the feminine gender and the singular shall include theplural and vice versa.2.16. A reference to a section includes all subsections in that section.
 
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3. **SHARES SUBJECT TO THE PLAN**3.1. Subject to adjustment in accordance with the provisions of section 14 (Changes inCapitalization or Number of Outstanding Shares), the maximum number of Shares which may bereserved for issuance pursuant to Options shall be 12,000,000.4. **GRANT OF OPTIONS AND ADMINISTRATION OF THE PLAN**4.1. Persons eligible to receive Options under the Plan shall be limited to Employees andDirectors.4.2. This Plan will be administered by the Committee or, if the Board so determines, by anothercommittee of the Board duly appointed for this purpose by the Board and consisting of not lessthan three directors, a majority of whom shall not be Employees.4.3. Subject only to the express provisions of the Plan, the Committee shall have, and hereby isspecifically granted, the sole authority: 4.3.1. to grant Options to Employees and Directors and to determine the Option Price andother terms of, and the limitations, restrictions and conditions upon, such grants;  4.3.2. to authorize any officer or officers to execute and deliver any Option agreement,notice or document and to do any other act as contemplated by the terms of the Plan forand on behalf of the Corporation;  4.3.3. to interpret the Plan and to adopt, amend and rescind such administrative guidelinesand other rules and regulations relating to the Plan as it may from time to time deemadvisable; and  4.3.4. to make all other determinations and perform all such other actions as the Committeedeems necessary or advisable to implement and administer the Plan.4.4. The determinations of the Committee under the Plan (including, without limitation,determinations of the Employees and Directors who are to receive Options, the number ofOptioned Shares and timing of Options), need not be uniform and may be made by it selectivelyamong Employees and Directors who receive, or are eligible to receive, Options under the Plan,whether or not such Employees and Directors are similarly situated as to office, length ofservice, salary or any other factor. The Committee may, in its discretion, authorize thegranting of additional Options to an Optionee before an existing Option has terminated.4.5. All guidelines, rules, regulations, decisions and interpretations of the Committee respectingthe Plan or Options shall be binding and conclusive on the Corporation and on all Optioneesand their respective legal personal representatives, heirs and legatees and on all Employeesand Directors.
 
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4.6. Notwithstanding any other provisions of the Plan and except as otherwise may be permittedunder the applicable rules of The Toronto Stock Exchange at any time while the Shares arelisted on The Toronto Stock Exchange:4.6.1. No Option shall be granted if the aggregate number of Shares reserved for issuance pursuantto Options and any other security based compensation arrangement of the Corporation: 4.6.1.1. to any one person would exceed 5%, or  4.6.1.2. to insiders would exceed 10%, of the total issued and outstanding Shares.4.6.2. No Shares shall be issued pursuant to the exercise of an Option to the extent that: 4.6.2.1. the aggregate number of Shares issued to insiders within a one-year period pursuantto Options and any other security based compensation arrangement would exceed 10%, or 4.6.2.2. the aggregate number of Shares issued to any one insider and that insider’sassociates within a one-year period pursuant to Options and any other security basedcompensation arrangement  would exceed 5% of the Shares outstanding on a non-diluted basis immediately prior to theproposed Share issuance excluding Shares issued pursuant to Options and any other securitybased compensation arrangement over the preceding one-year period.4.6.3. For the purposes of subsections 4.6.1.2 and 4.6.2, an entitlement granted prior to thegrantee becoming an insider shall be excluded in determining the numbers of Shares reservedfor issuance to or issued to insiders.4.6.4. For the purposes of this subsection 4.6, the expressions “insider”, “reserved for issuance”,“security based compensation arrangement” and “stock option” shall have the meanings ascribedto them under the rules of The Toronto Stock Exchange.5. **TERM OF OPTIONS**5.1. Each Option shall be for the term determined by the Committee, but in no case shall an Optionbe granted by the Committee for a term of longer than ten years from the date of the grantingof the Option, provided that in the circumstance where the end of the term of an Option fallswithin, or within two business days after the end of, a “black out” or similar period imposedunder any insider trading policy or similar policy of the Corporation (but not, for greatercertainty, a restrictive period resulting from the Corporation or its insiders being thesubject of a cease trade order of a securities regulatory authority). In such circumstances,the end of the term of such Option shall be the tenth business day after the earlier of theend of such black out period or, provided the black out period has ended, the expiry date.
 
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6. **OPTION PRICE**6.1. The Option Price for any Option shall be determined by the Committee, but shall not be lessthan the Market Price on the date on which the Option is granted and may be subject toescalation as determined by the Committee on or prior to the date of grant and specified inthe Option agreement.7. **EXERCISE OF OPTIONS**7.1. Subject to the provisions of subsection 7.5 and of sections 10 (No Fractional Shares), 11(Death or Retirement of Optionee), 12 (Termination of Employment of Optionee) and 14 (Changesin Capitalization or Number of Outstanding Shares), each Option shall be exercisable asfollows: 7.1.1. within each year after the date of grant of the Option, the Optionee may exercise hisrights as to such percentage of the Optioned Shares or any part thereof as may bedetermined by the Committee and specified in the Option agreement; 7.1.2. the Optionee may also exercise his rights to all or any part of that number of Shareswhich he could have but did not purchase upon exercise of his Option in the precedingyear or years of the term of his Option.7.2. An Option may be exercised by the Optionee or his personal representatives, heirs or legateesat the applicable times and in the applicable amounts by giving to the Corporation at itsprincipal executive office written notice of exercise specifying the number of Shares to besubscribed for. Such notice must be accompanied by full payment for the Shares to besubscribed for. Upon any such exercise of an Option, the Corporation shall forthwith cause thetransfer agent and the registrar of the Corporation for the time being to deliver to theOptionee or his personal representatives, heirs or legatees (or as the Optionee or hispersonal representatives, heirs or legatees may otherwise direct in the written notice ofexercise) a certificate or certificates in the name of the Optionee or his personalrepresentatives, heirs or legatees (or as otherwise directed in the written notice ofexercise) representing in the aggregate such number of Shares as the Optionee or his personalrepresentatives, heirs or legatees shall have then paid for.7.3. All Shares subscribed for under an Option shall be paid for in full in cash at the time ofsubscription.7.4. Except as contemplated by sections 9 (Non-Transferability of Options), 11 (Death orRetirement of Optionee) and 12 (Termination of Employment of Optionee), no Option may beexercised in whole or in part at any time unless at the time of such exercise the Optionee isan Employee or a Director.
 
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7.5. Notwithstanding any other provision of the Plan or of any Option, the Committee may at anytime, by notice in writing to all Optionees under the Plan in connection with (i) any proposedsale or conveyance of all or substantially all of the property and assets of the Corporation,(ii) any proposed consolidation, amalgamation or other form of corporate reorganization of theCorporation, or (iii) any proposed offer by any person to acquire or redeem all theoutstanding voting or equity securities of any class of the Corporation (ineach case, a “Proposed Transaction”), require each Optionee to elect either to, within suchperiod as the Committee shall prescribe, 7.5.1. subscribe and pay for a part or the whole of the Optioned Shares then remainingunsubscribed for under his Option (whether or not such Option would otherwise then beexercisable), and accept termination of his Option in the event of his failing withinsuch period to either subscribe and pay for all such remaining Optioned Shares or electto accept payment under subsection 7.5.2 or subsection 7.5.3, as the case may be; 7.5.2. subject to subsection 7.6, accept payment in cash in respect of a part or the wholeof the Optioned Shares then remaining unsubscribed for under his Option (whether or notsuch Option would otherwise then be exercisable) of an amount equal to the resultobtained by multiplying the excess, if any, of the higher of (i) the Market Price ofthe Shares on the date notice is given under this subsection 7.5 or (ii) the MarketPrice of the Shares on the date of completion of the Proposed Transaction, over theOption Price, by the number of Optioned Shares then remaining unsubscribed for undersuch Option (whether or not such Option would otherwise then be exercisable); or 7.5.3. subject to subsection 7.6, if the Option Price for a part or the whole of theOptioned Shares exceeds the Market Price of the Shares on both the date notice is givenunder this subsection 7.5 and on the date of completion of the Proposed Transaction,accept payment of a total of $1 in respect of all rights to such Optioned Shares,provided that if a Proposed Transaction in respect of which a notice has been given underthis subsection 7.5 has not been completed (in the case of an offer, completed by taking upand paying for the securities tendered) within six months after the date of such notice, anyrights in respect of Optioned Shares under such Options which have not been exercised ascontemplated in subsection 7.5.1 and in respect of which payment has not been made ascontemplated in subsections 7.5.2 or 7.5.3 shall continue in effect, exercisable inaccordance with the terms thereof as at the time immediately preceding the giving of suchnotice.For the purposes of this subsection 7.5, the term “date of completion” means the date onwhich the sale, conveyance, corporate reorganization, acquisition or redemption contemplatedby the subsection takes effect with respect to the Shares. In the event that the MarketPrice of the Shares is not for any reason available at the date of completion, the Committeeshall, in good faith and in such manner as it considers appropriate, determine the currentmarket value of the Shares at that date, which shall be deemed to be the Market Price of theShares for the purpose of part (ii) of subsection 7.5.2 and for subsection 7.5.3. If aProposed Transaction is completed, the Market Price for purposes of part (ii) of subsection7.5.2 and for subsection 7.5.3 shall be the same as the value of the consideration paid forShares under the Proposed Transaction.
 
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7.6. The Committee may require that an Optionee who has elected to accept payment in cash inaccordance with subsection 7.5.2 or subsection 7.5.3 in consideration for thecancellation of the Optionee’s rights in respect of the Optioned Shares remainingunsubscribed for under his Option (whether or not such Option would otherwise then beexercisable) accept such payment on a date prior to the date of completion of the ProposedTransaction and based on the Market Price on the date notice is given under subsection 7.5,provided that the Corporation shall forthwith after completion of the Proposed Transactionpay to each such Optionee an amount equal to the result obtained by multiplying the excess,if any, between (i) the Market Price of the Shares at the date of completion of the ProposedTransaction; and (ii) the Market Price of the Shares on the date notice is given undersubsection 7.5 by the number of Optioned Shares in respect of which that Optionee previouslyreceived payment under subsection 7.5.2 or 7.5.3.7.7. The provisions of subsection 7.5 requiring Optionees to make an election to exercise theirOptions or to accept payment in satisfaction of their Options, shall only be invoked withrespect to Optionees generally and not with respect to one Optionee and not other Optionees.8. **RELATED RIGHTS AND OTHER BENEFIT PLANS**8.1. No Optionee shall have any of the rights of a shareholder of the Corporation with respect toany Optioned Shares until such Optioned Shares have been issued to him upon exercise of theOption and full payment therefor has been made by him to the Corporation.8.2. Participation in the Plan shall not affect an Optionee’s eligibility to participate in anyother benefit or incentive plan of the Corporation, its Subsidiaries or any combination orpartnership thereof.8.3. Any Option granted pursuant to this Plan shall not obligate the Corporation to make anybenefit available to an Optionee under any other plan of the Corporation unless otherwisespecifically provided therein.8.4. Nothing contained in this Plan will prevent the Corporation, any Subsidiary or anycombination or partnership thereof from adopting other or additional compensation arrangementsfor the benefit of any Employee or Director, subject to any required shareholder or regulatoryapproval.9. **NON-TRANSFERABILITY OF OPTIONS**9.1. No Option shall be assignable or transferable by the Optionee and any purported assignment ortransfer of an Option shall be void and shall render the Option void; provided that in theevent of the termination of employment of the Optionee by reason of death, an Optionee’s legalpersonal representative or representatives may exercise the Option in accordance with section11 (Death or Retirement of Optionee).
 
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10. **NO FRACTIONAL SHARES**Under no circumstances shall the Corporation be obliged to issue any fractional Shares uponthe exercise of an Option. To the extent that an Optionee would otherwise have been entitledto receive on the exercise or partial exercise of an Option a fraction of aShare in any year, that fraction of a Share shall be added to and become available to theOptionee upon exercise of the Option in the next succeeding year following the anniversaryof the date of grant of the Option. To the extent that an Optionee would otherwise have beenentitled to receive on an exercise or partial exercise of an Option a fraction of a Share orany other kind of share or obligation as a result of a change in capitalization or number ofoutstanding Shares as described in section 14 (Change in Capitalization or Number ofOutstanding Shares), the Corporation shall pay to the Optionee the current market value ofsuch fraction computed in a manner which the Committee considers appropriate.11. **DEATH OR RETIREMENT OF OPTIONEE**11.1. In the event of the termination of employment of an Optionee by reason of death at any timeduring the term of an Option, the Option may be exercised by the Optionee’s legal personalrepresentative or representatives only to the extent and subject to the limitations,restrictions and conditions determined by the Committee on or prior to the date of grant andspecified in the Option agreement.11.2. In the event of the termination of employment of an Optionee at any time during the term ofan Option by reason of retirement, the Option may be exercised by the Optionee (or by theOptionee’s legal personal representative or representatives if the Optionee dies before thelast date for exercise of the Option) only to the extent and subject to the limitations,restrictions and conditions determined by the Committee on or prior to the date of grant andspecified in the Option agreement, but in no event shall the Option be exercisable beyond theexpiration date set forth in the Option agreement.12. **TERMINATION OF EMPLOYMENT OF OPTIONEE**12.1. In the event of the termination of employment of an Optionee for any reason other than asspecified in section 11 (Death or Retirement of Optionee), the Option may be exercised by theOptionee only to the extent and subject to the limitations, restrictions and conditionsdetermined by the Committee on or prior to the date of grant and specified in the Optionagreement, but, except as otherwise provided in section 5 (Term of Options) in no event shallthe Option be exercisable later than the expiration date set forth in the Option agreement.12.2. Nothing contained in the Plan or any Option shall confer on any Optionee any right to, orguarantee of, continued employment by the Corporation or any Subsidiary or any combination orpartnership thereof, or in any way limit the right of the Corporation or a Subsidiary or anycombination or partnership thereof to terminate the employment of the Optionee at any time.13. **SHARES RELEASED FROM OPTIONS**13.1. Any Shares released from an Option by the provisions of sections 11 (Death or Retirement ofOptionee) or 12 (Termination of Employment of Optionee) or by expiration may be made thesubject of a further Option or Options.
 
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14. **CHANGE IN CAPITALIZATION OR NUMBER OF OUTSTANDING SHARES**14.1. If, and whenever, the Shares are from time to time consolidated into a lesser number ofShares or subdivided into a greater number of Shares: 14.1.1. the number of Shares which remain available under section 3 (Shares Subject to thePlan), including Shares referred to in section 13 (Shares Released from Options) shallbe decreased or increased proportionately; and 14.1.2. if such consolidation or subdivision occurs prior to the issuance by the Corporationof all the Optioned Shares under an Option, the number of Optioned Shares remainingunissued under the Option shall be decreased or increased proportionately, as the casemay be, and the subscription price to be paid by the Optionee for each such Share shallbe adjusted accordingly.14.2. Subject to subsection 7.5, if the Corporation enters into, and is continued or survives as aresult of, any amalgamation or merger with one or more other companies or corporations whetherby way of arrangement, by the sale of its assets and undertaking or otherwise, then and ineach such case each Option shall extend to and cover the number, class and kind of shares orother obligations to which the Optionee would have been entitled had the Option been fullyexercised immediately prior to the date such amalgamation or merger becomes effective (whetheror not such Option would otherwise then have been fully exercisable) and the then prevailingsubscription price of the shares or other obligations so covered shall be correspondinglyadjusted if and to the extent that the Committee considers it to be equitable and appropriate.14.3. Except as expressly provided in this section 14, the grant of any Option shall not in anyway limit or affect the rights or powers of the Corporation or its directors or shareholdersto make any changes or deal in any manner with the authorized, issued or unissued shares orany other securities of the Corporation and no such change or dealing shall give any right orentitlement to the holder of any Option in respect or as a result thereof.14.4. Any Option may be made subject to such anti-dilution provisions as may be determined by theCommittee on or prior to the date of grant and specified in the Option agreement, with theintent that the holder of the Option not be detrimentally affected or unduly benefited byother dilutive or anti-dilutive transactions that may be undertaken during the term of theOption.15. **AMENDMENT AND TERMINATION OF THE PLAN**15.1. Subject to applicable legislation, any required regulatory or shareholder approval and therules of any stock exchange on which shares in the capital of the Corporation are listed, theCommittee may at any time terminate the Plan as it shall deem advisable provided that, exceptas otherwise specifically provided by section 14 (Change in Capitalization or Number ofOutstanding Shares) and subsection 7.5, no such termination shall adversely affect the rightsof any Optionee under any Option previously granted except with the consent of such Optionee.
 
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15.2. If the Plan is terminated, the provisions of the Plan and any administrative guidelines andother rules and regulations adopted by the Committee and in force on the date of terminationwill continue in effect as long as any Option or any rights pursuant thereto remainoutstanding and, notwithstanding the termination of the Plan, the Board of Directors shallremain able to make such amendments to the Plan or the Options as they would have beenentitled to make if the Plan were still in effect.15.3. The Board of Directors may, without notice, at any time and from time to time, amend thePlan or any provisions thereof in such manner as the Board, in its sole discretion, determinesappropriate 15.3.1. for the purposes of making formal minor or technical modifications to any of theprovisions of the Plan, 15.3.2. to correct any ambiguity, defective provision, error or omission in the provisionsof the Plan, 15.3.3. to change the vesting provisions of Options or the Plan, 15.3.4. to change the termination provisions of Options or the Plan which does not entail anextension beyond the original expiry date of the Options, 15.3.5. to add a cashless exercise feature to the Plan, providing for the payment in cash orsecurities on exercise of Options and which provides for a full deduction of the numberof underlying Shares from the Plan reserve in such case, and 15.3.6. to add or change provisions relating to any form of financial assistance provided bythe Company to Optionees that would facilitate the purchase of securities under thePlan;provided, however, that: 15.3.7. no such amendment of the Plan may be made without the consent of each affectedOptionees if such amendment would adversely affect the rights of such affectedOptionees under the Plan; and 15.3.8. shareholder approval shall be obtained in accordance with the requirements of theToronto Stock Exchange for any amendment that results in 15.3.8.1. an increase in the number of Shares issuable under Options grantedpursuant to the Plan; 15.3.8.2. a reduction in the exercise price of an Option; 15.3.8.3. the cancellation and reissue of any Option;
 
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 15.3.8.4. an extension of the term of an Option granted under the Planbenefiting an insider (within the meaning of the rules of the TorontoStock Exchange) of the Corporation; or 15.3.8.5. Options becoming transferable or assignable other than for estatesettlement purposes as described in section 9.1.16. **GENERAL REQUIREMENTS**16.1. Each grant of an Option under the Plan shall be subject to the requirement that if at anytime the Committee shall determine that any agreement, undertaking or other action orcooperation on the part of an Optionee, including in respect to a disposition of the Shares,is necessary or desirable as a condition of, or in connection with (i) the listing,registration or qualification of the Shares subject to the Plan upon any stock exchange orunder the laws of any applicable jurisdiction, or (ii) obtaining a consent or approval of anygovernmental or other regulatory body, the exercise of such Option and the issue of Sharesthereunder may be deferred in whole or in part by the Committee until such time as theagreement, undertaking or other action or cooperation shall have been obtained in a form andon terms acceptable to the Committee.17. **RIGHT TO OPTIONS**17.1. Nothing contained herein or in any resolution previously or hereafter adopted by the Boardof Directors or by the Committee shall vest the right in any person whomsoever to receive anyOption. No person shall acquire any of the rights of any Optionee unless and until a writtenOption agreement, in form satisfactory to the President of the Corporation, shall have beenduly executed on behalf of the Corporation and delivered to the Optionee and executed anddelivered by the Optionee to the Corporation. Any agreement purporting to be an Option shall,to the extent it may be contrary to the express provisions of the Plan, be unenforceable bythe Optionee against the Corporation.18. **WITHHOLDING**18.1. Whenever the Corporation proposes or is required to issue or transfer Shares pursuant to anOption, the Corporation shall have the right to withhold from salary payments or to requirethe recipient of such Shares to remit to the Corporation an amount sufficient to satisfy anyfederal, provincial, state and/or local withholding tax requirements prior to the delivery ofany certificate or certificates for such Shares. Whenever under the Plan payments are to bemade in cash, such payments shall be net of an amount sufficient to satisfy any federal,provincial, state and/or local withholding tax requirements.19. **DURATION OF THE PLAN**19.1. Subject to the provisions of section 15 (Amendment and Termination of the Plan) the Planshall remain in effect until all grants of Options under the Plan have been terminatedpursuant to the provisions of the Plan or satisfied by the issuance of Shares or the paymentof cash.
 
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20. **INTERPRETATION**Any question or interpretation of the Plan or any Option shall be determined by theCommittee and such determination shall be final and binding upon all persons.**IN WITNESS WHEREOF**the Corporation has caused this Plan to be executed by authority of its Board ofDirectors as of this 28th day of March, 2007.CATALYST PAPER CORPORATION             By:          Its:         
 
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