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CATALYST PAPER CORPORATION



ANNUAL INFORMATION FORM



FEBRUARY 1, 2006

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TABLE OF CONTENTS

|Documents Incorporated by Reference | 1 
|----------------------------------- | --
|                                    |   
|Glossary of Terms                   | 1 
|                                    |   
|Forward Looking Statements          | 1 
|                                    |   
|Incorporation                       | 2 
|                                    |   
|Corporate Profile                   | 3 
|                                    |   
|Three Year History                  | 4 
|                                    |   
|Competitive Strengths               | 5 
|                                    |   
|Business Strategy                   | 6 
|                                    |   
|Lines of Business                   | 7 
|                                    |   
|Competition                         | 13
|                                    |   
|Fibre Supply                        | 13
|                                    |   
|Properties                          | 14
|                                    |   
|Human Resources                     | 15
|                                    |   
|Environment                         | 15
|                                    |   
|Social Responsibility               | 17
|                                    |   
|Research and Development            | 18
|                                    |   
|Capital Expenditures                | 18
|                                    |   
|Capital Structure                   | 18
|                                    |   
|Foreign Operations                  | 18
|                                    |   
|Risk Factors                        | 18
|                                    |   
|Legal Proceedings                   | 19
|                                    |   
|Dividends                           | 19
|                                    |   
|Ratings                             | 19
|                                    |   
|Market for Securities               | 21
|                                    |   
|Material Contracts                  | 21
|                                    |   
|Transfer Agent and Registrar        | 22
|                                    |   
|Audit Committee Information         | 22
|                                    |   
|Corporate Governance                | 25
|                                    |   
|Directors and Officers              | 25
|                                    |   
|Experts                             | 27
|                                    |   
|Additional Information              | 27
|                                    |   
|Glossary                            | 28

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CATALYST PAPER CORPORATION

ANNUAL INFORMATION FORM

(with respect to the year ended December 31, 2005)

DOCUMENTS INCORPORATED BY REFERENCE

Certain specifically identified sections of the audited
consolidated financial statements of Catalyst Paper Corporation for the fiscal
year ended December 31, 2005 (the 2005 Financial Statements), the report of
the auditors thereon dated January 24, 2006 and managements discussion and
analysis thereof (the 2005 Annual Report) filed with the securities commission
or similar authority in each of the provinces of Canada, are incorporated by
reference into and form an integral part of this Annual Information Form.

GLOSSARY OF TERMS

In this Annual Information Form, unless otherwise specified,
Catalyst, we, us, and our refer to Catalyst Paper Corporation and its
subsidiaries and affiliates. Unless otherwise indicated, all dollar amounts are
expressed in Canadian dollars.

A Glossary of Terms is included on page 28.

FORWARD LOOKING STATEMENTS

Certain statements contained in this Annual Information Form
and in documents incorporated by reference, including statements which may
contain words such as anticipate, could, expect, seek, may, likely,
intend, will, believe and similar expressions, statements that are based
on current expectations and estimates about the markets in which we operate and
statements of our belief, intentions and expectation about developments, results
and events which will or may occur in the future, including statements relating
to expected operating cost savings and expected capital expenditures, constitute
forward-looking statements and are based on certain assumptions and analysis
made by us derived from our experience and perceptions. In addition, other
written or oral statements which constitute forward-looking statements may be
made from time to time by or on our behalf.

These forward-looking statements are subject to important
risks, uncertainties and assumptions which are difficult to predict and which
affect our operations, including but not limited to:

| | the prices, consumption of, and demand for, our products;                                                                   
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|  |                                                                                                                             
| | future capital expenditures (including the amount and
      nature of the expenditures) and the results of the expenditures;
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| | business strategies and measures to implement strategies;                                                                   
|  |                                                                                                                             
| | competitive strengths, goals, expansion and growth of our
      business and operations,                                    
|  |                                                                                                                             
| | fluctuations in foreign exchange or interest rates;                                                                         
|  |                                                                                                                             
| | labour unrest;                                                                                                              
|  |                                                                                                                             
| | fluctuations in the availability or costs of raw
      materials or energy;                                                 

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| | the impact of general economic conditions in the United
      States and Canada and in other countries in which we do business;                        
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| | industry conditions, including the adoption of new
      environmental laws and regulations and changes in how they are interpreted
      and enforced;
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| | the availability of qualified personnel or management;                                                                                                 
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| | the outcome of certain litigation or disputes;                                                                                                         
|  |                                                                                                                                                        
| | conditions in the capital markets; and                                                                                                                 

other factors, many of which are beyond our control. Our actual
results, performance or achievements could differ materially from those
expressed in, or implied by, these forward-looking statements and, accordingly,
no assurance can be given that any of the events anticipated by the
forward-looking statements will occur, or if any of them do so, what benefits,
including the amount of proceeds, we will derive therefrom. Catalyst disclaims
any intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

INCORPORATION

We were formed on September 1, 2001 by the amalgamation under
the Canada Business Corporations Act of Norske Skog Canada Limited and
Pacifica Papers Inc. On October 3, 2005 we changed our name to Catalyst Paper
Corporation.

Catalyst Paper Corporations principal predecessor was British
Columbia Forest Products Limited, which was a company formed by the amalgamation
under the laws of the Province of British Columbia on December 30, 1971 of its
predecessor company, incorporated by certificate of incorporation, with
memorandum and articles, under the laws of the Province of British Columbia on
January 31, 1946, and 24 of its wholly owned subsidiaries. On September 2, 1988,
British Columbia Forest Products Limited changed its name to Fletcher Challenge
Canada Limited. Prior to July 2000, 50.76% of Fletcher Challenge Canada Limited
was owned by Fletcher Challenge Limited of New Zealand (Fletcher Challenge New
Zealand). In July 2000, Norske Skogindustrier ASA completed a transaction with
Fletcher Challenge New Zealand whereby all of the business and assets of
Fletcher Challenge New Zealands paper division worldwide were acquired by
Norske Skogindustrier ASA. As part of this transaction, Norske Skogindustrier
ASA acquired Fletcher Challenge New Zealands 50.76% interest in Fletcher
Challenge Canada Limited. On December 15, 2000, Fletcher Challenge Canada
Limited changed its name to Norske Skog Canada Limited.

As a result of the amalgamation with Pacifica Papers Inc. and
subsequent equity issues, Norske Skogindustrier ASAs interest in Catalyst Paper
Corporation has decreased to 29.4% .

Pacifica Papers Inc.s predecessor was Pacifica Papers Limited
Partnership. On June 8, 1998 Pacifica Papers Limited Partnership, through its
indirect wholly owned subsidiary, Pacifica Papers Acquisition Company Ltd.,
acquired all the shares of MB Paper Limited from MacMillan Bloedel Limited. On
March 12, 1999 the unitholders of Pacifica Papers Limited Partnership approved a
reorganization pursuant to which Pacifica Papers Limited Partnership changed its
corporate form from a partnership to a corporation. As part of this
reorganization, 28,750,000 common shares of Pacifica Papers Inc. were
distributed to all the unitholders of Pacifica Paper Limited Partnership in
exchange for their partnership units on a one for one basis.

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Our principal office is located at 250 Howe Street,
16th Floor, Vancouver, British Columbia, V6C 3R8.

We own all the issued and outstanding shares of the following
principal subsidiaries:

Corporation
    JurisdictionElk Falls Pulp and Paper Limited
    British ColumbiaCatalyst Paper Finance Limited
    British ColumbiaCatalyst Paper Japan Ltd.
    JapanCatalyst Pulp Operations Limited
    British ColumbiaCatalyst Pulp Sales Inc.
    British ColumbiaCatalyst Pulp and Paper Sales Inc.
    British ColumbiaCatalyst Paper (USA) Inc.
    CaliforniaCatalyst Paper Holdings Inc.
    DelawarePacifica Papers Sales Ltd.
    British ColumbiaPacifica Papers Sales Inc.
    DelawarePacifica Poplars Ltd.
    British ColumbiaPacifica Poplars Inc.
    DelawarePacifica Papers U.S. Inc.
    Delaware


We are, along with our subsidiary Catalyst Pulp Operations
Limited, a partner of the British Columbia general partnership Catalyst
Paper.

CORPORATE PROFILE

We are the third largest newsprint and uncoated groundwood
specialty paper manufacturer based in North America measured by production
capacity. We are the largest producer of mechanical coated and uncoated
specialty papers and newsprint, and the only producer of lightweight coated
paper, on the west coast of North America. We are also the largest producer of
lightweight uncoated groundwood (directory) paper in the world. We also produce
market pulp and kraft paper and we operate the largest paper recycling operation
in Western Canada.

Our four integrated pulp and paper operations are located in
British Columbia, at Crofton and Campbell River (Elk Falls) on the east coast of
Vancouver Island, Port Alberni on the west coast of Vancouver Island, and Powell
River on the west coast of the British Columbia mainland. Our paper recycling
operation is located in Coquitlam, British Columbia.

The annual capacities by product, in thousands of tonnes, of
our pulp and paper facilities are set forth below. Some of our paper machines
are capable of producing more than one paper product. The chart below represents
our expectation as to the division of total mill capacity in 2006 among the
different product lines that can be produced at each mill:

|                |           |           | Other Uncoated |       |       |           |         |      
|--------------- | --------- | --------- | -------------- | ----- | ----- | --------- | ------- | -----
|                |           | Directory | Groundwood     | LWC   | Kraft |           | Market  |      
|Mill            | Newsprint | Paper     | Specialties    | Paper | Paper | Sub-total | Pulp(1) | Total
|                |           |           |                |       |       |           |         |      
|Crofton         | 339       | 103       | -              | -     | -     | 442       | 319     | 761  
|Elk Falls       | 321       | -         | 201            | -     | 137   | 659       | 190     | 849  
|Port Alberni(2) | -         | 212       | -              | 223   | -     | 435       | -       | 435  
|Powell River    | 181       | -         | 265            | -     | -     | 446       | -       | 446  
|Total           | 841       | 315       | 466            | 223   | 137   | 1,982     | 509     | 2,491

| | (1) | Our total pulp capacity is 656,000 tonnes, of which
      147,000 tonnes is used internally, leaving 509,000 tonnes available to
      sell to third parties.                                                                                        
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| | (2) | Beginning February, 2005 one paper machine at Port
      Alberni was indefinitely shut down. See Lines of Business  Port
      Alberni. The product capacities noted in the above table have not been
      adjusted for the indefinite shut down.

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In addition, our paper recycling operation has a production
capacity of 148,000 air-dried equivalent tonnes of pulp per year, the vast
majority of which is consumed internally.

Our principal business is the manufacture and sale of printing
papers, consisting of groundwood coated, uncoated and specialty papers, kraft
paper and newsprint. For the year ended December 31, 2005, groundwood and
printing papers comprised approximately 80% of our total manufacturing capacity
and contributed approximately 84% of our total sales revenues.

The principal markets for our paper products are located in
North America, Asia and Latin America. The major markets for our market pulp are
Western Europe and Asia.

THREE YEAR HISTORY

Change of Corporate Name

On October 3, 2005 we changed our name from Norske Skog Canada
Limited to Catalyst Paper Corporation.

Dissolution of Joint Venture

Effective October 1, 2005 we dissolved a joint venture
arrangement with Norske Skogindustrier ASA of Norway, which was formed in 2001
to collectively market our specialty paper products in North America. As a
result of this dissolution, we began marketing our specialty papers directly to
North American customers.

Indefinite Capacity Reduction

In February, 2005 we indefinitely shut down paper machine No. 3
at our Port Alberni mill. This effectively displaced 140,000 tonnes per year of
45.0 gsm equivalent paper production as we shifted the directory production from
this machine to other paper machines that we own.

Recovery Boiler Upgrade

In 2004 we completed a $45 million upgrade of our Elk Falls No.
2 recovery boiler.

Paper Recycling

In December, 2003 we acquired our Paper Recycling Division.
Under a long-term arrangement, we agreed to lease from the vendor the land and
buildings housing the operation. With this purchase, we own the largest paper
recycling operation in Western Canada. The purchase price was $61.1 million
(including a $2.5 million working capital adjustment) and was comprised of $31.5
million of cash, approximately 8.7 million of our common shares having a value
of $29 million, and $0.6 million of transaction costs.

Financing

In May, 2003 we issued US$150,000,000 aggregate principal
amount of 8 5/8% Senior Notes due June 15, 2011. The proceeds of this issue were
used to repay outstanding indebtedness under our secured credit facility and for
general corporate purposes.

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In March, 2004 we issued US$250,000,000 aggregate principal
amount of 7 3/8% Senior Notes due 2014. The proceeds of these Notes were used to
retire our outstanding US$200,000,000 principal amount of 10% Senior Notes due
2009.

COMPETITIVE STRENGTHS

We believe that we have the following competitive strengths:

| | Strong Market Position. We are the third largest
      producer of newsprint and uncoated groundwood specialty papers based in
      North America measured by production capacity. We are also the largest
      producer of mechanical coated and uncoated specialty papers and newsprint,
      and the only producer of lightweight coated paper, on the west coast of
      North America. We are the largest producer of directory paper in the
      world. We have annual production capacity of approximately 2.5 million
      tonnes of specialty paper, newsprint and market pulp. In addition, we
      operate the largest paper recycling operation in Western Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
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| | Diversified Product Mix. Since 1993, we have
      introduced or expanded a number of specialty and differentiated product
      lines, including lightweight newsprint grades, coated papers, machine
      finished hi-brites, super hi-brites, soft-calendered grades, directory,
      sawdust-based pulp and whitetop linerboard. These products are of superior
      quality and offer improved margins over standard commodity grades.
      Additionally, market pulp accounts for only 20% of our manufacturing
      capacity, significantly reducing our exposure to volatile pulp markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
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| | Upgraded, Cost-Competitive Manufacturing
      Facilities. Over the last five years, we have invested approximately
      $463 million in our manufacturing facilities to shift production towards
      higher margin papers, reduce unit production costs, increase operating
      efficiency, improve product quality, increase capacity and meet
      environmental regulations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
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| | Strong Supply Chain Management Practices. We
      introduced new supply chain systems in 2000 to improve our supply chain
      and order fulfillment processes. These processes range from the purchase
      of raw materials to the delivery of finished paper products to our
      customers. These new systems have allowed us to reduce inventory levels,
      increase inventory turnover and provide faster delivery to customers. We
      also make better use of the barges, rail cars, trucks and containers that
      we use to ship our products. With better planning and scheduling, we are
      now able to ship our products to customers using the most cost-efficient
      mode of transportation on virtually every shipment. Following the
      acquisition of Pacifica Papers Inc. in 2001, we harmonized our order
      fulfillment systems to better service our customers' requirements. We have
      applied our order fulfillment, distribution and procurement expertise to
      further lower the supply chain costs at our Powell River and Port Alberni
      facilities.                                                                       
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| | Lightweight Alkaline
        Papermaking Technology. Over the last few years, we have converted
        all our paper mills to alkaline papermaking, which uses lower-cost precipitated
        calcium carbonate, or PCC, fillers in the production process. All of our
        products are now created utilizing alkaline papermaking processes, and
        we believe these products are well recognized by our customers for their
        quality and performance. In addition to being a lower-cost input, the
        PCC filler leads to improved brightness and opacity, which facilitates
        the production of papers with a lower basis weight. We believe that lower
        basis weight papers provide us with an important competitive advantage
        because a higher volume of lower basis weight paper can be stored on each
        paper roll, thereby reducing shipping, storage and handling costs and
        warehouse space required for inventories. The use of lower basis weight
        paper by our customers also reduces their postage costs. PCC also enables
        us to produce high quality, higher brightness uncoated groundwood grades.
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BUSINESS STRATEGY

We intend to achieve greater earnings stability and to maximize
cash flow by strengthening our position as a leading producer of value-added
paper and related forest products within Western North America. Key principles
of our strategy include:

| | Performance Improvement Program. We will continue
      to implement performance improvement initiatives that challenge us to
      create innovative and cost effective business solutions. In 2005, we
      commenced our fifth consecutive annual performance improvement initiative.
      This initiative generated $84 million in earnings improvements across all
      areas, year over year. We realized improvements in the areas of grade
      development and product optimization, as well as cost reductions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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| | Product Development. We plan to increase
      profitability within our paper operations by continuing to improve our
      recently developed high-value specialty paper products. In 2005, we
      completed the development of two new grades, Electraprime and
      Electrastar. Our Electraprime grade is a soft-calendered high-brightness
      paper designed to compete as an alternative to supercalendered grades used
      primarily for advertising flyers and inserts. Our Electrastar product is a
      super high-brightness grade designed for applications in which brightness
      is a desirable characteristic such as inserts and specialty newspapers.
      Both products have been well received in the market. We intend to continue
      to aggressively promote them while exploring other product development
      opportunities using the knowledge gained in developing these specialty
      grades. We have also made minor capital investments that have facilitated
      our growth into the roto-news grade family to command a margin improvement
      over standard newsprint.
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| | Optimizing Fibre Mix to Reduce Costs. We intend to
      continue to use low cost PCC filler and to reduce kraft input while
      maintaining the quality of our products and improving printability. In
      2005, we reduced the amount of kraft used in our specialty and newsprint
      products by 40% compared to 2004. In December 2003, we acquired Western
      Canadas largest paper recycling facility. This acquisition allowed us to
      exit a higher-cost, long term de-inked pulp contract with the facilitys
      previous owner. Subsequently, we have improved the value of this
      acquisition by utilizing an additional 25,000 air-dried metric tonnes of
      production capability and by realizing synergies related to chemical
      purchases and freight optimization.                                                                                                                                                                                                                                                                                                               
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| | Improving Operating Costs and Improving
      Efficiency. We are committed to reducing our operating costs and
      improving efficiency. We examine all areas of our business on an ongoing
      basis for cost reduction opportunities. For example, we have improved our
      production planning and focused on lower cost forms of transportation to
      ship our products. To deal with rising energy costs, we worked on
      optimizing the fuel mix in our power boilers, resulting in less reliance
      on fossil fuels in favour of lower cost wood waste hog fuel. We also took
      advantage of our ability to alternate between oil and natural gas at
      several mill sites, allowing us to consume lower cost fuels.
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| | Become the Preferred Supplier for our Customers.
      We are working on initiatives to continue to improve product quality,
      service levels, distribution and customer relationships. Our plan is to
      seek to differentiate ourselves from our competitors by becoming a trusted
      supplier that consistently produces reliable products.                                                                                                                                                                                                                                                                                                                                                                                         
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LINES OF BUSINESS

We have three business segments: specialty paper, newsprint and
pulp. Our specialty papers and newsprint can be manufactured on 13 paper
machines at four mill locations. Our market pulp is manufactured on three kraft
pulp lines at our Crofton and Elk Falls mills.

The segmented results for these businesses are shown in our
2005 Managements Discussion and Analysis.

Paper

Paper Operations

Our capacity to produce specialty papers and newsprint, in
thousands of tonnes, as compared to our production for each of the last two
years is as follows:

|                |  |                 |  | Production            
|--------------- |  | --------------- |  | ----------------------
|                |  | Annual Capacity |  | Year ended December 31
|Mill            |  |                 |  | 2005                  
|                |  |                 |  |                       
|Crofton         |  | 442             |  | 391                   
|Elk Falls       |  | 659             |  | 630                   
|Port Alberni(1) |  | 435             |  | 332                   
|Powell River    |  | 446             |  | 411                   
|                |  | 1,982           |  | 1,764                 

| | (1) | Beginning February 1, 2005 one paper machine at Port
      Alberni was indefinitely shut down. The product capacities noted in the
      above table have not been adjusted for the indefinite shut down.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

*Crofton*

Crofton's capacity is 442,000 tonnes of newsprint and directory
paper. On a 48.8 gsm equivalent basis the annual capacity of the Crofton paper
operations is approximately 518,000 tonnes.

The Crofton paper mill, which produces newsprint and
lightweight directory paper, has three paper machines, which were put in
operation in 1964, 1968 and 1982. Each of the paper machines are capable of
producing either newsprint or directory paper, as market conditions warrant. All
machines were installed with, or have been converted to, twin-wire sheet
formation, which provides a more uniform quality of sheet for both printing
surfaces.

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To further our objective to produce highly runnable directory
paper, we completed $16 million in modifications to the No. 2 paper machine in
May 1999. These modifications enable the Crofton mill to produce an innovative
directory paper at the lowest industry basis weight. This directory paper has
improved consistency, runnability and printability. Crofton's directory paper
production can be supplemented by excess production capacity available on the
No. 1 and No. 3 paper machines.

Pulp furnish for the paper mill is supplied by a three-line
thermomechanical pulp mill, Croftons kraft pulp mill and our paper recycling
operation. Reduced fibre requirements, made possible by the move to lighter
weight paper production at the mill, allowed the closure of a groundwood pulp
mill in September, 1999. In 2002, the refiner mechanical pulp mill was also
closed. In August 2003, we completed an $11 million upgrade to increase the
capacity of the thermomechanical pulp facility and improve the quality of the
pulp. This resulted in improved consistency in quality and lower production
costs for light basis weight paper manufactured at the Crofton mill. In 2004 we
began work on a $10 million investment in the thermomechanical pulp facility.
This work was completed in 2005 and has resulted in improvements in capacity,
quality, and the elimination of kraft pulp from Croftons papermaking
operations.

*Elk Falls*

Elk Falls' annual capacity is 659,000 tonnes of newsprint, high
brightness uncoated specialties and kraft paper. On a 48.8 gsm equivalent basis,
the annual capacity of the Elk Falls paper operations, excluding kraft paper, is
approximately 544,000 tonnes. The Elk Falls mill has annual kraft paper
production capacity of approximately 137,000 tonnes.

Four paper machines, which were put into operation in 1952,
1957, 1966 and 1982, produce newsprint, soft calendered and machine finished
high brightness specialties papers and kraft paper. All machines, other than the
kraft paper machine, were installed with, or converted to, twin-wire sheet
formation.

Elk Falls has broadened its range of uncoated groundwood
specialty papers to meet the needs of commercial printers. The mill has met the
demand for better quality through equipment upgrades to produce a cleaner, more
refined pulp furnish. The soft-nip calendering system on No. 2 paper machine
provides for improvements to the sheets smoothness and printability. High
bright offset specialty papers marketed under the ElectraSoft label
produced from this machine are used mainly by the commercial print market for
advertising flyers and newspaper supplements. We are the largest supplier of
soft-calendered papers on the west coast of North America.

In August 2003, we completed a $4 million upgrade to our No. 5
paper machine, which has reduced the consumption of kraft in our paper
furnish.

Whitetop linerboard, which is produced by the kraft paper
specialties machine (paper machine No. 4), is a premium product that combines a
layer of unbleached kraft pulp with a layer of bleached kraft pulp. The two
layers are formed on the paper machine by uniting the bleached and unbleached
stock into what is known as a duplex stock. This specialty product is white on
the top and brown on the reverse side and is used in packaging where bright,
high quality graphics are important. Elk Falls competitive advantage in
producing this product stems from its ability to produce a lightweight,
high-performance sheet. The inclusion of sawdust-based pulp in the furnish also
results in a smoother, more consistent surface which performs better in
customers conversion facilities.

Production of whitetop linerboard grades totaled approximately
  109,000 tonnes, or 92%, of production from the Elk Falls kraft paper machine
  for the year ended December 31, 2005. The majority of this product is marketed
  under the brand name SilverLiner.

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In 2003, we completed a $3 million upgrade to stock preparation
  equipment supporting the No. 4 paper machine, enabling us to replace a portion
  of sawdust-based pulp with externally purchased hardwood pulp. The upgrade has
  improved the quality and production of our SilverLiner product and allows us
  to sell a higher volume of sawdust based pulp externally.

Pulp furnish for the paper mill is supplied primarily from the
mill's seven-line thermomechanical pulp mill and its semi-bleached kraft pulping
facilities. The furnish for the kraft paper specialties produced at Elk Falls is
comprised of long-fibre pulp, alternative fibre sources such as sawdust-based
pulp and rejects from the Elk Falls kraft pulp mill, as well as clippings
received from converting plants and post-consumer waste. Elk Falls also
purchases a limited quantity of high quality hardwood kraft pulp in order to
enhance the top sheet quality of our kraft paper product line.

*Port Alberni*

Port Alberni's annual capacity is 435,000 tonnes of directory
paper and lightweight coated paper. Port Alberni's annual directory paper
capacity on a 48.8 gsm equivalent basis is approximately 297,000 tonnes.

The Port Alberni paper mill has three paper machines. Two of
the paper machines were put into operation in 1957, with the third paper machine
put into operation in 1968. In February, 2005, we indefinitely shut down paper
machine No. 3. Curtailment of this machine effectively displaced 140,000 tonnes
per year of 45.0 gsm equivalent paper production.

Paper machine No. 5 is the only lightweight coated paper
machine in western North America. Its online technology allows for the coating
of paper on both sides simultaneously, reduces the amount of kraft pulp required
to produce conventional lightweight coated paper and produces the desired
product quality in terms of runnability, printability and bulk.

Pulp furnish for the paper mill is supplied primarily from the
mill's thermomechanical pulp plant, the mills stone groundwood mill, from our
paper recycling operation and from kraft pulp supplied from the Crofton mill. We
have installed equipment at the Port Alberni mill to allow us to use recycled
fibre in telephone directory paper and crumb kraft pulp from the Crofton
mill.

*Powell River*

Powell River's annual capacity is 446,000 tonnes of newsprint
and uncoated groundwood specialty paper, which is the same as its annual
capacity on a 48.8 gsm equivalent basis.

The Powell River mill has three paper machines, which were put
into operation in 1957, 1967 and 1981. These machines produce hi-brite, uncoated
groundwood specialty papers and newsprint. In 2004, we completed a $7.5 million
upgrade of No. 10 paper machine and the peroxide bleach plant to support the
production of higher value groundwood specialty paper, including Electracal and
our newest Electraprime grade. We have dedicated our No. 9 paper machine to
produce highbrightness Electrastar and Electrabrite grades. We continue our
effort to push towards the development of highbrightness products at our Powell
River mill, and in 2005 we completed a further upgrade of the peroxide bleach
plant at a cost of approximately $5 million to expand the mills production
capacity for higher brightness uncoated specialty grades.

Pulp furnish for the paper mill comes primarily from a thermomechanical
  pulp plant. In November, 2001, we permanently closed Powell Rivers kraft
  pulp mill, which consumed a high-cost fibre diet resulting in higher unit costs
  compared to our other two pulp mills at Elk Falls and Crofton.

9

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In addition, the pulp mills at Elk Falls and Crofton have roughly
  twice the capacity of the Powell River pulp mill. We now supply the kraft pulp
  requirements of the paper machines at Powell River from our Crofton facilities.

The Powell River mill has the capability to use recycled
de-inked pulp on a limited scale. Recycled de-inked pulp is supplied from our
paper recycling operation.

We hold a 50% economic interest in Powell River Energy Inc., or
Powell River Energy, which owns two hydroelectric dams near the Powell River
mill with a combined generating capacity of 82 megawatts. Pursuant to a power
purchase agreement between us and Powell River Energy, Powell River Energy will
provide the power generated by its facilities to us at a fixed rate
approximating current British Columbia Hydro and Power Authority rates until
2011. Powell River Energy's hydroelectric facilities supply approximately 40% of
the annual power needs of the Powell River mill, although this amount varies
depending on hydrological conditions.

Paper Marketing

The principal customers for our specialty papers and newsprint
are retailers, magazine and catalogue publishers, commercial printers, telephone
directory publishers, corrugated box manufacturers and newspaper publishers, and
are located primarily in western and central North America, Asia and Latin
America. Specialty and newsprint customers are served primarily by our sales and
marketing personnel in North America and Japan and distributors and agents in
other geographic markets. In recent years, our marketing strategy for kraft
paper has been, first, to shift the sales mix to 100% white-top production and
eliminate lower value unbleached grades and second, to improve surface
properties in order to expand freight logical North American sales with high
graphic accounts that prefer our lightweight grades.

Historically, approximately two-thirds of our paper sales
revenue has been generated from sales to customers in the United States. The
United States is the world's largest consumer of newsprint, with consumption of
approximately 9.4 million tonnes in 2005, representing about 23.9% of total
world consumption.

For the years ended December 31, 2005 and 2004, specialty paper
and newsprint accounted for 85% of our consolidated net sales revenue. No single
customer accounts for more than 10% of our specialty consolidated net sales
revenue nor is a material part of our business dependent on a small group of
customers. Specialty paper and newsprint markets are not subject to significant
seasonal fluctuations.

The Crofton and Elk Falls mills are located on tidewater and
have deep-sea vessel loading facilities. Specialty paper and newsprint is
shipped primarily by deep-sea vessel, and by a combination of ship, barge, rail
and truck for inland destinations. We use the services of independent warehouses
all over the world for distribution to our customers.

We have built effective long-term relationships with our
customers for our specialty papers and newsprint, based on a partnership
approach to produce the best product for their particular needs. As a result, we
expect to remain a preferred supplier to many of those customers.

10

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Pulp

Pulp Operations

We manufacture market pulp at our Crofton and Elk Falls pulp
and paper mills, located in British Columbia on the east coast of Vancouver
Island.

Our market pulp capacity, in thousands of tonnes, as compared
to our production for each of the last two years is as follows:

Annual Capacity
    Year ended December 31Mill
    December 31, 2005 (1)
    2005 Production
    2004 ProductionMarket pulp
    Crofton
      319
      301
      262Elk Falls
      190
      173
      159Total
    
      509
      474
      421


|(1) | Our total pulp capacity is 668,000 tonnes, of which
      147,000 tonnes is used internally, leaving 509,000 tonnes available for
      sale to third parties.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

The Crofton kraft pulp mill is a two-line mill. The first line
began operating in 1957 and the second in 1965. At December 31, 2005 total
annual pulp production capacity was 385,000 tonnes, of which 319,000 tonnes was
market pulp capacity. This mill is equipped with one continuous digester and
eight batch digesters, which provide the flexibility to cook different species
of chips independently. Crofton's batch digesters utilize a rapid displacement
heating, or RDH, cooking system. The RDH system allows for rapid turnaround in
the batch cooking process, because it rapidly extracts and replaces the cooking
liquor in the cooking vessel for each batch without a significant loss in
temperature. This technology improves the overall quality of Crofton pulps and
provides a stronger and more uniform pulp than conventional cooking.

The Crofton kraft pulp mill produces Northern bleached softwood
kraft, or NBSK pulp grades. One grade is a low coarseness fine fibre pulp. This
pulp is consumed internally at our Crofton, Port Alberni and Powell River
operations and sold to market customers. This pulp is a high tensile grade which
is ideally suited for the manufacture of lightweight papers. The other pulp
grades produced are made from spruce, pine and fir (SPF), coastal hemlock and
Douglas fir fibre species. This pulp has high intrinsic strength and bulk, and
is used in a variety of printing and writing papers.

In 2005 we spent $3 million at our Crofton kraft pulp mill to
install a crumb pulp handling process for our kraft pulp mill, reducing energy
use on the kraft pulp used internally. This installation has allowed us to free
up drying capacity for our market pulp business and, as a result, we are able to
produce an additional 25,000 tonnes of market pulp a year.

The Elk Falls kraft pulp mill was initially commissioned in
1956, and its sawdust-based pulp production began in 1964. The mill has been
extensively modernized over recent years to meet or exceed current environmental
standards and to improve operating efficiency and costs.

The Elk Falls kraft pulp mill is equipped with five batch digesters
  and two continuous digesters and has a total annual market pulp capacity of
  190,000 tonnes. The mill manufactures a sawdust-based pulp branded Elk Prime.
  Elk Prime is a fully bleached pulp that is manufactured from a combination of
  sawdust, wood shavings and chip screenings. Blending of these residuals produces
  a pulp with an average fibre length between that of conventional softwood and
  hardwood pulps. Elk Prime is easy to refine, delivers high initial tensile strength
  and, when added to a paper makers furnish, enhances dimensional stability.

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Manufacturers of products such as specialty papers, tissue,
  paper toweling, printing and writing and other paper products can substitute
  Elk Prime for portions of their conventional NBSK pulp feedstock, realizing
  cost savings and, in many cases, improved quality. Sawdust-based pulps have
  an added environmental advantage in that they are made from fibre that would
  otherwise have been a waste product. Elk Falls uses some sawdust-based pulp
  in producing its specialty brands of high quality white-top linerboard, which
  is sold to customers who manufacture corrugated containers that require high
  quality graphics.

All of the kraft pulp operations are equipped with chlorine
dioxide bleaching systems and secondary effluent treatment facilities and are
presently operating in substantial compliance with applicable environmental laws
and regulations.

In 2004, we completed a $45 million upgrade of the Elk Falls
No. 2 recovery boiler to increase capacity and maintain reliability. This
upgrade allowed the permanent shut down of the smaller recovery boiler, a lime
kiln and a bleach plant. As a result, gross pulp production at Elk Falls was
reduced by approximately 90,000 tonnes per year. This decrease in production has
been offset by reduced internal consumption of kraft pulp. In 2005, an improved
sawdust screening process was installed at a cost of $8 million. This improved
screening ability provided an incremental sawdust and shavings cooking capacity
and displaced 26,000 tonnes of chip-based pulp (on an annual basis).

Pulp Marketing

Our two pulp mills are well situated for export shipments to
Asia and Western Europe. Our strategy is to maintain a diversified range of
freight-logical customers, including producers of tissue, magazine papers,
woodfree printing and writing papers and certain specialty paper products. Our
sawdust-based pulp produced at Elk Falls is particularly versatile and is often
used as a lower cost substitute for more expensive pulps.

Pulp customers are served by sales and marketing staff in
Canada and Japan and a network of agents in locations throughout the world.

The Crofton and Elk Falls pulp mills are located on tidewater
and have deep-sea vessel loading facilities. Pulp is shipped to offshore
locations by both break bulk on deep-sea vessels and container shipment.

For the year ended December 31, 2005, pulp accounted for 16% of
our consolidated sales revenue as compared to 15% for the year ended December
31, 2004. There is no single customer that accounts for more than 10% of our
consolidated net sales revenue, nor is a material part of our business dependent
upon a small group of customers.

Paper Recycling Division

On December 1, 2003 we acquired Western Canadas largest paper
recycling operation, located in Coquitlam, B.C. The purchase price was $61.1
million (including a $2.5 million working capital adjustment) and was comprised
of $31.5 million of cash, approximately 8.7 million of our common shares having
a value of $29 million, and $0.6 million of transaction costs. As part of the
acquisition, we entered into a lease of the land and buildings where the paper
recycling plant operates for an initial term of 20 years, with one 10 year
renewal option. The annual rent under the lease is $2.1 million, subject to
adjustment for changes in the Consumer Price Index. The lease includes options
to purchase the land and buildings, and a right of first offer in the event the
landlord wishes to sell the land to a third party.

12

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Our paper recycling operation recycles old newspapers,
magazines and other waste paper into pulp suitable for the manufacture of
newsprint, telephone directory paper and similar grades of paper. The plant was
constructed in 1990. Its current production capacity is 148,000 air-dried metric
tonnes of pulp per year. Average annual production in the last three fiscal
years was approximately 140,000 air-dried metric tonnes per year. We were the
principal customer of the paper recycling operation and prior to our acquisition
we purchased approximately 95% of the de-inked pulp it produced. The operation
now supplies 100% of our de-inked pulp requirements.

The paper recycling operation utilizes flotation, cleaning and
screening technologies to remove ink and impurities from the waste paper input.
This produces high-quality pulp that can be blended with traditional
virgin-fibre pulp to produce paper in accordance with customers specifications.
The pulp is mechanically pressed to a dryness of about 50% moisture content for
shipment to its customers.

The waste paper furnish for our paper recycling operation is
purchased in Western Canada and the Western United States. In the most recent
fiscal year, approximately 45% of the furnish was sourced in British Columbia,
22% in the balance of Western Canada and 33% in the United States.

The plant receives waste paper primarily by rail and truck into
warehouse facilities located adjacent to the production facility. An independent
contractor is responsible for operations in the raw materials warehouse. Batches
of waste paper are loaded onto a conveyor for transport into the production
facility.

Within the production facility the waste paper is initially
mixed with water and de-inking and bleaching chemicals in a batch pulper. The
paper slurry produced by the pulper is then processed through a succession of
cleaners and screens to remove contaminants. It then passes through a flotation
unit, where tiny air bubbles float ink particles out of the slurry. The pulp
slurry is then further processed through additional cleaners and a final
flotation process before being formed into mechanically-dried sheets which are
baled for shipment. The recycled pulp is shipped to our other operations by
truck, rail and barge.

COMPETITION

The markets for our products are highly competitive on a global
basis. The pulp and paper industry is essentially a commodity market in which
producers compete primarily on the basis of price. In addition, since a majority
of our production is directed to export markets, we compete on a worldwide basis
against many producers of approximately the same or larger capacity. In export
markets, Canadian producers generally compete with American, European and Asian
producers.

FIBRE SUPPLY

Our pulp and paper operations consume wood fibre which is
purchased from more than 70 independent mills. Our fibre supply comes primarily
from residual wood chips and sawdust from lumber operations located on the coast
or in the southern interior of British Columbia and secondarily from the
chipping of pulp logs originating from locations throughout the region.

Sawmill wood chips presently comprise 59% of the fibre supply
for our pulp and paper operations. The remainder is comprised of pulp logs
(19%), sawdust (18%) and recycled de-inked pulp (4%). Currently, five wood chip,
log and sawdust suppliers provide 54% of our fibre supply. The supply contracts
with these companies were negotiated for indefinite ("evergreen") terms when
certain of our timber and processing assets were sold.

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In addition, through an evergreen contract with a coastal log
producer, additional wood chips can be obtained from regional sawmills. These
suppliers provide an additional 9% of our fibre supply.

Together, all of these long-term, secure supply agreements
provide approximately 63% of the fibre supply for our pulp and paper operations.

The remainder of the fibre requirements for the four pulp and
paper operations is sourced from independent suppliers, many under long-term
contracts. Fibre is purchased from these suppliers at market prices or at prices
determined under market-based formulas.

To enhance our fibre security, we maintain a surplus fibre
position. As a result of our fibre position, we made annual sales of
approximately 650,000 cubic meters of surplus fibre to regional customers in
2005, although we expect our sales in 2006 to be significantly lower. In
addition, we engage in fibre trading activities to ensure optimum allocation of
different fibre grades to the appropriate product.

During 2004, in conjunction with PricewaterhouseCoopers, we
implemented an independent chain of custody system to track our wood fibre
supply. This auditable system identifies the source of wood fibre coming from
forests with independently certified sustainable forest management practices.
The independent chain of custody verifies that select paper products made at our
Elk Falls, Port Alberni and Powell River mills contain 100% certified wood
fibre.

Our operations are subject to a wide range of issues that can
impact the availability of fibre supply, including suppliers lumber market
demand, sawlog supply and coastal solid wood industry restructuring. The
diversity of supply from over 70 mills located in three geographical regions
combined with our surplus fibre position helps to mitigate the risk of
interruptions to fibre deliveries to our operations.

PROPERTIES

Our head office is located in leased premises in Vancouver,
British Columbia. The lease covers an aggregate of 40,842 square feet and
expires February 15, 2016.

We lease the land and buildings where our paper recycling
operation is located. The lease expires November 30, 2023, subject to one 10
year renewal option. We also lease a port and warehouse facility in Long Beach,
California, which we use for delivering product to customers located in the
Western United States. That lease terminates in August, 2006, subject to an
option to renew for an additional two year term.

Each of our Crofton, Elk Falls, Powell River and Port Alberni
pulp and paper manufacturing facilities are situated on land we own. The Crofton
mill is located on a 107 hectare site, the Elk Falls mill is located near the
town of Campbell River, British Columbia on a 78 hectare site, the Powell River
mill is located on a 94 hectare site and the Port Alberni mill is located on a
44 hectare site. Each of our properties is the subject of a mortgage in favor of
our lenders to secure our credit facilities.

HUMAN RESOURCES

We have approximately 3,800 employees.

All of the approximately 2,900 hourly employees at our pulp and
  paper mills (with the exception of the paper recycling operation) are members
  of either the Communications, Energy & Paperworkers Union of Canada, or
  CEP, or the Pulp, Paper and Woodworkers of Canada, or PPWC. Twenty-three employees
  in the Port Alberni mill are represented by the Canadian Office and Professional
  Employees Union, or COPE.

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The current collective agreements with each of CEP and PPWC expire
  on April 30, 2008. The collective agreement with COPE expires on April 30, 2006.

ENVIRONMENT

Our operations are subject to a wide range of general and
industry-specific environmental laws and regulations including those related to
waste management, air emissions, water discharges and remediation of
environmental contamination. There has been significant upgrading of our
facilities during the last few years to comply with solid and special waste,
effluent and air regulations. Environmental performance is monitored regularly
by us. We believe that our facilities are operating in substantial compliance
with applicable environmental laws and regulations.

In addition to regular monitoring of emission points and
reporting to regulatory authorities, we manage our environmental performance
through an environmental management system. This system is registered to the ISO
14001 standard at all five of our facilities. The environmental management
system utilizes annual internal surveillance audits and bi-annual external
compliance audits of our manufacturing facilities. The audit findings are
communicated to management and a committee of the board of directors, so that
appropriate action plans can be developed to address any deficiencies. Audits
were completed during 2004 and no material issues were uncovered during those
reviews.

Numerous federal environmental initiatives are underway which
could translate into more vigourous regulatory standards and permits in the next
decade, especially with respect to air emissions. Substances that may be
targeted include chlorine dioxide, odorous compounds, fine particulate, oxides
of nitrogen, carbon monoxide and sulphur dioxide. Because of recent upgrades we
have made to our air emissions controls, we believe we are well positioned to
meet many of these new challenges. In cases where equipment improvements may be
required, we expect that policy lead time and flexibility in the permitting
process will mitigate any required capital spending.

Recycled Content in Groundwood Paper

We are a major supplier of newsprint, directory and other
groundwood printing papers to western North America. The most significant of
these markets is the western United States, where in three states - California,
Arizona and Oregon - newspaper publishers and commercial printers are required
by law to use a certain proportion of recycled containing paper. While the other
western U.S. states and Canada do not have legislated requirements for recycled
containing paper, many printers and publishers are demanding some recycled
containing paper as part of their supply mix.

We meet this market demand through the use of de-inked pulp
from our paper recycling operation located in Coquitlam, British Columbia. This
de-inked post-consumer recycled pulp is mixed with virgin pulp furnish to
produce newsprint and directory paper that meets the legislated requirement

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Solid Waste

An ongoing environmental issue faced by our operations is the
disposal of solid waste. Most non-recyclable waste is disposed of at on-site
landfills and based on current practice we have at least three years capacity
in the landfills at each of our facilities. We continue to work to reduce
volumes sent to landfill by increasing recycling efforts and investigating
alternative uses for all waste. In 2004, we constructed a new landfill at
Crofton with a 30 year capacity and we are planning to develop another landfill
site at our Elk Falls mill to establish more capacity.

Effluent

In the early 1990s, the British Columbia provincial government
mandated the elimination of AOX in mill effluent by December 31, 2002. In July
2002, this regulation was amended to 0.6 kilograms per tonne of pulp produced
effective December 31, 2002. All of our facilities are operating below this new
limit which is similar to legislation recently enacted in the United States.

In 2003 we began an initiative to reduce water use at all
facilities. We delivered reductions of 6% in 2003 and 3% in 2004. These
reductions resulted in lower waste water volumes being discharged and greater
opportunities to improve the performance of the systems. While process changes
aimed at improving product quality in 2005 resulted in an increase in water use
by 2% that year, we intend to work to achieve further reductions in 2006.

Air Emissions

Over the past five years, substantial environmental capital has
been spent at all facilities upgrading air emissions controls and
infrastructure. This includes an odour collection and treatment system at
Crofton, a new wet precipitator for the Elk Falls power boiler, a fluidized bed
boiler conversion at Port Alberni and a new fluidized bed boiler at Powell
River. Our facilities are well positioned to be compliant with future air
emissions standards, which will likely focus on odour, fine particulates and
other criteria air contaminants.

In February 2005, the Kyoto Protocol came into effect. Canadas
commitment is to obtain by 2010 a 6% absolute reduction of greenhouse gas
emissions below 1990 levels. Our 2005 greenhouse gas emissions were 71% below
1990 levels and, therefore, we easily surpass the federal commitment. While
specific Canadian policy regarding large final emitters such as pulp and paper
facilities is still under development, under a currently proposed federal plan
we expect to have emission credits.

In 2005, we spent approximately $2 million on environmental
capital projects. Key 2005 environmental projects included an upgrade to
Croftons odour collection system and a major refurbishment of its heavy fuel
oil tank. At Elk Falls we have begun engineering work on a planned future
expansion of the landfill. At Port Alberni we completed the disposal and
remediation of lands and material that had minor creosote contamination from an
old river water pipeline. At Powell River, odour reduction trials continued,
focusing on emissions from the primary clarifier. Our Paper Recycling Division
was registered to the ISO14001 standard for its environment management
system.

We estimate that capital expenditures relating to known
environmental matters, including compliance issues and the assessment and
remediation of the environmental condition of our properties, will total
approximately $6 million in 2006. While we believe that our estimate for
environmental projects for 2006 is reasonable, there can be no assurance that
actual expenditures will not exceed the estimated amounts.

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Contaminated Sites

We are not aware of any sites or land parcels which are
considered contaminated under the Province's contaminated sites legislation.

Provincial legislation governing contaminated sites came into
  effect in British Columbia on April 1, 1997. If a particular site exceeds prescribed
  levels of certain classes of substances, the site is determined to be a “contaminated
  site” under the legislation. The legislation specifies the circumstances
  in which a 'site profile' must be prepared in respect of any property that has
  been used for certain industrial or commercial purposes. If a site is determined
  to be contaminated, remediation will normally be required under government supervision.
  As current and past owners of mill sites, all forest products companies in British
  Columbia may face remediation costs particularly as a result of historical operations
  and disposal practices. Compliance with this legislation has not resulted in
  any material cost to us but there can be no guarantee that such costs will not
  be incurred in the future as a consequence, for example, of the discovery of
  unknown conditions or changes in enforcement policies.

SOCIAL RESPONSIBILITY

Fibre Certification Chain of Custody

We have implemented an independent chain of custody system to
  verify that select paper products made at our Port Alberni, Powell River and
  Elk Falls mills contain 100% certified wood fibre. This allows customers to
  track, measure and report the extent and type of environmentally-preferable
  fibre used in their product. The independent chain of custody system tracks
  fibre from forests certified under three recognized sustainable forest management
  certification systems — Canadian Standards Association (CSA), Forest Stewardship
  Council (FSC), and Sustainable Forestry Initiative (SFI). The system is audited
  to the PricewaterhouseCoopers standard.

First Nations Cooperation Protocol

We continue to develop our relationships with First Nations. In
September 2004 we signed a Cooperation Protocol with the Tla'Amin First Nation
(Sliammon), the first such milestone for both parties. The principle-based
agreement establishes a joint working group and ongoing forum dedicated to
cross-cultural awareness building, opportunity development and constructive
resolution of issues. One of the first tasks of the working group is a project
that honors Tees Kwat as the original village site of the Tla'Amin people.

WWF Climate Savers Agreement

Together with World Wildlife Fund Inc. and the Center for
Energy and Climate Solutions, a division of Global Environment & Technology
Foundation (GETF), we signed a voluntary memorandum of understanding in December
2005 committing the parties to work together in the Climate Savers Program. The
program is administered by World Wildlife Fund in Washington, DC and involves
nine corporate leaders in greenhouse gas reductions, along with six power
utilities who have accepted the WWF PowerSwitch! Challenge! to support binding
limits on national CO2emissions. In joining the program, Catalyst
Paper set a voluntary target to reduce CO2 emissions to 70% below its
1990 emissions by the year 2010 through energy conservation, increased use of
biomass fuel to replace fossil fuels, and other cost-effective strategies.

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RESEARCH AND DEVELOPMENT

We continue to contribute to industry supported research
organizations such as the Pulp and Paper Research Institute of Canada. In
addition, research required to meet our specific needs is conducted at private
laboratories under the direction of our technical experts and at the mill
laboratories.

Business unit technical staff provide scientific and
technological expertise in support of operations and product development
efforts.

Our research and development expenditures totaled approximately
$3 million for the year ended December 31, 2005, and approximately $3 million
for the year ended December 31, 2004.

CAPITAL EXPENDITURES

Over the past five years our capital expenditures on continuing
operations have totaled approximately $463 million. In the year ended December
31, 2005, approximately $95 million was spent on various environmental,
maintenance of business and discretionary projects. The following table
summarizes capital expenditures on continuing operations by business segment
over the past five years:

$ Millions
    2005
    2004
    2003
    2002
    2001
    
    TotalPaper
    74
    39
    54
    63
    113
    
    343Pulp
    21
    29
    27
    19
    24
    
    120Continuing Operations
    95
    68
    81
    82
    137
    
    463


CAPITAL STRUCTURE

We are authorized to issue an unlimited number of common shares
and 100,000,000 preferred shares. As of December 31, 2005, there were
214,604,120 common shares issued and outstanding and no preferred shares issued
and outstanding. All of the issued and outstanding common shares are fully paid.
Holders of common shares are entitled to receive dividends as and when declared
by our Board of Directors and, unless otherwise provided by legislation, are
entitled to one vote per share on all matters to be voted on at all meetings of
shareholders. Upon the voluntary or involuntary liquidation, dissolution or
winding-up of the company, the holders of common shares are entitled to share
rateably in the remaining assets available for distribution after payment of
liabilities. The common shares are not subject to any future call or assessment
and there are no preemptive, conversion or redemption rights attached to the
common shares.

FOREIGN OPERATIONS

We have no foreign manufacturing operations.

RISK FACTORS

Our business and operations are subject to a number of risk
factors which are set out in the Managements Discussion and Analysis contained
in the 2005 Annual Report for our most recently completed financial year, which
is available on SEDAR at www.sedar.com..

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LEGAL PROCEEDINGS

We occasionally become party to legal proceedings, generally
related to contract disputes and employment law in the ordinary course of
business. The final results of currently ongoing legal proceedings, while not
immediately determinable, are not expected to have a material effect on our
financial results.

We and certain of our affiliates have been named as defendants,
together with a number of other paper producers, in class action lawsuits in the
United States alleging an ongoing conspiracy to fix prices of magazine and other
publication papers. These suits were triggered by a European Commission
investigation into possible anti-competitive practices by certain European paper
producers. We believe there is no merit to the allegations, but will
nevertheless continue to incur costs to defend ourselves.

DIVIDENDS

We are currently restricted from paying dividends under the
terms of our bond indentures because our cumulative losses (adjusted to exclude
foreign exchange gains/losses on debt) since the initial bond issue exceed cash
proceeds from equity issues for the same period. No dividends were paid in the
years ended December 31, 2005, 2004 or 2003.

RATINGS

In December 2005, Moodys lowered its credit ratings on our
senior unsecured debt to B1 from Ba3, on our secured credit facilities to B1
from Ba2, and confirmed its outlook on our debt ratings as negative. The
downgrade was cited as due to the prolonged downturn in the market for newsprint
and other products we manufacture.

In December 2005, Standard and Poors (S&P) lowered its
corporate credit and senior unsecured ratings to B+ from BB- and its senior
secured rating to BB- from BB, and upgraded the outlook to stable. The rapid
appreciation of the Canadian dollar as well as continued energy pressures were
attributed to the downgrade.

The interest rate we pay on borrowings under our revolving
credit facility includes a margin that varies with our credit rating. The margin
increased with the Moodys downgrade in December 2005. Downgrades could
negatively impact our cost of additional borrowing and potentially our cost of
capital, but otherwise have no direct impact on our business.

The following table highlights our credit ratings and assigned
outlooks with Moodys, S&P and Dominion Bond Rating Service as of December
31, 2005, 2004 and 2003.

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December 31,Moodys
      Outlook Corporate Family rating Senior unsecured debt Bank
      loan debt   Standard & Poors Outlook
      Corporate Credit rating Senior unsecured debt Senior secured
      debt   Dominion Bond Rating Service Outlook
      Senior debt
    2005  
      Negative B1 B1 Ba3     Stable B+
      B+ BB-     Negative BB
    2004  
      Negative Ba3 Ba3 Ba2     Negative
      BB- BB- BB      Stable
      BB
    2003  
      Negative Ba2 Ba2 Ba1    
      NegativeBB BB  BB+     Stable
        BB+


Moodys credit ratings are on a long-term debt rating scale
that ranges from AAA to C, which represents the range from highest to lower
quality of such securities rated. According to the Moodys rating system, an
obligation rated B is judged to be a speculative investment with a high credit
risk. Assurance of interest and principal payments or of maintenance of other
terms of the contract over any large period of time may be small. Moody applies
numerical modifiers, 1, 2 and 3 in each generic rating classification from AA
through CAA in its corporate bond rating system. The modifier 1 indicates that
the issue ranks in the higher end of its generic rating category, the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.

Standard & Poors credit ratings are on a long-term debt
rating scale that ranges from AAA to D, which represents the range from highest
to lowest qualities of such securities rated. According to the Standard &
Poors rating system, an obligation rated B is vulnerable to non-payment, but
the obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligators capacity or willingness to meet its financial commitment
on the obligation. The rates from AA to CCC may be modified by the addition of a
+ or  sign to show relative standing with the major rating categories.

DBRS credit ratings are on a long-term debt rating scale that
ranges from AAA to D, which represents the range from highest to lowest quality
of such securities rated. According to the DBRS rating system, an obligation
rated BB is defined as speculative and non-investment grade, where the degree of
protection afforded interest and principal is uncertain, particularly during
periods of economic recession. In many cases, deficiencies in critical mass,
diversification, and competitive strength are additional negative
considerations. The ratings from AA to CCC may be modified by the addition of a
high or low modifier to show relative standing within the major rating
categories. The lack of one of these designations indicates a rating which is
essentially in the middle of the category.

The above ratings are not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the above
rating agencies. A reduction in our credit ratings would impact our access to
and cost of capital and financial flexibility in the future.

20

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MARKET FOR SECURITIES

Our common shares are listed for trading on the Toronto Stock
Exchange (the TSX) under the symbol CTL. During 2005, the common shares traded
at a high of $4.26, a low of $2.40 and an average daily volume of 350,317. The
price range and volume of trading of the common shares on the TSX during each
month of 2005 was as follows:

Price RangeMonth
    Low-High ($)
    VolumeJanuary
    3.31  3.76
    5,501,389February
    3.38  3.95
    15,397,324March
    3.66  4.26
    7,217,558April
    3.30  3.88
    3,799,950May
    2.80  3.63
    8,527,241June
    3.01  3.45
    10,387,332July
    3.13  3.48
    4,589,446August
    2.60  3.16
    4,116,840September
    2.75  3.05
    6,231,816October
    2.40  2.92
    3,538,756November
    2.40  2.81
    5,170,860December
    2.47  3.15
    9,247,231


MATERIAL CONTRACTS

Since January 1, 2002, we have entered into the following
material contracts:

|1. | Indenture, dated as of March 23, 2004, governing the
      Corporations 7 3/8% Senior Notes due 2014, among the Corporation, the
      subsidiary guarantors and Wells Fargo Bank, National Association, as
      trustee.                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                               
|2. | Credit Agreement, dated as of July 19, 2002, among the
      Corporation, the subsidiary restricted parties named therein, TD
      Securities and RBC Capital Markets as arrangers, the Toronto-Dominion
      Bank, as administration agent, Royal Bank of Canada as syndication agent,
      and the lender parties named therein (the Credit Agreement).
|   |                                                                                                                                                                                                                                                                                                                                                               
|3. | First Amending Agreement to Credit Agreement, dated as of
      May 8, 2003, among the Corporation, the subsidiary restricted parties
      named therein, The Toronto-Dominion Bank, as administration agent, and the
      lender parties named therein.                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                               
|4. | Second Amending Agreement to Credit Agreement, dated
      August 6, 2003 among the Corporation, its subsidiary restricted parties
      named therein, the Toronto-Dominion Bank, as administrative agent, and the
      lender parties thereto.                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                               
|5. | Third Amending Agreement to Credit Agreement, dated May
      28, 2004, among the Corporation, its subsidiary restricted parties named
      therein, the Toronto-Dominion Bank, as administrative agent, and the
      lender parties thereto.                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                               
|6. | Fourth Amending Agreement to Credit Agreement, dated July
      12, 2005, among the Corporation, its subsidiary restricted parties named
      therein, the Toronto-Dominion Bank, as administrative agent, and the
      lender parties thereto.                                                                                                             

21

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|7.  | Omnibus Pledge Agreement, dated as of July 19, 2002,
      entered into by certain wholly owned subsidiaries of the Corporation and
      The Toronto-Dominion Bank pursuant to the Credit Agreement.                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                       
|8.  | Aggregate Repricing Agreement, dated as of May 14, 2003,
      among Norske Skog Canada Finance Limited, certain lenders or affiliates of
      lenders named in the Credit Agreement and Royal Bank of Canada as group
      valuation agent, with respect to the repricing from time to time of
      certain secured derivative contracts entered into by Norske Skog Canada
      Finance Limited.
|    |                                                                                                                                                                                                                                                                                                                                                                                                       
|9.  | Indenture, dated as of May 15, 2003, governing the
      Corporations 8 5/8% Senior Notes due 2011, among the Corporation, the
      subsidiary guarantors and Wells Fargo Bank Minnesota, National
      Association, as trustee (the 2003 Notes Indenture).                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                       
|10. | First Supplemental Indenture amending the 2003 Notes
      Indenture, dated as of December 1, 2003, among the Corporation, the
      subsidiary guarantors named therein and Wells Fargo Bank Minnesota,
      National Association, as trustee.                                                                                                                                                      

TRANSFER AGENT AND REGISTRAR

CIBC Mellon Trust Company; Vancouver and Toronto.

AUDIT COMMITTEE INFORMATION

The Audit Committee consists of Thomas S. Chambers, Gary
Collins, Jarle Dragvik, J. Trevor Johnstone, Alice Laberge, Vidar Lerstad and R.
Keith Purchase. Each of these directors are independent for the purposes of
sitting on the Audit Committee, as defined under applicable legislation, and are
financially literate. The Board has determined that each of Messrs. Chambers,
Collins, Dragvik, Johnstone, Laberge, Lerstad and Purchase qualifies as an
audit committee financial expert for the purposes of applicable legislation.
The relevant education and experience of each Audit Committee member is as
follows:

| | Name          | Relevant Education and Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | T.S. Chambers | Mr. Chambers has been a chartered accountant since 1969.
      He was an audit partner at PricewaterhouseCoopers LLP from 1976 to 2002
      and was the managing parter of PricewaterhouseCoopers LLPs and its
      predecessors Canadian audit practice from 1996 to 2001. Mr. Chambers is a
      member of the Institute of Corporate Directors and was the chair of the
      British Columbia chapter of that organization from 2002 to 2004. Mr.
      Chambers is a member of two other audit committees and the chair of one of
      them.
|
|
|
|
|
|
|
|
|

22

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| | Name           | Relevant Education and Experience                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | G. Collins     | Mr. Collins is the Chief Executive Officer of HMY Airways
      Inc. and in that capacity supervises the preparation of that companys
      financial statements. Prior to joining HMY Airways Inc., Mr. Collins was
      the Minister of Finance for the Province of British Columbia.                                                                                                                                                             
|
|
|
|
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | J. Dragvik     | Mr. Dragvik holds a Masters degree in Management and
      Marketing from the University of Oslo. He is the Senior Vice President,
      Production for Norske Skogindustrier ASA. In that capacity he has
      experience analyzing and evaluating financial statements that present a
      level of complexity comparable to the Corporations.                                                                                                   
|
|
|
|
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | J.T. Johnstone | Mr. Johnstone is a chartered accountant and has qualified
      as a certified public accountant, although he no longer actively practices
      as such. He worked for a public accountant where he oversaw the
      preparation and audit of financial statements for four years. He has been
      the chief financial officer of a number of private companies and he is a
      member of four other audit committees.                          
|
|
|
|
|
|
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | A. Laberge     | Ms. Laberge holds an MBA from the University of British
      Columbia. She has worked as the Chief Financial Officer of MacMillan
      Bloedel Limited and the Chief Financial Officer and Chief Executive
      Officer of Fincentric Corporation. Ms. Laberge is currently a member of
      one other audit committee and has in the past been chair of another audit
      committee.                                                           
|
|
|
|
|
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | V. Lerstad     | Mr. Lerstad holds an MBA from the Norwegian School of
      Economics and Business Administration. He worked as a controller for Norsk
      Hydro AS and has been the managing director of two companies where he
      actively supervised the financial officers of those companies.                                                                                                                                                               
|
|
|
|
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | R.K. Purchase  | Mr. Purchase holds a Bachelor of Commerce
      (Administration) from Victoria University of Wellington (New Zealand) and
      an MBA from Simon Fraser University. He has been the Chief Executive
      Officer of Timberwest, the managing director of Tasman Pulp & Paper
      and the Executive Vice President of MacMillan Bloedel Ltd. In those
      capacities he actively supervised financial officers of the respective
      companies.
|
|
|
|
|
|
|

The principal functions of the Audit Committee are:

| | (i)  | to review all financial information and statutory
      disclosure documents prior to their approval by the Board and their
      distribution to shareholders and other interested persons;
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                             
| | (ii) | to evaluate systems of internal control and procedures
      for financial reporting;                                                                                                       

23

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| | (iii) | to review and recommend for approval by the Board the
      terms of engagement and remuneration of the external auditor;                                                  
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                            
| | (iv)  | to monitor the performance of the external and internal
      auditors and assess the independence thereof; and                                                            
| |       |                                                                                                                                                                            
| | (v)   | to recommend to the Board the appointment of investment
      managers for the Corporations salaried pension plans and to monitor the
      performance of these managers.

The roles and responsibilities of the Audit Committee are
contained in its terms of reference, which are reviewed annually.

The Board, through the Audit Committee, identifies and reviews
with management the principal risks facing the Corporation and ensures that
appropriate risk management systems and internal control systems are
implemented. The Audit Committee is also responsible for the Corporations
financial reporting processes and the quality of its financial reporting. The
Audit Committee is free to communicate with the Corporations external and
internal auditors at any time, and the committee meets with the Corporations
internal and external auditors, without management present, on a regular
basis.

Through the Audit Committee the Board has approved policies
relating to the treatment and disclosure of corporate information. Public
disclosure about the Corporation is reviewed by a group that includes the Chief
Executive Officer, Chief Financial Officer, and the legal, investor relations
and corporate controllers departments, and others as required, to ensure timely
and accurate disclosure.

All quarterly and annual financial statements, material press
releases, investor presentations and other corporate materials are posted
immediately on the Corporations website (www.catalystpaper.com). The
Corporation provides live internet and conference call access to interested
parties in connection with the release of its quarterly financial
information.

The Audit Committee is responsible for pre-approving all
non-audit services to be performed by the external auditors. The Chair of the
Audit Committee is authorized to pre-approve non-audit services that have a
value equal to up to $100,000. All non-audit services pre-approved by the Chair
are presented to the Committee at its first scheduled meeting following the
Chairs pre-approval. In January, 2006 the Audit Committee approved the
engagement of the external auditors for the period ending January 31, 2007 for
the provision of certain tax related services and miscellaneous accounting
advice having an aggregate cost of $400,000.

During the last two years, we paid the following fees to our
external auditors:

|                   | Period ending December
  31
|------------------ | ---------------------------
|                   | 2005                       
|Audit Fees         | $594,200                   
|Audit Related Fees | 188,200                    
|Tax Fees           | 139,900                    
|All Other Fees     | -                          
|Total              | $922,700                   

24

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The services rendered in connection with Audit Related Fees
consisted primarily of the audit of a wholly owned subsidiary, the audit of our
pension plan and other accounting advice. The services rendered in connection
with Tax Fees consisted primarily of tax compliance services.

CORPORATE GOVERNANCE

Additional information regarding our corporate governance
practices, including the terms of reference for our Board of Directors and our
Audit Committee, is contained in our management proxy circular for our most
recent annual meeting. This document can be found at www.sedar.com.

DIRECTORS AND OFFICERS

As of February 1, 2006, the name and municipality of residence
of each of the directors and officers of the Corporation, the office held by
each and the principal occupation of each during the past five years are as
follows:

|DIRECTORS                                                         |                                                                                                                                                                                                                                                    |  |                   
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|Name and Municipality of                                          |                                                                                                                                                                                                                                                    |  |                   
|Residence                                                         | Principal Occupation                                                                                                                                                                                                                               |  | Director Since    
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|Jan A. Oksum 
      Oslo, Norway                                  | Chairman, President and Chief Executive Officer Norske
      Skogindustrier ASA. Previously, Deputy Chief Executive Officer and Senior
      Vice President, Norske Skogindustrier  ASA.                                                           |  | October 24, 2001  
|
|
|
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|William P. Rosenfeld 
      Toronto, Ontario                      | Counsel, Goodmans LLP. Previously, Partner, Goodmans LLP.                                                                                                                                                                                          |  | October 27, 1993  
|
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|Russell J. Horner                                                 | President and Chief Executive Officer.                                                                                                                                                                                                             |  | November 3, 1999  
|Vancouver, British                                                |                                                                                                                                                                                                                                                    |  |                   
|Columbia                                                          |                                                                                                                                                                                                                                                    |  |                   
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|Thomas S. Chambers 
      Vancouver, British
      Columbia       | President, Senior Partner Services Ltd. Previously,
      Partner, PricewaterhouseCoopers.                                                                                                                                                         |  | October 30, 2003  
|
|
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|Gary Collins 
      Vancouver, British
      Columbia             | President and Chief Executive Officer, HMY Airways Inc.
      Previously, member of the British Columbia Legislative Assembly and
      Minister of Finance, British Columbia.                                                                     |  | April 27, 2005    
|
|
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|Jarle Dragvik 
      Vollen,
    Norway                           | Senior Vice President, Production, Norske Skogindustrier
      ASA. Previously, Senior Vice President, Sales and Marketing and Mill
      Manager, Norske Skog Bruck, at Norske Skogindustrier ASA.                                                |  | February 1, 2005  
|
|
|
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|J. Trevor Johnstone 
      West Vancouver,
      British Columbia | Managing director, Tricor Pacific Capital Inc., a private
      equity firm.                                                                                                                                                                       |  | August 27, 2001   
|
|
|                                                                  |                                                                                                                                                                                                                                                    |  |                   
|Alice Laberge 
      Vancouver, British
      Columbia            | Corporate Director. Previously, President and Chief
      Executive Officer, Fincentric Corporation, Chief Financial Officer,
      Fincentric Corporation and Senior Vice-President and Chief Financial
      Officer, MacMillan Bloedel Limited. |  | September 19, 2005
|
|
|

25

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|Name and Municipality of                                         |                                                                                                                                                                                                                                                           |  |                
|---------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|Residence                                                        | Principal Occupation                                                                                                                                                                                                                                      |  | Director Since 
|                                                                 |                                                                                                                                                                                                                                                           |  |                
|Vidar Lerstad 
      Billingstad, Norway                         | Senior Vice-President, Corporate Strategy, Norske
      Skogindustrier ASA. Previously, Executive Vice-President, South America,
      Senior Vice-President, Asian Activities and Senior Vice-President,
      International, Norske Skogindustrier ASA. |  | April 27, 2004 
|
|
|
|
|                                                                 |                                                                                                                                                                                                                                                           |  |                
|R. Keith Purchase 
      West Vancouver, 
      British Columbia | Corporate director and advisor. Previously, Executive
      Vice President and Chief Operating Officer, MacMillan Bloedel Limited, an
      integrated forest products company.                                                                           |  | August 27, 2001
|
|

OFFICERS

|Name and Municipality of
      Residence                   | Principal Occupation                                                                                                                                                                                                                                                   
|---------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                           |                                                                                                                                                                                                                                                                        
|                                                           |                                                                                                                                                                                                                                                                        
|Jan A. Oksum Oslo,
      Norway                            | Chairman, President and Chief Executive Officer Norske
      Skogindustrier ASA. Previously, Deputy Chief Executive Officer and Senior
      Vice President, Norske Skogindustrier ASA.                                                                                
|
|
|                                                           |                                                                                                                                                                                                                                                                        
|William P. Rosenfeld
      Toronto, Ontario                | Deputy Chairman. Counsel, Goodmans LLP. Previously,
      Partner, Goodmans LLP.                                                                                                                                                                                       
|
|                                                           |                                                                                                                                                                                                                                                                        
|Russell J. Horner
      
      Vancouver, British Columbia | President and Chief Executive Officer. Previously,
      President and Chief Operating Officer; Chief Operating Officer,
      Australasia, Fletcher Challenge Paper Division, Fletcher Challenge
      Limited.                                                       
|
|
|                                                           |                                                                                                                                                                                                                                                                        
|James E. Armitage
      Vancouver, British Columbia        | Senior Vice-President, Sales and Marketing. Previously,
      Senior Vice-President, Newsprint; Vice-President, Worldwide Newsprint
      Sales.                                                                                                                       
|
|                                                           |                                                                                                                                                                                                                                                                        
|Lyn Brown Vancouver, British
    Columbia                  | Vice-President, Corporate Affairs and Social
      Responsibility. Previously, Director, Corporate Affairs and Social
      Responsibility; Vice President, Customer Relations and Vice President,
      Communications and Government Affairs, Aquila Networks Canada.
|
|
|
|                                                           |                                                                                                                                                                                                                                                                        
|W.R. (Ron) Buchhorn West
      Vancouver, British Columbia | Senior Vice-President, Operations. Previously,
      Vice-President, Corporate Services, Vice-President, Human Resources.                                                                                                                                              
|
|                                                           |                                                                                                                                                                                                                                                                        
|Ralph Leverton Surrey,
      British Columbia              | Vice-President, Finance and Chief Financial Officer.
      Previously, Chief Financial Officer, Secretary and Treasurer.                                                                                                                                               
|
|                                                           |                                                                                                                                                                                                                                                                        
|Robert H. Lindstrom
      
      Burnaby, British Columbia | Vice-President, Supply Chain. Previously, Vice-President,
        Strategy, Vice-President, Supply and Utilities, Pulp Operations; Director,
        Strategic Planning, Pulp Operations.                                                                              
|
|
|                                                           |                                                                                                                                                                                                                                                                        
|Ferio Pugliese Surrey,
      British Columbia              | Vice-President, Human Resources. Previously, Director,
      Operational Excellence. Previously, Director, Human Resources Development,
      Windsor Casino Limited.                                                                                                  
|
|
|                                                           |                                                                                                                                                                                                                                                                        
|Valerie B. Seager
      Vancouver, British Columbia        | Vice-President and General Counsel. Previously, Corporate
      Secretary and Legal Counsel. Previously, Vice President and General
      Counsel, Norigen Communications Inc.                                                                                         
|
|
|                                                           |                                                                                                                                                                                                                                                                        
|Peter M. Staiger
      Vancouver, British Columbia         | Treasurer. Previously, Controller Treasurer.                                                                                                                                                                                                                           
|

26

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Our directors and officers as a group beneficially own,
directly or indirectly, or exercise control or direction over less than 1%of our
issued and outstanding Common Shares.

EXPERTS

KPMG LLP is our auditor and has prepared an audit report on our
financial statements. To our knowledge, the partners of KPMG LLP do not own,
directly or indirectly, any of our common shares.

ADDITIONAL INFORMATION

Additional financial information is provided in the
Corporations Managements Discussion and Analysis of Financial Condition and
Results of Operation and Consolidated Financial Statements for the year ended
December 31, 2005, both of which are incorporated by reference herein.

Further information relating to the Corporation may be found on
SEDAR at www.sedar.com, including the
management proxy circular for the Corporations most recent annual meeting,
which contains additional information regarding directors and officers
remuneration, principal holders of our securities, and securities authorized for
issuance under equity compensation plans.

In addition, we will provide to any person, upon request to the
Corporate Secretary:

|(a) | when our securities are in the course of a distribution
      pursuant to a short form prospectus or a preliminary short form prospectus
      which has been filed in respect of a distribution of our securities:                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                        
|    | (i)                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                        
|    | (ii)                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                        
|    | (iii)                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                        
|    | (iv)                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                        
|(b) | at any other time, one copy of any other documents
      referred to in (a) (i), (ii) and (iii) above, provided we may require the
      payment of a reasonable charge if the request is made by a person who is
      not a holder of our securities.

27

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GLOSSARY OF TERMS

AOXoradsorbable organic halides the
measurement of total chlorinated organic compounds in pulp mill effluents.

Basis weight the weight of paper per specified area,
such as gsm.

Capacity the number of units which can be produced in
a year based on operating with the normal number of shifts and maintenance
interruptions.

Coated paper paper which is coated with clay and
treated to impart a smooth glossy surface.

Dioxins chlorinated chemical compounds, of which
certain members have been identified as carcinogens.

Directory paper lightweight uncoated groundwood paper
suitable for printing telephone and commercial directory books.

Effluent outflowing waste discharge from a pulp and
paper mill.

Furans toxic contaminants associated with the
formation of dioxins in the bleaching of pulps with chlorine compounds.

Furnish a blend of different types of pulps and
additives which are provided to the paper machine for making paper.

Groundwood specialty paper coated and uncoated
printing papers, with mechanical pulp as their major component, which differ
from newsprint in brightness, surface characteristics and end uses.

Hi-brite or highbrightness paper a group of
uncoated groundwood papers with brightness levels greater than standard
newsprint.

Hog fuel wood waste, a by-product from sawmilling and
log sorting activities, used in boilers as an energy source.

Kraft paper- any type of single and multi-ply liner
used to make boxes and other containers for shipping materials, and the type of
paperboard used to make them up.

Lightweight coated paper or LWC paper coated
paper having a basis weight generally below 72 gsm and used principally for
magazine and mail order catalogues, inserts, flyers, coupons and direct mail.
The term is often used interchangeably with coated groundwood paper.

Linerboard a type of kraft paperboard, generally
unbleached, used to line or face corrugated core board (on both sides) to form
shipping boxes and various types of containers.

Newsprint a printing paper whose major use is in
newspapers. It is made largely from groundwood or mechanical pulp reinforced to
varying degrees with chemical pulp.

Particulate emissions the discharge of all airborne
solid or liquid materials other than uncombined water.

Printability the ease with which paper can be printed
to high quality standards with the least amount of spoilage.

Printing papers a general term used to describe those
grades of paper used by the printing trades, including job, book, magazine, and
newspaper printers.

28

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Pulp the generic term describing the fibres derived
  from wood. Pulp can result from a variety of pulping processes including cooking,
  refining, grinding or the processing and cleaning of waste paper. Pulp can be
  either in a wet or dry state. Types of pulp include:

Bleached pulp pulp that has
been purified or whitened by chemical treatment to alter colouring matter and
has taken on a higher brightness characteristic.

Chemical pulp obtained by
cooking wood in solutions of various chemicals. The principal chemical processes
are sulphite and sulphate (kraft).

De-inked pulp obtained by
removing inks, clays and coatings, bindings and other additives from waste
papers (primarily old newspapers and office waste) so that it can be reused as a
source of papermaking furnish.

Kraft pulp chemical pulp
produced by an alkaline cooking process using sodium sulphate.

Market pulp pulp sold on the
open market.

Northern bleached softwood kraft
(NBSK) pulp kraft pulp produced from slow-growing coniferous trees
indigenous to the forests of Canada, the northern United States and Scandinavian
countries. NBSK pulp is noted for its strength and length of fibre.

Thermomechanical pulp pulp
produced from wood chips using heated mechanical processes to break the bonds
between the wood fibres.

Pulpwood logs which are used for making pulp as
opposed to those used for making lumber and panel products.

Runnability the ease with which paper can be run
through presses with the least amount of breakages.

Soft-calender a machine which improves the smoothness
and gloss of paper by running it through a combination of steel rolls and
proprietary synthetic rolls.

Total reduced sulphur or TRS the four reduced
sulphur compounds that contribute to the typical odour emitted by kraft pulp
mills.

Twin-wire refers to a paper machine with forming wires
on both sides of the paper surface which provide a more uniform quality of sheet
for both printing surfaces. Older machines typically only have a forming wire on
the lower surface.

Uncoated specialty paper uncoated printing papers,
with mechanical pulp as their major component, which differ from newsprint in
brightness and surface characteristics and are used for magazines, catalogues,
supplements, inserts and flyers.

Woodfree paper grades manufactured almost entirely
with kraft pulp, and containing less than 10 per cent groundwood or mechanical
pulp.

Measurements

gsm grams per square metre.

kg/ADBt kilograms per
air-dried bleached tonne of production.

tonne metric ton  1,000
kilograms or 2,204 pounds (1.1023 tons).

29

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