<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------
                                    FORM 20-F
                               -------------------


[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934 or

[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                 For the fiscal year ended December 31, 2003, or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

         For the transition period from ______________ to ______________

                         Commission File No.: 033-74656

                            DOMAN INDUSTRIES LIMITED
             (Exact name of Registrant as specified in its charter)

                                     CANADA
                 (Jurisdiction of incorporation or organization)

      3RD FLOOR, 435 TRUNK ROAD, DUNCAN, BRITISH COLUMBIA, V9L 2P9, CANADA
                                 (250) 748-3711
          (Address and telephone number of principal executive office)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act:
NONE

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

            U.S.$425,000,000 8 3/4% SENIOR NOTES DUE MARCH 15, 2004
                    (OF WHICH U.S. $388 MILLION OUTSTANDING)
           U.S.$125,000,000 9 1/4% SENIOR NOTES DUE NOVEMBER 15, 2007
           U.S.$ 160,000,000 12% SENIOR SECURED NOTES DUE JULY 1, 2004
                                (Title of Class)

     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report:

                        4,774,971 CLASS A COMMON SHARES;
                 37,706,012 CLASS B NON-VOTING SHARES, SERIES 2;
       1,281,526 CLASS A CUMULATIVE REDEEMABLE PREFERRED SHARES, SERIES 4

     Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark which financial statement item the Registrant has
elected to follow. Item 17 [X] Item 18 [ ]

     (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]


<PAGE>



                                TABLE OF CONTENTS


PRELIMINARY INFORMATION.................................................       1
           Glossary of Certain Terms....................................       1
           Basis of Presentation........................................       7
           Forward Looking Statements...................................       7

PART 1     .............................................................       8
ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS........       8
ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE......................       8
ITEM 3.    KEY INFORMATION..............................................       8
           A.   Selected Financial Data.................................       8
           B.   Capitalization and Indebtedness.........................      10
           C.   Reasons for the Offer and Use of Proceeds...............      10
           D.   Risk Factors............................................      10
ITEM 4.    INFORMATION ON THE COMPANY...................................      15
           A.   History and Development of the Company..................      15
           B.   Business Overview.......................................      25
           C.   Organizational Structure................................      39
           D.   Property, Plants and Equipment..........................      40
ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS.................      43
           A.   Operating Results.......................................      43
           B.   Liquidity and Capital Resources.........................      50
           C.   Research and Development, Patents and Licenses..........      51
           D.   Trend Information.......................................      51
           E.   Off-Balance Sheet Arrangements..........................      54
           F.   Tabular Disclosure of Contractual Obligation............      54
           G.   Safe Harbour............................................      54
ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...................      54
           A.   Directors and Senior Management.........................      54
           B.   Compensation............................................      56
           C.   Board Practices.........................................      61
           D.   Employees...............................................      64
           E.   Share Ownership.........................................      64
ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS............      65
           A.   Major Shareholders......................................      65
           B.   Related Party Transactions..............................      65
           C.   Interests of Experts and Counsel........................      66
ITEM 8.    FINANCIAL INFORMATION........................................      66
           A.   Consolidated Statements and Other Financial Information.      66
           B.   Significant Changes.....................................      67
ITEM 9.    THE OFFER AND LISTING........................................      67
           A.   Offer and Listing Detail................................      67
           B.   Plan of Distribution....................................      68
           C.   Markets.................................................      68
           D.   Selling Shareholder.....................................      68
           E.   Dilution................................................      68
           F.   Expenses of Issue.......................................      68
ITEM 10.   ADDITIONAL INFORMATION.......................................      69
           A.   Share Capital...........................................      69
           B.   Articles and Bylaws.....................................      69
           C.   Material Contracts......................................      70
           D.   Exchange Controls.......................................      71
           E.   Taxation................................................      71
           F.   Dividends and Paying Agent..............................      72
           G.   Statement by Experts....................................      72
           H.   Documents on Display....................................      72
           I.   Subsidiary Information..................................      73
ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...      73
           Interest Rate Risk...........................................      73
           Foreign Currency Exchange Rate Risk..........................      73
ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.......      73

PART II    .............................................................      74
ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..............      74
ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
           USE OF PROCEEDS..............................................      74
ITEM 15.   CONTROLS AND PROCEDURES......................................      74
ITEM 16.   RESERVED.....................................................      74
ITEM 16A   AUDIT COMMITTEE FINANCIAL EXPERT.............................      74
ITEM 16B   CODE OF ETHICS...............................................      74
ITEM 16C   PRINCIPAL ACCOUNTANT FEES AND SERVICES.......................      74
ITEM 16D   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES...      75
ITEM 16E   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
           PURCHASERS...................................................      75

PART III   .............................................................      75
ITEM 17.   FINANCIAL STATEMENTS.........................................      75
ITEM 18.   FINANCIAL STATEMENTS.........................................     107
ITEM 19.   EXHIBITS.....................................................     107



<PAGE>



                             PRELIMINARY INFORMATION

GLOSSARY OF CERTAIN TERMS

All references to "Company" or "Doman" means Doman Industries Limited and its
subsidiaries including Western Pulp Limited Partnership unless the context of
the sentence clearly suggests otherwise. Certain terms used in this annual
report are defined below.



"1994 NOTES".........................   The U.S.$425 million of unsecured 8.75%
                                        senior notes due March 15, 2004 issued
                                        by the Company and guaranteed by
                                        substantially all of its subsidiaries,
                                        of which U.S. $388 million are
                                        outstanding.

"1997 NOTES".........................   The U.S.$125 million of unsecured 9.25%
                                        senior notes due November 15, 2007
                                        issued by the Company and guaranteed by
                                        substantially all of its subsidiaries.

"1999 NOTES".........................   The U.S.$160 million of 12% senior
                                        secured notes due July 1, 2004 issued by
                                        the Company and guaranteed by
                                        substantially all of its subsidiaries.

"AAC"................................   Allowable annual cut -- the volume of
                                        timber which the holder of a tree farm
                                        licence or forest licence may harvest
                                        under the licence in any given year as
                                        determined by the Ministry of Forests.

"ADMT"...............................   Air dried metric tonne -- a metric tonne
                                        of pulp with a moisture content of 10%
                                        or less.

"AFFECTED CREDITORS".................   Affected Creditors has the same meaning
                                        ascribed to the term under the Plan.

"ANNUAL CUT".........................   The volume of timber which the holder of
                                        a timber licence expects to harvest
                                        annually from that timber licence.

"BOARD" OR "BOARD OF DIRECTORS"......   The board of directors of the Company.

"BOARD FEET".........................   The plural of board foot; a board foot
                                        is one square foot of lumber, one inch
                                        (1") thick.

"BRASCAN"............................   Brascan Financial Corporation.

"CANADIAN GAAP"......................   Canadian generally accepted accounting
                                        principles.

"CBCA"...............................   Canada Business Corporations Act, as
                                        amended.

"CCAA"...............................   Companies' Creditors Arrangement Act
                                        (Canada), as amended.

"CEO"................................   Chief Executive Officer of the Company.

"CIT"................................   CIT Business Credit Canada Inc.

"CLASS A COMMON SHARES"..............   The Class A Common Shares of the
                                        Company.

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                                     - 2 -

"CLASS A PREFERRED SHARES, SERIES 4"    The Class A cumulative redeemable
                                        preferred shares, Series 4 in the
                                        capital of the Company.

"CLASS C WARRANTS"...................   The warrants proposed to be distributed
                                        to Existing Doman Shareholders pursuant
                                        to and in accordance with the terms and
                                        conditions in the Plan.

"CODE"...............................   The Forest Practices Code of British
                                        Columbia Act, as amended.

"COURT" .............................   The Supreme Court of British Columbia.

"DFPL"...............................   Doman Forest Products Limited.

"DISSOLVING SULPHITE PULP"...........   A specialty pulp manufactured by an acid
                                        cooking process and used in the
                                        production of garments, food products,
                                        lacquers, disposable diapers, cigarette
                                        filters and quality paper products.

"DWL"................................   Doman-Western Lumber Ltd.

"EQUITY SHARES"......................   The Class A Common Shares and Non-Voting
                                        Shares.

"EXISTING DOMAN SHAREHOLDERS"........   The registered holders, as of the Plan
                                        Implementation Date, of the Equity
                                        Shares and the Class A Preferred Shares,
                                        Series 4.

"FEDERAL GOVERNMENT".................   The Federal Government of Canada.

"FIBRE"..............................   The raw material used in the production
                                        of lumber and pulp consisting primarily
                                        of logs and wood chips.

"FOREST ACT".........................   The Forest Act (British Columbia), as
                                        amended.

"FOREST LICENCE" OR "FL".............   A licence granted by the Ministry of
                                        Forests which entitles the holder to cut
                                        a specific volume of timber on
                                        government lands.

"FOREST INVESTMENT ACCOUNT" OR "FIA".   A Provincial Government mechanism for
                                        promoting sustainable forest management
                                        in British Columbia through which the
                                        Minister of Forests may provide funding
                                        for certain forest management
                                        activities.

"FOREST AND RANGE PRACTICES ACT"
 OR "FRPA"...........................   The Forest and Range Practices Act
                                        (British Columbia), as amended.

"FOREST RENEWAL B.C."................   A Provincial Government program whose
                                        mandate was to plan and implement a
                                        program of expenditures in order to
                                        renew the forest economy of British
                                        Columbia, enhance the productive
                                        capacity and environmental value of
                                        forest lands, create jobs, provide
                                        training for forest workers and
                                        strengthen communities.

"HECTARE"............................   An area equal to 2.47 acres.

"HOG FUEL"...........................   Wood residue produced by a sawmill or a
                                        log merchandiser.

"INFORMATION CIRCULAR"...............   The information circular and proxy
                                        statement dated May 7, 2004, in respect
                                        of the meeting of Affected Creditors to
                                        be held on June 7, 2004 to approve the
                                        Plan.

"INTERFOR"...........................   International Forest Products Limited.

"ITA"................................   Income Tax Act (Canada), as amended.

<PAGE>
                                     - 3 -


"LOG MERCHANDISER"...................   The Company's log merchandiser located
                                        in Nanaimo, British Columbia, which
                                        extracts the lumber portions of lower
                                        quality logs and processes the balance
                                        into wood chips.

"LUMBER ASSETS"......................   All of the businesses and assets of
                                        Doman other than the Pulp Assets and the
                                        Port Alice Assets.

"LUMBERCO"...........................   4204247 Canada Inc., a corporation
                                        incorporated pursuant to the CBCA for
                                        the purpose of acquiring and holding the
                                        Lumber Assets and Pulpco Shares, whose
                                        name will be changed to "Western Forest
                                        Products Inc." or such other name as may
                                        be acceptable to Doman and the
                                        Restricted Group.

"LUMBERCO SHARES"....................   The common shares of Lumberco to be
                                        distributed pursuant to the Plan.

"LUMBERCO SECURED BONDS".............   The secured bonds to be issued by
                                        Lumberco pursuant to the Private
                                        Placement, the exercise of the Warrants
                                        and the Standby Commitment, which bonds
                                        will have the attributes set out in the
                                        Lumberco secured bonds term sheet
                                        attached as Schedule A to the Plan.

"M(3)"...............................   A cubic metre.

"MFBM"...............................   One thousand board feet measure, being
                                        one thousand square feet of lumber one
                                        inch (1") thick.

"MINISTRY OF FORESTS"................   The Ministry of Forests of British
                                        Columbia.

"MLIM PRIVATE PLACEMENT PURCHASERS"..   Debt Strategies Fund, Inc., Merrill
                                        Lynch Global Investment Series - Income
                                        Strategies Portfolio, Merrill Lynch Bond
                                        Fund, Inc. - High Income Portfolio,
                                        Master U.S. High Yield Trust, Corporate
                                        High Yield Fund, Inc., Corporate High
                                        Yield Fund V, Inc., Corporate High Yield
                                        Fund VI, Inc. and Floating Rate Income
                                        Strategies Fund, Inc.

"MMFBM"..............................   One million board feet measure, being
                                        one million square feet of lumber inch
                                        (1") thick.

"MONITOR"............................   KPMG Inc.

"NAFTA"..............................   The North American Free Trade Agreement.

"NBSK PULP"..........................   Northern Bleached Softwood Kraft pulp, a
                                        high quality white chemical kraft pulp
                                        produced from slow growing northern
                                        softwood trees and differentiated from
                                        other grades of pulp by its fibre length
                                        and strength.

"NON-VOTING SHARES"..................   The Class B Non-Voting Shares, Series 2,
                                        of the Company.

"NOTES" .............................   The 1994 Notes, the 1997 Notes and the
                                        1999 Notes.

"NOTEHOLDER AGREEMENTS" .............   The Secured Note Agreement, Unsecured
                                        1994 Note Agreement and Unsecured 1997
                                        Note Agreement.

"ORIGINAL NOTEHOLDER GROUP" .........   Those holders of the 1994 Notes and the
                                        1997 Notes represented by Tricap,
                                        Merrill Lynch Investment Manager LP and
                                        Oppenheimer & Co.

"PACIFIC FOREST".....................   Pacific Forest Products Limited.

<PAGE>
                                     - 4 -


"PASC"...............................   Port Alice Specialty Cellulose Inc.

"PLAN"...............................   The plan of compromise and arrangement
                                        pursuant to the CCAA and reorganization
                                        pursuant to CBCA in respect of Doman
                                        which is attached Schedule I to the
                                        Information Circular.

"PLAN IMPLEMENTATION DATE:...........   The business day on which the Monitor
                                        has filed with the Court a certificate
                                        pursuant to Section 8.5 of the Plan
                                        stating that all conditions precedent to
                                        implementation of the Plan set forth in
                                        Section 8.4 of the Plan have been
                                        satisfied or waived, which will not be
                                        earlier than July 1, 2004 or later than
                                        July 31, 2004 unless otherwise ordered
                                        by the Court and not objected to by the
                                        Restricted Group.

"PLAN UNITS".........................   A unit that may be purchased pursuant to
                                        the exercise of a Warrant or pursuant to
                                        the Standby Commitment, consisting of
                                        US$1,000 aggregate principal amount of
                                        Lumberco Secured Bonds and a pro rata
                                        share of Lumberco Shares from the
                                        Warrant Share Pool.

"PORT ALICE AGREEMENT"...............   The purchase and sale agreement between
                                        WPLP and PASC dated as of May 9, 2004
                                        relating to the purchase and sale of the
                                        Port Alice pulp mill including the real
                                        property, plant and fixtures used in or
                                        connected with the operation of the Port
                                        Alice pulp mill and adjusted working
                                        capital of $2.73 million and assumption
                                        of outstanding obligations related to
                                        the Port Alice pulp mill.

"PORT ALICE ASSETS"..................   The Port Alice pulp mill and related
                                        assets sold to PASC by WPLP pursuant to
                                        the Port Alice Agreement.

"PRIVATE PLACEMENT"..................   The sale of Private Placement Units to
                                        the Standby Purchasers for aggregate
                                        proceeds of US$105 million pursuant to
                                        and in accordance with the terms and
                                        conditions of the Plan.

"PRIVATE PLACEMENT UNITS"............   Units to be sold to the Standby
                                        Purchasers pursuant to the Private
                                        Placement, each such unit to be
                                        identical to the Plan Units and to
                                        consist of $1,000 aggregate principal
                                        amount of Lumberco Secured Bonds and a
                                        pro-rata share of Lumberco Shares from
                                        the Private Placement Share Pool.

"PRIVATE PLACEMENT SHARE POOL".......   Lumberco Shares representing, in
                                        aggregate, 12.5% of the total number of
                                        Lumberco Shares outstanding (as at the
                                        Plan Implementation Date) after giving
                                        effect to the transactions contemplated
                                        by the Plan (including the Private
                                        Placement, the exercise of Warrants and
                                        the Standby Commitment but excluding the
                                        exercise of the Class C Warrants), which
                                        will be issued pursuant to the Private
                                        Placement.

"PROVINCE"...........................   The Province of British Columbia.

"PROVINCIAL GOVERNMENT"..............   The Provincial Government of British
                                        Columbia.

"PULP ASSETS"........................   All of the pulp related businesses and
                                        assets of the Doman, excluding the Port
                                        Alice Assets.

"PULP SEGMENT".......................   The Company's pulp management,
                                        manufacturing and sales operations.

<PAGE>
                                     - 5 -


"PULPCO".............................   4204255 Canada Inc., a corporation
                                        incorporated pursuant to the CBCA (which
                                        shall become a wholly-owned subsidiary
                                        of Lumberco pursuant to the Plan), for
                                        the purpose of acquiring and holding the
                                        Pulp Assets, whose name will be changed
                                        to "Western Pulp Limited" or such other
                                        name as may be acceptable to Doman and
                                        the Restricted Group.

"PULPCO NOTE"........................   The secured term promissory note to be
                                        issued by Pulpco to WPLP and which shall
                                        later be assigned to Lumberco pursuant
                                        to the Plan.

"PULPCO SHARES"......................   The outstanding common shares of Pulpco.

"RESTRICTED GROUP"...................   The informal group of noteholders
                                        (comprised of certain Unsecured
                                        Noteholders (that are members of the
                                        Unsecured Noteholder Committee) and
                                        Tricap, who have executed
                                        confidentiality agreements with Doman
                                        that have not expired) established to
                                        help negotiate the terms of a financial
                                        and corporate restructuring with Doman.

"SANCTION ORDER".....................   The order proposed to be made in the
                                        CCAA proceedings, among other things, to
                                        sanction the Plan and direct the
                                        completion of certain related corporate
                                        and financing transactions, as such
                                        order may be amended, varied or modified
                                        by the Court from time to time.

"SECURED NOTE AGREEMENT".............   The agreement between the Company and
                                        substantially all of its subsidiaries as
                                        guarantors, and Norwest Bank Minnesota,
                                        National Association (subsequently
                                        replaced by the Secured Note Trustee),
                                        as trustee, dated as of June 18, 1999,
                                        constituting and securing the 1999
                                        Notes.

"SECURED NOTE TRUSTEE"...............   Wells Fargo Bank Minnesota N.A., as
                                        trustee for the holders of the 1999
                                        Notes.

"SOLID WOOD SEGMENT".................   The Company's sawmilling, lumber
                                        remanufacturing, lumber marketing, log
                                        merchandiser and logging operations.

"SPF 2X4 LUMBER".....................   2" x 4" kiln dried random lengths of
                                        spruce, pine and fir lumber, which is a
                                        North American commodity grade of
                                        standard and better dimensional lumber.

"STANDBY COMMITMENT".................   The several commitment provided by the
                                        Standby Purchasers to purchase a number
                                        of Plan Units equal to the total number
                                        of Plan Units that may be acquired on
                                        the exercise of all Warrants distributed
                                        pursuant to the Plan, less the number of
                                        Plan Units in respect of which Warrants
                                        are validly exercised prior to the
                                        Warrant Expiry Time, as contemplated by
                                        Section 7.2 of the Plan.

"STANDBY PURCHASERS".................   Tricap, MLIM Private Placement
                                        Purchasers, Quadrangle Group LCC and
                                        Amaranth LLC.

"SUSTAINED YIELD"....................   The yield that a forest can produce
                                        continuously (i.e. in perpetuity) at a
                                        given intensity of management without
                                        impairment of the land's productivity,
                                        with the intent that there will be a
                                        balance between timber growth and
                                        harvesting on a sustainable basis.

"TIMBER LICENCE" OR "TL".............   A license granted by the Ministry of
                                        Forests which entitles the holder to
                                        harvest the area over a specified
                                        period.

<PAGE>
                                     - 6 -


"TIMBER SUPPLY AREAS" OR "TSA".......   The areas of Provincial Government
                                        timberland which are not designated as
                                        TFLs.

"TONNE"..............................   A metric tonne -- 1,000 kilograms or
                                        2,204.6 pounds.

"TREE FARM LICENCE" OR "TFL".........   A licence granted by the Ministry of
                                        Forests under which the licensee
                                        undertakes to manage an area of timber
                                        and to yield an annual harvest on a
                                        sustained yield basis.

"TRICAP" ............................   The Tricap Restructuring Fund.

"UBS" ...............................   UBS Securities Canada Inc. and UBS
                                        Securities LLC and their affiliates, the
                                        financial advisor to the Company.

"USDOC"..............................   The U.S. Department of Commerce.

"USITC"..............................   The U.S. International Trade Commission.

"UNIT"...............................   Between 1,500 to 2,000 pounds of wood
                                        chips, depending upon the species of
                                        timber.

"UNSECURED 1994 NOTE AGREEMENT" .....   The agreement between the Company and
                                        substantially all of its subsidiaries as
                                        guarantors, and the United States Trust
                                        Company of New York (subsequently
                                        replaced by Bank of New York), as
                                        trustee, dated as of March 2, 1994
                                        constituting the 1994 Notes.

"UNSECURED 1997 NOTE AGREEMENT" .....   The agreement between the Company and
                                        substantially all of its subsidiaries as
                                        guarantors, and the United States Trust
                                        Company of New York (subsequently
                                        replaced by Bank of New York), as
                                        trustee, dated as of November 13, 1997
                                        constituting the 1997 Notes.

"UNSECURED NOTES"....................   The 1994 Notes and 1997 Notes.

"UNSECURED NOTEHOLDER COMMITTEE".....   means the informal committee of holders
                                        of the Unsecured Notes recognized in the
                                        Court order dated October 10, 2003
                                        issued under the CCAA and Tricap.

"UNSECURED NOTEHOLDERS" .............   Holders of the Unsecured Notes.

"UPPER GRADE LUMBER".................   A grade of lumber which is substantially
                                        clear of knots.

"U.S. GAAP"..........................   United States generally accepted
                                        accounting principles.

"U.S. SECURITIES ACT"................   The United States Securities Act of
                                        1933, as amended.

"WARRANTS"...........................   The Class A Warrants as defined in the
                                        Plan and the Class B Warrants as defined
                                        in the Plan.

"WARRANT EXPIRY TIME"................   4:00 p.m. (Toronto time) on the date
                                        that is 21 days after the Warrant Record
                                        Date.

"WARRANT RECORD DATE"................   The date established in the Sanction
                                        Order as the date for determining
                                        Affected Creditors entitled to receive
                                        Warrants pursuant to the Plan.

<PAGE>
                                     - 7 -


"WARRANT SHARE POOL".................   Lumberco Shares which are to be issued
                                        upon the exercise of Warrants and/or
                                        pursuant to the Standby Commitment,
                                        representing in aggregate, 12.5% of the
                                        total number of Lumberco Shares
                                        outstanding (as at the Plan
                                        Implementation Date) after giving effect
                                        to the transactions contemplated by the
                                        Plan (including the Private Placement,
                                        the exercise of Warrants and the Standby
                                        Commitment but excluding the exercise of
                                        the Class C Warrants).

"WFPL"...............................   Western Forest Products Limited.

"WPLP"...............................   Western Pulp Limited Partnership, a
                                        limited partnership formed pursuant to
                                        the laws of British Columbia.

"WOOD CHIPS".........................   Small pieces of wood used to make pulp.
                                        The wood chips are produced either from
                                        wood waste in a sawmill or a log
                                        merchandiser or from pulp wood cut
                                        specifically for this purpose. Wood
                                        chips are generally uniform in size and
                                        are larger and coarser than sawdust.

"WORKING CAPITAL FACILITY" ..........   A secured revolving operating loan
                                        facility of up to Cdn$65,000,000 under
                                        an agreement with CIT.

"WTO"................................   The World Trade Organization.


BASIS OF PRESENTATION

Unless otherwise specified, all monetary amounts are expressed in Canadian
dollars and all accounting information is prepared in accordance with Canadian
generally accepted accounting principles.

The information set forth in this report is as at May 21, 2004 unless an earlier
or later date is indicated or otherwise required by the context.

FORWARD LOOKING STATEMENTS

     This report contains statements which constitute forward-looking statements
within the meaning of the United States Securities Exchange Act of 1934. Those
statements appear in a number of places in this document and include statements
regarding the intent, belief or current expectations of the Company, its
directors or its officers primarily with respect to market and general economic
conditions, future costs, expenditures, available harvest levels and future
operating performance of the Company. Such statements may be indicated by words
such as "estimate", "expect", "intend", "the Company believes", and similar
words and phrases. Readers are cautioned that any such forward-looking
statements are not guarantees and may involve risks and uncertainties, and that
actual results may differ from those in the forward-looking statements as a
result of various factors, including general economic and business conditions,
changes in government regulation, fluctuations in demand and supply for the
Company's products, industry production levels, the ability of the Company to
emerge from the CCAA proceedings and execute its business plan and misjudgements
in the course of preparing forward-looking statements. The information contained
in this report identifies important factors, including the risks set forth in
"Item 3. Key Information - D. Risk Factors", that could cause such differences.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by such cautionary statements.


<PAGE>
                                     - 8 -


                                     PART 1

     ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

     ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

     ITEM 3. KEY INFORMATION

     The Company is reorganizing its affairs under protection of the CCAA. For a
discussion of the background to and status of the restructuring see "Item 4.
Information on the Company - A. History and Development of the Company".

A.   SELECTED FINANCIAL DATA

     The following table summarizes selected consolidated financial data for the
Company prepared in accordance with Canadian GAAP. In addition, information is
presented to show the difference which would result from the application of U.S.
GAAP. For a description of the differences between Canadian GAAP and U.S. GAAP,
see note 17 of the Company's consolidated financial statements included
elsewhere in this report. The information in the table was extracted from the
more detailed consolidated financial statements and related notes included
herein or previously filed by the Company and should be read in conjunction with
such consolidated financial statements and with the information appearing under
the heading, "Item 5. Operating and Financial Review and Prospects".

     The following table is a summary of selected financial information
concerning the Company for each of the last five years:

CANADIAN GAAP

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                       -------------------------------------------------------------------------------
                                           2003             2002             2001             2000            1999
                                       -----------      -----------      -----------      -----------      -----------
                                                               (thousands of dollars except per share amounts)
<S>                                    <C>              <C>              <C>              <C>              <C>
OPERATING RESULTS
  Sales ..........................     $   589,015      $   634,934      $   769,977      $   955,404      $   873,636
  Operating earnings (loss)                (85,511)         (62,557)        (347,107)          81,239           26,048
  Interest income (expense)(1) ...          88,331          (97,754)        (173,362)        (142,834)         (42,589)
  Other income (expense) .........          (5,590)          (2,984)          14,399            3,787           (1,966)
  Net loss .......................          (3,804)        (164,105)        (412,854)         (39,750)         (15,140)
FINANCIAL POSITION
  Working capital ................        (720,928)         149,074          232,161          395,057          378,347
  Total assets ...................         749,052          843,926          974,532        1,473,534        1,504,695
  Long-term debt .................         162,063        1,061,725        1,071,954        1,050,400        1,024,743
SHAREHOLDERS' EQUITY
  Preferred shareholders .........          64,076           64,076           64,076           64,076           64,076
  Equity shareholders (2) ........        (483,401)        (479,597)        (304,940)         107,914          137,099
  Net loss per Equity Share (3)(4)
    Basic ........................           (0.20)           (3.97)           (9.82)           (1.04)           (0.45)
    Diluted ......................           (0.20)           (3.97)           (9.82)           (1.04)           (0.45)
DIVIDENDS PER EQUITY SHARE
  Cash ...........................              --               --               --               --               --
</TABLE>

------------------
(1)  Including foreign exchange gains and losses on translation of long-term
     debt.

(2)  Before accrued dividends on Class A Preferred Shares, Series 4.

(3)  Equity shares means Class A Common Shares and Non-Voting Shares issued by
     the Company. As of the date hereof there are 4,774,971 Class A Common
     Shares and 37,706,012 Non Voting Shares outstanding.

(4)  After giving retroactive effect to stock dividends and after provision for
     dividends on Class A Preferred Shares, Series 4.


<PAGE>
                                     - 9 -



U.S. GAAP

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                        -----------------------------------------------------------------------------
                                           2003            2002            2001             2000             1999
                                        ---------       ----------       ----------       ----------       ----------
                                                      (THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S>                                     <C>             <C>             <C>              <C>              <C>
OPERATING RESULTS
  Sales .........................         681,427          703,709      $   851,735      $ 1,001,956      $   935,373
  Operating earnings (loss) .....         (82,913)        (104,011)        (346,607)          81,739           26,048
  Interest income (expense)(1) ..          88,331          (97,754)        (173,362)        (142,834)         (42,589)
  Net loss ......................          (1,206)        (205,559)        (418,808)         (39,443)         (15,140)
FINANCIAL POSITION
  Working capital ...............        (720,928)         149,074          232,161          395,057          378,347
  Total assets ..................         693,984          786,260          958,320        1,456,822        1,504,695
  Long-term debt ................         162,063        1,061,725        1,071,954        1,050,400        1,024,743
SHAREHOLDERS' EQUITY (DEFICIENCY)
  Preferred shareholders ........          64,076           64,076           64,076           64,076           64,076
  Equity shareholders(2) ........        (536,269)        (537,263)        (321,152)          97,656          137,094
  Net loss per Equity Share(3)(4)
    Basic .......................           (0.14)           (4.94)           (9.96)           (1.03)           (0.45)
    Diluted .....................           (0.14)           (4.94)           (9.96)           (1.03)           (0.45)
DIVIDENDS PER EQUITY SHARE
    Cash ........................              --               --               --               --               --
</TABLE>

(1)  Including foreign exchange gains and losses on translation of long-term
     debt.

(2)  Before deferred dividends on Class A Preferred Shares, Series 4.

(3)  Equity shares means Class A Common Shares and Non-Voting Shares issued by
     the Company. As of the date hereof there are 4,774,971 Class A Common
     Shares and 37,706,012 Non Voting Shares outstanding.

(4)  After giving retroactive effect to stock dividends and after provision for
     dividends on Class A Preferred Shares, Series 4.

EXCHANGE RATES

     The following table sets out the exchange rates, based on the noon buying
rates in New York City for cable transfers in foreign currencies, as certified
for customs purposes by the Federal Reserve Bank of New York, for the conversion
of Canadian dollars into United States dollars in effect at the end of the
following periods, and the average exchange rates (based on the average of the
exchange rates on the last day of each month in such periods) and the range of
high and low exchange rates for such periods.

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                 --------------------------------------------------
                                  2003       2002       2001       2000       1999
                                 ------     ------     ------     ------     ------
     <S>                         <C>        <C>        <C>        <C>        <C>
     End of period ...........   0.7738     0.6339     0.6279     0.6666     0.6925
     High for period .........   0.7738     0.6619     0.6697     0.6984     0.6925
     Low for period ..........   0.6349     0.6143     0.6241     0.6397     0.6535
     Average for period.......   0.6998     0.6368     0.6457     0.6732     0.6744
</TABLE>

     The following table sets out the range of high and low exchange rates,
based on the noon buying rate, for the conversion of Canadian dollars into U.S.
dollars, for the following periods.

<TABLE>
<CAPTION>
                                                              LOW         HIGH
                                                             ------      ------
<S>                                                          <C>         <C>
2003
November...............................................      0.7484      0.7708
December...............................................      0.7460      0.7738

2004
January................................................      0.7496      0.7880
February...............................................      0.7444      0.7629
March..................................................      0.7418      0.7645
April..................................................      0.7293      0.7637
May 1 to 21............................................      0.7158      0.7298
</TABLE>

     On May 21, 2004, the noon buying rate of exchange, as reported by the
Federal Reserve Bank of New York, for the conversion of Canadian dollars into
United States dollars was U.S.$0.7281 per Canadian dollar.

<PAGE>
                                     - 10 -


B.   CAPITALIZATION AND INDEBTEDNESS

     Not applicable.

C.   REASONS FOR THE OFFER AND USE OF PROCEEDS

     Not applicable.

D.   RISK FACTORS

     The following factors, any of which could have a material adverse effect on
the operations and financial conditions and cash flow of the Company, should be
carefully considered in evaluating the Company and its business.

GOING CONCERN

     The Company is reorganizing its affairs under protection of the CCAA. On
November 7, 2002, the Company and its subsidiaries were granted protection from
their creditors pursuant to an order issued by the Court under the CCAA. Under
the terms of the Court order the Company is required to file a plan of
compromise or arrangement with the Court setting out the terms of the
restructuring. The Company submitted the Plan to the Court on April 30, 2004.
For further information, see "Item 4. Information on the Company - A. History
and Development of the Company" and the Company's consolidated financial
statements under "Item 17. Financial Statements". The ability of the Company to
continue as a going concern and realize the carrying value of its assets and
settlement of obligations in the normal course is dependent upon the Company's
ability to emerge from CCAA proceedings and generate sufficient positive
operating cash flow thereafter. The auditors' report on the Company's
consolidated financial statements included in this annual report includes
additional comments with respect to this issue. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

     There can be no assurance that the Company will successfully emerge from
its CCAA proceedings. Implementation of the Plan and the emergence from CCAA is
subject to the approval of Affected Creditors and the Court as well as the
satisfaction of a number of conditions. If the requisite approvals are granted,
the conditions have been satisfied and the Plan is implemented, the unsecured
indebtedness of the Company will be compromised in exchange for Lumberco Shares
and Warrants, all as described under "Item 4 - Information on the Company - A.
History and Development of the Company - Plan of Compromise and Arrangement".

FAILURE TO SUCCESSFULLY CONCLUDE A REORGANIZATION PLAN

     In the event that the Plan is not successfully implemented, the prospect of
the liquidation of Doman would become likely, as Doman is not receiving
sufficient cash from its operations to pay its ongoing obligations and to repay
its Notes. See "Item 4 - Information on the Company - A. History and Development
of the Company".

SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS

     In the event the Company emerges from CCAA, the Company's level of debt,
although expected to be reduced, and the limitations imposed on it by its debt
agreements and any replacement debt agreements could have important
consequences, including the following:

     -    the Company will have to use a significant portion of its cash flow
          from operations for debt service, rather than for the Company's
          operations;

     -    the Company may not be able to obtain additional debt financing for
          future working capital, capital expenditures or other corporate
          purposes;

     -    the Company could remain vulnerable to economic downturns and less
          able to take advantage of significant business opportunities and react
          to changes in market or industry conditions; and

     -    the Company's less leveraged competitors could have a competitive
          advantage.

     The Company's ability to pay its debt obligations will depend on its future
performance. To a significant extent, the Company's performance will be subject
to general economic, financial, competitive, legislative, regulatory and other
factors, including lumber and pulp prices, all of which are beyond the Company's
control. No assurance can be given that the Company's

<PAGE>
                                     - 11 -


business will generate cash flow from operations sufficient to pay the Company's
indebtedness, fund the Company's other liquidity needs or permit the Company to
refinance its indebtedness. The Company can provide no assurance that it can
secure any further credit facilities or that the terms of any such credit
facilities will be favourable.

UNCERTAINTY AS TO SUCCESS OF COMPANY'S ACTIVITIES

     The Company has implemented a number of initiatives to operate more
efficiently in the future. However, the Company's strategies, including
production curtailments, may not be sufficient to meet the changes in industry
and market conditions, and such conditions may continue to deteriorate or last
longer than expected. In addition, the Company may not be able to successfully
implement its strategies and may be required to refine, expand or extend such
strategies. Furthermore, production curtailments may impair the Company's
ability to realize current or future business objectives. Lastly, costs actually
incurred in connection with these initiatives may be higher than the estimated
costs of such actions and/or may not lead to the anticipated cost savings. As a
result, such initiatives may not result in the Company's return to
profitability.

PRODUCT PRICING AND VARIABLE OPERATING RESULTS

     The Company's financial performance is principally dependent on the prices
the Company receives for its products. Prices for the Company's products are
highly cyclical and have fluctuated significantly in the past and may fluctuate
significantly in the future. No assurance can be given as to the timing and
extent of any price improvements. See Item 5. Operating and Financial Review and
Prospects - D. Trend Information - Product Pricing.

     The Company's financial performance is also dependent on the rate at which
the Company utilizes its production capacity. When capacity utilization is
reduced in response to weak demand for the Company's products, the Company's
cost per unit of production increases, and the Company's profitability
decreases.

     The markets for the Company's products are highly cyclical and are
characterized by periods of excess product supply due to many factors,
including:

     -    additions to industry capacity;

     -    increased industry production;

     -    periods of insufficient demand due to weak general economic activity
          or other causes; and

     -    inventory destocking by customers.

     Demand for the Company's products is influenced to a significant degree by
the global level of economic activity. Additionally, even though the Company's
costs may increase, the Company's customers may not accept price increases for
the Company's products. The Company is not able to predict with certainty market
conditions and prices for the Company's products. The Company's future financial
condition and results of operations will depend primarily upon the prices the
Company receives for lumber and pulp, and a deterioration in prices of or demand
for the Company's products could have a material adverse effect on the Company's
financial condition, results of operations and ability to satisfy the Company's
debt obligations.

FOREIGN CURRENCIES

     Approximately 70% of the Company's sales in 2003 were made in U.S. dollars,
while most of the Company's operating costs and expenses are incurred in
Canadian dollars. The Company's results of operations are reported in Canadian
dollars. Significant variations in relative currency values, particularly a
significant increase in the value of the Canadian dollar relative to the U.S.
dollar, could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows. See "Item 5.
Operating and Financial Review and Prospects - D. Trend Information - Foreign
Currencies".

DEPENDENCY ON FIBRE OBTAINED FROM GOVERNMENT TIMBER TENURES

      Over 90% of all timberlands in British Columbia are owned by the Province
of British Columbia and administered by the Ministry of Forests. The Forest Act
empowers the Ministry of Forests to grant timber tenures, including tree farm
licences, forest licences and timber sales licences, to producers. The
provincial Chief Forester periodically conducts, or requires a licensee to
conduct, a timber supply analysis upon which various licence AACs are based.
Such assessments have in the past resulted and may in the future result in
reductions of the AACs attributable to licences held by British Columbia forest
companies, including


<PAGE>
                                     - 12 -


those owned by Doman. There can be no assurance that the amounts of such future
reductions, if any, will not be material or the amounts of compensation, if any,
for such reductions will be fair and adequate.

FOREST POLICY CHANGES IN BRITISH COLUMBIA

     Recently the Government of British Columbia adopted legislation which
implements the most significant reforms in the Province's forest industry in
over 40 years. The reforms address the following areas, among others: (1) market
pricing - for stumpage purposes; (2) appurtenancy - the removal of the
requirement to link fibre supply under harvesting licenses to specified
conversion facilities; (3) cut control - introduction of new cut control
provisions and elimination of minimum harvesting requirements; (4) industry
rationalization - through transfers, mergers or division of forest tenures and
changes of control of licencees.

     The most controversial aspect of the new legislation involves the
Provincial Government taking back 20% of the AAC contributed by public lands
from all licensees having Crown cutting rights in excess of 200,000 m3 per year.
The Forestry Revitalization Act (British Columbia) requires that Doman surrender
685,216 m3 of its AAC derived from its TFLs (including timber licenses contained
within TFLs) and forest licenses by March 31, 2006 as well as 20% of the
unreverted area of timber licenses outside of TFLs. Doman will be compensated
for the take-back according to criteria to be prescribed by the Provincial
Government. Disputes regarding the amount of compensation will be resolved by
arbitration. The legislation provides for a period of up to three years for the
tenure reductions to be negotiated, and, in the meantime, harvesting is to
continue as normal.

     Considerable uncertainty and concern exists as to the amount of
compensation payable for the tenure take-back, the operational logistics
associated with it and the long-term impact on stumpage fees of the new auction
based stumpage system. It is therefore not yet possible to gauge the overall
impacts of the new legislation on Doman's operations.

STUMPAGE FEES

     Stumpage is the fee that the Provincial Government charges companies to
harvest timber from Crown land. Prior to February 29, 2004, the amount of
stumpage paid for each cubic meter of wood harvested was based on a target rate
set by government. Stumpage payments for a harvesting area took into
consideration specific operating conditions, timber quality and administrative
procedures.

     Amending the stumpage system is complex and is the subject of discussion
involving, among other things, lumber trade issues between Canada and the U.S.
The move to a more open and competitive market pricing system for timber and
logs for the coastal forest sector was announced by the Provincial Government on
January 16, 2004. Periodic changes in the Provincial Government's administrative
policy can affect stumpage and the viability of individual logging operations.
There can be no assurance that current changes or future changes will not have a
material impact on stumpage fees.

SOFTWOOD LUMBER DISPUTE

     As a result of USITC determination that the softwood lumber industry in the
United States was threatened with material injury by reason of the imports of
softwood lumber from Canada. USDOC issued countervailing and anti-dumping orders
which took effect on May 22, 2002. These duties have had a material adverse
impact on operations of Doman including reduced profit margins. Although the
Canadian government and Canadian lumber companies affected by such duties have
initiated challenges under the NAFTA and before the WTO, it is not possible to
predict the results of such challenges. Unless the challenges are resolved in
favour of Canadian lumber companies, the softwood lumber dispute will continue
to adversely impact on Doman's operations. See "Item 4. Information on the
Company - B. Business Overview - Softwood Lumber Dispute".

COMPETITION

     The markets for Doman's products are highly competitive on a domestic and
international level, with a number of forest products firms, ranging from very
large integrated firms to smaller specialty firms, competing in each market.
Many of Doman's competitors have substantially greater financial and operating
resources than Doman. Some of Doman's competitors may have the advantage of not
being affected by fluctuations in the value of the Canadian dollar. Doman must
compete indirectly with firms that manufacture substitutes for solid wood
products, including non-wood and engineered wood products. While the principal
basis for competition in the markets for Doman's products is price, Doman must
also compete to a lesser extent on the basis of quality and customer service.
Changes in the level of competition, industry capacity and the global economy
will have a significant impact on selling prices and the overall profitability
of Doman. Doman's competitive position will be influenced by factors including
the availability, quality and cost of fibre, energy and labour, and its plant
efficiencies and productivity in relation to its competitors.

<PAGE>
                                     - 13 -


INTERNATIONAL BUSINESS

     In general, Doman's sales will be subject to the risks of international
business, including:

     -    fluctuations in foreign currencies;

     -    changes in the economic strength of the countries in which Doman will
          conduct business;

     -    trade disputes;

     -    changes in regulatory requirements;

     -    tariffs and other barriers; and

     -    quotas, duties, taxes and other charges or restrictions upon
          exportation.

     Doman's principal products are sold in international markets. As a result,
economic conditions in the U.S., Japan and Europe, the strength of the housing
markets in the U.S., international sensitivity to interest rates, and the
strength of world markets for NBSK pulp could all have a significant effect on
the operations and results of Doman.

ENVIRONMENTAL REGULATION

     Doman is subject to extensive environmental laws and regulations. These
laws and regulations impose stringent standards on Doman's operations regarding,
among other things:

     -    air emissions;

     -    water discharges;

     -    use and handling of hazardous materials;

     -    use, handling and disposal of waste; and

     -    remediation of environmental contamination.

     Doman may incur substantial costs to comply with current requirements or
new environmental laws that might be adopted. In addition, Doman may discover
currently unknown environmental problems or conditions related to its
operations. Any such event could have a material adverse effect on Doman's
business, financial condition, results of operations and cash flows.

     With respect to the pulp and paper industry, both the Federal Government
and Provincial Government generally agree that effluent discharges are
acceptable and that further work is not anticipated at this time. However, the
governments are now focussing their attention on air issues. The Federal
Government is identifying "criteria air contaminants", for which new lower
emission limits have been established. Included in the criteria air contaminants
are sulphur dioxide and particulate matter. Implementation and enforcement of
the standard by government agencies is unclear at this time, therefore it is not
known what the impact will be on the Company's mills. In addition, the Federal
Government's primary initiative with respect to air quality improvement is the
reduction of greenhouse gas emissions (Kyoto Protocol). Negotiations are in
progress to determine the forest industry allocation with respect to green house
gas reduction requirements. Once this has been determined reduction requirements
for individual operations can be assigned. Therefore, at this time the Company
cannot assess the costs of complying with these requirements.

     For further information see "Item 4. Information on the Business - B.
Business Overview - Environment".

FIRST NATIONS LAND CLAIMS

     First Nations in British Columbia have made claims of ownership or
interests in substantial portions of land in the Province of British Columbia,
including areas where Doman's timber tenures and operations are situated,
creating uncertainty as to the status of competing property rights. The Supreme
Court of Canada has held that aboriginal groups may have a spectrum of
aboriginal rights in lands that have been traditionally used or occupied by
their ancestors; however, such rights or title are not absolute and may be
infringed upon by government in furtherance of a legislative objective,
including forestry, subject to meeting


<PAGE>
                                     - 14 -


a justification test and being consistent with the honour of the Crown. The
effect on any particular lands will not be determinable until the exact nature
of historical use, occupancy and rights in any particular piece of property have
been clarified.

     First Nations groups are seeking compensation from governments with respect
to these claims, and the effect of these claims on timber tenure rights cannot
be estimated at this time. The Federal Government and Provincial Government have
been seeking to negotiate settlements with aboriginal groups throughout British
Columbia in order to resolve these claims. Any settlements that may result from
this treaty process may involve a combination of cash, resources, grants of
conditional rights to gather food on public lands, and some rights of
self-government. The effect of such a settlement on Doman's timber tenures or
the amounts of compensation that Doman would receive for any taking, if any,
cannot be estimated at this time.

     To resolve outstanding claims, the Federal Government and Provincial
Government in 1992 instituted a tripartite treaty negotiation process with the
First Nations Summit, representing the majority of the First Nations in British
Columbia. As at December 31, 2003, 55 British Columbia First Nations were
involved in the treaty process. Approximately 23 of the 36 First Nations with
traditional territories covering the Company's timber tenures were engaged in
this treaty process.

     Current Provincial Government policy requires that forest management and
operating plans take into account and not infringe upon aboriginal rights and
provide for consultation with First Nations groups. This policy is reflected in
the terms of the Company's timber tenures, which provide that the Ministry of
Forests may refuse to issue cutting permits in respect of a timber tenure if it
is determined that the forestry operation would interfere with aboriginal
rights. First Nations have, at times, sought to restrict the Provincial
Government from granting or renewing forest tenures and other operating
authorizations without their consent if the tenures affect lands claimed by
them. In 2003, the Provincial Government updated its policy on aboriginal rights
and title with respect to consultation and accommodation responsibilities. The
Company continues to believe that the fostering of mutually beneficial business
relationships with First Nations will facilitate these consultations and
accommodation processes. The Company has continued to develop working
relationships with many First Nations and has entered into timber harvesting,
silviculture, planning and other capacity building arrangements.

     The issues surrounding aboriginal title and rights are not likely to be
resolved by the Federal Government or the Provincial Government in the near
future.

     For further information see "Item 4. Information on the Business - B.
Business Overview - First Nations Issues".

EMPLOYEES AND LABOUR RELATIONS

     The majority of the Company's hourly paid employees at the Company's
manufacturing facilities are unionized. The Company's inability to negotiate an
acceptable contract with any of the Company's unions upon expiration of an
existing contract could result in a strike or work stoppage by the affected
workers and increased operating costs as a result of higher wages or benefits
paid to union members. If the unionized workers engage in a strike or other work
stoppage, the Company could experience a significant disruption of the Company's
operations or higher ongoing labour costs, which could have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows.

INABILITY TO ENFORCE CERTAIN CIVIL LIABILITIES

     The enforcement of civil liabilities by investors under applicable U.S.
federal and state securities laws will be affected adversely by the fact that:

     -    the Company is organized under the laws of Canada;

     -    almost all of the Company's officers and directors are residents of
          Canada; and

     -    all or a substantial portion of the Company's assets and the Company's
          officers and directors may be located outside the U.S.

     As a result, it may be difficult or impossible to effect service of process
upon the Company or the Company's officers or directors from within the U.S. It
may also be difficult to realize against the Company in the U.S., upon judgments
of U.S. courts for civil liabilities under applicable U.S. federal and state
securities laws. Courts in Canada (1) may not enforce judgments of U.S. courts
obtained in actions against the Company or the Company's officers or directors
predicated upon the civil liability provisions of applicable U.S. federal and
state securities laws and (2) may not enforce, in original actions, liabilities
against the Company or the Company's officers or directors predicated upon such
laws.

<PAGE>
                                     - 15 -


ENFORCING UNITED STATES BANKRUPTCY AND OTHER LAWS IN CANADA

     The Company is organized under the laws of Canada and the Company's
principal operating assets are located outside of the U.S. Under bankruptcy laws
in the U.S., courts typically have jurisdiction over a debtor's property,
wherever it is located, including property situated in other countries. Courts
outside of the U.S. may not recognize the U.S. bankruptcy court's jurisdiction.
Accordingly, difficulties may arise in administering a U.S. bankruptcy case
involving a Canadian debtor with property located outside of the U.S. Any orders
or judgments of a bankruptcy court in the U.S. may not be enforceable.

SIGNIFICANT SHAREHOLDER

     Harbanse S. Doman, the Company's Chairman, controls approximately 71.5% of
the Company's Class A Common Shares. Accordingly, Mr. Doman could effectively
prevent or cause a change of control in the Company's ownership. This control
position does not apply to the approval of the Plan. Existing Doman
Shareholders, including Mr. Doman, are not entitled to vote on the Plan.

     For a discussion of the risk factors applicable to Lumberco see the
Information Circular.

     ITEM 4.INFORMATION ON THE COMPANY

A.   HISTORY AND DEVELOPMENT OF THE COMPANY

     Doman Industries Limited was formed by the amalgamation on December 31,
1979 of Doman Industries Limited and Duncan Financial Centre Ltd. pursuant to
the Company Act (British Columbia). The principal predecessor company, Doman
Industries Limited, was incorporated on April 18, 1955 under the name "Doman's
Lumber & Transport Ltd." and changed its name to "Doman's Lumber Company Ltd."
on March 13, 1958 and subsequently changed its name to "Doman Industries
Limited" on November 10, 1964. Duncan Financial Centre Ltd. was incorporated on
May 10, 1971. The Company has amended its Articles at various times to create
Class A Cumulative Redeemable Preferred Shares, Class B Cumulative Redeemable
Preferred Shares and the Non-Voting Shares. The Company continued under the CBCA
on June 12, 2002.

     The head office of the Company is located at 3rd Floor, 435 Trunk Road,
Duncan, British Columbia, V9L 2P9 and its registered office is located at Suite
2100, 1075 West Georgia Street, Vancouver, British Columbia, V6E 3G2.

     The Company's first major sawmill came into production at Ladysmith,
British Columbia on Vancouver Island in 1967 and three additional sawmills were
built on Vancouver Island between 1973 and 1980. In 1980, the Company and two
other British Columbia forest products companies formed WFPL, which purchased
the British Columbia timber resources and manufacturing facilities of ITT
Industries of Canada Limited. The Company increased its ownership of the
outstanding voting shares of WFPL to 56.1% in 1989 and in 1992 purchased the
remaining minority shareholdings. In 1994, the Company completed the
construction of a value-added lumber remanufacturing plant at Chemainus on
Vancouver Island. In 1997, the Company acquired certain assets from Pacific
Forest, including three sawmills, timber tenures having an AAC of approximately
1.7 million cubic metres and a perpetual supply of 330,000 to 350,000 cubic
metres of sawlogs.

RECENT DEVELOPMENTS AND RESTRUCTURING EFFORTS

Market Conditions and Financial Situation Leading to CCAA Proceedings

     The Company is a major integrated forest products company that competes on
both a domestic and international level with a large number of forest products
firms, ranging from very large integrated firms to smaller specialty firms. The
markets for lumber and pulp are highly competitive and sensitive to cyclical
changes in industry capacity and the economy, both domestically and
internationally. Changes in the level of competition, industry capacity and the
global economy also have a significant impact on the Company's selling prices
and overall profitability.

     Over the past few years, the Company's competitive and financial position
has been negatively influenced by a number of factors including:

     -    industry-wide effects of high operating costs and provincial stumpage
          rates;

     -    compliance with the Code, which significantly impacts harvesting
          practices;

<PAGE>
                                     - 16 -


     -    certain actions taken by the Provincial Government, including the
          elimination of timber license royalties in favour of stumpage fees,
          failure under alleged agreements to acquire timber tenures from the
          Company and under an alleged agreement to provide fibre supply to the
          Company, the administration of the stumpage system and the impact of
          the assistance package provided to the Skeena Cellulose pulp mill by
          the Province;

     -    the softwood lumber trade dispute between Canada and the United
          States, which has resulted in major disruptions to the Company's
          lumber and logging operations and adversely impacted the ability of
          the Company to market its softwood lumber in the United States;

     -    weakness in the Japanese economy which reduced demand for lumber
          produced by the Company;

     -    weak pulp prices; and

     -    high debt servicing costs.

     The Company's financial results have been negatively impacted by the
factors described above, reduced demand for both its pulp and lumber arising
from poor economic conditions in Asia since 1997 and weak pulp prices. Sales
have declined significantly over the past few years as have cash flows. The
Company posted losses of $412.9 million for the year ended December 31, 2001,
$164.1 million for the year ended December 31, 2002, and $3.8 million for the
year ended December 31, 2003. (See "Item 5. Operating and Financial Review and
Prospects - A. Operating Results - Results of Operations - 2003 versus 2002" for
a discussion of the U.S. exchange rate effect on the results of operations for
the year ended December 31, 2003.)

     The Company's assets consist primarily of cash and cash equivalents,
accounts receivable, inventory consisting of logs, lumber and pulp, interest in
timber tenures and timber supply rights, and property and equipment consisting
of buildings, equipment and land. Prior to November 7, 2002, the book value of
the Company's tangible assets was and continues to be as of the date hereof,
significantly less than the Company's liabilities of approximately $1.2 billion.
The Company's liabilities consist primarily of the indebtedness under its
outstanding Notes and Working Capital Facility and accounts payable.

     The Company issued the 1994 Notes in March 1994. Interest accrues on the
outstanding 1994 Notes at 8.75% per annum and is payable from time to time in
accordance with the Unsecured 1994 Note Agreement. The 1994 Notes have no
principal payments or sinking fund requirements until they mature under the
Unsecured 1994 Note Agreement. A default under the Unsecured 1994 Note Agreement
prior to the maturity date accelerates repayment of the 1994 Notes. The
Unsecured 1994 Note Agreement contains cross default provisions in respect of
other indebtedness of the Company. The US$388 million of 1994 Notes outstanding,
as of the date hereof, matured on March 15, 2004. (As of the date hereof the
principal amount of the 1994 Notes and the interest accrued since November 7,
2002 has not been paid to the holders of the 1994 Notes.)

     The Company issued the 1997 Notes in November 1997. Interest accrues on the
outstanding 1997 Notes at 9.25% per annum and is payable from time to time in
accordance with the Unsecured 1997 Note Agreement. The 1997 Notes have no
principal payments or sinking fund requirements until they mature under the
Unsecured 1997 Note Agreement. The US$125 million of 1997 Notes outstanding, as
of the date hereof, matures on November 15, 2007 unless there is a default under
the Unsecured 1997 Note Agreement prior to that date, in which event the
repayment of the 1997 Notes may be accelerated. The Unsecured 1997 Note
Agreement contains cross default provisions in respect of other indebtedness of
the Company. (The interest accrued since November 7, 2002 has not been paid to
the holders of the 1997 Notes.)

     The Company issued the 1999 Notes in June 1999. The proceeds from the
issuance of the 1999 Notes were used to repay debt under the Company's bank
credit facilities, to fund working capital and for other general corporate
purposes. Interest accrues on the outstanding 1999 Notes at 12% per annum and is
payable from time to time in accordance with the Secured Note Agreement. The
1999 Notes have no principal payments or sinking fund requirements until they
mature under the Secured Note Agreement. The US$160 million of 1999 Notes
outstanding, as of the date hereof, matures on July 1, 2004 unless there is a
default under the Secured Note Agreement prior to that date, in which event the
repayment of the 1999 Notes may be accelerated. It is an event of default under
the Secured Note Agreement if the Company makes a payment default in respect of
its indebtedness governed by the Unsecured 1994 Note Agreement or the Unsecured
1997 Note Agreement. The 1999 Notes are secured by a first priority lien on a
portion of the Company's timber tenures, six of its operating sawmills (the lien
also covered two additional sawmills which have been shut down), its Squamish
pulp mill and its value-added lumber remanufacturing plant, but not by its
receivables and inventory. Borrowing on security of receivables and inventory is
limited to $65 million. The Secured Noteholders are, collectively, the Company's
largest secured creditor. (The interest accrued since November 7, 2002 has not
been paid to the holders of the 1999 Notes.)

<PAGE>
                                     - 17 -


     In March 2002, the Company established the Working Capital Facility, a
secured revolving operating credit facility of up to $65 million which has an
initial term of three years and allows for borrowing against receivables and
inventory. The repayment of the outstanding balance of the Working Capital
Facility and interest thereon is secured by a registered fixed charge on the
Company's receivables and inventory.

     In addition, prior to November 7, 2002, the Company had over 1,000
unsecured creditors (exclusive of its Unsecured Noteholders) and accounts
payable and accrued liabilities of approximately $137 million in the aggregate,
which amount has increased to approximately $236 million at December 31, 2003
largely as a result of the increase in accrued and unpaid interest on its Notes.

     The Noteholder Agreements all contemplate semi-annual interest payments
prior to maturity in significant amounts. Until November 7, 2002, the Company
had been making all such payments either when due, or within the 30 day grace
period available thereunder. However, the pressures imposed on the Company's
cash requirements as a result of the circumstances described above made it
uncertain that the Company would have the financial capability of making future
payments as they became due. In any event, the Company believed it would not be
able to repay the 1994 Notes when due in March of 2004. Any default under any of
the Noteholder Agreements means that all monies due and owing by the Company
under the terms of the Noteholder Agreements become immediately due and payable
at the option of the trustees thereunder or the holders of 25% in principal
amount of the affected Notes, and the security given by the Company under the
Secured Note Agreement would become enforceable. In those circumstances, the
Company would be unable to refinance that indebtedness and a forced liquidation
of the Company's assets would be the inevitable result.

Restructuring Efforts

     In light of the circumstances described above, the Company changed its
business plan, including the cessation of all but critically necessary capital
expenditures relating to preservation of its existing facilities and took
several steps to downsize its operations in order to preserve cash resources,
including extensive curtailment in production, reduction of working capital and
disposition of certain assets. From January 1, 2001 through December 31, 2003
the Company sold in excess $26 million of non-core assets in order to raise
additional funds for its operations.

     In addition, over the past two and a half years, the Company expended
considerable effort in exploring potential financial or strategic solutions to
its financial difficulties. On February 7, 2002, the Company retained UBS as its
exclusive financial advisor with respect to the provision of financial market
related advisory services in connection with the design, formulation and
execution of transactions involving the restructuring or recapitalization of the
Company's liabilities and assisting the Company in soliciting tenders and
consents in connection with any restructuring transaction.

     In view of the level at which the Class A Common Shares, Non-Voting Shares
and Notes were trading, the Company concluded that it would be unable to raise
additional financing to address its potential working capital shortfall through
the public markets outside of reorganization proceedings. Additionally, the
Company was limited by the terms of the Noteholder Agreements from borrowing
additional funds. The Company, with the assistance of UBS, reviewed potential
refinancing options but was unable to source further capital, and the Company
concluded that it needed to complete a successful restructuring of its
indebtedness in order to access external sources of funding.

     With the assistance of UBS, the Company entered into discussions with the
Original Noteholders Group through Brascan, the manager to Tricap (one of the
members of the Original Noteholders Group), to explore potential restructuring
options. In connection therewith, the Board of Directors of the Company
appointed a special committee of the Board made up of S.D.B. Smith (Chair), J.
Brouwer, J.R. Frumento, C.A. Johnson and I. Danvers, to consider, review,
approve and make recommendations with respect to strategic options including the
potential debt restructuring. After extensive review, analysis and discussions,
including reorganization negotiations with the Original Noteholder Group, the
Company announced on November 7, 2002, that it had reached agreement in
principle with the majority of its Unsecured Noteholders on the terms of a
proposed plan to consensually restructure the Company's financial affairs under
the CCAA. The proposed plan was designed to keep Doman intact and establish a
capital structure that would position the Company as a strong long-term
competitor in the British Columbia coastal forest products industry.

     The terms of the proposed plan contemplated a substantial exchange of debt
to equity by the Unsecured Noteholders whereby Unsecured Noteholders would
receive for each US$100 face value of Unsecured Notes:

     -    US$22 face value in the form of new 12 per cent junior secured notes
          due 2007 (or US$113 million in aggregate) in exchange for the US$513
          million existing notes; and

<PAGE>
                                     - 18 -


     -    a pro rata share of the new common shares allocated to Unsecured
          Noteholders, which, in aggregate, would represent 85 per cent of the
          new common shares of the restructured company.

     Under the terms of the proposed plan, the holders of the Class A Common
Shares and the Non-Voting Shares would be treated equally. Their shares would be
exchanged for shares representing in the aggregate 7.5 per cent of the new
common shares of the restructured company. The Class A Preferred Shares, Series
4 would be exchanged for new common shares representing, in aggregate, 7.5 per
cent of the new common shares. There would be only one class of common shares in
the restructured Company, and each share would be entitled to one vote.

     Under the terms of the proposed plan, all employees and creditors with
claims under Cdn$10,000, and in most cases creditors with larger claims
(including sub-contractors and suppliers of goods and services), were expected
to be paid in full, and other unsecured creditors were expected to be treated in
the same way as Unsecured Noteholders. The 1999 Notes and the Working Capital
Facility would be unaffected.

     Further, the proposed plan contemplated that, as the last step in the
implementation of the plan, the Company would carry out a rights offering to
shareholders of the restructured company of US$65 million 8 per cent convertible
secured debentures due 2007, and, in connection therewith, Tricap committed to
take up a minimum of US$32.5 million, thereby guaranteeing a minimum amount of
new liquidity for the restructured Company. The proposed plan also contemplated
that the board of directors would be replaced by a new board of directors
consisting of six nominees of the Original Noteholders Group, one nominee of the
existing shareholders of the Company and one nominee being the Chief Executive
Officer of the Company.

CCAA PROCEEDINGS

     As part of the terms agreed to with the Original Noteholder Group, the
Company filed for protection under the CCAA. On November 7, 2002, the Company
and its subsidiaries were granted protection from their creditors pursuant to a
Court order (the "Initial Order") under the CCAA. The effect of the Initial
Order was to stay the current obligations of the Company and its subsidiaries
until a plan of compromise or arrangement under the CCAA could be approved and
implemented. On December 6, 2002, the Initial Order was confirmed by the Court
and on February 21, 2003, the Court granted a claims process order, which, among
other things, directed the Company to distribute proofs of claim to its
creditors, set the procedure for creditors to file proofs of claim and continued
the general stay of proceedings against all creditors until April 30, 2003. The
Company then applied to the Court for an order to authorize the Company to file
a plan, to direct the dissemination of the plan and an information package to
affected creditors under the plan and to direct that meetings of affected
creditors be convened in April 2003 for approving the plan. The draft plan of
compromise or arrangement (the "Draft Plan") submitted to the Court in
connection with that application was based in substance on the terms agreed to
with the majority of Unsecured Noteholders, with the exception that the Draft
Plan contemplated that claims of all general creditors would be satisfied in
full subject to a cap of $23,500,000. The Draft Plan was not approved by the
Court based upon objections to the form of the Draft Plan raised by an ad hoc
committee of holders of the 1999 Notes.

     Over the ensuing months, the general stay of proceedings against creditors
was extended by the Court on a number of occasions to allow the Company to
negotiate with various stakeholders to develop a revised plan of compromise or
arrangement. During that period a new proposal was received on a confidential
basis from Tricap on July 11, 2003. However, the July 11, 2003 Tricap proposal
subsequently lapsed, and it was disclosed to the Court that Tricap no longer had
the support of the Original Noteholder Group. Tricap subsequently applied to the
Court to request that the Court convene a meeting of affected creditors to vote
on a plan of compromise or arrangement (the "Tricap Plan") submitted with its
application. The Tricap Plan was significantly different from the Draft Plan,
but was ultimately withdrawn by Tricap.

     In September 2003, the Unsecured Noteholder Committee was formed and
requested that the Company enter into a formal solicitation process to ensure
that all restructuring alternatives were fully explored. On October 10, 2003,
the Court issued an order that authorized Doman to engage in a process (the
"Refinancing Solicitation Process"), under the direction of UBS and under the
supervision of the Monitor and direction of the Court, to solicit proposals to
refinance its existing indebtedness (the "Required Financing"). Pursuant to the
Refinancing Solicitation Process, the Company, with assistance from UBS,
distributed its solicitation letter to in excess of 60 potential investors, and
Confidential Information Packages were delivered to a number of these potential
investors. In connection with the Refinancing Solicitation Process, the Company
received five interim non-binding expressions of interest to provide the
Required Financing, including an expression of interest from Interfor. Except as
discussed below, none of these expressions of interest progressed beyond an
expression of interest.

     On February 5, 2004, the Restricted Group submitted a term sheet to the
Court that set out the terms of a proposed plan of compromise and arrangement,
which proposed plan also addressed the Required Financing. (See the Company's
Material

<PAGE>
                                     - 19 -


Change Report dated February 6, 2004 (filed under a Form 6-K dated
February 6, 2004) for details on this term sheet.) On February 26, 2004, Doman
announced that a proposal to acquire selected Doman assets and to enable the
restructuring of Doman's financial obligations was presented to Doman by
Interfor. (See the Company's Material Change Report dated March 1, 2004 (filed
under a Form 6-K dated March 1, 2004) for details on the Interfor proposal.) On
February 27, 2004, the Company was advised by counsel to the Unsecured
Noteholder Committee that they opposed the Interfor proposal. On April 2, 2004,
Doman was advised by Interfor that it had decided to withdraw from its
discussions with Doman regarding the possible acquisition of Doman or the assets
of certain Doman subsidiaries. Doman understands that Interfor concluded that it
was not going to be able to reach an agreement on a transaction that met its
financial criteria and, at the same time, was acceptable to Doman's unsecured
creditors.

     On April 6, 2004, the Restricted Group made an application to move forward
with its plan of compromise and arrangement based on the February 5, 2004 term
sheet. The Restricted Group's plan contemplated the shut down of the Port Alice
pulp mill. A copy of the Restricted Group's proposed plan submitted to the Court
is available on the Company's website, www.domans.com under the 19th Monitor's
Report. The Court issued an order, on April 6, 2004, in connection with Doman's
CCAA proceedings extending the stay of proceedings to June 11, 2004 and
adjourning the application made by the Restricted Group to April 30, 2004. The
extension allowed time for the Company to review a letter of intent received on
April 2, 2004 from Ableco Finance LLC and to consider other possible
restructuring alternatives, including a proposal submitted by The Catalyst
Capital Group Inc., with its affected stakeholders. Under the April 6, 2004
Court order the Company had until April 30, 2004 to file its own plan.

     Under the April 6 Court order, the Court also set June 7, 2004 as the
meeting date for the consideration of a plan of compromise or arrangement under
the CCAA by the Company's affected creditors, ordered the shutdown of the Port
Alice pulp mill effective at the end of the production run on May 11, 2004,
declared that claims arising from the shutdown of the Port Alice pulp mill are
Affected Claims and instituted a new claims process for additional creditors
with a new claims bar date of 5:00 p.m. (Vancouver time) on May 25, 2004. The
revised claims process order did not preclude the Company from seeking
purchasers for the Port Alice pulp mill, and the Company's efforts to identify a
purchaser for the Port Alice pulp mill continued.

     Since April 6, 2004, the Board, together with the Company's legal and
financial advisors, reviewed all of the restructuring alternatives known to them
and discussed those alternatives as well as the Restricted Group's proposed plan
of compromise and arrangement with representatives of the Restricted Group. The
Company was advised that the Restricted Group considered the two proposals and
that they and a significant number of other Unsecured Noteholders have rejected
them in favour of the Restricted Group's proposed plan. Accordingly, the Company
concluded that there is no support from the Restricted Group and insufficient
support from the unsecured creditors to pursue any restructuring alternatives
other than the Restricted Group's proposed plan.

     On April 26, 2004, the Company announced that it had reached an agreement
in principle with the Restricted Group to support the Restricted Group's
proposed plan, subject to certain modifications, including the provision of
equity participation for Existing Doman Shareholders in the form of Class C
Warrants (as described below). As part of the agreement in principle, the
Company also agreed not to seek a Court order extending the May 11, 2004 shut
down date of the Port Alice pulp mill without the concurrence of the Restricted
Group.

     On April 30, 2004 the Company submitted the plan proposed by the Restricted
Group to the Court. The Court issued an order (the "Meeting Order") on April 30,
2004 authorizing the filing of the Plan, directing the dissemination of the
Plan, the Meeting Order, the Information Circular and the supporting
documentation to Affected Creditors and directed that the meeting of the
Affected Creditors be held on June 7, 2004. The Information Circular was filed
under a Form 6-K dated May 13, 2004. A Form 6-K dated May 28, 2004 provides
supplemental disclosure to the Information Circular in respect of the principal
U.S. federal income tax consequences under the Internal Revenue Code of 1986 as
amended to Affected Creditors who are residents of the U.S.

     As noted above, the Company continued its efforts to identify a purchaser
for the Port Alice pulp mill. In that regard, the Company had discussions with a
number of potential purchasers and received expressions of interest from two
potential purchasers. With respect to the two expressions of interest, one was
withdrawn and the other resulted in a definitive agreement. On May 11, 2004, the
Court issued an order approving the sale of the Port Alice pulp mill to PASC, an
affiliate of LaPointe Partners, Inc. Under the purchase and sale agreement, the
purchaser acquired substantially all of the Port Alice pulp mill assets
including adjusted working capital valued at $2.73 million in consideration for
one dollar and the assumption of outstanding obligations relating to the Port
Alice pulp mill, including employee and pension liabilities. The sale closed on
May 11, 2004.

<PAGE>
                                     - 20 -


PLAN OF COMPROMISE AND ARRANGEMENT

     As noted above the Plan was filed with the Court on April 30, 2004. The
Plan involves a series of related transactions that are to occur on the Plan
Implementation Date, provided that Affected Creditors approve the Plan, the
Court has issued the Sanction Order approving the Plan and the other conditions
to the Plan have been satisfied. The following summary of the Plan is qualified
in its entirety by reference to the Information Circular and the Plan attached
thereto as Schedule I.

     The Plan, if implemented, is intended to:

     -    Separate the pulp and solid wood assets into two new corporate groups;
          namely, Lumberco, which would hold the solid wood assets, and Pulpco,
          a wholly-owned subsidiary of Lumberco, which would hold Doman's pulp
          assets other than the Port Alice pulp mill.

     -    Refinance the 1999 Notes in full through a combination of an offering
          of Warrants exercisable for Lumberco Shares and Lumberco Secured Bonds
          and a Private Placement for Lumberco Shares and Lumberco Secured
          Bonds. The Standby Purchasers would participate in the private
          placement and provide a Standby Commitment to take up any Warrants not
          acquired under the offering of Warrants; and

     -    Compromise all of the unsecured indebtedness, including the trade debt
          by conversion to Lumberco Shares and Warrants. However, unsecured
          creditors with proven claims that are equal to or less than $50,000 or
          have agreed to reduce their proven claim to $50,000 would be provided
          with the option (the "Election to Receive Cash") to have their proven
          claim paid in cash in an amount that is the lesser of $10,000 and 20%
          of their proven claim.

     -    Provide Existing Doman Shareholders with participation in Lumberco in
          the form of Class C Warrants.

     Provided the various conditions precedent to the implementation of the
Plan, including the various asset transfers and assignments of permits and
licenses contemplated by the Plan to segregate the principal operating assets of
Doman under Lumberco and Pulpco have been completed, the Plan provides that
distribution claims of Affected Creditors, will be satisfied by the distribution
of 75% of the Lumberco Shares to be outstanding as at the Plan Implementation
Date, together with Warrants entitling the holders thereof to acquire Plan Units
at the exercise price noted below, with each Plan Unit being comprised of (i) a
pro rata share of additional Lumberco Shares representing up to 12.5% of the
total number of Lumberco Shares to be outstanding as at the Plan Implementation
Date and (ii) US$1,000 aggregate principal amount of Lumberco Secured Bonds,
subject to Affected Creditors with distribution claims receiving cash payments
pursuant to Elections to Receive Cash. Please see the Information Circular and
Plan for details applicable to Disputed Distribution Claims as defined in the
Plan and any adjustments to the number of Lumberco Shares distributed resulting
from Disputed Distribution Claims.

     The Plan does not compromise Unaffected Claims of Doman as defined in the
Plan, including without limitation, secured claims in respect of the 1999 Notes
and the Working Capital Facility. Please see the Information Circular and the
Plan for further details of the Unaffected Claims of Doman.

Warrant Offering and Private Placement

     The Warrants will be issued following the Sanction Order by Lumberco to
Affected Creditors entitled to receive Warrants. The Warrants will be
exercisable for Plan Units until the Warrant Expiry Time, which will be
twenty-one (21) days following the Warrant Record Date, which will be
established in the Sanction Order as the date for determining Affected Creditors
entitled to receive the Warrants. The exercise price payable by holders of
Warrants will be US$950.00 per Plan Unit. Each Plan Unit will consist of
US$1,000 aggregate principal amount of Lumberco Secured Bonds and a pro rata
share of Lumberco Shares from the Warrant Share Pool. The aggregate principal
amount of all Lumberco Secured Bonds that may be issued upon the exercise of the
Warrants is US$110.5 million and the aggregate Lumberco Shares that may be
issued upon the exercise of Warrants is approximately 12.5% of the Lumberco
Shares to be outstanding as at the Plan Implementation Date. The Standby
Purchasers have agreed to subscribe for and take-up any Plan Units not
subscribed for by Affected Creditors pursuant to the exercise of Warrants. Any
holder of Warrants who wishes to acquire Plan Units must provide a notice of
exercise (including, if such holder is an Affected Creditor resident in the
U.S., evidence satisfactory to Lumberco that such holder is an "accredited
investor" eligible to acquire the Plan Units without registration under the U.S.
Securities Act and applicable state law) and funds sufficient to pay the
purchase price of any Plan Units to be acquired to the Bank of New York prior to
the Warrant Expiry Time.

     The remaining 12.5% of the total number of Lumberco Shares to be issued as
at the Plan Implementation Date and an additional US$110.5 million principal
amount of Lumberco Secured Bonds will be issued to the Standby Purchasers
pursuant to the Private Placement.

<PAGE>
                                     - 21 -


     The proceeds to be received by Lumberco pursuant to the exercise of
Warrants and from the Standby Commitment and Private Placement, which are
expected to be US$210 million, will be used primarily to repay the 1999 Notes,
all unpaid interest applicable to the 1999 Notes, and all costs payable to the
Secured Note Trustee and to cover the Doman's CCAA exit costs. Any amount
remaining from such proceeds after payment of the obligations relating to the
1999 Notes will be released to Lumberco for working capital purposes.

     Upon implementation of the Plan, Lumberco will have an aggregate of US$221
million principal amount of Lumberco Secured Bonds outstanding, which will have
been issued on exercise of the Warrants and completion of the Standby Commitment
and the Private Placement.

Lumberco Secured Bonds

     The Lumberco Secured Bonds will be direct, secured obligations of Lumberco
and will be guaranteed by each of the material subsidiaries of Lumberco (other
than Pulpco). Such obligations will be secured by a first priority charge over
all of the fixed assets of Lumberco and its subsidiaries, which will rank pari
passu with any security granted to secure certain obligations under any hedging
arrangements and will rank subordinate to the security interest under the New
Working Capital Facilities (as hereinafter defined).

     The Lumberco Secured Bonds will have the following material terms: (a)
maturing and fully repayable on the date that is five years plus one day
following the Plan Implementation Date; (b) interest-bearing at the rate of 15%
per annum; and (c) redeemable, at Lumberco's option or if Lumberco has proceeds
available (received in the course of certain transactions) to effect such
redemption, in whole or in part, upon payment to the bondholders of all accrued
and unpaid interest thereon and the redemption price prevailing at the time
notice of such redemption is given, which will be a certain percentage of the
face value of the outstanding Lumberco Secured Bonds in each year (as described
in Schedule "A" to the Plan).

     The Lumberco Secured Bonds will be issued under a trust indenture between
Lumberco and The Bank of New York, which will contain covenants of Lumberco in
favour of the bondholders, consistent with covenants provided by borrowers in
transactions of like nature, including the following: (a) not to incur
additional debt without the prior written consent of the bondholders, except for
certain permitted indebtedness; (b) not to incur any liens to secure any debt,
other than to secure the Lumberco Secured Bonds or certain permitted
indebtedness; (c) to apply net proceeds of any asset sales, softwood duty
settlements, or capital markets transactions and any proceeds received from the
Pulpco Note first to Lumberco to ensure adequate liquidity to achieve its
business plan and then to the redemption of the Lumberco Secured Bonds, subject
to a 25% limitation imposed on such redemptions in order to qualify for an
exemption from Canadian interest withholding tax; (d) limitations on
transaction(s) with affiliates; (e) mandatory repurchase of Lumberco Secured
Bonds upon a change of control event; and (f) the right of the trustee or the
holders of not less than 25% of the outstanding Lumberco Secured Bonds upon an
event of default to declare the principal amount of the outstanding Lumberco
Secured Bonds and accrued interest to be immediately due and payable.

<PAGE>
                                     - 22 -


Corporate Reorganization and Asset Transfers

     The following chart sets forth Doman's existing corporate structure showing
its principal subsidiaries and Lumberco and Pulpco:

                               [CORPORATE CHART]

     Note:  Ownership percentages refer to voting securities.

     On the Plan Implementation Date all corporate reorganization steps and
asset transfers set forth in Schedule "B" to the Plan shall be implemented in
the order set out therein in order to effect the transfer of the Lumber Assets
to Lumberco and the Pulp Assets to Pulpco, including the following:

1.   Lumberco will issue to Doman 75% of the Lumberco Shares as at the Plan
     Implementation Date in exchange for certain intercorporate debt. Subject to
     Affected Creditors receiving cash payments pursuant to the Election to
     Receive Cash as described above, Doman will distribute the Lumberco Shares
     to Affected Creditors, pro rata, in final satisfaction of their respective
     distribution claims.

2.   The issue and exercise of Warrants and the completion of the Standby
     Commitment and Private Placement will take place.

3.   All Pulp Assets (other than the Port Alice Assets) and Lumber Assets owned
     by the Doman will be transferred to Pulpco and Lumberco, respectively, and
     Pulpco will issue the Pulpco Note to WPLP as partial consideration for the
     Pulp Assets transferred by WPLP. The Pulpco Note and the Pulpco Shares held
     by WPLP will be assigned to Lumberco and the shares of DWL and DFPL will be
     transferred to Lumberco such that they become wholly-owned subsidiaries of
     Lumberco.

4.   The proceeds to be received by Lumberco pursuant to the exercise of
     Warrants and from the Standby Commitment and Private Placement, which are
     expected to be US$210 million, will be used primarily to repay the 1999
     Notes (including accrued interest) and to cover the Doman's CCAA exit
     costs. Any amount remaining from such proceeds after payment of the
     obligations relating to the 1999 Notes will be released to Lumberco for
     working capital purposes.

     The foregoing is only a summary of the corporate reorganization steps and
asset transfers that are to occur under the Plan. Reference should be made to
Schedule "B" to the Plan for further details of these and other reorganization
steps.

<PAGE>
                                     - 23 -


     The following charts set out the resulting corporate structure of Lumberco
(including all subsidiaries) together with the resulting corporate structure of
Doman and its principal subsidiaries following implementation of the Plan:

                          LUMBERCO CORPORATE STRUCTURE

                           [LUMBERCO CORPORATE CHART]


                           DOMAN CORPORATE STRUCTURE

                            [DOMAN CORPORATE CHART]


     Note: All other subsidiaries (excluding Lumberco, Pulpco, DFPL and DWL)
will remain with Doman.

Shareholders of the Company

     Existing Doman Shareholders will not be entitled to any distributions under
the Plan or other compensation in connection with or as a result of the
transactions contemplated by the Plan and will have no entitlement to vote on
the Plan. However, Existing Doman Shareholders will, on the Plan Implementation
Date, be allocated and granted Class C Warrants in accordance with the Class C
Warrants Term Sheet attached as Schedule "C" to the Plan as to 55% to the
holders of the Class A Preferred Shares, Series 4 and as to the remaining 45% to
the holders of Equity Shares (with each holder of Voting Shares and Non-Voting
Shares having the same pro rata entitlement to the Class C Warrants) or in such
other proportions as may be approved by order of


<PAGE>
                                     - 24 -


the Court. The Class C Warrants will be non-transferable, will have a five-year
term, and will be exercisable for approximately 10% of the fully-diluted common
shares of Lumberco as at the Plan Implementation Date on the following basis:

     Tranche 1 Warrants

     -   2% of the fully-diluted common shares of Lumberco

     -   exercisable at an equity strike price of $417.3 million

     Tranche 2 Warrants

     -   3% of the fully-diluted common shares of Lumberco

     -   exercisable at an equity strike price of $667.3 million

     Tranche 3 Warrants

     -   5% of fully-diluted common shares of Lumberco

     -   exercisable at equity strike price of $867.3 million

     The formula that will be used to determine the exercise price per Class C
Warrant is set out in Schedule "C" to the Plan.

     Existing Doman Shareholders resident in the U.S. will not be entitled to
receive Class C Warrants pursuant to the Plan unless they present evidence
satisfactory to Lumberco that they are "accredited investors" eligible to
receive and exercise the Class C Warrants without registration under the U.S.
Securities Act and applicable state law. Class C Warrants which cannot be
distributed will not be issued.

     Lumberco will also be entitled to give a 30-day notice of termination with
respect to any tranche of Class C Warrants if, during a 20-day trading period
ending prior to the fifth business day prior to the date of such notice, the
common shares of Lumberco trade at a weighted average price per share that is
more than 125% of the exercise price of such tranche. In addition, on or after
the first anniversary of the Plan Implementation Date the Class C Warrants will
expire upon any amalgamation or similar business combination that results in the
shareholders of Lumberco owning less than 80% of the issued and outstanding
equity shares of the continuing entity.

     In accordance with the terms of the Meeting Order, any disputes relating to
the provision of the Class C Warrants, including, without limitation, disputes
as to the allocation of the Class C Warrants as between the three classes of
Shareholders, will have no effect upon the sanctioning of the Plan and will not
be permitted to interfere with or delay the timetable for approval, sanctioning
and implementation of the Plan. If the provisions of the Meeting Order relating
to the Class C Warrants have been appealed from and such appeal has not been
finally dismissed by June 10, 2004, the Class C Warrants will not be granted to
the Existing Doman Shareholders.

     Only whole numbers of Class C Warrants will be issued pursuant to the Plan.
When any issuance of Class C Warrants pursuant to the Plan would otherwise
result in the issuance of a number of Class C Warrants that is not a whole
number, the actual issuance will only include the next lower whole number and no
Person will be entitled to any compensation in respect of any fractional
interest in a Class C Warrant not received as a result. Consequently certain
Existing Doman Shareholders that hold a nominal number of shares may not receive
any Class C Warrants under the Plan.

New Working Capital Facility

     It is also a condition to the implementation of the Plan that Lumberco
become a party to a new revolving line of credit evidenced by a financing
agreement with CIT providing for revolving advances up to $100 million principal
(the "New Working Capital Facility"). It is intended that the New Working
Capital Facility will replace the current working capital facility between Doman
and CIT, which will be terminated.

     The New Working Capital Facility will be for a term of three years with
automatic annual renewals, and interest will be payable monthly at a rate
equivalent to CIBC prime bank rate plus 0.75% per annum, or at Lumberco's
option, Banker's Acceptances plus 2.25% per annum.




<PAGE>

                                      -25-

     In order to secure the obligations of Lumberco to CIT, each of Lumberco's
operating subsidiaries will provide guarantees and Lumberco will grant to CIT a
first lien on, and security interest in, all of Lumberco's present and future
accounts receivable, inventory, other commodities, insurance policies and
collateral proceeds accounts, and Lumberco will be entitled to grant a second
lien on and security interest on all of the aforementioned collateral to secure
up to US$221 million face amount of secured indebtedness and any refinancing of
such indebtedness.

     In addition to Lumberco being responsible for all of CIT's out of pocket
expenses and charges imposed by a letter of credit issuing bank, in
consideration for the New Working Capital Facility, CIT shall earn fees of 2.75%
per annum on the face amount of each documentary letter of credit and each
standby letter of credit, a line of credit fee in the amount of 0.375% per annum
on the sum of the average daily revolving loan balance and the average daily
balance of outstanding letters of credit, an administrative management fee of
$5,000 per month and a loan facility fee in the amount of $350,000.

Pulpco Note

     On the Plan Implementation Date, Pulpco will issue the Pulpco Note,
maturing five (5) years from the date of issue, in the principal amount of $110
million, and will grant a security interest to secure the performance by Pulpco
of its obligations under the Pulpco Note. The Pulpco security interest (which
will be evidenced by a general security agreement in form and substance
acceptable to the Restricted Group) will rank subordinate to the security
interest of CIT, as to working capital assets of Pulpco, and will be in form and
substance satisfactory to the Restricted Group. No interest will be payable
pursuant to the Pulpco Note. The Pulpco Note will provide, among other things,
that all proceeds generated from the sale of material assets of Pulpco will be
paid by Pulpco to the holder thereof on account of the principal amount of the
Pulpco Note. Upon completion of the corporate reorganization steps and
assignments under the Plan, the Pulpco Note will be held by Lumberco.

Governance Arrangements of Lumberco

     Initially, Lumberco will have eight directors appointed following
implementation of the Plan, one of whom will be the Chief Executive Officer of
Lumberco. The members of this initial board of directors of Lumberco, will hold
office until the close of the first annual meeting of shareholders of Lumberco
following the Plan Implementation Date. See the Information Circular for further
information on the proposed directors of Lumberco and for information on the
articles and bylaws of Lumberco.

CAPITAL EXPENDITURES

     The Company's capital expenditures in 2003 totalled $29.2 million, of which
$28.5 million was expended in the solid wood segment and $0.7 million was
expended in the pulp segment. Approximately $26.3 million of the solid wood
capital expenditures was for logging roads, timber development and logging
equipment.

     The following table summarizes the capital expenditures of the Company's
two business segments for each of the last five years:

<TABLE>
<CAPTION>

                                                                      YEARS ENDED DECEMBER 31,
                               FIVE YEARS ENDED       -----------------------------------------------------------------------
                               DECEMBER 31, 2003         2003           2002           2001           2000           1999
                              --------------------    -----------    -----------    -----------    -----------    -----------
                                                                         (millions of dollars)
<S>                           <C>                     <C>            <C>            <C>            <C>            <C>
Solid wood segment.........           $168.4              $28.5          $29.8           $42.9          $33.9          $33.3
Pulp segment...............             11.5                0.7           (0.2)            0.7            8.4            1.9
                                    ---------         -----------    -----------    -----------    -----------    -----------
                                      $179.9              $29.2          $29.6           $43.6          $42.3          $35.2
                                    =========         ===========    ===========    ===========    ===========    ===========

</TABLE>

     See "Item 5. Operating and Financial Review and Prospects" and "Item 17.
Financial Statements" for further discussions of principal capital expenditures.
See "CCAA Proceedings" above for a discussion of the disposition of the Port
Alice pulp mill.

B.   BUSINESS OVERVIEW

COMPANY PROFILE

     The Company is a major integrated forest products company in British
Columbia operating in the solid wood and pulp businesses. Solid wood is the
Company's primary business and includes timber harvesting, reforestation, forest
management, sawmilling logs into lumber and wood chips and value-added lumber
remanufacturing. The Company's pulp operations consist

<PAGE>

                                      -26-

of producing and marketing NBSK pulp and dissolving sulphite pulp. All of the
Company's operations are located in the coastal region of British Columbia and
its products are sold in approximately 30 countries worldwide.

     The Company started the year with an allowable annual timber harvest of
approximately 4.1 million cubic metres from its forest tenures and private
lands. Reductions made under Part 13 of the Forest Act to account for land use
processes in the Central Coast temporarily reduced this total to approximately
3.9 million cubic metres for 2003. The perpetual supply of 330,000 to 350,000
cubic metres of sawlogs under a sawlog purchase agreement with a third party was
not affected by this temporary reduction.

     Harvest operations continued to be conducted on government owned
timberlands, in accordance with the terms and conditions of the Company's three
tree farm licences, seven forest licences, timber licences and private lands
external to these tenures.

     As of the date hereof, the Company's manufacturing plants consist of:

          o    six sawmills with a total annual production capacity of
               approximately 1.1 billion board feet of lumber and 700,000 units
               of wood chips;

          o    one pulp mill with a total annual production capacity of
               approximately 275,000 ADMT of pulp;

          o    a value-added lumber remanufacturing plant with an annual drying
               and production capacity of approximately 80 million board feet;
               and

          o    a log merchandiser.

     The Company previously operated nine sawmills and two pulp mills. The
Company has dismantled two sawmills and ceased operations at another. This has
allowed the Company to benefit from economies of scale. On May 11, 2004, the
Company sold its Port Alice pulp mill.

STRATEGY

     The Company's strategy is to obtain the maximum value for its timber
resources by producing premium products and by fully utilizing its harvested
timber in an integrated forest products operation. The Company's sawmills
process high quality logs, including western red cedar, into primarily long
length, wide width and upper grade lumber and, to a lesser degree, commodity
grades of lumber. As a result of its strategy, the Company focuses on producing
finished specialty products, such as lumber with various sizes and end uses, and
western red cedar, instead of commodity items such as SPF 2x4 lumber. Lower
quality logs are first processed by the Company's log merchandiser in order to
extract the lumber quality portion of the logs for processing at the Company's
sawmills. The residual portion of such logs, smaller or defective logs not
suitable for the production of lumber and wood chips are used to produce pulp.
Hog fuel, a by-product from the sawmills and the log merchandiser, is used at
the Company's Squamish NBSK pulp mill and sold to other pulp mills as an energy
resource. The Company's value-added lumber remanufacturing plant dries, saws and
trims lumber for use in producing higher value products such as moldings, frames
and panelling. The Company believes that the efficient utilization of its timber
resources is essential, given the decline in the supply of high quality timber
resulting from increasing environmental and conservation restrictions.

INDUSTRY

     British Columbia is one of the world's leading forest products regions,
with lumber shipments averaging approximately 14 billion board feet per year and
pulp and paper shipments of approximately seven million tonnes per year,
supported by an annual timber harvest averaging approximately 72 million cubic
metres over the last ten years. Catastrophic wildfires in the southern interior
of the Province in 2003 as well as a continued expansion of the mountain pine
beetle epidemic in the central and northern interior have led to temporary
increases in the AAC in these areas in order to salvage dead and dying timber.

     British Columbia has two major forest regions, coastal and interior, which
are differentiated by climate, terrain and forest type and have given rise to
two distinctly different segments of the forest industry. Historically,
approximately one-third of British Columbia's timber harvest has been from the
coastal region. In contrast to the interior forests, the British Columbia
coastal forests are distinguished by a wet maritime climate, rugged topography
and a variety of high-value coastal forest species with highly productive
growing sites. Over the past decade, the coastal timber harvest has declined as
a result of the establishment of new parks and protected areas and AAC
reductions to conform harvest levels to long-term sustained yields.


<PAGE>

                                      -27-

     The forest products industry categorizes lumber into either hardwoods or
softwoods. Softwoods such as hemlock, cedar, spruce, pine and fir are used
primarily in construction due to their strength. The forest industry also grades
lumber into various classifications according to quality. The two broad
categories within which all grades fall, based upon the absence or presence of
defects and the grain of the wood, are upper grade lumber and commodity grade
lumber, respectively. Upper grade lumber is a grade of lumber which is
substantially clear of defects and is obtained primarily from mature timber in
areas which have not been previously harvested. The timber used to produce upper
grade softwood lumber grows primarily in the coastal climates of British
Columbia, the U.S. Pacific Northwest and Alaska.

RECENT LEGISLATIVE AMENDMENTS AND OTHER FOREST POLICY INITIATIVES

     The Provincial Government enacted the Code in 1995 and by mid-1997 all of
its provisions were in force. The Code has had a significant impact on
harvesting practices and increased the timber harvesting and silviculture costs
of all companies in the forest industry in British Columbia. As a result of
problems with, and higher than anticipated costs from, implementing the Code,
the new Provincial Government in 2001 announced, following public and industry
consultation that it would undertake a major review of forest policy in British
Columbia. Part of the new government's mandate was to change forestry practices
and the tenure system in British Columbia and revitalize the forestry sector by
creating new opportunities, particularly for First Nations, establishing a
mechanism to determine fair market price for timber, ensuring that more product
value was extracted from each log harvested and implementing policies that would
lead to resolution of the softwood lumber dispute with the United States.

     In 2003 the Provincial Government introduced several pieces of legislation
with respect to forest operations in British Columbia, either through the
enactment of entirely new statutes or the amendment of existing statutes.
Through such legislative changes, the Provincial Government has implemented
significant forestry reforms, including, among others, the following:

          o    The "take-back" by the Provincial Government of certain AAC from
               specified holders of long-term replaceable tenure. Forest tenure
               holders with combined AAC of more than 200,000 m3 per year are
               subject to a mandatory 20% reduction in their AAC attributable to
               Crown lands in respect of certain TFLs and FLs and a 20%
               reduction of area under TLs outside of the TFLs. The Provincial
               Government will compensate the tenure holders subject to
               reduction in their harvesting rights although the criteria to be
               used to determine such amounts have yet to be prescribed by
               regulation;

          o    Establishment of a market based pricing system utilizing stumpage
               rates paid on sales made by the BC Timber Sales Program
               (successor to Small Business Forest Enterprise program) to
               determine stumpage rates for all public timber;

          o    Transitioning from a process-oriented to a results-based
               regulatory regime through the enactment of the Forest and Range
               Practices Act which is intended to replace, over time, the Code;

          o    Establishment of collaborative forest management within B.C.'s
               timber supply areas where specified licencees, together with the
               BC Timber Sales Program, will be responsible for forest
               management activities formerly carried out by the Provincial
               Government;

          o    Elimination of the appurtenancy requirement that fibre supply
               from certain tenures be processed at certain conversion
               facilities;

          o    Introduction of new cut control provisions and elimination of
               minimum harvesting requirements;

          o    Elimination of penalties imposed on and the relaxation of
               controls in respect of, the transfer, subdivision or sale of
               forest tenures;

          o    Extinguishment, on a retroactive basis, of the right of a timber
               licence holder to elect to pay royalty or stumpage for timber
               harvested; and

          o    Enactment of a new Foresters Act (British Columbia) to govern
               professional practice.

     In addition to the above provincial legislative changes, the Federal
Government also introduced legislation which may have some impact upon the
forest industry in British Columbia, one of which is the Species at Risk Act
(Canada). This particular statute could affect and possibly redefine future
forest practices in British Columbia should the Provincial Government fail to
act to the Federal Government's satisfaction.


<PAGE>

                                      -28-

     It is not yet possible to gauge the overall impact of these policy
initiatives on the Company's business, as many have just been brought into
force. However, two known adverse effects on the Company have been the take-back
of AAC by the Provincial Government and the extinguishment of rights of TL
holders to elect to pay royalties as opposed to stumpage rates for timber
harvested.

FOREST RESOURCES

Timber Tenures

     More than 90% of all forest resources in British Columbia are owned by the
Province and administered by the Ministry of Forests. Subject to provincial
legislation and related regulations, rights to harvest timber on such land may
be granted on behalf of the Province by the Ministry of Forests in the form of
timber tenures. Timber tenures granted to the Company are comprised of tree farm
licences, forest licences and timber licences. The Company undertakes to manage
the forest lands to which its timber tenures relate to produce an annual harvest
in accordance with the terms of its TLs and the AAC volumes determined by the
Ministry of Forests for each TFL and FL.

     A TFL is an area-based timber tenure granted for a term of 25 years that is
replaceable every five years for a further 25 year term, subject to satisfactory
performance by the licensee of its forest management obligations as determined
by the Ministry of Forests. Over 74% of the Company's AAC is derived from its
three TFLs: TFL Nos. 6, 19 and 25. TFL Nos. 6 and 19 were replaced in 2000 and
2001, respectively, for 25 year terms. TFL No. 25 was replaced in 1999 for a 25
year term.

     Other areas of Crown timberlands which are not designated as TFLs are
organized into timber supply areas. FLs are issued within each TSA with the AAC
being determined at the TSA level and the overall harvest for the TSA managed by
the Ministry of Forests on a sustained yield basis. FLs are volume-based tenures
which authorize a specified volume of timber to be cut within a specific TSA.
FLs have a term of 15 years and are generally replaceable every five years for a
term of 15 years, subject to satisfactory performance by the licensee of its
forest management obligations as determined by the Ministry of Forests. The
Company has seven FLs, two of which are located in the Mid Coast TSA. The
remaining five are located in the Kingcome, Strathcona, Soo, Fraser and Sunshine
Coast TSAs. All of the Company's FLs were replaced in 1998 for 15 year terms.

     The Provincial Government was due to begin to offer the Company replacement
forest licences under the "evergreen" terms of the licence agreements in early
2003, but these offers were delayed due to concerns about adequate consultation
with First Nations. The Ministry indicated that offers would be forthcoming once
adequate consultation had been conducted with potentially affected First
Nations.

     Under the provisions of the Forestry Revitalization Act (British Columbia),
the Company was required to surrender to the Provincial Government 685,216 m3 of
its AAC derived from its TFLs (including TLs contained within such TFLs) and
FL's effective as of March 31, 2003. Approximately 50% of the AAC so acquired
will be sold by way of public auction through the B.C. Timber Sales Program,
while the balance will remain available for First Nations initiatives and
Community Forest or Woodlot Licences. The Provincial Government will compensate
the Company when the criteria to be used to quantify the amount has been
prescribed by regulation. Any disputes which may arise regarding the amount of
compensation will be resolved by arbitration.

     While the AAC was, for valuation purposes, surrendered on March 31, 2003,
the Provincial Government has permitted the Company to continue harvesting such
forest tenure for up to three years until such time as it is able to determine
the specific amendments to be made to the forest tenures held by the Company
which are subject to this take-back. While opposed to this particular reform
policy, the Company has been working cooperatively with the Provincial
Government, and its staff in an effort to minimize the adverse impacts on the
Company. As of the end of 2003, no specific "taking" of volumes or areas have
been applied to any specific licence held by the Company.

     The Company also holds and harvests timber from 143 timber licences,
covering an area of approximately 85,000 hectares, of which 19 TLs are situated
outside of its TFLs and 124 are situated within its TFLs. TLs are area-based
tenures which permit the licensee to harvest the area over a specified period.
At the end of 2003, the Company's TLs contained approximately 22 million cubic
metres of mature timber. TLs within a TFL are managed on an integrated basis
with other government and private timberlands within the same TFL and remain
part of the TFL after harvest. The timing of harvesting from TLs is subject to
the practice guidelines of the Ministry of Forests, but is otherwise at the
discretion of the Company. The terms of the Company's TLs within its TFLs
coincide with the terms of the TFLs in which they are incorporated. Those TLs
which are outside of the Company's TFLs expire at varying dates ranging from
2005 to 2016. A renewal request for a TL, with non-significant remaining



<PAGE>

                                      -29-

volume, whose term expired in 2001 was denied in 2003 by the Ministry of Forests
and the area and volume reverted to the Crown.

     A 1998 study of the Company's TLs situated outside of its TFLs indicated a
feasible harvest schedule of approximately 100,000 cubic metres annually over
the next 20 years. In 2003 approximately 21% of the Company's annual harvest was
from TLs found inside and outside of TFLs.

Timber Harvest

     The AAC for TFLs and FLs is determined by the Chief Forester of the
Province and is intended to reflect timber conditions, regional and local
economic and social interests, and environmental considerations. In mid-2003,
the annual and periodic timber harvest requirements were changed as a result of
the enactment of the Forestry Revitalization Amendment Act (British Columbia).
While the volume of timber to harvested over any five year period will continue
to be capped at 110% of the sum of the AAC, there will be no annual cut controls
nor any minimum harvesting requirement for any five year period. However, the
tenure holder will not have the ability to carry forward unharvested volumes of
timber into new cut periods. This legislative change is to be applied
retroactively to the beginning of 2003 as it pertains to annual cut controls and
retroactively to the beginning of any active five year period as it applies to
five year harvesting requirements. At the present time, the Company has two
licences where there remains unresolved issues regarding the Company's failure
to satisfy its 2002 harvesting requirements.

     Existing legislation requires the Chief Forester for British Columbia to
review sustainable timber harvesting levels in each TSA and TFL in the Province
every five years and to issue a "determination" relating to the same which may
recommend reductions or increases in the AAC of the TSA or TFL. No adjustments
were made to any of the Company's tenure AACs in 2003, but the Part 13 reduction
of approximately 235,000 m3 from 2002 was continued. The Chief Forester did not
proceed in determining a new AAC for TFL 25 during the year, but an AAC
determination is anticipated in 2004.

     The Provincial Government met its announced goal of protecting through the
establishment of parks 12% of the land area of the Province from development by
the end of 2000. However, meeting this protection goal did not end land use
planning processes that have continued through 2003. While tenures contributing
some 60% of the Company's AAC have been dealt with under the regional Vancouver
Island Summary Land Use Plan, the balance remain subject to other sub-regional
land use processes. Four Land and Resource Management Plans ("LRMP's") namely
Central Coast, North Coast, Queen Charlotte Island/Haida Gwaii and Sea-to-Sky,
which cover most of the Company's remaining AAC, are scheduled for completion in
2004.

     Through 2003, the Company remained engaged with the Central Coast LRMP
through the Coast Forest Conservation Initiative (a strategic forum of the five
licensees operating in the area) and the Rainforest Solutions Project (a
strategic forum of the four major ENGO's engaged in the LRMP) through the Joint
Solutions Project (the "JSP"). The latter sub-process has provided a mediated
forum for communication between major licencees and the major environmental
non-governmental organizations with interests in the Central Coast. At the end
of 2003, a historic accord was reached through the JSP that set the stage for a
LRMP consensus agreement that will be finalized in 2004 and forwarded to Cabinet
for review and endorsement. The LRMP report will provide direction in government
to government negotiations between the Province and First Nations found within
the LRMP area.

     During 2001, the Company commenced a legal action against the Province for
breaching its contractual obligations to purchase two of the Company's timber
tenures. The parties have exchanged pleadings and documents and certain evidence
gathering matters have commenced, including the examination for discovery of the
former Minister of Forests who was involved during the time of the agreement. As
of the date hereof, no trial date has been set.

Fibre Supply

     The Company's fibre requirements are met with logs harvested from its
timber tenures and private lands, logs purchased on the open market, logs
acquired under a sawlog purchase agreement entered into with a third party, log
trading activities and logs acquired in exchange for wood chips. The Company's
log trading department is responsible for ensuring an adequate supply of
suitable logs for the Company's plants. It engages in log trading activities to
correct imbalances in the supply and demand in terms of the size, grade and
species of logs. In addition, in order to ensure a continuing supply of timber,
the Company maintains an active reforestation program and manages approximately
1,050,000 hectares of productive timberlands, of which 565,000 hectares are
operable. The Company's annual timber harvest from these timberlands, on a
sustained yield basis at the start of 2003 was approximately 4.1 million cubic
metres but remains temporarily reduced to approximately 3.9 million due to the
Part 13 reduction affecting two tenures in the Central Coast.


<PAGE>
                                      -30-


     All of the Company's timber harvesting operations are located in the
coastal region of British Columbia. Logging is conducted primarily on government
timberlands allocated to the Company under its TFLs, and to a lesser extent,
under its FLs and TLs. In addition, some logging takes place on private lands.
The timber covered by the Company's timber tenures contains a substantial amount
of presently harvestable mature timber stands that are located in areas that
have never been commercially harvested. These stands are particularly valuable,
as the substantial size of the trees allows the Company to produce a high volume
of upper grade lumber. Upper grade lumber is sold based upon appearance and is
used in the manufacturing of doors, window frames, panelling, moldings and
siding.

     The long-term species distribution of the Company's timber resources is
approximately 60% hemlock and balsam, and 35% cedar and cypress, with the
balance made up of Sitka spruce, Douglas fir and various minor species.
Production over the five year period through 2003 has closely mirrored this
distribution with 42% hemlock, 18% balsam, 25% cedar, 5% cypress, 8% Douglas fir
and 2% spruce harvested. This indicates that harvest plans are accessing the
timber profile rather than targeting specific higher valued species.

     The Company's available cut, including the AAC of the Company's TFLs and
FLs, log supply and log usage for each of the last two years are set out in the
following table:

<TABLE>
<CAPTION>

                                                                 ACTUAL CUT(1)                   AVAILABLE CUT(2)
                                                          YEARS ENDED DECEMBER 31ST             AS AT DECEMBER 31ST
                                                         ----------------------------          --------------------
                                                                          (THOUSANDS OF CUBIC METRES)
                                                           2003             2002                2003           2002
                                                           ----             ----                ----           ----
<S>                                                      <C>             <C>                   <C>            <C>
TFLs...............................................        2,266           2,640               2,847          2,917
FLs................................................          261             311                 929          1,009
Other lands(3).....................................           89              81                 449            449
                                                          ------           -----               -----          -----
      Total log production.........................        2,616           3,032               4,225          4,375
                                                          ======           =====               =====          =====
Total logs purchased...............................        1,216           1,017
                                                          ======           =====
Total logs consumed................................        3,506           3,110
                                                          ======           =====
Total logs sold....................................          721             781
                                                          ======           =====
</TABLE>

------------------
(1)  The "actual" cut is produced volume. It does not include residue volume,
     which contributes to the AAC total.

(2)  The "available" cut for the TFLs and FLs is the AAC determined by the
     Province's Chief Forester. There was a temporary prorated AAC reduction of
     135,000 m(3) to TFL 25 and 99,428 m(3) to FL Al6845 continued in 2003 due
     to delays in completion of the Central Coast LRMP.

(3)  19,000 m(3) of annual cut is attributed to private managed forests lands
     outside of TFLs, 100,000 m(3) to TLs outside of TFLs and 330,000 m(3) of
     sawlogs in perpetuity under a sawlog purchase agreement with a third party.

     The five year cut control period for many of the Company's tenures expired
at the end of 2001. Approximately 1.4 million m(3) of the cumulative AAC
available during the five year period was not harvested due to depressed
economic conditions in 2001 and a delay in harvest approvals as a result of the
Central Coast LRMP. The Company requested that this deficient volume be returned
to the Company in the subsequent cut control period. During the year, the
Ministry of Forests rejected the request for approximately 28,000 m(3) of the
request, gave potential approval on 22,000 m(3), subject to First Nations review
and had not reached a decision on the balance.

     The Company has some 30 logging and forestry operations on Vancouver
Island, the South, Central and North Coast Mainland and the Queen Charlotte
Islands. Approximately 70% of the Company's operations are on Vancouver Island.
For historical and legal reasons, logging is conducted by a combination of both
Company operated and contractor operations. The Company plans and co-ordinates
all of the timber production from the various operating sites.

     Logs are sorted and directed to either the Company's sawmills, its log
merchandiser or, prior to May 11, 2004, its Port Alice dissolving sulphite pulp
mill, according to size, grade and species. Saw logs that meet the Company's cut
program criteria are shipped primarily to the Company's sawmills, while lower
quality logs, small or defective parts of trees and wood chips from sawmill
operations and the log merchandiser are shipped to, and form the basic raw
material for, the Squamish pulp mill and prior to May 11, 2004, the Port Alice
pulp mill. Bundle booms and self-dumping log barges are used to transport logs
to the Company's manufacturing plants and to the Vancouver log market. A small
percentage of logs are delivered to the Company's manufacturing plants by truck.




<PAGE>
                                      -31-



     The Company's sawmills have a total annual production capacity of
approximately 700,000 units of wood chips. These wood chips are used at the
Company's Squamish pulp mill as a source of fibre, traded with third parties for
sawlogs or sold. Wood residue produced by the sawmills and the log merchandiser,
principally sawdust and bark, is either used as hog fuel in the boiler at the
Squamish pulp mill and prior to May 11, 2004, the Port Alice pulp mill or sold
to other pulp mills. Wood chips and other by-products of the sawmills and log
merchandiser are transported by barge or by truck to the Squamish pulp mill and
prior to May 11, 2004, the Port Alice pulp mill.

     The Company's wood chip supply and usage for each of the last two years are
set out in the following table:

        <TABLE>
        <CAPTION>

                                                                                          YEARS ENDED
                                                                                         DECEMBER 31,
                                                                                    ------------------------
                                                                                      2003           2002
                                                                                    ----------     ---------
                                                                                     (THOUSANDS OF UNITS)
        <S>                                                                         <C>            <C>
        Wood chips produced.....................................................        760            639
        Wood chips purchased....................................................        240            185
        Total wood chips consumed...............................................        682            555
        Total wood chips sold...................................................        307            288
        </TABLE>

Stumpage Charges

     A stumpage charge is assessed by the Provincial Government on all Crown
timber harvested. The amount of stumpage paid on timber harvested from TFLs and
FLs is based on a revenue target set by the Provincial Government and adjusted
on a periodic basis. A base stumpage rate is then determined having reference to
the revenue target. The base rate is subsequently adjusted by the Ministry of
Forests for various factors prior to determining the actual stumpage charge for
each particular cutting area designated within a specified timber tenure.
Individual stumpage rates are then calculated for each cutting permit issued
with respect to a cutting area, taking into account projected timber prices and
operating costs. Stumpage charges fluctuate based upon the Provincial
Government's revenue targets, the quality and species of timber harvested,
harvesting technology, the Company's operating costs and other factors. This
system is referred to as Comparative Value Pricing ("CVP").

     During 2001, the Company commenced a legal action against the Provincial
Government for the improper administration of the stumpage payment system that
resulted in overcharging the Company for stumpage over a period of several
years. The overcharging arose from the so-called "water-bedding" effect where
the Provincial Government accepted information from certain forest companies
that artificially reduced the value of timber on their cutting permits thereby
forcing other companies to pay higher stumpage rates for timber of similar
value. The parties have exchanged pleadings and certain evidence gathering
matters have commenced. As of the date hereof no trial date has been set.

     In September 2000, the Ministry of Forests introduced a "Hemlock Pilot" for
major coastal licensees that is based on the Small Business Program's Market
Pricing System ("MPS"). Cutting permits that met a strict criteria (e.g. 60%
hemlock/balsam content or greater) were converted from the CVP system to the
Hemlock Pilot MPS. The objective was to convert these permits to a
"market-based" system that better reflected the economic reality of the price
for hemlock lumber. No new Hemlock Pilot cutting permits were accepted past
October 1, 2000. Those permits issued under the Hemlock Pilot program are being
allowed to run their normal course. It is estimated that the MPS system reduced
stumpage fees by approximately $2.4 million in 2003. There is approximately
406,000 m(3) of MPS volume remaining as of December 31, 2003.

     Until 1995, on those lands held under TLs, a royalty was payable when the
timber was harvested. In 1995, the British Columbia government eliminated
royalties for TLs and replaced them with stumpage, which increased to 100% of
regular stumpage in 2001. Certain forestry companies commenced court actions
against the Provincial Government claiming substantial damages as a result of
this change in the calculation of royalty fees. In December, 1999, the court
ruled against the Provincial Government in an action to dismiss the damage
claims. In March, 2000, the Company commenced a court action against the
Provincial Government to recover damages resulting from the change in the
calculation of rates. At the end of 2003, the Provincial Government effectively
thwarted this court action through the enactment of the Timber Licences
Settlement Act (British Columbia), the effect of which retroactively
extinguishes timber licence royalty "rights". The Company intends to challenge
the constitutionality of the statute.

     The following table illustrates the relationship of stumpage and royalty
expenses relative to the Company's total log production for each of the last
five years:



<PAGE>
                                      -32-



<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31ST
                                               -----------------------------------------------------------------------
                                                  2003           2002           2001           2000           1999
                                               -----------    -----------    -----------     ----------     ----------
                                                                            (THOUSANDS)
<S>                                            <C>            <C>            <C>             <C>            <C>

Log production (cubic metres).........              2,616          3,032          3,081          3,431          3,354
Stumpage and royalty expenses.........            $53,737       $ 60,297       $ 56,719       $ 86,747       $ 84,785
</TABLE>

     The Coast Market Pricing System became effective February 29, 2004. All CVP
stumpage rates (as at January 1, 2004) were frozen on February 28, 2004, and
stumpage billing will continue at these rates. Selected old growth and second
growth CVP permits (at the Company's option) will be reappraised to MPS over the
next few months and will cancel invoices and issue replacement invoices. MPS1
Hemlock Pilot permit rates will continue to vary on a quarterly basis. A list of
the existing permits that are to be converted to MPS must be submitted by March
5, 2004. The move to MPS has resulted in significant stumpage reductions in the
current markets.

Forest Management

     The Company manages its forest tenures and privately owned forest lands
according to Sustainable Forestry Management Principles, which include a
commitment to meeting or exceeding government requirements. As part of the
rights and responsibilities that accompany the Crown tenures held by the
Company, staff carry out or supervise pre-harvest planning, subsequent road
building and harvesting operations and the follow-up silviculture treatments to
establish free-growing second growth stands.

     Pre-harvest planning includes a wide spectrum of activities from the
collection of inventory and assessment data to the development of higher level
Management Plans for tree farm licences and Forest Development Plans for
specific planning areas within tree farm licences or forest licences. These
plans take a broad range of timber and non-timber values into account, including
but not limited to: wildlife, fisheries, water quality, soil sensitivity,
terrain stability, visual quality, biodiversity, archaeological sites and
cultural features, cave and karst features, timber species distribution and
value. These higher level plans provide direction for the development of site
specific plans and lead to the applications for specific road building and
harvesting permits.

     Following harvest, the Company reforests all disturbed areas and conducts
follow-up surveys and silvicultural treatments to ensure that these harvested
areas meet "free-growing" requirements within specified timelines. Once
free-growing, young stands are left to develop without further attention into
second growth forests ready for subsequent harvest. All of these "basic"
silviculture requirements are carried out at the Company's expense. In 2003, the
Company spent $6.1 million in meeting basic silviculture obligations.

     The Company's tenures are managed by a staff of registered professional
foresters and engineers who are involved in planning and inventory, road and
bridge development, harvesting, silviculture and forest health and protection
programs. The Company operates the Saanich Forestry Centre, which includes a 3
million seedling nursery and a tree seed orchard that produces select seed for
reforestation.

     In April 2002, the Provincial Government replaced Forest Renewal B.C. with
the Forest Investment Account, administered by PricewaterhouseCoopers. FIA is
funded by an appropriation approved by the Legislature, rather than a stumpage
levy, and authorizes the Minister of Forests to provide funding for certain
forest management activities. Specific amounts are dedicated to provincial level
programs, while other amounts are allocated to tenure holders. In 2003/04, the
Legislature approved a $110 million FIA budget. The Company accessed $3.8
million from FIA to carry out a range of projects in 2003.

SALES, MARKETING AND DISTRIBUTION

     The Company produces and markets upper grades and commodity grades of
lumber and various grades of NBSK and prior to May 11, 2004, dissolving and
paper grade sulphite pulp, which are sold in approximately 30 countries
worldwide. The Company's lumber products are marketed and sold in North America
by a separate sales and marketing division that primarily sells the Company's
lumber products directly to wholesale lumber distributors and also sells a minor
amount through agents. Direct liaison with the consumers of its lumber products
provides the Company with the ability to react quickly to changes in market
conditions and customer requirements and achieve lower selling costs. The
Company adjusts its sawmill processing programs in order to customize products
to meet the specific requirements of its customers.

     The lumber produced by the Nanaimo and Saltair sawmills is targeted
primarily for the Japanese market. Most products are sold green; however,
certain specialty products require kiln-drying. The Company offers a complete
line of traditional


<PAGE>

                                      -33-

components for the Japanese market. The Company's focus in Europe is kiln-dried,
high-grade specialty products used predominantly in Germany, Italy and the
United Kingdom.

     The Company's NBSK pulp is a commodity product, and sales are handled by
the Company's pulp sales division and by agents. NBSK pulp is sold primarily to
paper producers and tissue manufacturers. Prior to May 11, 2004, sales of
dissolving sulphite pulp were conducted by the Company's pulp sales division and
were generally made directly to end users. These purchasers often sent their own
technical experts to the Port Alice pulp mill to customize the dissolving
sulphite pulp to their particular specifications.

     The distribution of the Company's sales by geographic area and by product
line for each of the last five years is set out in the following table:

<TABLE>
<CAPTION>

                                                             YEARS ENDED DECEMBER 31,
                                     ------------------------------------------------------------------------
                                         2003          2002          2001            2000            1999
                                     -----------    ----------    -----------    ------------    ------------
                                                              (THOUSANDS OF DOLLARS)
<S>                                  <C>           <C>            <C>            <C>             <C>
SALES BY GEOGRAPHIC AREA
   Canada...........................   $151,452      $175,180       $214,986        $228,382       $175,884
   U.S..............................    170,777       204,932        230,333         241,006        324,057
   Asia.............................    175,495       184,728        221,521         344,069        271,354
   Europe...........................     80,113        62,438         89,433         127,505         95,199
   Other............................     11,178         7,656         13,704          14,442          7,142
                                     -----------   -----------    -----------    ------------    -----------
                                       $589,015      $634,934       $769,977        $955,404       $873,636
                                     ===========   ===========    ===========    ============    ===========
SALES BY PRODUCT LINE
   Lumber...........................   $260,486      $320,875       $354,702        $417,912       $498,341
   Pulp.............................    200,049       171,207        237,940         381,517        262,088
   Logs.............................    106,480       123,280        156,515         126,337         93,602
   Sawmill by-products..............     22,000        19,572         20,820          29,638         19,605
                                     -----------   -----------    -----------    ------------    -----------
                                       $589,015      $634,934       $769,977        $955,404       $873,636
                                     ===========   ===========    ===========    ============    ===========
SOLID WOOD SEGMENT
   Lumber
     Canada.........................   $ 22,879      $ 31,832       $ 35,690        $ 63,497       $ 60,331
     U.S............................    149,563       187,156        218,261         228,626        309,636
     Asia...........................     68,367        84,207         86,830         104,701        102,721
     Europe.........................     17,331        15,410         13,921          21,088         25,653
     Other..........................      2,346         2,270             --              --             --
                                     -----------   -----------    -----------    ------------    -----------
                                        260,486       320,875        354,702         417,912        498,341
                                     -----------   -----------    -----------    ------------    -----------
   Logs
     Canada.........................    106,480       123,280        156,515         126,337         93,602
                                     -----------   -----------    -----------    ------------    -----------
   Sawmill by-products
     Canada.........................     22,000        19,572         20,820          29,638         19,605
                                     -----------   -----------    -----------    ------------    -----------
Total solid wood segment............   $388,966      $463,727       $532,037        $573,887       $611,548
                                     ===========   ===========    ===========    ============    ===========
PULP SEGMENT
   Canada...........................   $     93      $    496       $  1,961        $  8,910       $  2,346
   U.S..............................     21,214        17,776         12,072          12,380         14,421
   Asia.............................    107,128       100,521        134,691         239,368        168,633
   Europe...........................     62,782        47,028         75,512         106,417         69,546
   Other............................      8,832         5,386         13,704          14,442          7,142
                                     -----------   -----------    -----------    ------------    -----------
Total pulp segment..................   $200,049      $171,207       $237,940        $381,517       $262,088
                                     ===========   ===========    ===========    ============    ===========

</TABLE>



<PAGE>


                                      -34-



     The following two charts illustrate the geographic distribution of the
Company's sales for each of the last two years:



        [PIE CHART]                                       [PIE CHART]


     In 2003 and 2002, pulp sales to Asia represented approximately 54% and 59%,
respectively, of the Company's total pulp segment sales. Lumber sales to the
U.S. in 2003 and 2002 represented approximately 38% and 40%, respectively, of
the Company's total solid wood segment sales. No single customer accounted for
10% or more of sales in 2003.

     Lumber from the Company's sawmills is delivered to market by ocean-going
vessel and barge, and by rail and truck. Pulp from the Squamish pulp mill and
prior to May 11, 2004, the Port Alice pulp mill is shipped by ocean-going vessel
and barge.

     Lumber shipments and sales into North American lumber markets occur
primarily during the period from mid-March to mid-September of each year,
coinciding with the preferred weather for housing construction. Other export
markets for the solid wood segment do not have a pronounced seasonal pattern.
Pulp shipments and sales are not seasonal in nature.

COMPETITION

     The Company competes on both a domestic and international level with a
large number of forest products firms, ranging from very large integrated firms
to smaller specialty firms. Many of these competitors have substantially greater
financial and operating resources than the Company. The Company also competes
indirectly with firms that manufacture substitutes for solid wood products,
including non-wood and engineered wood products. The markets for pulp and lumber
are highly competitive and sensitive to cyclical changes in industry capacity
and the economy, both domestically and internationally. Changes in the level of
competition, industry capacity and the global economy have a significant impact
on the Company's selling prices and overall profitability. The Company's
competitive position is influenced by the availability, quality and cost of
fibre, energy and labour, and its plant efficiencies and productivity in
relation to its competitors.

     A number of forest policy changes have been announced and implemented by
the Provincial Government. See "Item 4. Information on the Company - B. Business
Overview - Recent Legislation Amendments and Other Forest Policy Initiatives".
Greater ability to acquire new tenure has been balanced by a requirement for a
"competition" test to ensure that markets for logs or chips are not
detrimentally affected. As the regulation to determine the competition test has
not been prescribed, the impact cannot be determined at this point in time.

     The Company's competitive position has also been affected by countervailing
duties and anti-dumping rates imposed by the government of the United States on
shipments of softwood lumber into the United States from Canada. See "Item 4.
Information on the Company - B. Business Overview - Softwood Lumber Dispute".

ENVIRONMENT

Environmental Policy

     The Company is committed to the protection of the environment and works
with government and other stakeholders to identify and address issues of
environmental concern in all aspects of its business. The Company's operations
are subject to a wide array of federal, provincial and local environmental
legislation regulating water, land and air discharges and solid and hazardous
waste management, disposal, transportation and remediation. To oversee and
co-ordinate Company-wide efforts to comply with such legislation, the Company
has established an Environmental Risk and Public Policy Committee of the Board
of

<PAGE>


                                      -35-

Directors and implemented a reporting system that is designed to monitor
environmental compliance with regulatory requirements, identify environmental
issues and communicate them to all levels of management and operations. In
conducting its operations, the Company attempts to minimize environmental impact
through sound forestry and environmental management practices that meet or
exceed government standards and adheres to an environmental policy based on the
following:

         -    Assessing and evaluating environmental risk on an ongoing basis in
              order to set environmental objectives and targets as well as
              proper operational control;

         -    Allocating sufficient resources to ensure continuing compliance
              with environmental responsibilities;

         -    Meeting or surpassing all applicable environmental regulations;

         -    Establishing internal and external auditing and reporting
              procedures necessary to monitor environmental performance,
              continually improving environmental practices and the prevention
              of pollution; and

         -    Promoting environmental awareness among its staff, employees and
              contractors and communicating its environmental performance, both
              internally and to the public.

Environmental Management

     The Company has established an Environmental Management System (EMS) for
its forest operations, sawmills and pulp mills. Through third party audits by
the Quality Management Institute (QMI), as well as internal audits, it has
confirmed that the EMS remains in conformance with the ISO 14001 standard. These
audits provide important feedback to senior management to ensure staff,
employees and contractors conduct their activities in compliance with the
legislation and regulations relevant to the forest products industry. Through
the use of such documents as Standard Operating Procedures and Emergency
Responses Plans, and processes such as Management Review and
Corrective/Preventative Action Requests, the Company is assured that the
Corporate Environmental Policy is adhered to.

     As of the date hereof, the Company's solid wood segment is in substantial
compliance with all applicable environmental legislation.

     As of May 10, 2004, the Port Alice dissolving sulphite pulp mill was also
in substantial compliance with applicable environmental legislation. The Company
was charged pursuant to the Waste Management Act (British Columbia) on December
5, 2001, for a chlorine discharge on February 20, 2000, and on May 2, 2002 for a
pH permit excedance relating to the mill effluent on June 16 and 17, 2000. The
Company pleaded guilty to both charges on January 8, 2003 and paid a nominal
fine and contributions to the Habitat Conservation Trust Fund totalling $80,000.

     As of the date hereof, environmental performance at the Squamish kraft mill
is substantially in compliance with the requirements of applicable environmental
legislation, except for particulate emissions from the power boiler when burning
certain types of hog fuel. In an effort to improve combustion efficiency, and
reduce particulate and dioxin/furan emissions the following steps have been
taken or are proposed:

         (a)  Installed and started operation of a hog press in December 2003;

         (b)  Waste activated sludge was re-routed to the recovery boiler to off
              load the power boiler in October 2003;

         (c)  Installation of a hearth burner is scheduled for the next
              maintenance shut down;

         (d)  Installation of a carbon monoxide analyzer for combustion control
              is proposed.

     Power boiler dioxin/furan testing at the Squamish pulp mill and as of May
10, 2004, the Port Alice pulp mill meet the Canada Wide Standard (CWS)
requirement of 0.5 ng/m3 TEQ. After review of a three year study, the B.C.
Ministry of Water, Land and Air Protection has recommended that there be no
further reduction in the standard. The standard will be reviewed again in three
years.

     With respect to the pulp and paper industry, both the Federal Government
and Provincial Government generally agree that effluent discharges are
acceptable and that further work is not anticipated at this time. However, the
governments are now focussing their attention on air issues. The Federal
Government is identifying "criteria air contaminants" ("CACs") for which CACs
limits will be established. Included in the CACs are sulphur dioxide, and
particulate matter. Implementation and

<PAGE>

                                      -36-

enforcement of the standard by government agencies is unclear at this time,
therefore it is not known what the impact will be on the mills. In addition, the
Federal Government's primary initiative with respect to air quality improvement
is the reduction of greenhouse gas emissions (Kyoto Protocol). Negotiations are
in progress to determine the forest industry allocation with respect to
greenhouse gas reduction requirements. Once this has been determined reduction
requirements for individual operations can be assigned. Therefore, at this time
the Company cannot assess the costs of complying with these requirements.

     The Contaminated Sites Regulation under the Waste Management Act (British
Columbia) governs the remediation of any site found to be contaminated, meaning
that it exceeds prescribed levels of certain classes of substances. Under the
current regulation, the Provincial Government can order an owner or operator to
complete an investigation of a site if the government reasonably expects the
site to be contaminated. If the site is contaminated, any current or previous
owner of the site may be required to remediate the site under government
supervision. In May 2002, the Provincial Government appointed an advisory panel
to review the Contaminated Sites Regulation. The direction provided to the panel
was that government resources be focussed on sites that pose a high risk to the
environment. Several key conclusions were presented by the panel including:

         (a)  Ministry involvement would only be required when there is
              significant effect on human health or the environment.

         (b)  Sites would be assigned a level of risk, and only those with a
              high risk will require remediation.

         (c)  Assessment of the potential for the property to be a contaminated
              site would be required when the existing use of the property is
              going to be changed.

     The Minister of Water, Lands, and Air Protection is currently undertaking a
major rewrite of the Contaminated Sites Regulation based on the recommendations
provided by the advisory panel. The requirements of the new Contaminated Site
Regulation are not known at this time. Therefore the Company cannot assess the
magnitude of costs it may be required to incur in order to comply with this new
legislation if a site for which it is responsible is found to be contaminated.

     Forest certification is a worldwide initiative that provides independent
third party assessments of sustainable forest management practices by forest
products producers. It is voluntary and involves a systematic verification and
assessment process against a set of criteria and elements. The most broadly
accepted Canadian forest values generated to date are embodied in the Canadian
Council of Forest Ministers (CCFM) SFM criteria and elements. The CCFM SFM
criteria and elements are fully consistent with those of the Montreal and
Helsinki processes, which are both recognized by governments around the world.

     The requirements of the Canadian Standards Association (CSA) Z809 Standard
are defined by the CCFM SFM criteria. In this Standard, use of the CCFM SFM
criteria and elements as a framework for value identification provides vital
links between local level SFM and national and provincial-scale forest policy,
as well as a strong measure of consistency in identification of local forest
values across Canada.

     The Company's Northern Vancouver Island Region was certified to the CSA
Z809 1996 Standard in late 2001. Complementary CSA Chain of Custody
certifications were received for the Company's Port Alice pulp mill, Duke Point
Sawmill, Silvertree-Vancouver Division Sawmill and Chemainus Value Added
Division. Chain of Custody grants these facilities the right to apply the CSA
product label and ensures customers that these products originate from
substainably managed forests.

     Positioning the Company's operations to address customer needs will drive
future certification initiatives. Management systems and Chain of Custody
documents continue to be developed for the remaining facilities on an as needed
basis. In January 2004 the Squamish pulp mill achieved the Nordic Swan eco-label
standard.

     Certified Company forest, solid wood operations and associated pulp
manufacturing facilities are summarized as follows:

Forest Operations

         -    ISO 14001 Environmental Management System Certification of all
              forest operations (April 2000, re-registration April 2003)

         -    CSA Z809-1996 Sustainable Forest Management Certification of North
              Vancouver Island Region (November 2001)

         -    CSA plus 1163 Chain of Custody Certification for North Vancouver
              Island region (November 2001, re-qualified August 2002)

<PAGE>

                                      -37-


Solid Wood Manufacturing

         -    CSA Plus 1163 Chain of Custody Certification for Duke Point
              (January 2002) and Silvertree-Vancouver Division (February 2003)

Value Added Facilities

         -    CSA Plus 1163 Chain of Custody Certification for Chemainus
              Processing Division (February 2002, re-qualified March, 2003)

         -    ISO 14001 Environmental Certification for Chemainus Processing
              Division (February 2002)

Pulp Mill - Squamish

         -    ISO 9001-2000 Quality Assurance Certification (1993,
              re-registration 2003)

         -    ISO 14001 Environmental Management System Certification (May 1999,
              re-registration May 2002)


     Prior to its sale on May 11, 2004, the Company received the following
certifications in respect of the Port Alice pulp mill:

         -    ISO 9001-2000 Quality Assurance Certification (1994,
              re-registration 2003)

         -    ISO 14001 Environmental Management System Certification (January
              2001, re-registration January 2004)

         -    CSA Plus 1163 Chain of Custody Certification (December 2001,
              re-qualified February 2003)

     In addition to regular environmental programs, the Company has been active
with other non-core business related environmental initiatives. Five salmon
hatcheries supported in whole or in part by the Company released more than 1
million salmon fry in 2003. The Company also actively participates in the BC
Hydro Power Smart Program.

FIRST NATIONS ISSUES

     First Nations have claimed aboriginal title and other rights to a
substantial portion of British Columbia including areas where the Company's
timber tenures and operations are situated. The Supreme Court of Canada has held
that aboriginal groups may have a spectrum of aboriginal rights in lands that
have been traditionally used or occupied by their ancestors; however, such
rights or title are not absolute and may be infringed upon by government in
furtherance of a valid legislative objectives, including forestry, subject to
meeting a justification test and being consistent with the honour of the Crown.
The effect on any particular lands will not be determinable until the exact
nature of historical use, occupancy and rights in any particular piece of
property have been clarified.

     To resolve outstanding claims, the governments of Canada and British
Columbia in 1992 instituted a tripartite treaty negotiation process with the
First Nations Summit, representing the majority of the First Nations in British
Columbia. As at December 31, 2003, 55 British Columbia First Nations were
involved in the treaty process. Approximately 23 of the 36 First Nations with
traditional territories covering the Company's timber tenures were engaged in
this treaty process. Some groups have commenced litigation to pursue their
claims. Subsequent to filing of the CCAA one First Nation, being the Quatsino
First Nation of the Kwakiutl Nation ("Quatsino"), commenced action against a
Company subsidiary, Western Forest Products Ltd. ("WFP") and a number of other
forest companies and claiming in respect of WFP for declaratory relief as to
aboriginal title as to certain licenced tenures of WFP and general unspecified
damages and compensation for use of forest lands and trees. Pursuant to a
negotiated Court order dated January 23, 2004 the Quatsino were permitted to and
did file a proof of claim in respect of claims that were capable of compromise
under the CCAA. These compromised claims included monetary claims or debt claims
that the Quatsino might have as against WFP, but did not include claims as to
aboriginal title or claims in rem which are not capable of compromise under the
CCAA. As a stated effort to facilitate the reorganization of the Company and WFP
the proof of claim of the Quatsino was valued by them at $1.00 and it was
accepted by the Company in such amount. Thus all claims of the Quatsino capable
of compromise under the CCAA are valued at $1.00 and they will received
dividends on that amount under the Plan filed under the CCAA. Aboriginal title
claims of the Quatsino are not affected by the Plan filed under the CCAA.

     Current Provincial Government policy requires that forest management and
operating plans take into account and not infringe upon aboriginal rights and
provide for consultation with aboriginal groups. This policy is reflected in the
terms of the Company's timber tenures, which provide that the Ministry of
Forests may refuse to issue cutting permits in respect of a timber

<PAGE>


                                      -38-

tenure if it is determined that the forestry operation would interfere with
aboriginal rights. First Nations have, at times, sought to restrict the
Provincial Government from granting or renewing forest tenures and other
operating authorizations without their consent if the tenures affect lands
claimed by them. In 2003, the Provincial Government updated its policy on
aboriginal rights and title with respect to consultation and accommodation
responsibilities. The Company continues to believe that the fostering of
mutually beneficial business relationships with First Nations will facilitate
these consultations and accommodation processes. The Company has continued to
develop working relationships with many First Nations and has entered into
timber harvesting, silviculture, planning and other capacity building
arrangements.

     The issues surrounding aboriginal title and rights are not likely to be
resolved by the Provincial Government in the near future. The Company is
committed to working with both the Provincial Government and First Nations to
resolve the issues.

SOFTWOOD LUMBER DISPUTE

     On March 22, 2002 and further adjusted on April 25, 2002, the USDOC issued
its final determination in the countervailing and antidumping investigations.
The USDOC's final determination in the countervailing investigation resulted in
a duty rate of 18.79% to be posted by cash deposits from May 22, 2002, the
effective date of the Final Order. The USDOC's final determination in the
antidumping investigation resulted in company specific duty rates ranging from
2.18% to 12.44% on the six companies investigated and an "all other rate" of
8.43% for all other companies, including the Company. On May 16, 2002, the USITC
published its final written determination on injury and stated that Canadian
softwood lumber threatens material injury to the U.S. industry. As a result,
effective from the Final Order date, cash deposits are required for shipments at
the rates determined by the USDOC. All prior bonds or cash deposits posted prior
to May 22, 2002 were refunded.

     The Canadian government and Canadian lumber companies affected by the
softwood lumber duties initiated challenges of such duties under the provisions
of the NAFTA and before the WTO.

     On January 12, 2004, the USDOC submitted a revised countervailing duty
calculation to the NAFTA Panel. In response to the NAFTA Panel's prior directive
not to measure the countervailing duty using U.S. timber prices as the
benchmark, the USDOC changed its calculation method to use prices of imported
and domestic logs. This change resulted in a reduction in the countervailing
duty to 13.24% from 18.79%. However, the rate that is charged on Canadian
imports of lumber to the U.S. is not likely to be changed until the NAFTA panel
process is exhausted, which is not expected to be completed until December,
2004. On January 19, 2004, the WTO Appellate Body released its ruling on the
U.S. and Canadian appeals, which was the final step in the WTO appeal process
for the countervailing duty dispute. The WTO Appellate Body ruled that the USDOC
may use a benchmark other than private prices in the country being investigated
in very limited circumstances, but stated that if the U.S. is going to use a
benchmark other than private prices in Canada, it is obligated to ensure that
the alternative benchmark it uses relates to prevailing market conditions in
Canada.

     Despite the rulings from the NAFTA and WTO proceedings thus far, the
Company is at present unable to predict the ultimate effect of the challenges,
or if and when the outstanding softwood lumber issues will be settled. The final
amount of countervailing and antidumping duties that may be assessed on Canadian
softwood lumber exports to the U.S. cannot be determined at this time and will
depend on the outcome of the various challenges and appeals of the final
determinations to any reviewing courts, NAFTA or WTO panels or on a negotiated
settlement Accordingly, the US countervailing and anti-dumping duties have, and
are expected to continue to have, a material adverse impact on the ability of
the Company to market its softwood lumber in the U.S. In addition, the actual
duty amounts will likely be based on rates established by an administrative
review process completed by the USDOC.

     The Company has recorded countervailing and antidumping duties at 27.22%
totalling $36.1 million (2002 - $22.3 million) for the year ended December 31,
2003. These amounts have been recorded as a reduction of sales revenue.
Cumulative duties from May 22, 2002, when cash deposits were made necessary for
shipments of Canadian lumber into the U.S., until December 31, 2003 total $58.4
million. For the year ended December 31, 2002, the Company recorded the deposits
refunded relating to 2001 sales in the amount of $12.4 million as an increase in
sales revenue for 2002. Any further adjustments resulting from a change in the
countervailing and antidumping duty rates will be made prospectively.

HUMAN RESOURCES

     As of the date hereof, the Company has approximately 1,900 employees. The
majority of the Company's hourly paid workers in its solid wood segment are
represented by the Industrial, Wood & Allied Workers of Canada (the "IWA"). The
Company is a member of Forest Industrial Relations Limited, which represents
forestry companies in the coastal region of the

<PAGE>


                                  -39-

Province of British Columbia in their negotiations with the IWA. The previous
labour agreement expired in June, 2003 and the Provincial Government has
introduced legislation appointing a mediator/arbitrator to establish a new
agreement.

     As of the date hereof, the majority of the Company's hourly workers in the
pulp segment are represented by the Pulp, Paper and Woodworkers Union of Canada
("PPWC"). In April 2003, the Company signed a five year collective agreement
with the PPWC.

CREDIT FACILITIES

     In March, 1994, the Company issued the 1994 Notes under the Unsecured 1994
Note Agreement. The Bank of New York is the current trustee. The 1994 Notes had
no principal payments or sinking fund requirements. Although the 1994 Notes
matured in March, 2004, the principal and interest accrued since November 7,
2002 remain unpaid. The 1994 Notes continue to be subject to the stay of
proceeding under the CCAA.

     In November, 1997, the Company issued the 1997 Notes under the Unsecured
1997 Note Agreement. The Bank of New York is the current trustee. The 1997 Notes
have no principal payments or sinking fund requirements until they mature in
2007. The interest accrued since November 7, 2002 remains unpaid. The 1997 Notes
continue to be subject to the stay of proceedings under the CCAA.

     In June, 1999, the Company issued the 1999 Notes under the Secured Note
Agreement. Wells Fargo Minnesota N.A. is the current trustee. The 1999 Notes
have no principal payments or sinking fund requirements until they mature in
2004. The proceeds from the issuance of the 1999 Notes were used to repay debt
under the Company's bank credit facilities, to fund working capital and for
other general corporate purposes. The 1999 Notes are secured by a first priority
lien upon a portion of the Company's timber tenures which have an AAC of
approximately 4.0 million cubic metres, six of its operating sawmills (the lien
also covered two other sawmills that have been shut down), its Squamish pulp
mill and its value-added lumber remanufacturing plant, but not by its
receivables or inventories. The interest accrued since November 7, 2002 remains
unpaid. The 1999 Notes continue to be subject to the stay of proceedings under
the CCAA.

     In 2001, the Company established a revolving credit facility secured by
receivables and inventory which was replaced in March, 2002, with a new secured
revolving operating credit facility of up to $65 million which has an initial
term of three years and allows for borrowing against receivables and inventory.

C.   ORGANIZATIONAL STRUCTURE

     Doman Industries Limited was formed by the amalgamation on December 31,
1979 of Doman Industries Limited and Duncan Financial Centre Ltd. pursuant to
the Company Act (British Columbia). The principal predecessor company, Doman
Industries Limited, was incorporated on April 18, 1955 under the name "Doman's
Lumber & Transport Ltd." and changed its name to "Doman's Lumber Company Ltd."
on March 13, 1958 and subsequently changed its name to "Doman Industries
Limited" on November 10, 1964. Duncan Financial Centre Ltd. was incorporated on
May 10, 1971. The Company has amended its Articles at various times to create
Class A Cumulative Redeemable Preferred Shares, Class B Cumulative Redeemable
Preferred Shares and the Non-Voting Shares. The Company continued under the CBCA
on June 12, 2002.

     The following chart sets out the Company's principal subsidiaries and their
primary activities (before giving effect to the Plan). All such subsidiaries are
wholly-owned and, other than Western Pulp Limited Partnership, have been
continued under and are now governed by the CBCA. Western Pulp Limited
Partnership is formed under the Partnership Act of British Columbia.


<PAGE>

                                      -40-


                                   [GRAPHIC]


D.   PROPERTY, PLANTS AND EQUIPMENT

SOLID WOOD FACILITIES

     The Company owns six operating sawmills, a log merchandiser and a
value-added lumber remanufacturing plant. The repayment of the 1999 Notes are
secured by a first priority lien on six of these sawmills and the value-added
lumber remanufacturing plant. The Company previously operated nine sawmills. The
Company, pursuant to its sawmill rationalization policy, has reduced the number
of operating mills from nine down to six, thereby enabling the Company to
benefit from reduced manufacturing costs without a loss in production
capability, and thus improving overall efficiencies through economies of scale.
The Tahsis sawmill has been dismantled, while production at the two Vancouver
sawmills, Silvertree and Marpole, has been combined under the name
Silvertree-Vancouver Division. The former Silvertree sawmill has been
dismantled. Some of the best equipment from the dismantled mills is being used
to increase productivity at the six operating mills. The Chemainus sawmill has
ceased operations. The six operating sawmills each use computer controlled
equipment to optimize the lumber recovery from each log. The Company's high
quality timber supply and the particular design of its sawmills enable it to
produce specialty products such as upper grade lumber, lumber with long lengths
(over 20 feet) and wide widths (over 10 inches), lumber produced from western
red cedar, and baby squares and beams used in traditional Japanese housing.
These products command premium prices compared to commodity construction grades,
such as SPF 2x4 lumber. Much of the softwood timber in North America is not
capable of producing substantial quantities of these specialty products, as the
trees are too small or have a poor knot structure.

     Switching the cedar production to the Silvertree-Vancouver Division has
resulted in an increase of at least 80 mfbm per day. Future improvements are
expected. The Company's Cowichan Bay sawmill set an all time production record
in November 2003.

     Five of the Company's sawmills are located on Vancouver Island. The
Company's Duke Point and Nanaimo sawmills are both located in Nanaimo. The
Company's Ladysmith and Saltair sawmills are both located on the same property
in Ladysmith. The Company's other sawmill on Vancouver Island is located at
Cowichan Bay. The Duke Point and Nanaimo sawmills process large diameter logs of
mixed species, while the Cowichan Bay, Ladysmith and Saltair sawmills process
small diameter logs. The Cowichan Bay sawmill also processes western red cedar.
All of the Company's sawmills on Vancouver Island have adjacent water lots which
are leased from the Province and have barge loading facilities to handle
water-borne shipments of sawmill products.

     The Duke Point, Cowichan Bay, Ladysmith and Saltair sawmills are situated
on land owned by the Company. The Nanaimo sawmill is situated on an 8.5 hectare
site, which includes 6.1 hectares owned by the Company and 2.4 hectares leased
from the Nanaimo Port Authority.

     The Nanaimo sawmill cuts predominantly Douglas fir and hemlock logs and
produces a wide range of high-value specialty lumber products primarily for the
Japanese market. The Saltair sawmill can cut for both the Japanese and North
American

<PAGE>

                                      -41-

markets and can process western red cedar. The Saltair and Nanaimo sawmills have
received authorization to stamp their lumber as having met the quality control
requirements of the Japanese Agricultural Standard, indicating that the lumber
meets rigorous Japanese structural grading rules.

     The Company's Silvertree-Vancouver sawmill is located in Marpole, a suburb
of Vancouver. It specializes in processing cedar logs and can also process large
diameter hemlock. As noted above, the Silvertree and Marpole mills combined
their operations at Marpole under the name Silvertree-Vancouver Division. The
two sawmills properties are located on land which fronts the Fraser River and is
owned by the Company. Both properties have barge loading facilities to handle
water-borne shipments of sawmill products. The water lots necessary to operate
these two locations are leased from the North Fraser Port Authority.

     The Company's annual lumber production capacity and actual lumber
production for each of its sawmills for each of the last five years are set out
in the following table:

<TABLE>
<CAPTION>
                                            PRE-SAWMILL                                                       POST-SAWMILL
                                          RATIONALIZATION              LUMBER PRODUCTION (MMFBM)             RATIONALIZATION
                                       -----------------------  ---------------------------------------   ----------------------
                                                     RATED             YEARS ENDED DECEMBER 31              NUMBER
                                        NUMBER    CAPACITY(1)   ---------------------------------------       OF       CAPACITY
SAWMILLS              LOCATION         OF SHIFTS    (MMFBM)      2003   2002     2001     2000     1999    SHIFTS(2)   (MMFBM)
--------              --------         ---------    -------      ----   ----     ----     ----     ----    ---------   --------

<S>                   <C>                  <C>        <C>         <C>    <C>      <C>      <C>      <C>       <C>      <C>
Chemainus             Chemainus             1            48        --     17       20       39       32       --          --
Cowichan Bay          Cowichan Bay          2           125       122    122      101       97       67        3         215
Duke Point            Nanaimo               1            88        86     89       84       78       82        3         225
Ladysmith             Ladysmith             2           120        90     46       60       88       98        3         170
Nanaimo               Nanaimo               2           138       128    122      136      112      105        3         200
Saltair               Ladysmith             2           150       120    111       80      119      134        3         170
Silvertree            Vancouver             2           113        --     16       44       98       75       --          --
Marpole               Vancouver             2           165        69     39       12       73       55        3         160
Tahsis                Tahsis                2           125        --     --       17       69       69       --          --
                                           --         -----       ---    ---      ---      ---      ---       --       -----
                                           16         1,072       615    562      554      773      717       18       1,140
                                           ==         =====       ===    ===      ===      ===      ===       ==       =====
</TABLE>

------------------
(1)  Based on the normal number of shifts and 250 operating days.
(2)  Potential number of shifts based on eliminating production at specified
     mills and increasing production at the Company's more efficient mills.

     The Company's log merchandiser is located at Nanaimo on Vancouver Island.
The plant extracts the lumber quality portion out of lower quality logs and
processes the balance into wood chips and other by-products. The lumber portion
is sent to the Company's sawmills for processing and the wood chips are used
principally at the Squamish pulp mill. The water lots necessary to operate this
plant are leased from the Province and the Nanaimo Port Authority.

     The Company's value-added lumber remanufacturing plant dries, cuts, resaws
and trims lumber into various grades and dimensions, which are used primarily in
the manufacturing of moldings, panelling and frames for doors and windows. The
plant is located in Chemainus and is situated on land owned by the Company. It
is comprised of 10 kilns, which are utilized to dry lumber produced at the
Company's sawmills, a planer mill, and resawing, sorting and trimming
facilities. The plant has an annual drying and production capacity of
approximately 80 million board feet of lumber and in 2003 processed 38 million
board feet of lumber.

     The Company operates a lumber distribution yard located at Richmond near
Vancouver.

     See "Item 4. Information on the Company - B. Business Overview -
Environment" for a discussion of environmental matters.

PULP MILLS

     The Company owns and operates an NBSK pulp mill on the mainland of British
Columbia near Squamish and prior to May 11, 2004, owned and operated a
dissolving sulphite pulp mill near Port Alice on Vancouver Island. In addition
to the property listed above, the repayment of the 1999 Notes is also secured by
a first priority lien on the Squamish NBSK pulp mill.

<PAGE>

                                      -42-

Both mills are located on the coast with easy access to water transportation.
Fibre for the Squamish pulp mill comes from wood chips produced by the Company's
sawmills and log merchandiser while Port Alice processed pulp logs through its
own wood room.

     The Squamish NBSK pulp mill has an annual production capacity of 275,000
ADMT and is located approximately 65 kilometres north of Vancouver. The mill has
a high quality water supply, access to a natural gas pipeline, close proximity
to sources of raw materials, major storage and shipping terminals, and access
via ferry to Squamish and then by road to Vancouver. The Squamish pulp mill
employs 310 people and is situated on land owned by the Company. The water lot
necessary to operate the mill is leased from the Province of British Columbia.

     NBSK pulp is a long-fibred northern softwood pulp manufactured from
primarily a mixture of hemlock, balsam, fir and cedar wood chips and is noted
for its strength, whiteness and absorption properties. NBSK pulp is used to
produce a variety of products, including lightweight publication grades of
paper, tissues and hygiene products.

     In the last five years, approximately $8.7 million has been expended at the
Squamish pulp mill to improve production efficiency and provide environmental
enhancements.

     In December, 2000, a chip screening facility was completed at the Squamish
pulp mill which reduced costs, improved productivity and product quality. The
Squamish pulp mill received its official ISO 9001 registration in May 1993 and
ISO 14001 registration in May, 1999.

     The Port Alice dissolving sulphite pulp mill is the only producer of
dissolving sulphite pulp in British Columbia and one of only three dissolving
sulphite pulp mills in Canada. It is located near Port Alice, a village of
approximately 900 people in the northwest corner of Vancouver Island. While the
Company operated the pulp mill it had an annual production capacity of 160,000
ADMT, employed approximately 345 people and was situated on land owned by the
Company. The water lot necessary to operate the mill was leased from the
Province of British Columbia.

     Dissolving sulphite pulp is a long-fibred pulp manufactured by an acid
cooking process from primarily hemlock and is noted for its chemical properties.
While the Company operated the Port Alice pulp mill, dissolving sulphite pulp
produced was used to make such products as garments, artificial silk, plastics,
lacquers, cosmetics and pharmaceuticals. It also produced paper grade sulphite
pulp when warranted by market conditions.

     The Port Alice pulp mill received its official ISO 14001 registration in
January, 2001 and the Canadian Standards Association Sustainable Forest
Management Chain of Custody (product labelling) in December, 2001.

     The plan of compromise and arrangement presented to the Company in April,
2004, by the Restricted Group contemplated a permanent shutdown of the Port
Alice pulp mill based on its belief that the pulp mill is not economically
viable and should not be part of the Doman corporate group when it emerges from
CCAA protection. As noted above, on April 6, 2004 the Court ordered the shutdown
of the Port Alice pulp mill effective at the end of the production run on May
11, 2004. The order did not prevent the Company from seeking purchasers for the
Port Alice pulp mill. The Company sold the Port Alice pulp mill on May 11, 2004
to PASC, an affiliate of LaPointe Partners, Inc. Under the purchase and sale
agreement dated as of May 9, 2004, the purchaser acquired substantially all of
the Port Alice pulp mill assets including adjusted working capital valued at
$2.73 million in consideration for one dollar and the assumption of outstanding
obligations relating to the Port Alice pulp mill, including employee and pension
liabilities. It was a condition of the purchase and sale that all of the
existing Port Alice employees be offered employment by the purchaser. On May 11,
2004, the Court issued an order approving the sale of the Port Alice pulp mill.

     The Company's annual pulp production capacity and actual pulp production
for the Squamish and Port Alice for each of the last five years are set out in
the following table:

<TABLE>
<CAPTION>
                                                                                       PULP PRODUCTION
                                                                  ----------------------------------------------------------
                                              ANNUAL PULP                           YEARS ENDED DECEMBER 31,
                                              PRODUCTION          ----------------------------------------------------------
                                              CAPACITY(1)           2003         2002         2001         2000        1999
                                           -------------------    --------     --------     --------    ---------    -------
                                                                                     (THOUSANDS OF ADMT)
<S>                                               <C>                  <C>          <C>          <C>         <C>          <C>
 PULP MILLS
   Squamish........................               275                  253          204          164         266          264
   Port Alice......................               160                   55           54          117         159           97
                                                  ---                  ---          ---          ---         ---          ---
                                                  435                  308          258          281         425          361
                                                  ===                  ===          ===          ===         ===          ===
</TABLE>
------------------
(1)   Capacity is stated as at December 31, 2003 on a three shifts per day,
      340 days per year basis.

<PAGE>

                                      -43-

     The Company recently commenced a legal action against the Province in which
it claims that the Province breached its obligation to provide fibre supply on
an annual basis to the Port Alice pulp mill. Based on the government's
commitment to provide the fibre supply, the Company undertook significant
expenditures in respect of environmental upgrades at the Port Alice pulp mill.
Documents have been exchanged between the parties. The Province's application to
dismiss the claim failed. As of the date hereof, a trial date has been set for
September, 2005. The sale of the Port Alice pulp mill does not affect the legal
action against the Province.

     The Company commenced an action against the Provincial Government alleging
that the Company has suffered harm as a consequence of the assistance package
provided to Skeena Cellulose pulp mill by the Province. The Crown has provided
responses to interrogatories and the Company has answered demands for
particulars. As of the date hereof, no trial date has been set.

     See "Item 4. - Information on the Company - B. Business Overview -
Environment."

     ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     The following discussion and analysis of the financial condition and
results of operations of the Company for the three years ended December 31, 2003
should be read in conjunction with the consolidated financial statements and
related notes thereto included in this report. The discussion below is based
upon, and the financial statements have been prepared in accordance with
Canadian GAAP. For a description of the differences between Canadian GAAP and
U.S. GAAP, see note 17 to the consolidated financial statements included in this
report.

REORGANIZATION PROCEEDINGS

     The Company is reorganizing its affairs under protection of the CCAA. For
further information on the CCAA proceedings, see "Item 4 - Information on the
Company - A. History and Development of the Company - CCAA Proceedings".

     The Company filed the Plan on April 30, 2004 and disseminated the
Information Circular to Affected Creditors in connection with the meeting of its
Affected Creditors to approve the Plan. For further information on the Plan, see
"Item 4 - Information on the Company - A. History and Development of the Company
- Plan of Compromise and Arrangement".

     The ability of the Company to continue as a going concern is primarily
dependent upon the Company's ability to emerge from CCAA.

A.   OPERATING RESULTS

GENERAL

     The Company's business is the harvesting of timber and the manufacturing
and sale of lumber and pulp for worldwide markets. Factors that have affected
and will continue to affect operating results include the economic health of the
U.S., Japan and Canada, which are the leading markets for the Company's lumber
products, and of Asia and Europe, which are the leading markets for the
Company's pulp products.

     Demand for the Company's lumber products is significantly driven by the
level of U.S. housing starts, and indirectly is a function of the health of the
U.S. economy and mortgage borrowing rates. The supply of lumber to the U.S. is
tied to the levels of lumber industry production, the ability or inability of
certain producers to shift production between different lumber markets and,
recently, the countervailing and anti-dumping duties imposed by the U.S. upon
Canadian producers of softwood lumber exports to the U.S. The Company, as a
result, is unable to maintain significant lumber shipments to the U.S. without
incurring significant costs. In 1997 the Company acquired certain solid wood
assets, including sawmills, from Pacific Forest that targeted the Japanese
market. As a result, the condition of the Japanese economy has significant
impact on the demand for the Company's lumber products.

     The pulp industry is highly competitive on a global basis and producers
compete primarily on price. Over the long-term, demand for NBSK pulp is a
function of economic growth generally, and paper and paperboard demand
specifically. The supply of market pulp is a function of both industry
production and the level of inventories that exist, and, over short periods of
time, NBSK prices are subject to wide fluctuations depending on the balance
between demand and supply.








<PAGE>
                                     - 44 -



     The following table sets forth selected operating results for the Company
for each of the last three years:

SELECTED ANNUAL INFORMATION(1)
(millions of Canadian dollars)

<TABLE>
<CAPTION>


                                                                              YEARS ENDED DECEMBER 31,
                                                                      ---------------------------------------
                                                                         2003          2002           2001
                                                                      ---------      ---------      ---------
<S>                                                                   <C>            <C>            <C>
Sales volumes
     Lumber - millions of board feet                                        596            591            674
     Logs - thousands of cubic metres                                       721            782           1064
     Wood chips - thousands of units                                        307            288            271
     Pulp - thousands of ADMT                                               322            262            301

Net sales
     --  Lumber                                                       $   260.5      $   320.9      $   354.7
     --  Logs                                                             106.5          123.3          156.5
     --  By-products                                                       22.0           19.5           20.8
                                                                      ---------      ---------      ---------
     Solid wood segment                                               $   389.0      $   463.7      $   532.0
     Pulp segment                                                         200.0          171.2          238.0
                                                                      ---------      ---------      ---------
     Consolidated                                                     $   589.0      $   634.9      $   770.0

Costs and Expenses                                                        620.6          581.5          758.1
Amortization of property, plant and equipment                              46.0           48.5           67.2
Operating restructuring costs and asset write-downs                         8.0           67.5          291.7
                                                                      ---------      ---------      ---------

Operating earnings (loss)                                                 (85.5)         (62.5)        (347.1)

Other income and expense
     Interest                                                             (96.4)        (102.7)        (101.0)
     Exchange gains and (losses) on long-term debt and
     amortization of debt issue costs                                     184.8            5.0          (72.4)
     Financial restructuring costs                                         (7.8)          (7.3)            --
     Other income (expense)                                                 2.2            4.3           14.4
                                                                      ---------      ---------      ---------

Earnings (loss) before income taxes                                        (2.8)        (163.3)        (506.1)
Income tax (expense) recovery                                              (1.0)          (0.8)          93.2
                                                                      ---------      ---------      ---------
Net income (loss)                                                     $    (3.8)     $  (164.1)     $  (412.9)
                                                                      =========      =========      =========

Provision for preferred dividends - $millions                         $    (4.8)     $    (4.5)     $    (4.5)
Basic earnings (loss) per share                                       $   (0.20)     $   (3.97)     $   (9.82)
Diluted earnings (loss) per share                                     $   (0.20)     $   (3.97)     $   (9.82)
                                                                      ---------      ---------      ---------

Total assets                                                          $   749.1      $   843.9      $   974.5
Total term debt(2)                                                    $   872.5      $ 1,061.7      $ 1,072.0

</TABLE>

(1)      The financial information presented has been prepared in accordance
         with Canadian GAAP.

(2)      Term debt of US$673 million is translated at year end exchange rate of
         1.2965, 1.5776 and 1.5928 at December 31, 2003, 2002 and 2001
         respectively.

<PAGE>
                                      - 45 -


<TABLE>
<CAPTION>
SEGMENTED INFORMATION                                               YEARS ENDED DECEMBER 31,
                                                       ----------------------------------------------
                                                         2003               2002               2001
                                                       --------           --------           --------
<S>                                                    <C>                <C>                <C>
OPERATING EARNINGS (LOSS)
Solid wood segment                                     $  (31.6)          $   34.5           $  (39.5)
Pulp segment                                              (47.2)             (86.7)            (301.9)
General corporate                                          (6.7)             (10.4)              (5.7)
                                                       --------           --------           --------
Consolidated                                           $  (85.5)          $  (62.6)          $ (347.1)
                                                       ========           ========           ========

AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Solid wood segment                                     $   36.3           $   38.3           $   42.2
Pulp segment                                                9.6               10.2               25.0
                                                       --------           --------           --------
Consolidated                                           $   46.0           $   48.5           $   67.2
                                                       ========           ========           ========

</TABLE>

OVERVIEW OF 2003

     The Company's operations in 2003 continued to be negatively impacted by low
lumber and pulp commodity prices, as well as softwood lumber duties. In
addition, the strengthening Canadian dollar compounded the problem as most of
the Company's products are priced in US dollars.

     Restructuring efforts were underway throughout 2003 and management of cash
flow and working capital, especially inventory levels, resulted in frequent
curtailment of operations.

     The Company recorded a net loss of $3.8 million in 2003 compared to a net
loss of $164.1 million in 2002. Significant items contributing to the difference
in net loss between the two years are as follows:

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                  ------------- --- -------------
                                                      2003              2002
                                                  -------------     -------------
                                                      (MILLIONS OF DOLLARS)
<S>                                               <C>               <C>           <C>
Translation gain on US $ debt                      $    189.2       $      10.2   See paragraph below
Softwood lumber duties                                  (36.1)            (22.3)  See "US Softwood Lumber Duties" below
Softwood lumber duties - refund for 2001                   --              12.4   See "US Softwood Lumber Duties" below
Write-down of assets                                     (8.0)            (67.5)  See "Write-down of Assets" below
                                                   ------------     -----------
                                                        145.1             (67.2)
Other                                                  (148.9)            (96.9)  Difference of $52.0 see commentary below
                                                                    -----------
Net loss                                           $     (3.8)      $    (164.1)
                                                   ==========       ===========

</TABLE>

     The strengthening Canadian dollar in 2003 impacted the Company's financial
results in two ways. Firstly, all of its long-term debt of US $673 million is
denominated in US dollars and the stronger Canadian dollar in 2003 resulted in a
translation gain of $189.2 million (compared to $10.2 million in 2002).
Secondly, most of the Company's products are priced in US dollars and the
Company estimates that the stronger Canadian dollar, which averaged US $0.71 in
2003 compared to US $0.64 in 2002, reduced operating earnings and net income by
approximately $51 million (see table above).

Going Concern

     The consolidated financial statements for 2003 have been prepared on a
going concern basis, which assumes that the Company will be able to realize its
assets and discharge its obligations in the normal course of business. There is
doubt about the appropriateness of the use of the going concern assumption
because of the CCAA reorganization proceedings and circumstances relating to
this event, including the Company's current debt structure, recent losses and
cash flow. As such, realization of assets and discharge of liabilities are
subject to significant uncertainty.

     The consolidated financial statements do not reflect adjustments that would
be necessary if the going concern basis was not appropriate. If the going
concern basis was not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the going concern basis is
dependent upon, among other things, confirmation of a Plan, future profitable
operations and the ability to generate sufficient cash from operations and
financing arrangements to meet obligations.

<PAGE>
                                     - 46 -


     There can be no assurance that the Company will successfully emerge from
its reorganization proceedings. Approval of a Plan and the emergence from CCAA
proceedings are subject to a number of conditions.

     If a Plan is confirmed by the Court, the reorganized Company will be
required to adopt fresh start accounting and report in accordance with Canadian
GAAP. This accounting will require that assets and liabilities be recorded at
their fair value at the date of emergence from the Company's CCAA proceedings.
As a result, the reported amounts in the consolidated financial statements could
materially change, because they do not give effect to the adjustments to the
carrying value of assets and liabilities that may ultimately result from the
adoption of fresh start accounting.

     As a result of the CCAA proceedings and the suspension of interest payments
due on its long-term debt, the Company is in default of its long-term debt
covenants under its Secured Notes and Unsecured Notes.

Write-down of Assets

     At December 31, 2003, the Company reviewed the carrying value of its pulp
mills, sawmills and logging assets and determined that based on current economic
conditions and plans, the carrying values for certain sawmill assets were not
likely recoverable from future cash flows from operations and, or sale. As a
result, the Company has recorded a charge of $8.0 million to write down its
sawmill assets and provide for restructuring costs.

     In 2002, as a result of a similar review, the Company recorded a $58.7
million write-down of its Port Alice pulp mill assets including non-consumable
supplies inventories and recorded a charge of $8.8 million to write-down its
sawmill assets and provide for restructuring costs.

Port Alice

     On May 11, 2004, the Company sold the Port Alice pulp mill to PASC, an
affiliate of LaPointe Partners Inc. See "Item 4 - Information on the Company -
A. History and Development of the Company - CCAA Proceedings".

U.S. Softwood Lumber Duties

     On March 22, 2002 and further adjusted on April 25, 2002, the USDOC issued
its final determination in the countervailing and antidumping investigations.
The USDOC's final determination in the countervailing investigation resulted in
a duty rate of 18.79% to be posted by cash deposits from the effective date of
the Final Order (May 22, 2002 as discussed below). The USDOC's final
determination in the antidumping investigation resulted in company specific duty
rates ranging from 2.18% to 12.44% on the six companies investigated and an "all
other rate" of 8.43% for all other companies, including the Company. On May 16,
2002, the USITC published its final written determination on injury and stated
that Canadian softwood lumber threatens material injury to the U.S. industry. As
a result, effective from the Final Order date of May 22, 2002, cash deposits are
required for shipments at the rates determined by the USDOC. All prior bonds or
cash deposits posted prior to May 22, 2002 were refunded. The final amount of
countervailing and antidumping duties that may be assessed on Canadian softwood
lumber exports to the U.S. cannot be determined at this time and will depend on
the outcome of the various challenges and appeals of the final determinations to
any reviewing courts, NAFTA or WTO panels or on a negotiated settlement.
Notwithstanding the final rates established in the investigations, the final
liability for the assessment of countervailing and antidumping duties will not
be determined until each annual administrative review process is complete.

     The Company has recorded countervailing and antidumping duties of 27.22%
totalling $36.1 million (2002 - $22.3 million) for the year ended December 31,
2003. These amounts have been recorded as a reduction of sales revenue.
Cumulative duties from May 22, 2002, when cash deposits were made necessary for
shipments of Canadian lumber into the U.S., until December 31, 2003 total $58.4
million. For the year ended December 31, 2002, the Company recorded the deposits
refunded relating to 2001 sales in the amount of $12.4 million as an increase in
sales revenue for 2002. Any further adjustments resulting from a change in the
countervailing and antidumping duties will be made prospectively.

B.C. Forest Revitalization Plan

     In March 2003, the Provincial Government introduced the Forestry
Revitalization Plan (the "FR Plan") that provides for significant changes to the
Provincial Government's forest policy and to the existing allocation of timber
tenures to licensees. The changes prescribed in the FR Plan include the
elimination of minimum cut control regulations, the elimination of existing
timber processing regulations, and the elimination of restrictions limiting the
transfer and subdivision of existing licences. As well, through legislation,
licensees, including the Company, will be required to return 20% of their
replaceable tenure to the Provincial Government. The FR Plan states that
approximately half of this volume will be redistributed to open up opportunities
for


<PAGE>
                                     - 47 -

woodlots, community forests and First Nations and the other half will be
available for public auction. The Provincial Government has acknowledged that
licensees will be fairly compensated for the return of tenure and related costs
such as roads and bridges.

     The effect of the 20% timber take-back is expected to result in a reduction
of approximately 685,000 m3 of the Company's existing AAC on their replaceable
tenures. The effect of the FR Plan on the Company's financial position and
results of operations cannot be determined at this time. The Company will record
the effects of the FR Plan at the time the amounts to be recorded are estimable.

RESULTS OF OPERATIONS - 2003 VERSUS 2002

     In 2003, the Company's sales decreased by approximately 7% to $589.0
million from $634.9 million in 2002 as a result of a reduction in sales in the
solid wood segment offset in part by an increase in sales in the pulp segment.

     Sales for the solid wood segment decreased by approximately 16% to $389.0
million in 2003 from $463.7 million in 2002, as a result of (i) lower average
sales realizations for lumber reflecting the stronger Canadian dollar in 2003,
(ii) the impact of softwood lumber duties for the full 2003 year (compared to
2002 when duties commenced in May and a $12.4 million prior year refund was
recorded) and (iii) lower outside log sales volume and prices.

     Sales for the pulp segment increased to $200.0 million in 2003 from $171.2
million in 2002, mostly as a result of higher sales volumes for kraft pulp.
Although kraft prices, measured in US dollars, were also higher in 2003 than
2002, the stronger Canadian dollar eliminated most of the price increase. Sales
of dissolving sulphite pulp were consistent between the two years with a
slightly higher sales volume in 2003, but a lower average price when translated
into Canadian dollars.

     Cost of goods sold in 2003 increased to $602.5 million from $562.5 million
in 2002 primarily as a result of increased pulp sales volume of 60,350 ADMT. In
addition, the Squamish pulp mill took 15 days of downtime to carry out scheduled
maintenance work in 2003 at a cost of approximately $12 million. No major
maintenance shutdown had taken place in 2002 as market conditions had made it
unnecessary.

     Amortization of property, plant and equipment decreased to $46.0 million in
2003 from $48.5 million in 2002. Of this $2.5 million reduction, $2.0 million is
attributable to the solid wood segment, in particular to lower amortization of
logging roads, resulting from lower production levels in 2003. In the pulp
segment, higher amortization at Squamish in 2003 as a result of increased
production was more than offset by the elimination of amortization at Port Alice
in 2003 following the complete write-off of that pulp mill in 2002.

     Interest expense is made up of three components as shown below ($millions):

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                                -------------------------------
                                                                     2003              2002
                                                                -------------     -------------
<S>                                                             <C>               <C>
Cash interest paid or payable                                      $  (96.4)         $ (102.7)
Amortization of deferred finance cost                                  (4.4)             (5.3)
Foreign exchange gain on translation of US $ debt                     189.2              10.2
                                                                   --------          --------
                                                                   $   88.3          $  (97.8)
                                                                   ========          ========
</TABLE>

     The Company's term debt of US $673 million at December 31, 2003 and 2002 is
denominated in US dollars. The cash component of interest expense decreased to
$96.4 million in 2003 from $102.7 million in 2002 as a result of the
strengthening Canadian dollar. As a result of the CCAA Court order, interest
payments were stayed after November 7, 2002, but continued to be accrued. Also
included in interest expense is the unrealized foreign exchange gain or loss on
translating the term debt at current exchange rates. The year end exchange rates
for the US dollar at December 31, 2003, 2002 and 2001 were 1.2965, 1.5776 and
1.5928. The stronger Canadian dollar at December 31, 2003 compared to December
31, 2002 resulted in a gain of $189.2 million.

RESULTS OF OPERATIONS - 2002 VERSUS 2001

     In 2002, the Company's sales decreased by approximately 18% to $634.9
million from $770.0 million in 2001 as a result of a reduction in sales in both
the solid wood and pulp segments.

<PAGE>
                                      - 48 -


     Sales for the solid wood segment decreased by approximately 13% to $463.7
million in 2002 from $532.0 million in 2001, primarily as a result of a decrease
in lumber sales of approximately 9% to $320.9 million in 2002 from $354.7
million in 2001 and a decrease in log sales of approximately 21% to $123.3
million in 2002 from $156.5 million in 2001. Despite strong housing statistics,
lumber sales into the U.S. were impacted by an oversupply situation. In
addition, the Japanese market continued to remain weak in 2002 reflecting
on-going economic problems in that country.

     Sales for the pulp segment decreased to $171.2 million in 2002 from $238.0
million in 2001 as a result of lower sales of dissolving pulp where prices for
commodity grades, in particular, remained weak. Sales of NBSK pulp were
consistent between the two years with a higher sales volume in 2002 but a lower
average price.

     Cost of goods sold in 2002 decreased to $562.4 million from $738.2 million
in 2001 primarily as a result of decreased sales. Cost of goods sold in the
solid wood segment decreased to $376.6 million in 2002 from $486.0 in 2001
reflecting the lower sales volumes of both lumber and logs. In the pulp segment,
cost of goods sold in 2002 decreased to $185.8 million from $252.2 million in
2001 as a result of lower sales volumes.

     Amortization of property, plant and equipment decreased to $48.5 million in
2002 from $67.2 million in 2001. Of this $18.7 million reduction, $14.8 million
is attributable to the pulpmill segment where amortization rates were lower in
2002, as a result of the pulpmill asset write-downs taken in 2001, as well as
lower total production in 2002. The balance of the $3.9 million decrease in
amortization reflects lower amortization of logging roads as a higher percentage
of logging in 2002 was in the lower cost northern Vancouver Island region.

     Interest expense decreased to $97.8 million in 2002 from $173.4 million in
2001 primarily as a result of including in earnings the full amount of
unrealized foreign exchange gains and losses on translating long-term debt at
current exchange rates. The year end exchange rates for the $U.S. at December
31, 2002, 2001 and 2000 were 1.5776, 1.5928 and 1.4995 respectively. The cash
component of interest expense was $102.7 million in 2002 compared to $101.0
million in 2001. As a result of the CCAA Court order, interest payments were
stayed after November 7, 2002 but continued to be accrued.

     Other income decreased to $4.3 million in 2002 from $14.4 million in 2001.
The 2002 figure comprises primarily a $5.5 million gain on sale of surplus
properties whereas the 2001 figure includes an $18.3 million gain on the
buy-back of senior notes.

     Expenses in 2002 include financial restructuring charges of $7.3 million.
These costs include investment banking and legal fees, fees paid to the monitor
appointed by the Court under the CCAA proceedings as well as a non-cash charge
associated with writing off deferred finance costs.

     The income tax expense of $0.8 million in 2002 relates to large corporation
tax. In 2001 an income tax recovery of $93.2 million was shown in the financial
statements reflecting the net recovery after applying a valuation allowance that
is more fully described in the notes to the audited consolidated financial
statements.

QUARTERLY FINANCIAL INFORMATION

     The following table is a summary of selected quarterly financial
information concerning the Company for each of the last eight quarters to
December 31, 2003:
<PAGE>
                                     - 49 -

<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION
Millions of Canadian dollars

                                                              2003                                          2002
                                                  -------------------------------------  -----------------------------------------
                                                     1st      2nd      3rd        4th       1st        2nd       3rd        4th
<S>                                               <C>      <C>       <C>       <C>       <C>        <C>        <C>        <C>
Sales                                             $ 149.2  $ 138.5   $ 158.9   $ 142.5   $  131.7   $  158.2   $ 175.6    $ 169.4
Costs and Expenses                                  134.2    164.2     168.8     153.4      135.1      135.3     154.9      156.2
Amortization of property, plant and equipment        11.5     12.8       9.5      12.2        7.0       12.3      13.3       15.8
Operating restructuring costs and asset
  write-downs                                         --       2.0       4.9       1.1         --         --       3.2       64.3
                                                  -------  -------   -------   -------   --------   --------   -------    -------
Operating earnings(loss)                              3.6    (40.5)    (24.4)    (24.2)     (10.4)      10.6       4.2      (66.9)

Other income and expense
     Interest                                       (21.6)   (25.6)    (27.1)    (22.2)     (25.8)     (24.0)    (26.8)     (26.1)
     Exchange gains and (losses) on long-term
     debt and amortization of debt issue costs       72.8     79.9      (2.0)     34.2       (2.3)      51.2     (49.1)       5.1
     Financial restructuring costs                   (1.9)    (1.6)     (1.7)     (2.5)        --         --        --       (7.3)
     Other income (expense)                           0.1      1.0       0.4       0.7       (0.1)      (1.0)     (1.5)       6.8
                                                  -------  -------   -------   -------   --------   --------   -------    -------
Earnings(loss) before income taxes                   52.9     13.2     (54.8)    (14.0)     (38.6)      36.9     (73.2)     (88.4)
Income tax (expense) recovery                        (0.7)     0.5      (0.4)     (0.5)      (0.8)      (0.9)     (0.7)       1.5
                                                  -------  -------   -------   -------   --------   --------   -------    -------
Net income(loss)                                  $  52.2  $  13.7   $ (55.2)  $ (14.5)  $  (39.4)   $  36.0   $ (73.8)   $ (86.9)
                                                  =======  =======   =======   =======   ========    =======   =======    =======

Provision for preferred dividends-$millions       $  (1.2) $  (1.2)  $  (1.2)  $  (1.2)  $   (1.1)   $  (1.1)  $  (1.2)   $  (1.2)
Basic earnings(loss) per share                    $  1.20  $  0.29   $ (1.33)  $ (0.37)  $  (0.95)   $  0.82   $ (1.76)   $ (2.07)
Diluted earnings(loss) per share                  $  1.20  $  0.29   $ (1.33)  $ (0.37)  $  (0.95)   $  0.82   $ (1.76)   $ (2.07)

</TABLE>

     The following factors affected the comparability of quarterly results in
2003:

-    The average value of the Canadian dollar strengthened each quarter,
     negatively impacting sales, with the largest quarterly increases being in
     the second quarter (7%) and fourth quarter (4%).

-    Increases in the value of the Canadian dollar at quarter ends resulted in
     large unrealized foreign exchange gains on US dollar debt. Gains in the
     first, second and fourth quarters were $73.9 million, $81.0 million and
     $35.3 million respectively.

-    Lumber prices strengthened in the third quarter before declining in the
     fourth quarter, partially reflecting seasonal demand. In contrast, NBSK
     pulp prices weakened in the third quarter and strengthened in the fourth
     quarter, reflecting worldwide inventory levels and buying patterns,
     particularly those of Chinese customers.

-    Logging operations faced major curtailments in June, July and August as a
     result of poor market conditions. The Company's average sales price for
     logs declined 18% in the third quarter before recovering 14% in the fourth
     quarter.

FOURTH QUARTER 2003 VS. 2002

     The net loss for the fourth quarter of 2003 was $(14.5) million, or $(0.37)
per share, compared to a net loss of $(86.9) million, or $(2.07) per share for
the fourth quarter of 2002. Included in the net loss for the fourth quarter of
2003 was $(1.1) million representing the write-down of property, plant and
equipment and operating restructuring costs and $35.3 million gain on the
translation of debt denominated in US dollars. The net loss for the fourth
quarter of 2002 included $(64.3) million representing the write-down of
property, plant and equipment and operating restructuring costs and $6.5 million
gain on the translation of debt denominated in US dollars.

     Operating earnings (loss) excluding operating restructuring costs, asset
write-downs and amortization for the solid wood segment in the fourth quarter of
2003 was $(1.1) million compared to $(1.8) million in the third quarter of 2003
and $19.1 million in the fourth quarter of 2002. Results in the fourth quarter
were adversely impacted by (i) the stronger Canadian dollar, (ii) a $9.3 million
provision for countervailing and antidumping duties on softwood lumber shipments
to the US, and (iii) contained curtailment in the logging operations. Production
of 709 km3, although increased from 473 km3 in the third quarter of 2003, was
down from 993 km3 in the fourth quarter of 2002.

     Operating earnings (loss) excluding operating restructuring costs, asset
write-downs and amortization for the pulp segment in the fourth quarter of 2003
was $(7.3) million compared to $(6.7) million in the immediately preceding
quarter and $(6.6) million in the fourth quarter of 2002. The Squamish pulp mill
operated for 80 days in the fourth quarter of 2003, producing 62,439 ADMT. The
Port Alice dissolving sulphite mill operated for 36 days in the fourth quarter
of 2003 in order to satisfy customer requirements.

<PAGE>
                                     - 50 -


SUMMARY OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(millions of dollars)                                                              YEARS ENDED DECEMBER 31,
                                                                                   ------------------------
                                                                                     2003             2002
                                                                                   --------        -------
<S>                                                                                <C>             <C>

Cash                                                                                   21.6           22.6
Accounts receivable                                                                    68.3           86.0
Inventories                                                                           159.0          200.0
Prepaid expenses                                                                        6.8           10.4
                                                                                   --------        -------
    Current Assets                                                                    255.7          319.0

Investments                                                                            10.8            9.8
Property, plant and equipment                                                         460.4          485.1
Other assets                                                                           22.2           30.1
                                                                                   --------        -------
    Total Assets                                                                      749.1          843.9
                                                                                   ========        =======

Bank indebtedness                                                                      30.4           21.8
Accounts payable and accrued liabilities                                              124.8          102.7
Accounts payable and accrued liabilities, subject to
  compromise                                                                          110.9           45.4
Current portion of long-term debt, subject to compromise                              503.0             --
Current portion of long-term debt                                                     207.4             --
                                                                                   --------        -------
    Current Liabilities                                                               976.6          169.9

Long-term debt, subject to compromise                                                 162.1          809.3
Long-term debt                                                                           --          252.4
Other liabilities                                                                      29.7           27.8
Shareholders' (Deficiency)                                                           (419.3)        (415.5)
                                                                                   --------        -------
    Total Liabilities and Shareholders' Deficiency                                    749.1          843.9
                                                                                   ========        =======

Cash generated from (used in):
    Working capital (used in) operations                                             (133.1)         (66.9)
    Change in non-cash working capital                                                149.9           38.9
                                                                                   --------        -------
         Funds provided by operating activities                                        16.8          (28.0)
    Financing activities(1)                                                              --           (1.1)
    Investing activities                                                              (26.4)         (15.0)
                                                                                   --------        -------
Increase (decrease) in net cash(1)                                                     (9.6)         (44.2)
                                                                                   ========        =======
</TABLE>

(1)      Net cash represents cash less bank indebtedness. Bank indebtedness has
         been reclassified from financing activities, as disclosed in the
         audited financial statements, to net cash.

B.   LIQUIDITY AND CAPITAL RESOURCES

     The Company is reorganizing its affairs under protection of
CCAA as noted above under "Going Concern". As a consequence, the interest
payments due on its term debt and approximately $17.8 million of pre-November 7,
2002 trade payables have been suspended. Although payment of interest has been
suspended, the Company has continued to accrue it. Accrued interest on the 8.75%
and 9.25% Senior Unsecured Notes, together with pre-filing trade accounts
payable, are shown as being subject to compromise in the following amounts:

<TABLE>
<CAPTION>
Millions of Dollars                                                         YEARS ENDED DECEMBER 31,
                                                                          ---------------------------
                                                                              2003            2002
                                                                          ------------      ---------
<S>                                                                        <C>              <C>
Trade payables                                                             $     17.8       $    18.6
Interest on 8 3/4% Senior Unsecured Notes                                        65.3            15.3
Interest on 9 1/4% Senior Unsecured Notes                                        27.8            11.4
                                                                           ----------       ---------
                                                                           $    110.9       $    45.3
                                                                           ==========       =========

</TABLE>

     Since the 8.75% Senior Unsecured Notes and the 12% Senior Secured Notes
have scheduled maturity dates in 2004, the principal amounts outstanding have
been classified as current liabilities at December 31, 2003.


<PAGE>
                                     - 51 -


     The Company's principal sources of liquidity are cash on hand, the unused
portion of its credit facility, cash flow generated from operations and working
capital. At December 31, 2003 the Company had cash on hand of $21.6 million
compared to $22.6 at the end of December 2002. The Company also had available to
it the unused portion of its credit facility amounting to $26.3 million at
December 31, 2003.

     Working capital used in operations was $133.1 million in 2003, compared to
$66.9 million in 2002. After the change in non-cash working capital items, funds
provided by operating activities totalled $16.8 million in 2003 compared to
funds used in operations of $28.0 million in 2002. The change in non-cash
working capital generated $149.9 million in 2003 compared to $38.9 million in
2002. $93.5 million of the $149.9 million generated in 2003 represented an
increase in interest payable on the Company's Senior Secured and Unsecured
Notes, as payment of interest was stayed following the Company's CCAA filing in
November 2002. A further $41.0 million of the $149.9 million reduction in
working capital in 2003 represented reduced inventory levels. Log inventories,
in particular, were down by $31.7 million reflecting lower production levels.

     Investing activities used cash of $26.4 million in 2003, compared to $15.0
million in 2002. Capital expenditures on property, plant and equipment
aggregated $29.2 million in 2003 compared to $29.6 million in 2002.
Approximately $26.3 million of the capital expenditures in 2003 was for the
construction of logging roads, timber development and logging equipment.
Proceeds from the sale of non-core surplus assets was $3.8 million in 2003
compared to $14.3 million in 2002.

C.   RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

     The Company has in-house laboratories and testing facilities for its pulp
segment and also uses the services and technical expertise of independent
laboratories. Research and development in the solid wood segment is conducted
primarily by the Company's employees at the Company's Saanich Forestry Centre
(the "Centre") on Vancouver Island and at its Port McNeill forest operations.
The Centre is located north of Victoria, British Columbia and was founded in
1964.

     The Centre has seed orchards, a seedling nursery with an annual capacity of
approximately 3 million seedlings, and a laboratory that provides technical
support to maintain seed and seedling quality. The Centre provides the Company
with the ability to select and breed trees with superior growth and form that
will improve the quality and quantity of timber produced over time. The Centre's
nine seed orchards occupy 15 hectares and produce Douglas fir, western hemlock,
western red cedar and Sitka spruce seed with improved properties. Yellow cedar
hedges are also maintained for the production of improved cutting material. The
nursery supplies the Company's requirements for most species of seedlings. The
Company spent approximately $430,000 on research and development in 2003.

D.   TREND INFORMATION

CYCLICAL NATURE OF BUSINESS: COMPETITIVE POSITION

     The Company competes at both a domestic and international level with a
large number of forest products firms, ranging from very large integrated firms
to smaller specialty firms. Many of these competitors have substantially greater
financial and operating resources than the Company. The Company also competes
indirectly with firms that manufacture substitutes for solid wood products,
including non-wood and engineered wood products. The markets for pulp and lumber
are highly competitive and sensitive to cyclical changes in industry capacity
and the economy, both domestically and international. Changes in the level of
competition, industry capacity and the global economy have a significant impact
on the Company's selling prices and overall profitability. The Company's
competitive position is influenced by the availability, quality and cost of
fibre, energy and labour, and its plant efficiencies and productivity in
relation to its competitors.

PRODUCT PRICING

     The following table illustrates the effect of changes in selling prices for
pulp and lumber on the Company's net earnings, based on 2003 and 2002 sales,
respectively:
<PAGE>
                                     - 52 -

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                            -----------------------------------
                                                                                2003                 2002
                                                                            -------------       ---------------
                                                                                  (THOUSANDS OF DOLLARS
                                                                                EXCEPT PER SHARE AMOUNTS)
          <S>                                                               <C>                 <C>
           Pulp - $50 per ADMT change
             Operating earnings                                                $    16,100        $     13,082
             Net earnings(1)                                                   $    10,365        $      8,422
             Per share(1)                                                             0.24                0.20

           Lumber - $10 per thousand board feet change
             Operating earnings                                                $     5,960        $      5,909
             Net earnings(1)                                                   $     3,837        $      3,804
             Per share(1)                                                             0.09                0.09
</TABLE>

(1)      Based on a tax rate of 35.62%. This does not recognize the unrecognized
         tax losses of the Company.

     The Company's financial performance is also dependent on the rate at which
the Company utilizes its production capacity. When capacity utilization is
reduced in response to weak demand for the Company's products, the Company's
cost per unit of production increases, and the Company's profitability
decreases.

FOREIGN CURRENCIES

     Since a significant amount of the Company's sales are conducted in
international markets, its financial results are subject to foreign currency
rate fluctuations. In particular, all of the Company's pulp sales are made in
U.S. dollars, as are its lumber sales to the U.S. As a result, a significant
amount of the Company's sales revenue is denominated in U.S. dollars, while a
large proportion of its costs are in Canadian dollars. U.S. dollar based sales,
expressed in Canadian dollars, were $413.3 million in 2003 and $490.7 million in
2002 representing 70% and 77% of total sales, respectively. The value of the
Canadian dollar per U.S. $1.00 in 2003 and 2002 averaged 1.4132 and 1.5700,
respectively.

     The following table illustrates the effect of changes in currency exchange
rates on the Company's net earnings, based on 2003 and 2002 sales, respectively:

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                            -----------------------------------
                                                                                 2003                2002
                                                                            ---------------      --------------
                                                                                  (THOUSANDS OF DOLLARS
                                                                                EXCEPT PER SHARE AMOUNTS)
           <S>                                                              <C>                  <C>
           1% change in the U.S. dollar
             Operating earnings                                                $     4,124        $      4,907
             Net earnings(1)                                                   $     2,655        $      3,159
             Per share(1)                                                             0.06                0.07
</TABLE>

(1)  Based on a tax rate of 35.62%. This does not recognize the unrecognized
     tax losses of the Company.

     All of the Company's long-term debt of US $673 million at December 31,
2003, is denominated in U.S. dollars. The year end exchange rate was 1.2965. A
1% change in the U.S. dollar has an effect of $8.7 million on the Company's debt
when translated into Canadian dollars.

     The Company has in the past used forward foreign currency contracts to
manage foreign currency exposure, as well as for speculative purposes. As at
December 31, 2003, the Company does not have any forward foreign currency
contracts outstanding.

     Significant variations in relative currency values, particularly a
significant increase in the value of the Canadian dollar relative to the U.S.
dollar, could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.

CRITICAL ACCOUNTING ESTIMATES

Recoverability of Property, Plant and Equipment and other Long-term Assets

     The Company assesses the recoverability of its property, plant and
equipment and other long-term assets by projecting the future cash flows to be
generated by its manufacturing plants. These projections require estimates to be
made regarding future

<PAGE>
                                     - 53 -

commodity prices, foreign currency exchange rates, sales volumes, production
volumes, operating costs and renewal of licenses and permits. There is a high
degree of uncertainty in estimating future cash flows, primarily as a result of
the uncertainty regarding future prices for commodities, foreign exchange rates
and operating costs. The application of different assumptions for commodity
prices, foreign exchange rates and operating costs could result in a conclusion
that the Company would not recover the carrying amount of its property, plant
and equipment and other long-lived assets, which could result in a material
charge to earnings.

Reforestation Liabilities

     The Company accrues its reforestation liabilities based on estimates of
future costs at the time the timber is harvested. The estimate of future
reforestation costs is based on a detailed analysis for all areas that have been
logged and includes estimates for the extent of planting seedlings versus
natural regeneration, the cost of planting including the cost of seedlings, the
extent and cost of site preparation, brushing, weeding, thinning and replanting
and the cost of conducting surveys. The Company's registered professional
foresters conduct the analysis that is used to estimate these costs. However,
these costs are difficult to estimate and can be affected by weather patterns,
forest fires and wildlife issues that could impact the actual future costs
incurred and result in material adjustments.

Valuation of Inventory

     The Company values its inventories at the lower of cost and net realizable
value. Net realizable value is estimated by reviewing current market prices for
the specific inventory based on recent sales prices and current sales orders. If
the net realizable value is less than the cost amount, a write-down is recorded.
The determination of net realizable value at a point in time is generally both
objective and verifiable. However, changes in commodity prices can occur
suddenly which could result in a material write-down in inventories in future
periods.

Softwood Lumber Duties

     Softwood lumber duties represent contingent liabilities that require a cash
deposit to be paid to U.S. customs in order to ship softwood lumber products
into the U.S. The Company has expensed softwood lumber duties based on the
deposit amounts paid to U.S. customs. The actual amount of the duties for
softwood lumber products shipped will depend on the outcome of various
challenges and appeals made to NAFTA panels, WTO panels and reviewing courts or
on a negotiated settlement. In addition, the actual duty amounts will likely be
based on rates established by an administrative review process completed by the
USDOC. Any difference between the deposit rate paid and the rate established on
administrative review will be refunded to or paid by the Company, plus interest.
The actual amount paid in the future for softwood lumber duties on shipments
made in current periods could be materially different than the amounts paid and
expensed.

Valuation of Accounts Receivable

     The Company records an allowance for doubtful collection of accounts
receivable based on its best estimate of any potential uncollectable amounts.
The best estimate considers past experience with our customer base and review of
current economic conditions and specific customer issues. The Company has
significant exposure to individual customers. However, all of the Company's
sales are either made on a cash basis, without credit terms, or are insured with
the Export Development Corporation or a private United States credit insurance
company. Although the Company has not had significant bad debt expenses in prior
periods, deteriorating economic conditions could result in financial
difficulties in our customer base that could lead to bad debts. In addition,
although the Company's sales are not concentrated in any particular customer,
accounts receivable balances with particular customers can be material at any
given time.

Pension and Other Post Retirement Benefits

     The Company has defined pension plans and post-retirement medical and
health benefit plans for its officers and employees. The Company retains
independent actuarial consultants to perform actuarial valuations of plan
obligations and asset values, and advise on the amounts to be recorded in the
financial statements. Actuarial valuations include certain assumptions that
directly affect the fair value of the assets and obligations and expenses
recorded in the financial statements. These assumptions include the discount
rate used to determine the net present value of obligations, the return on plan
assets used to estimate the increase in the plan assets available to fund
obligations and the increase in future compensation amounts and medical and
health care costs used to estimate obligations. Actual experience can vary
materially from the estimates and impact the cost of our pension and post
retirement medical and health plans and future cash flow requirements.

<PAGE>
                                     - 54 -

RISKS AND UNCERTAINTIES

     See "Item 3. Key Information - D. Risk Factors" for risks and uncertainties
that may have a material effect on the operations of the Company.

E.   OFF-BALANCE SHEET ARRANGEMENTS

     The Company does not have any financial instruments not recognized in the
financial statements. Recognized financial instruments, consisting primarily of
debt instruments, are discussed elsewhere in this Item 5. The Company did not
use any derivative financial instruments in the last two years.

     The Company does not have any off-balance sheet arrangements.

F.   TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATION

     The following table summarizes contractual obligations at December 31, 2003
and payments due for each of the next five years and thereafter:

<TABLE>
<CAPTION>

Millions of Dollars                                 Total      2004     2005     2006     2007    2008  Thereafter
                                                    -----      ----     ----     ----     ----    ----- ----------
<S>                                                 <C>       <C>       <C>      <C>     <C>      <C>   <C>
Long-term debt                                      207.4     207.4      --       --         --      --       --
Long-term debt subject to compromise (Note 1)       665.1     503.0      --       --      162.1      --       --
Operating leases                                     12.6       4.6     3.1      2.3        1.5     0.9      0.2
Reforestation liability                              12.5       5.1     2.5      1.9        1.7     0.3      1.0

                                                  --------------------------------------------------------------
                                                    897.6     720.2     5.6      4.2      165.2     1.2      1.2
                                                  ==============================================================
</TABLE>
Notes:

1   The Company filed for protection under CCAA on November 7, 2002. As a result
    of the CCAA proceedings and the suspension of interest payments due on its
    long-term debt, the Company is in default of its long-term debt covenants
    under its secured and unsecured notes. The term debt repayment dates are
    disclosed in the financial statements and in the table above according to
    the original scheduled repayment dates. However, term debt subject to
    compromise will be settled according to the terms of the Plan when the Plan
    is implemented.

2.  The amounts in the table above do not include contractual obligations for
    the pension and post retirement non-pension benefit arrangements that the
    Company has with employees. These arrangements are excluded because the
    financial statement amounts reflect present value amounts for services
    rendered to date and under CICA 3461defer the recognition of actuarial gains
    and losses. Additional information on the Company's obligations for pension
    and post-retirement non-pension arrangements are shown in footnotes to the
    audited financial statements.

G.  SAFE HARBOUR

    This report contains statements which constitute forward-looking statements
within the meaning of the United States Securities Exchange Act of 1934. Those
statements appear in a number of places in this document and include statements
regarding the intent, belief or current expectations of the Company, its
directors or its officers primarily with respect to market and general economic
conditions, future costs, expenditures, available harvest levels and future
operating performance of the Company. Such statements may be indicated by words
such as "estimate", "expect", "intend", "the Company believes", and similar
words and phrases. Readers are cautioned that any such forward-looking
statements are not guarantees and may involve risks and uncertainties, and that
actual results may differ from those in the forward-looking statements as a
result of various factors, including general economic and business conditions,
changes in government regulation, fluctuations in demand and supply for the
Company's products, industry production levels, the ability of the Company to
emerge from the CCAA proceedings and execute its business plan and misjudgements
in the course of preparing forward-looking statements. The information contained
in this report identifies important factors, including the risks set forth in
"Item 3. Key Information - D. Risk Factors", that could cause such differences.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by such cautionary statements.

     ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   DIRECTORS AND SENIOR MANAGEMENT

     Each director elected will hold office until the next annual general
meeting or until his successor is duly elected or appointed, unless his office
is earlier vacated in accordance with the Articles and By-Laws of the Company,
he becomes disqualified to act as a director or is removed in accordance with
the CBCA. Officers of the Company serve at the discretion of the Board.

<PAGE>
                                     - 55 -


     The names and municipalities of residence, offices held within the Company
and principal occupations of the current directors and officers of the Company
(the information concerning the respective directors has been furnished by each
of them) are as follows:

<TABLE>
<CAPTION>
NAME, PRESENT POSITION
WITH THE COMPANY AND
MUNICIPALITY OF                                                                                            DIRECTOR OR
RESIDENCE                              PRINCIPAL OCCUPATIONS IN THE LAST 5 YEARS                           OFFICER SINCE
-------------------------------------  -----------------------------------------                           -------------
<S>                                    <C>                                                                 <C>
HARBANSE S. DOMAN ...................  Chairman of the Board of the Company; formerly President and           1955-99, 2000
Director, Chairman                     Chief Executive Officer of the Company (1)
Duncan, B.C.

JASPAUL H. DOMAN (2).................  President and Chief Executive Officer of the Company; formerly              1988
Director, President and                Manager, North American Lumber Sales of the Company (3)
Chief Executive Officer
Cowichan Valley
Regional District, B.C.

WILLIAM E. AZIZ(4)(6)(7)............   Managing Partner, Blue Tree Advisors                                        2003
Director
Oakville, ON

JACOB BROUWER(4)(5)(6)(7)...........   Chairman of Brouwer Claims Canada & Co. Ltd.                                1985
Director
West Vancouver, B.C.

IAN DANVERS(4)(6)(7)(8)..............  President, Camelback Travel Centre                                    1964-1983, 2002
Director
Maricopa County, Phoenix, Arizona,
U.S.A.

ROGER STANYER (2)(5)(7)..............  Consultant; formerly Chairman and Chief Executive Officer of                2001
Director                               Forest Renewal B.C.
North Cowichan, B.C.

PHILIP G. HOSIER ....................  Vice-President, Finance of the Company; Chief Financial Officer             1999
Vice-President, Finance                of WFPL
Vancouver, B.C.

RAMESH V. MANIAR ....................  Treasurer of the Company                                                    1999
Treasurer
Vancouver, B.C.

MORRIS MANDZIUK .....................  Assistant Treasurer of the Company                                          2003
Assistant Treasurer
Chemainus, B.C.

STEPHEN WARD ........................  Controller and Director of Internal Audit of the Company;                   2003
Controller and Director of             formerly Project Manager, Internal Audit Branch Office of the
Internal Audit                         Comptroller General
Victoria, B.C.
</TABLE>

--------------------

(1)  H.S. Doman resigned as President and Chief Executive Officer of the Company
     and was appointed Chairman of the Board of the Company in February, 2001.
     He is subject to an enforcement order dated October 14, 1999 issued by the
     British Columbia Securities Commission ("BCSC") which, among other things,
     provides that certain exemptions under securities legislation are not
     available to him until October 25, 2009, prohibits him from acting as a
     director or officer of a reporting issuer other than the Company until
     October 25, 2009, and requires him to pay the BCSC certain fees and charges
     incurred by the BCSC relating to the hearing.
(2)  Member of the Industrial Relations Committee.
(3)  J.H. Doman is the son of H.S. Doman. J. H. Doman was appointed President
     and Chief Executive Officer in February, 2001. Pursuant to a letter of
     resignation dated September 28, 2000, and a memo dated December 5, 2000,
     both addressed to the President and CEO and the Company's attorney, J.H.
     Doman advises he resigned as director until February 2001.
(4)  Member of the Audit Committee.
(5)  Member of the Environmental, Risk and Public Policy Committee.
(6)  Member of the Governance and Compensation Committee.
(7)  Member of the Special Committee of the Board constituted in connection with
     the restructuring of the Company.
<PAGE>
                                     - 56 -


(8)  I. Danvers is the owner of a small travel agency, Camelback Travel Centre,
     which was subject to Chapter 11 proceedings in the U.S. in 2003 due to a
     lawsuit. The lawsuit settled and the travel agency came out of Chapter 11
     proceedings in December 2003.

B.   COMPENSATION

     The aggregate amount of compensation (in the case of certain directors and
officers, includes pension benefits as set out below) paid during the financial
year ended December 31, 2003 to all directors, officers and Named Executives of
the Company (and its subsidiaries) as a group for services in all capacities was
approximately $2.77 million.

     The Company is required, under applicable securities legislation in Canada,
to disclose to its securityholders details of compensation paid to certain of
its directors and executive officers. The following fairly reflects material
information regarding compensation paid thereto.

SUMMARY COMPENSATION TABLE

     The following table provides a summary of compensation paid during each of
the last three financial years to the CEO of the Company who served in such
capacity during the most recently completed financial year and the four most
highly compensated executive officers (or person that served in a similar
capacity), other than the CEO, who served in such capacity at the end of the
most recently completed financial year. The CEO and the other individuals listed
in the table below are referred to herein collectively as the "Named
Executives". Specific aspects of this compensation are dealt with in detail in
the tables to follow.

<PAGE>
                                     - 57 -


<TABLE>
<CAPTION>
                                              ANNUAL COMPENSATION                     LONG TERM COMPENSATION
                                        ----------------------------------   -------------------------------------
                                                                                    AWARDS                PAYOUTS
                                                                             -----------------------    ----------
                                                                             SECURITIES   RESTRICTED
                                                                               UNDER        SHARES
                                                                OTHER         OPTIONS/        OR                         ALL
                                                                ANNUAL         SARS         SHARE         LTIP          OTHER
NAME AND PRINCIPAL                      SALARY     BONUS     COMPENSATION(1)   GRANTED       UNITS       PAYOUTS    COMPENSATION(2)
POSITION                     YEAR        ($)        ($)          ($)            (#)           ($)           ($)           ($)
-------------------------- --------- ------------ ---------- -------------- ------------ ------------- ----------- -------------
<S>                        <C>       <C>          <C>        <C>            <C>          <C>           <C>         <C>
J.H. DOMAN(3)                2003      385,000         --          --            --           --           --        80,609(4)
President and Chief          2002      225,000    125,000          --            --           --           --         3,790
Executive Officer of the     2001      214,370         --          --            --           --           --         3,264
Company

D. DYCK                      2003      154,802     23,000          --            --           --           --         2,812
General Manager,             2002      136,538     35,000          --            --           --           --         1,987
Sawmills of the Company      2001      107,510     20,000          --            --           --           --         1,688

P.G. HOSIER                  2003      175,300         --          --            --           --           --         4,105
Vice-President, Finance      2002      175,300     35,000          --            --           --           --         4,669
of the Company; Chief        2001      168,300     25,000          --            --           --           --         3,452
Financial Officer of
Western Forest Products
Limited

D. INGRAM(5)                 2003      165,182         --          --            --           --           --         4,923
General Manager, Western     2002      156,746     10,000          --            --           --           --         4,583
Pulp Inc.                    2001      148,337         --          --            --           --           --         3,980

B. ZIMMERMANN                2003      178,560     16,000          --            --           --           --         4,828
General Manager, Western     2002      178,560     20,000          --            --           --           --         4,598
Forest Products Limited      2001      161,060     20,000          --            --           --           --         3,957

</TABLE>
------------------

(1)  Perquisites and other personal benefits that do not exceed the lesser of
     $50,000 and 10% of the total annual salary and bonus for any of the Named
     Executives are not reported.
(2)  Unless otherwise specified, amounts reported in this column refer to the
     dollar values of insurance premiums paid with respect to term life
     insurance, medical benefits and amounts contributed in respect of an
     employee savings plan.
(3)  J.H. Doman was appointed as President and CEO in February, 2001.
(4)  Includes accumulated vacation pay of $76,500
(5)  D. Ingram was appointed General Manager of Western Pulp Inc. on October 1,
     2003

See also "Item 6. Directors, Senior Management and Employees - C. Board
Practices".

RETIREMENT PLANS

     The following tables set forth annual benefits that become payable under
pension plans established by Western Forest Products Limited, a subsidiary of
the Company.

     J.H. Doman, D. Dyck, D. Ingram, P.G. Hosier and B. Zimmermann are members
of the Western Forest Products Limited salaried employees pension plan (the "WFP
Plan"). D. Dyck transferred from the Doman salaried employees pension plan (the
"DIL Plan") in 2003. J.H. Doman and P.G. Hosier are also members of the Western
Forest Products Limited Supplementary Plan ("WFP Supplementary Plan"). None of
the Named Executives are members of the DIL Plan. D. Ingram is entitled to a
separate supplemental pension. See "Employment Contracts" below.


<PAGE>
                                     - 58 -


                             TABLE I - THE WFP PLAN

<TABLE>
<CAPTION>
     PENSIONABLE
      EARNINGS                                                           YEARS OF SERVICE
         ($)            ----------------------------------------------------------------------------------------------------------
                              15                20                25                30                35                40
---------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S>                    <C>               <C>               <C>               <C>               <C>               <C>
       100,000              24,909            33,212            41,515            49,818            58,121            66,424
       125,000              25,833            34,444            43,056            51,667            60,278            68,889
       150,000              25,833            34,444            43,056            51,667            60,278            68,889
       175,000              25,833            34,444            43,056            51,667            60,278            68,889
       200,000              25,833            34,444            43,056            51,667            60,278            68,889
       225,000              25,833            34,444            43,056            51,667            60,278            68,889
       250,000              25,833            34,444            43,056            51,667            60,278            68,889
       275,000              25,833            34,444            43,056            51,667            60,278            68,889
       300,000              25,833            34,444            43,056            51,667            60,278            68,889
       325,000              25,833            34,444            43,056            51,667            60,278            68,889
       350,000              25,833            34,444            43,056            51,667            60,278            68,889
       375,000              25,833            34,444            43,056            51,667            60,278            68,889
       400,000              25,833            34,444            43,056            51,667            60,278            68,889
</TABLE>

     Under the WFP Plan, pensionable earnings equal the highest average earnings
of the member of the plan based upon a 60 consecutive month period while the WFP
Plan is in operation. Pension benefits are equal to 1.9% of pensionable earnings
per year of service to a maximum of 40 years minus an adjustment for Canada
Pension Plan Benefits. If a member retires before age 60, his pension will be
reduced. If a member retires before age 65, he will receive a bridging benefit
which ranges from $3,052 to $9,576 for the range of salaries and years of
service set out in Table II. Apart from the bridging benefit which terminates at
age 65, pensions are paid for life with a guarantee of at least five years
payment should the retired executive die within five years following retirement.
Benefits payable under the WFP Plan are limited to the maximum amounts permitted
under the ITA (the "ITA Limit"), currently set at the ITA Limit.

     The WFP Supplementary Plan provides a pension supplement to eligible
members of the WFP Plan in order to provide pension benefits to the level that
members would receive if no ITA Limit was in place. Pensionable earnings and
benefits under the WFP Plan, as supplemented by the WFP Supplementary Plan, are
calculated upon the same basis as benefits and earnings under the WFP Plan
alone, with the exception that the ITA Limit does not apply. The WFP
Supplementary Plan is funded from the Company's general operations.

     As at December 31, 2003, J.H. Doman had completed and been credited with
approximately 22 years of pensionable service, D. Dyck had completed and been
credited with approximately 13.3 years of pensionable service, P.G. Hosier had
completed and been credited with approximately 24.3 years of pensionable
service, D. Ingram had completed and been credited with approximately 12.6
years, and B. Zimmermann had completed and been credited with approximately 9.8
years of pensionable service.

<PAGE>
                                     - 59 -

                             TABLE II - THE WFP PLAN

                   (AS SUPPLEMENTED BY THE SUPPLEMENTARY PLAN)

<TABLE>
<CAPTION>
     PENSIONABLE
      EARNINGS                                            YEARS OF SERVICE
        ($)           ------------------------------------------------------------------------------------------------
                            15              20              25               30              35              40
--------------------- --------------- --------------- ---------------- --------------- --------------- ---------------
<S>                   <C>             <C>             <C>              <C>             <C>             <C>
      100,000             24,909          33,212          41,515           49,818          58,121          66,424
      125,000             32,034          42,712          53,390           64,068          74,746          85,424
      150,000             39,159          52,212          65,265           78,318          91,371         104,424
      175,000             46,284          61,712          77,140           92,568         107,996         123,424
      200,000             53,409          71,212          89,015          106,818         124,621         142,424
      225,000             60,534          80,712         100,890          121,068         141,246         161,424
      250,000             67,659          90,212         112,765          135,318         157,871         180,424
      275,000             74,784          99,712         124,640          149,568         174,496         199,424
      300,000             81,909         109,212         136,515          163,818         191,121         218,424
      325,000             89,034         118,712         148,390          178,068         207,746         237,424
      350,000             96,159         128,212         160,265          192,318         224,371         256,424
      375,000            103,284         137,712         172,140          206,568         240,996         275,424
      400,000            110,409         147,212         184,015          220,818         257,621         294,424
</TABLE>

EMPLOYMENT CONTRACTS

     In October, 2003, the Company entered into a written employment agreement
with J.H. Doman, the President and CEO, dated as of October 23, 2002 for an
indefinite term. The agreement provides for an annual base salary of $225,000
which annual base salary is reviewed annually provided that such amount shall
not be less than the annual base salary of the immediately preceding year.
Commencing January 1, 2003, the annual base salary is to be adjusted upwards to
forest industry standards as reported by Mercer Human Resources Consulting
("Mercer"). The CEO is entitled to receive an annual discretionary bonus which
bonus is to be satisfactory to both the Company and the CEO and if not mutually
satisfactory, then the amount is to be based on forest industry standards and
decided by Mercer or some other party chosen by them. The CEO is also entitled
to participate in the Company's salaried employee benefit program, the Company's
pension plan and supplemental pension plan and the Company's incentive stock or
other equity option plan, use of a Company vehicle and six weeks vacation. The
agreement contains confidentiality provisions and, subject to applicable laws
grants certain rights of indemnification to the CEO provided he has acted in
good faith and in a manner not opposed to the best interests of the Company and
with respect to a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The agreement further provides in the event of termination
of employment other than for cause, the CEO is entitled to severance payments
equal to twice the annual base salary, accrued vacation, expense reimbursement,
good faith and reasonable estimate of any bonus due, options rights, and vehicle
entitlement for 24 months following termination. In the event termination is by
the CEO, the CEO has agreed that he would not be entitled to severance pay
consisting of salary, bonus and use of vehicle except as may be subsequently
negotiated with the Company. The CEO has agreed not to terminate his employment
during the proceedings under the CCAA.

     The Company entered into a retention agreement with P.G. Hosier, Vice
President, Finance ("CFO"), dated as of March 1, 2004, where in return for
agreeing to remain in his position as CFO of the Company until the earlier of
the implementation date of a plan of compromise and arrangement under the CCAA
and June 30, 2004, the CFO will be entitled to the payment of $65,000 with
$35,000 payable on execution and the remainder paid in three equal instalments
commencing March 1, 2004.

     D. Ingram entered into an agreement with the Company dated April 29, 1991
providing for a supplemental pension in addition to a regular pension from the
WFP Plan. Mr. Ingram is entitled to a supplementary pension from the Company
based on his pensionable service with the Company, his final average earnings at
MacMillan Bloedel (his former employer before joining the Company) and the WFP
Plan's pension formula. This supplementary pension to Mr. Ingram is payable from
the Company's general operations.

     Other than as noted above or elsewhere herein, the Company has no written
employment agreements between the Company or any of its subsidiaries and a Named
Executive.
<PAGE>
                                     - 60 -


OPTION TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     The Company has in place an incentive stock option plan which was
established in 1993. The incentive stock option plan was designed to encourage
employees and executive officers to focus on the long-term interests of the
Company and its shareholders. The Board has the authority to establish terms and
conditions of each granted option, so long as such terms and conditions are not
inconsistent with provisions of the incentive stock option plan.

     In view of the CCAA proceedings, the Company did not issue any options
under its incentive stock option plan during the financial year ended December
31, 2003. All outstanding unexercised options expired on March 31, 2003. There
were no options exercised during the financial year ended December 31, 2003 by
the Named Executives.

     As at the date hereof, the Company has no stock options outstanding under
its incentive stock option plan.

COMPENSATION OF DIRECTORS

     Directors of the Company who are not officers or employees are compensated
for their services as directors through a combination of retainer fees and
meeting attendance fees. In 2003, the annual retainer fee paid to such directors
was $20,000. The chairman of any committee of the Board receives an additional
fee of $3,000 per annum and directors receive a fee of $1,000 per day for
director and committee meetings attended. Directors are reimbursed for expenses
incurred in connection with their services as directors.

     The directors and former directors (other than inside directors) were paid
the following amounts as directors' fees for the year ended December 31, 2003:

W. Aziz(1)                            $19,000
J. Brouwer                             52,000
H.S. Doman                             30,250
I. Danvers                             46,000
J.R. Frumento (2)                      49,000
C.A. Johnson(3)                        21,000
R. Stanyer                             39,000
S.D.B. Smith(4)                        52,000

(1)   Mr. Aziz was appointed director on September 8, 2003
(2)   Mr. Frumento ceased to be a director on March 31, 2004
(3)   Mr. Johnson ceased to be a director on June 27, 2003.
(4)   Mr. Smith ceased to be a director on March 19, 2004

     For the year ended December 31, 2003, H.S. Doman also received an annual
retainer of $65,000 for acting as Chairman of the Board, medical benefits in the
amount of $1,152 for 2003 and in the amount of $63,225 for 2002 and pension
benefits in the amount of $375,841 of which $271,655 were from the WFP
Supplementary Plan. The Company and H.S. Doman and his spouse are the owners of
a split dollar life insurance policy on the life of H.S. Doman and his spouse
which provides the payment of $12,000,000 in death benefits to H.S. Doman and
his spouse's beneficiaries with the remainder to the Company. Annual premiums
are paid through a joint contribution program by H.S. Doman and his spouse of
$51,979 and the Company of $423,823.

     An agreement existed between a subsidiary of the Company and C.A. Johnson
for consulting services provided by Mr. Johnson relating to the Company's pulp
operations until November, 2003. Under the agreement, Mr. Johnson was paid
consulting fees in the amount of $44,705 in 2003. R. Stanyer was paid $49,700 in
consulting fees in 2003. In 2003, J.R. Frumento received pension benefits in the
amount of $22,500, which was paid by the Company from general operations.

     Directors of the Company are also eligible to participate in the Company's
incentive stock option plan. No options under the incentive stock option plan
are held by directors of the Company in their capacities as directors.

DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE

     There was no indemnification payable this financial year to directors or
officers of the Company.

     The Company maintains liability insurance for its directors and officers in
the aggregate amount of $10 million, subject to a $100,000 deductible loss
payable by the Company. The premium, in the amount of $207,650 was paid by the
Company for the


<PAGE>
                                     - 61 -


period from July 23, 2003 to June 11, 2004. As reported last year, the premium,
in the amount of $216,225 was paid by the Company for the period from June 15,
2002 to July 22, 2003.

C.   BOARD PRACTICES

     The following outlines the board practices followed by the Company. The
Board is responsible for the supervision of the management of the Company's
business and affairs. Responsibilities not specifically delegated to senior
management or committees of the Board remain those of the Board as a whole,
including responsibility for: (1) the appointment of the chief executive officer
and senior management of the Company; (2) the development and monitoring of
long-term strategic planning, including business risk identification and
management and succession planning; (3) the review and monitoring of financial
performance; (4) the review and monitoring of the Company's communication policy
and internal control and management systems; (5) the establishment and
supervision of committees relating to key areas of the Company's business and
affairs; and (6) the establishment and monitoring of short-term operational
plans.

     The Board reviews the performance of the senior management of the Company
and its subsidiaries on an annual basis. The Board expects senior management to
perform to a standard comparable to or greater than that demanded of senior
management of similar companies in the forest industry in British Columbia.
Senior management of the Company and its subsidiaries are responsible for
day-to-day operational management. Prior Board approval is required in
connection with matters that the Company deems significant such as major
acquisitions or divestitures, significant amendments to the Company's credit
facilities, significant financings or changes to the Company's strategic
objectives.

     The CFO is responsible for overseeing the Company's shareholder and senior
note holder relations program. The Company attempts to respond to individual
shareholder and note holder concerns as they arise and makes senior management
available to analysts and fund managers who represent shareholders or note
holders or who are involved in the dissemination of information to shareholders
or note holders.

     The Board has adopted corporate governance guidelines which, among other
things, describe the duties and responsibilities of the Chairman of the Board,
the Chief Executive Officer and Board members. As the majority of the current
Board members have been on the Board or otherwise involved with the business of
the Company for significant periods of time, the Board has not needed a formal
process for the orientation of new Board members. In view of the CCAA
proceedings, the Board is generally satisfied that its current number of
directors is appropriate, providing a diversity of views and experience while
maintaining efficiency. The Board has in place a policy whereby individual
directors may, subject to approval by the Governance and Compensation Committee,
engage outside advisers at the Company's expense.

     The Board also has access to and reviews committee recommendations in
fulfilling its mandate. Where appropriate, directors absent themselves from
portions of Board or committee meetings to allow independent discussion of
points in issue.

BOARD COMMITTEES

     The Board has established four committees of directors, being the
Governance and Compensation Committee, the Audit Committee, the Environmental,
Risk and Public Policy Committee (the "Environmental Committee") and the
Industrial Relations Committee. In addition, in connection with the
restructuring of the Company, the board appointed a Special Committee of the
Board currently composed of R. Stanyer, W.E. Aziz, J. Brouwer and I. Danvers, to
consider, review, approve and make recommendations with respect to strategic
options including potential debt restructuring. R. Stanyer is currently the
Chair of the Special Committee.

Governance and Compensation Committee

     The Governance and Compensation Committee is currently composed of W.E.
Aziz, J. Brouwer and I. Danvers. W.E. Aziz is currently the Chair of the
Committee. The Committee is responsible for proposing prospective Board
nominees, developing the Company's corporate governance policies and assessing
the effectiveness of the Board, committees of the Board and individual
directors, and reporting to the Board with respect to these matters. It is also
responsible for the periodic review of the Company's short-term and long-term
policies for attracting, retaining, developing and motivating executive officers
of the Company, reporting to the Board in connection with compensation (both
executive officers and directors) and reporting on executive compensation as
provided herein. See below "Composition of Governance and Compensation
Committee".

     The Governance and Compensation Committee has determined that three of the
Company's six directors are "unrelated directors". Such directors have no
interest, business or other relationship with the Company, or its significant
shareholder, which could reasonably be perceived to materially interfere with
their ability to act solely in the best interests of the Company. H.S.


<PAGE>
                                     - 62 -


Doman, is a major shareholder of the Company and as such a related director.
J.H. Doman is the President of the Company and as such a related director. W.E.
Aziz is a nominee of the Preferred Shareholders. Each of the Company's
committees is comprised of both related and unrelated directors. The Company
believes that the composition of the Board fairly represents the interests of
shareholders other than its significant shareholder.

     As noted above, the Board has appointed a Special Committee in connection
with the restructuring of the Company. With the exception of dealing with
compensation as discussed below under "Report on Executive Compensation",
matters that would under normal circumstances be addressed by the Governance and
Compensation Committee have been and are expected to continue to be dealt with
by the Special Committee.

         Composition of the Governance and Compensation Committee

     During the year ended December 31, 2003, the following individuals served
as members of the Governance and Compensation Committee of the Company: W.E.
Aziz, J. Brouwer, I. Danvers, S.D.B. Smith and J.R. Frumento, who were all
directors of the Company during the time they served. As of the date hereof,
S.D.B. Smith and J.R. Frumento are no longer members of this Committee. None of
the members of the Committee are officers or employees or were former officers
or employees of the Company or any of its subsidiaries except for J.R. Frumento.
J.R. Frumento was formerly the President of the Company from October 1999 until
January 2000.

         Report On Executive Compensation.

     The Governance and Compensation Committee is responsible for, among other
things, the periodic review of the Company's short-term and long-term policies
for attracting, retaining, developing and motivating executive officers of the
Company. The Committee meets periodically to review compensation policies
relating to the Company and its subsidiaries and to approve specific
compensation awards and benefits.

     Executive Compensation Policies. The Committee's policy is that executive
officers of the Company, including the CEO and other Named Executives, should
under normal circumstances be compensated based on the market value of the jobs
they perform, their levels of performance and the performance of the Company.

     The Company's executive compensation policies are designed to recognize and
reward executive officers based upon individual and corporate performance. The
Governance and Compensation Committee monitors levels of executive remuneration
to ensure overall compensation reflects the Company's objectives and
philosophies and meets the Company's desired relative compensation position. The
key components comprising executive officer compensation are base salary and
annual bonus (short-term incentives) and participation in one or more pension
plans and, under normal circumstances, in an incentive stock option plan
(long-term incentives).

     Also under normal circumstances, the Committee approves salary ranges for
executive officers of the Company based on competitive industry data for the
markets in which the Company operates. In establishing base salaries and salary
ranges, the objective of the Committee is to set target levels which, over time,
will be competitive with market salaries. The Company's compensation policy is
to set target levels near or consistent with the median level in the group of
comparable forest product companies, i.e., B.C. based, large, publicly held,
integrated forest product companies. Individual levels, which are set annually,
may vary from this objective, depending upon individual performance levels.
Except in respect of bonuses and the right of the CEO to request that the amount
of the bonus be decided by Mercer or some other party chosen by the Company and
the CEO, the CEO does not participate in discussions or review relating to his
own compensation.

     During the most recently completed financial year, the Company operated
under severe financial constraints. The Company continues to be subject to
proceedings under the CCAA and as was the case last year, the Committee has
departed from its normal practice and determined to maintain, as far as
practicable, existing compensation levels. In any event, pursuant to a Court
Order increases in compensation require the approval of KPMG Inc., the Monitor
appointed under the CCAA, and the Unsecured Noteholders Committee.

     As noted above, the Company provides annual incentive compensation to
executive officers, including the Named Executives, through the provision of
incentive bonuses. Incentive bonuses are awarded annually, on a discretionary
basis, to executive officers, based upon a review of Company and individual
performance over the prior financial year relative to each executive officer's
area of responsibility.

     In view of the CCAA proceedings and in recognition of the hard work
performed by the executive team, the Committee determined that all bonuses
awarded should not exceed two-thirds of the bonus levels last year. The bonuses
for the Named


<PAGE>
                                     - 63 -


Executives are set out under the Summary Compensation Table above. In addition,
to address retention concerns and to bring the salary into line with industry
standards, a salary adjustment increase was approved for certain senior
management, including D. Dyck for 2004. The salary increase and bonuses have
been approved by the Monitor and the Unsecured Noteholders Committee.

     The Company also has in place an incentive stock option plan. The incentive
stock option plan was designed to encourage employees and executive officers to
focus on the long-term interests of the Company and its shareholders. The Board
has the authority to establish terms and conditions of each granted option, so
long as such terms and conditions are not inconsistent with the provisions of
the incentive stock option plan. The Company did not issue any options under the
incentive stock option plan during 2003.

     In recent years, the Company's share price performance has resulted in the
Company's issued stock options being exercisable at prices in excess of the
market price of the Company's shares. The Company has not sought to reprice
existing stock options or issue new stock options at current market prices.

     CEO Compensation. The Committee's policy is that the salary of the CEO
should, be in line with competitive salaries for positions of similar
responsibility at large, integrated forest products companies in British
Columbia that are, like the Company, publicly held. In assessing compensation
paid to the CEO, the Committee also reviews available industry data relating to
such companies. The CEO's salary increase for the current year (an increase from
$260,000 to $385,000 per year) retroactive to January 1, 2003 was granted to
bring his salary in line with competitive salaries for similar positions and in
recognition of his contribution to the achievement of the Company's goals. With
this increase his total compensation package is below the median of comparable
forest product companies. Given the increase in salary and that a bonus would
not likely be approved by the Monitor and the Unsecured Noteholders Committee,
the Committee determined that no bonus would be payable to the CEO. The salary
increase has been approved by the Monitor and the Unsecured Noteholders
Committee.

Audit Committee

     The Audit Committee is currently composed of W.E. Aziz, J. Brouwer and I.
Danvers. I. Danvers is the Chair of the Audit Committee. In addition to its
statutory duties, the Audit Committee is responsible for reviewing and reporting
to the Board with its recommendations in connection with all external financial
reporting. The Audit Committee also reports to the Board, from time to time,
with respect to internal audit and accounting procedures. The Audit Committee
meets with the external auditors separately from management to review specific
issues as appropriate and also receives written reports from the external
auditors. The Audit Committee is comprised only of non-management directors.

Environmental, Risk and Public Policy Committee

     The Environmental Committee is currently composed of J. Brouwer and R.
Stanyer. J. Brouwer is the Chair of the Environmental Committee. The
Environmental Committee liaises with management and reports to the Board in
connection with the Company's environmental management system and environmental
issues that may arise from time to time. It also performs risk analyses and
assessments relating to the Company's business practices and public policy and
reports to the Board with respect to these matters.

Industrial Relations Committee

     The Industrial Relations Committee is currently composed of J.H. Doman and
R. Stanyer. R. Stanyer is the Chair of the Industrial Relations Committee. The
Industrial Relations Committee liaises with management and provides advice to
the CEO in respect of union contract negotiations.


<PAGE>
                                     - 64 -


D.   EMPLOYEES

     The following table sets out the average number of employees employed by
the Company for each of the last years ended December 31, 2003, 2002 and 2001,
and the average number of employees employed in the pulp segment and in the
solid wood segment for the same period.

     <TABLE>
     <CAPTION>

     AVERAGE NO. OF EMPLOYEES                    2003         2002          2001
     <S>                                        <C>          <C>           <C>
     Total ..........................           2,250        2,400         2,700
     Pulp Segment ...................             670          750           800
     Solid Wood......................           1,580        1,650         1,900
     </TABLE>

     See also "Item 4. Information on the Company - B. Business Overview - Human
Resources".

E.   SHARE OWNERSHIP

     The following table sets forth information, as of May 21, 2004, concerning
the beneficial ownership of the Company's Class A Common Shares and Non-Voting
Shares by each of the directors, the Named Executives and senior officers.

<TABLE>
<CAPTION>
                                                                                                              PERCENTAGE OF
                                                                               NUMBER OF                     ISSUED CLASS OF
NAME OF BENEFICIAL OWNER                                                         SHARES                          SHARES(1)
                                                                               ---------                     ---------------

<S>                                                            <C>                                           <C>
H.S. DOMAN(2)..................................................3,416,248 Class A Common Shares and               71.5%
                                                               5,316,089 Non-Voting Shares                       14.1%
J.H. DOMAN ....................................................230,116 Non-Voting Shares                          0.6%
W.E. AZIZ......................................................no shares held                                      --
J. BROUWER ....................................................550 Class A Common  Shares and                     0.0%
                                                               1,000 Non-Voting Shares                            0.0%
I. DANVERS ....................................................1,000 Class A Common Shares and                    0.0%
                                                               24,000 Non-Voting Shares                           0.0%
R. STANYER(3)..................................................10,000 Non-Voting Shares                           0.0%
D. DYCK .......................................................no shares held                                      --
P. G. HOSIER ..................................................10,000 Non-Voting Shares                           0.0%
D. INGRAM......................................................no shares held                                      --
R. V. MANIAR(4)................................................no shares held                                      --
M. MANDZIUK....................................................no shares held                                      --
S. WARD........................................................no shares held                                      --
B. ZIMMERMANN .................................................16,300 Non-Voting Shares                           0.0%
</TABLE>
------------------

(1)  Rounded up to the nearest first decimal place.
(2)  See also "Item 7. Major Shareholders and Related Transactions - Major
     Shareholders".
(3)  The spouse of R. Stanyer owns an additional 1,900 Non-Voting Shares.
(4)  The spouse of R.V. Maniar holds 2,500 Non-Voting Shares.

     As at May 21, 2004, 3,150 Class A Common Shares or less than 1% of the
Class A Common Shares outstanding were beneficially owned, directly or
indirectly, or control or direction was exercised over those shares, by the
directors, Named Executives and officers set out above of the Company as a
group, excluding H.S. Doman. H.S. Doman, beneficially owned, directly or
indirectly, 3,416,248 Class A Common Shares or approximately 71.5% of the Class
A Common Shares outstanding as at May 21, 2004.

     See Item 6. Directors, Senior Management and Employees - C. Board Practices
- Board Committees - Governance and Compensation Committee - Executive
Compensation Policies.


<PAGE>
                                      - 65 -


     ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   MAJOR SHAREHOLDERS

     To the knowledge of the directors and senior officers of the Company as of
the date hereof, the following parties beneficially own, directly or indirectly,
or exercise control or direction over, more than 5% of the Company's outstanding
voting shares comprised of the Class A Common Shares and the Class A Preferred
Shares, Series 4.

<TABLE>
<CAPTION>
                                                                             NO. OF CLASS A
                                                                          COMMON SHARES OR CLASS A          PERCENTAGE OF ISSUED
TITLE OF CLASS                     IDENTITY OF PERSON OR GROUP       PREFERRED SHARES, SERIES 4 OWNED            VOTING SHARES
--------------                     ---------------------------       --------------------------------       ---------------------
<S>                                <C>                               <C>                                    <C>
Class A Common Shares              H.S. Doman                                   3,416,248(1)                        56.4%
Class A Preferred Shares, Series   TD Asset Management Inc.                     1,281,526(2)                        21.2%
4
</TABLE>
------------------
(1)  Comprised of 2,275,212 Class A Common Shares owned by Cedar Chines Holdings
     Limited ("Cedar"), 1,108,316 Class A Common Shares owned by Darcia Holdings
     Limited ("Darcia") and 32,720 Class A Common Shares owned by H.S. Doman.
     This represents approximately 71.5% of the outstanding Class A Common
     Shares. In addition, H.S. Doman owns an aggregate of 5,316,089 Non-Voting
     Shares, of which 1,222,029 Non-Voting Shares are owned by Darcia, 3,633,760
     Non-Voting Shares are owned by Cedar, 318,500 Non-Voting Shares are owned
     by 1259 Holdings Ltd. ("1259") and 141,800 are owned by H.S. Doman. H.S.
     Doman is the holder of all of the issued and outstanding shares of Darcia,
     Cedar and 1259. 173,500 Non-Voting Shares are held by an associate of H.S.
     Doman.
(2)  TD Asset Management Inc. manages the 688,820 Class A Preferred Shares,
     Series 4, on behalf of Investor Company c/o TD Waterhouse and 592,706 Class
     A Preferred Shares, Series 4, on behalf of Tordom Company No. 78,
     representing 53.75% and 46.25% of the outstanding Class A Preferred Shares,
     Series 4, respectively.

     The Class A Preferred Shares, Series 4, are entitled to vote at a meeting
if the Company fails to pay dividends on the shares for 24 consecutive months.
Thereafter and until no dividends are in arrears, holders of Class A Preferred
Shares, Series 4, are entitled to vote at the meeting on all matters, other than
the election of the directors in which respect they are entitled to vote
separately, as a class, for up to two directors, subject to the conditions set
out in the Company's Articles. The Company has deferred the payment of quarterly
cumulative dividends on Class A Preferred Shares, Series 4 from December 1,
1998. W.E. Aziz, a director of the Company, is the nominee of the Preferred
Shareholders.

     The Non-Voting Shares have "coat-tail" provisions attached to them as
provided for in the Articles of the Company. Under the "coat-tail" provisions,
each Non-Voting Share will be deemed to be a Class A Common Share if an offer to
purchase (an "Offer") is made to all or substantially all of the holders of the
Class A Common Shares. The deemed conversion will not occur, however, if in
general terms, (i) less than 50% of the outstanding Class A Common Shares are
tendered in acceptance of the Offer, or (ii) H.S. Doman, his children,
grandchildren and other descendants, and certain companies and trusts holding
Class A Common Shares on their behalf, hold at least 20% of the outstanding
Class A Common Shares, and H.S. Doman (or his estate) certifies that he will not
accept the Offer. The deemed conversion will also not occur if, at the time of
the Offer, an offer on the same terms and conditions is made to substantially
all of the holders of the Non-Voting Shares. While these "coat-tail" provisions
are designed to provide the holders of the Non-Voting Shares with the right to
participate in an Offer subject to the foregoing exceptions, there may be
circumstances in which effective control of the Company could be acquired by a
third party without the "coattail" provisions becoming operative by their terms.

     As of the date hereof, approximately 1.1% of Class A Common Shares were
held by 13 registered shareholders resident in the U.S., approximately 5% of the
Non-Voting Shares were held by 26 registered shareholders resident in the U.S.,
and none of the Class A Preferred Shares, Series 4 were held by shareholders
resident in the U.S.

     See "Item 4. Information the Company - A. History and Development of the
Company - Plan of Compromise and Arrangement."

B.   RELATED PARTY TRANSACTIONS

     Other than consulting fees in the amount of $49,700 paid to one director
there were no transactions with related parties for the year ended December 31,
2003.

     As at April 30, 2004, the aggregate indebtedness to the Company or any of
its subsidiaries (other than routine indebtedness) of all present and former
Named Executives, officers and directors of the Company or any of its
subsidiaries amounted to $18,933. The following table sets forth the
indebtedness to the Company or any of its subsidiaries (other than routine



<PAGE>
                                     - 66 -


indebtedness) incurred by present and former Named Executive, officers and
directors of the Company and its subsidiaries during the financial year ended
December 31, 2003.

<TABLE>
<CAPTION>
                                         INVOLVEMENT OF      LARGEST AMOUNT OUTSTANDING
                                          THE COMPANY           DURING FINANCIAL YEAR      AMOUNT OUTSTANDING AS AT
NAME AND PRINCIPAL POSITION              OR SUBSIDIARY       ENDED DECEMBER 31, 2003 ($)      April 30, 2004 ($)
---------------------------              -------------       ----------------------------  ------------------------
<S>                                      <C>                 <C>                          <C>
B.S. Fallows
Vice-President, Marketing and
Sales, Western Pulp Inc.                     Lender                  18,933 (1)                   18,933 (1)
</TABLE>

------------------

(1)   Interest free housing loan repayable in annual instalments of $9,466.66
      matured on August 1, 2002. As of the date hereof, the loan has not yet
      been repaid. The loan is unsecured but may, at the option of the lender,
      become secured against the borrower's residence.

C.   INTERESTS OF EXPERTS AND COUNSEL

     Not applicable.

     ITEM 8.  FINANCIAL INFORMATION

A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     See "Item 17. Financial Statements" for financial statements filed as part
of this annual report.

LEGAL PROCEEDINGS

     See "Item 4. Information on the Company - A. History and Development of the
Company - Recent Developments and Restructuring Efforts - and - CCAA
Proceedings" for a discussion of the background and status of the CCAA
proceedings.

     The Company is also subject to routine litigation incidental to its
business but does not anticipate that the outcome of such litigation will have a
material adverse effect on its business or financial condition.

     In March, 2000, the Company commenced a court action against the Provincial
Government to recover damages resulting from a change in the calculation of
royalty fees for TLs which was implemented in 1995. At the end of 2003, the
Provincial Government effectively thwarted this court action through the
enactment of the Timber Licenses Settlement Act (British Columbia), the effect
of which extinguishes timber license royalties or rights. The Company intends to
challenge the constitutionality of this statute. As at December 31, 2003, the
Company estimates it has paid additional fees of $80 million on its TLs as
result of this policy change.

     In May, 2001, the Company filed two lawsuits against the Provincial
Government. In the first lawsuit, the Company alleges that it entered into a
binding agreement with the Government to sell interests in two timber tenures.
The parties have exchanged pleadings and documents and certain evidence
gathering matters have commenced, including the examination for discovery of the
former Minister of Forests who was involved during the time of the agreements.
As of the date hereof, no trial date has been set. In the second lawsuit the
Company alleges that it has been harmed by the administration of the stumpage
system which has forced the Company to pay higher rates of stumpage than other
companies for timber of similar value. The parties have exchanged pleadings and
certain evidence gathering matters have commenced. As of the date hereof no
trial date has been set.

     In April, 2002, the Company commenced a law suit against the Provincial
Government in respect of the assistance package provided to Skeena Cellulose
pulp mill by the Province. The Crown has provided responses to interrogations
and the Company has answered demands for particulars. As of the date hereof, no
trial date has been set.

     In April, 2003, the Company recently commenced a legal action against the
Province in which it claims that the Province breached its obligation to provide
fibre supply on an annual basis to the Port Alice pulp mill. Based on the
government's commitment to provide the fibre supply, the Company undertook
significant expenditures in respect of environmental upgrades at the Port Alice
pulp mill. Documents have been exchanged between the parties. The Province's
application to dismiss the claim failed. As of the date hereof, a trial date has
been set for September, 2005.

     See also "Item 4. Information on the Company - B. Business Overview - and -
D. Property, Plants and Equipment".


<PAGE>
                                     - 67 -


EXPORT SALES

     See "Item 4. Information on the Company - B. Business Overview - Sales,
Marketing and Distribution".

DIVIDEND INFORMATION

     The payment of dividends on the Equity Shares is at the discretion of the
Board and depends on the financial condition of the Company, the need to finance
capital expenditures, financial covenants in credit agreements and other factors
the Board may consider appropriate. The quarterly cash dividends on the Equity
Shares were suspended in the third quarter of 1996 by the Board in order to
preserve cash.

     The following table shows the dividends paid per share by the Company in
each of the last five years:
<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                  -----------------------------------------------------------
                                                                    2003         2002        2001         2000         1999
                                                                  --------     -------     --------     --------     --------
<S>                                                               <C>          <C>         <C>          <C>          <C>
Class A Preferred Shares, Series 4 ......................            --          --           --           --           --
Class A Common Shares ...................................            --          --           --           --           --
Non-Voting Shares........................................            --          --           --           --           --
</TABLE>

     The Company's Class A Preferred Shares, Series 4 are entitled to dividends
in priority to the payment of dividends on the other classes of shares. As of
May 21, 2004, 1,281,526 Class A Preferred Shares, Series 4 were outstanding and
entitled to cumulative variable dividends. The dividend rate on the Class A
Preferred Shares, Series 4 is 6% or $3.8 million per annum until January 31,
2004. Thereafter, the dividend rate will be the greater of: (i) 6%; and (ii)
one-half of bank prime rate plus 1%. The Company has deferred dividend payments
on the Class A Preferred Shares, Series 4 since December, 1998.

     The Noteholder Agreements each contain covenants limiting certain
Restricted Payments (as defined in the Noteholder Agreements), including the
payment of dividends on Equity Shares (other than stock dividends). The
Noteholder Agreements provide, among other things, that the Company will not
make a Restricted Payment unless: (i) no default has occurred and is continuing;
(ii) the Company meets the fixed charge coverage ratios in the Noteholder
Agreements; and (iii) such Restricted Payment along with all other Restricted
Payments is less than the aggregate amount of Restricted Payments permitted
pursuant to a ratio as set forth in the Noteholder Agreements.

B.   SIGNIFICANT CHANGES

     As noted above, the Company sold the Port Alice pulp mill on May 11, 2004.
See "Item 4. Information on the Company - A. History and Development of the
Company - Recent Developments and Restructuring Efforts - CCAA Proceedings".

     As noted above, on November 7, 2002, the Company was granted a stay of
proceedings under the CCAA. See "Item 4. Information on the Company - A. History
and Development of the Company - Recent Developments and Restructuring Efforts -
and - CCAA Proceedings". Also as noted above, on April 30, 2004, the Company
filed the Plan with the Court. See "Item 4. Information on the Company - A.
History and Development of the Company - Plan of Compromise and Arrangement". A
meeting of the Affected Creditors of the Company has been scheduled for June 7,
2004 to vote on the Plan. If approved by the Affected Creditors, a hearing to
sanction the Plan will be held on June 11, 2004. Provided the Plan is approved
by the Affected Creditors and the Court and the other conditions of the Plan are
satisfied, the Plan is expected to be implemented in July, 2004.

     In March, 2002, the Company replaced the revolving credit facility
established in 2001 with a new secured revolving operating credit facility of up
to $65 million which has an initial term of three years and allows for borrowing
against receivables and inventory.

     Except as stated above or as otherwise disclosed herein, there are no other
significant changes.

     ITEM 9. THE OFFER AND LISTING

A.   OFFER AND LISTING DETAIL

     Not applicable except 9.A.4.

     The following table sets forth the annual, quarterly and monthly high and
low sales prices of the Class A Common Shares and the Non-Voting Shares on the
Toronto Stock Exchange ("TSX") for the periods indicated:

<PAGE>
                                     - 68 -

<TABLE>
<CAPTION>
                                                                            CLASS A COMMON SHARES           NON-VOTING SHARES
                                                                            HIGH            LOW            HIGH           LOW
<S>                                                                         <C>             <C>            <C>            <C>
ANNUAL HIGHS AND LOWS
1999..................................................................      4.35            1.90           2.77           1.55
2000..................................................................      3.00            0.80           2.33           0.52
2001..................................................................      1.30            0.30           0.92           0.25
2002 .................................................................      0.85            0.18           0.66           0.17
2003 .................................................................      0.80            0.25           0.20           0.11

QUARTERLY HIGHS AND LOWS
2002
First Quarter.........................................................      0.85            0.30           0.66           0.26
Second Quarter........................................................      0.60            0.20           0.36           0.17
Third Quarter ........................................................      0.58            0.18           0.47           0.18
Fourth Quarter .......................................................      0.70            0.25           0.42           0.17
2003
First Quarter.........................................................      0.74            0.31           0.35           0.20
Second Quarter........................................................      0.45            0.25           0.26           0.15
Third Quarter.........................................................      0.45            0.25           0.25           0.10
Fourth Quarter........................................................      0.80            0.25           0.20           0.11
2004
First Quarter.........................................................      0.50            0.15           0.25           0.06

MONTHLY HIGHS AND LOWS
2003
November..............................................................      0.25            0.25           0.20           0.12
December..............................................................      0.80            0.25           0.20           0.11
2004
January...............................................................      0.40            0.30           0.20           0.08
February..............................................................      0.50            0.15           0.25           0.06
March.................................................................      0.49            0.25           0.16           0.09
April.................................................................      0.40            0.14           0.11           0.06
May 1 - 21............................................................      0.25            0.14           0.09           0.07
</TABLE>

B.   PLAN OF DISTRIBUTION

     Not applicable.

C.   MARKETS

     The Class A Common Shares and the Non-Voting Shares of the Company are
listed for trading on the TSX under the stock symbols DOM.A and DOM.B,
respectively.

     There is currently no organized public market for the Class A Preferred
Shares, Series 4, or the Notes and the Company does not intend to apply for the
listing of the Class A Preferred Shares, Series 4, or the Notes on any
securities exchange.

D.   SELLING SHAREHOLDER

     Not applicable.

E.   DILUTION

     Not applicable.

F.   EXPENSES OF ISSUE

     Not applicable.
<PAGE>
                                     - 69 -


     ITEM 10.     ADDITIONAL INFORMATION

A.   SHARE CAPITAL

     Not applicable.

B.   ARTICLES AND BYLAWS

     The Company is organized under the laws of Canada, and has been assigned
corporation number 405613-2.

     The Company's Articles and Bylaws do not contain a description of its
objects and purposes. We may perform any and all corporate activities
permissible under the laws of Canada.

     The Company's Articles and Bylaws do not restrict a director's power to
vote compensation to themselves or any other members of their body in the
absence of an independent quorum or to exercise borrowing powers. Directors who
have an interest in a contract or transaction must declare their interest and
shall not vote in respect of such contract or transaction, but they are still
counted in the quorum present. There is no mandatory retirement age for the
Company's directors and the directors are not required to own securities of the
Company in order to serve as directors.

     The Company's authorized capital consists of Class A Preferred Shares,
Class B Preferred shares, Class A Common Shares and Non-Voting Shares. As of the
date hereof, the Company has authorized capital consisting of (i) 5,000,000
class A preferred shares with 1,000,000 designated as 7% class A cumulative
redeemable convertible preferred shares, series 2 (the "Series 2 Shares"),
1,000,000 as class A cumulative redeemable convertible preferred shares, series
3 (the "Series 3 Shares") and 1,500,000 as class A cumulative redeemable
preferred shares, series 4 (the "Class A Preferred Shares, Series 4"), (ii)
100,000 class B cumulative redeemable preferred shares (the "Class B Preferred
Shares"), (iii) an unlimited number of class A common shares designated as Class
A Common Shares (the "Class A Common Shares), and (iv) an unlimited number of
class B non-voting shares with an unlimited number designated as series 2 (the
"Non-Voting Shares").

     Holders of the Class A Common Shares are entitled to vote at all meetings
of shareholders, except meetings at which only holders of a specified class of
shares are entitled to vote, receive any dividend declared by the Company and,
subject to the rights, privileges, restrictions and conditions attaching to any
other class of shares, receive the remaining property of the Company upon
dissolution. The Class A Common Shares are convertible at any time into the
Non-Voting Shares on a one-for-one basis.

     The Non-Voting Shares are entitled to receive notices of all meetings of
shareholders and to attend such meetings but are not entitled to vote at such
meetings. Unless the Company subdivides or consolidates the Non-Voting Shares,
the Company may not subdivide or consolidate the Class A Common Shares. The
Non-Voting Shares and Class A Common Shares have the same rights to dividends
and to receive the remaining property of the Company on dissolution.

     If an offer is made to purchase the Class A Common Shares to all or
substantially all of the holders, the Non-Voting Shares will be deemed to be
Class A Common Shares for the purposes of the offer. However, the Non-Voting
Shares will not be deemed to have been converted into Class A Common Shares if
(i) less than 50% of the Common Shares are tendered to the offer, (ii) at the
time of the offer an offer on the same terms is also made to holders of
Non-Voting Shares, (iii) the offer is abandoned, withdrawn or expires and no
Class A Common Shares are taken up and paid for, or (iv) a certificate is signed
by H.S. Doman stating that he, his descendants, and companies and trusts
controlled by them which in total control at least 20% of the Common Shares,
will not accept the offer.

     The Company's class A preferred shares may be issued in one or more series
and the directors may fix the number of shares to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching to each
series. The Company's class A preferred shares only have voting rights if the
Company fails to pay an annual dividend at the stated rate for a period of not
less than 24 consecutive months. After this period and until there are no
dividends in arrears, holders of the class A preferred shares will be able to
use their votes to elect the number of directors specified in the Company's
Articles, voting as a class separately from all other shares.

     The Company's class A preferred shares of each series rank on a parity with
the class A preferred shares of any other series and are entitled to a
preference over all the Company's other shares with respect to the payment of
dividends and the distribution of assets or return of capital in the event of
liquidation, dissolution or winding-up of the Company. The Class B Preferred
Shares are entitled to a preference over the Class A Common Shares and the
Non-Voting Shares. The Non-Voting Shares rank on a parity with the Class A
Common Shares.

<PAGE>
                                     - 70 -


     Holders of the Series 2 Shares are entitled to dividends of $1.75 per share
per annum. The Series 2 Shares are redeemable at the Company's option at a price
of $25 per share. The conversion right for the Series 2 Shares terminated on May
31, 1994.

     Holders of the Series 3 Shares are entitled to variable dividends
calculated as specified in the Company's Articles. The Series 3 Shares are
redeemable at the Company's option at a price which is the greater of $50 and
the market value per Series 3 Shares of the Non-Voting Shares which would have
been issued if the Series 3 Shares were converted. The Series 3 Preferred Shares
are also convertible into such number of Non-Voting Shares as is specified in
the Company's Articles at any time.

     Holders of the Class A Preferred Shares, Series 4, are entitled to variable
dividends calculated as specified in the Company's Articles. The Class A
Preferred Shares, Series 4 Shares are redeemable at the Company's option at a
price of $50 per share.

     On liquidation, dissolution or winding-up of the Company, holders of the
Series 2 Shares are entitled to $25 per share and the Series 3 Shares and Class
A Preferred Shares, Series 4, are entitled to $50 per share, together with any
accrued and unpaid dividends.

     Holders of the Class B Preferred Shares are entitled to dividends at a rate
of 10% of the issue price both before and after the due date. The Class B
Preferred Shares are redeemable at the Company's option at a price of $1,000 per
share. On liquidation, dissolution or winding-up of the Company, holders of the
Class B Preferred Shares are entitled to $1,000 per share together with any
accrued and unpaid dividends. The Class B Preferred Shares are only entitled to
vote at a meeting if the Company fails to pay dividends to the Class B Preferred
Shares for 24 consecutive months. Thereafter and until no dividends are in
arrears, holders of the Class B Preferred Shares are entitled to one vote per
share.

     Subject to the provisions of the CBCA, the provisions in the Company's
Articles attaching to the Class A Common Shares, Non-Voting Shares and Class B
Preferred Shares may be altered, amended, repealed, suspended or changed by the
affirmative vote of the holders of not less than two-thirds of the Class A
Common Shares, two-thirds of the Non-Voting Shares and two-thirds of the Class B
Preferred Shares, respectively. Amending, repealing, suspending or changing the
provisions in the Company's Articles attaching to its class A preferred shares
requires the affirmative vote of at least two-thirds of the holders of the
Company's class A preferred shares.

     At each annual general meeting, the entire board of directors retires and
directors are elected for the next term. Each director serves until the close of
the next annual general meeting or until his successor is elected or appointed
unless his office is earlier vacated in accordance with the Company's Articles
or with the provisions of the CBCA.

     An annual general meeting of shareholders must be held once in every
calendar year not later than 15 months after the last preceding annual meeting,
but not later than six months after the end of the preceding financial year
(unless permitted by Court order), and at such place as the Company's board of
directors may determine. The holders of not less than 5% of our issued shares
that carry the right to vote at a meeting may requisition the Company's
directors to call a meeting of shareholders for the purposes stated in the
requisition. The Company's directors may also whenever they think fit, convene a
special meeting of shareholders. The quorum for the transaction of business at
any meeting of shareholders is one or more individuals present in person, each
being a shareholder entitled to vote thereat or a duly appointed proxyholder or
representative for an absent shareholder so entitled, and holding or
representing by proxy not less than 10% of the Company's outstanding shares
entitled to vote at the meeting. The only persons entitled to be present at a
meeting of shareholders are those persons entitled to vote thereat, the
directors and auditors of the Company and others who are entitled or required
under the CBCA or the Articles or Bylaws to be present at a meeting of
shareholders.

     As set forth above, the Company's Articles and Bylaws contain certain
provisions that would have an effect of delaying, deferring or preventing a
change in control of the Company, including authorizing the issuance by the
Board of preferred stock in series and the Non-Voting Shares' rights relating to
take-over bids. The Company's Articles and Bylaws do not contain any provisions
that would operate only with respect to a merger, acquisition or corporate
restructuring of the Company.

     The Company's Articles do not contain any provisions governing the
ownership threshold above which shareholder ownership must be disclosed.

C.   MATERIAL CONTRACTS

     The Company has entered into the following contracts during the preceding
two years:

     -    Employment Agreement with J.H. Doman dated as of October 23, 2002;

<PAGE>
                                     - 71 -

     -    Retention Agreement with P.G. Hosier dated as of March 1, 2003; and

     -    Port Alice Purchase and Sale Agreement between Western Pulp Limited
          Partnership and PASC dated as of May 9, 2004.

     Other than as disclosed herein, the Company has not entered into any
material contracts, other than in the ordinary course of business, during the
preceding two years.

     See "Item 6. Directors, Senior Management and Employees - B. Compensation -
Employee Contracts" for a summary of J.H. Doman's employment agreement and P.G.
Hosier's retention agreement. See "Item 4. Information the Company - D.
Property, Plants and Equipment - Pulp Mills" for a summary of the Port Alice
Agreement.

D.   EXCHANGE CONTROLS

     There are presently no governmental laws, decrees or regulations in Canada
which restrict the export or import of capital, or which impose foreign exchange
controls or affect the remittance of interest, dividends or other payments to
non-resident holders of the Company's securities. However, any remittances of
dividends to U.S. residents are subject to a 15% withholding tax (5% if the
beneficial owner of the dividends is a corporation owning at least 10% of the
voting shares of the Company) pursuant to the Canada-U.S. Tax Convention (1980),
as amended (the "Treaty").

     Except as provided in the Investment Canada Act (the "ICA"), there are no
limitations specific to the rights of non-Canadians to hold or vote securities
of the Company under the laws of Canada or British Columbia, or in the charter
documents of the Company.

     The ICA requires non-Canadian persons or entities acquiring "control" (as
defined in the ICA) of a corporation carrying on business in Canada to either
notify, or file an application for review with, Investment Canada, the federal
agency created by the ICA. The ICA is applicable to, and Investment Canada may
review, transactions which result in the direct or indirect acquisition of
control of a Canadian business, where the gross value of corporate assets
exceeds certain threshold levels, such thresholds being favourably varied for
WTO investors (including the U.S.) or where the activity of the business is
related to certain sensitive areas such as uranium production, financial
services, transportation or culture. No change of voting control will be deemed
to have occurred, for purposes of the ICA, if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.

     If an investment is reviewable under the ICA, an application for review in
the form prescribed is normally required to be filed with Investment Canada
prior to the investment taking place, and the investment may not be implemented
until the review has been completed and the Minister responsible for Investment
Canada is satisfied that the investment is likely to be of net benefit to
Canada. If the Minister is not satisfied that the investment is likely to be of
net benefit to Canada, the non-Canadian applicant must not implement the
investment, or if the investment has been implemented, may be required to divest
itself of control of the business that is the subject of the investment.

E.   TAXATION

     The following is a summary of the principal Canadian federal income tax
consequences to a holder of securities of the Company who is not resident in
Canada nor deemed to be a resident of Canada under the ITA.

     The summary is of a general nature only, is not exhaustive of all income
tax considerations, and is not intended to be, and should not be construed to
be, legal or tax advice to any holder of securities of the Company and no
representation with respect to the tax consequences to any holder of securities
of the Company is made. Accordingly, holders of securities of the Company should
consult with their own tax advisors with respect to the income tax consequences
to them of acquiring, holding or disposing of securities of the Company,
including the applicability and the effect of any state, local or foreign tax
laws and recent changes in applicable tax laws.

     This summary is based on the current provisions of the ITA and the
regulations thereunder, the Company's understanding of the current published
administrative practices of the Canada Revenue Agency, and all specific
proposals to amend the ITA and the regulations thereunder announced by the
Minister of Finance (Canada) prior to the date hereof. This summary does not
otherwise take into account or anticipate changes in the law, whether by
judicial, governmental or legislative decisions or action, nor does it take into
account tax legislation or considerations of any province or territory of Canada
or any jurisdiction other than Canada.

<PAGE>
                                     - 72 -

     This summary assumes that throughout the period that securities of the
Company are outstanding: (i) the Company will deal with the holders at arm's
length within the meaning of the ITA; (ii) the securities are capital property
to the holders; (iii) the holders do not use or hold and are not deemed or
considered to use or hold the securities in carrying on business in Canada and
have not acquired any of them in one or more transactions considered to be an
adventure in the nature of trade within the meaning of the ITA; (iv) the holders
are not otherwise required by or for the purposes of the laws of Canada to
include an amount in respect of any of the securities of the Company in
computing income from carrying on business in Canada; and (v) with respect to
the Notes, the Company will not, under any circumstances, be obliged to pay more
than 25% of the aggregate principal amount of the Notes within five years from
the date of issue, except in the event of a default under the terms of the Notes
or of any agreement relating thereto, or if the terms of the Notes or any such
agreement become unlawful or are changed by legislative, judicial or certain
administrative actions. This summary is not applicable to a holder of securities
of the Company that is a "financial institution", a "specified financial
institution", or an interest in which would be a "tax shelter investment", all
as defined in the ITA.

THE NOTES

     No Canadian taxes on income (including taxable capital gains) will
generally be payable in respect of the holding, redemption or disposition of the
Notes by non-resident holders. No Canadian withholding tax will be payable on
interest paid or credited to non-resident holders of the Notes.

THE SHARES

Dividends

     Dividends paid on the Company's shares to a non-resident holder will be
subject to withholding tax under the ITA at a rate of 25%, subject to a
reduction under the provisions of any relevant tax treaty. For holders who are
United States residents, under the Canada/U.S. Tax Treaty this withholding tax
rate is reduced to 15%, and to 5% where the beneficial owner of the dividends is
a corporation resident in the United States that owns at least 10% of the voting
shares of the Company.

Capital Gains

     A non-resident holder is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of the Company unless,
subject to the provisions of a relevant tax treaty, the share represents
"taxable Canadian property" to the holder, as defined in the ITA. The Company's
shares will be taxable Canadian property to a non-resident holder only if the
non-resident holder, together with persons with whom the non-resident holder
does not deal at arm's length, collectively owned not less than 25% of the
issued shares of any class of the capital stock of the Company at any time
during the five year period preceding the disposition of such shares. For a
holder who is a United States resident, even if the shares represent taxable
Canadian property, under the Canada/U.S. Tax Treaty no Canadian taxes will
generally be payable on a capital gain realized on such shares, unless the value
of such shares is derived principally from real property situated in Canada.

     For a discussion of the Canadian and U.S. tax consequences to Affected
Creditors in respect of the Plan, see the Information Circular and the Form 6-K
dated May 28, 2004.

F.   DIVIDENDS AND PAYING AGENT

     Not Applicable.

G.   STATEMENT BY EXPERTS

     Not Applicable.

H.   DOCUMENTS ON DISPLAY

     The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, the
Company files reports and other information with the Securities and Exchange
Commission. These materials, including this annual report and the exhibits
hereto (including without limitation the Information Circular and the
supplemental U.S. tax disclosure related to the Plan of Compromise and
Arrangement) and Form 6-Ks, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and 233 Broadway, New York, New York
10279. Copies of the materials may be obtained from the principal office of the
Commission at

<PAGE>
                                     - 73 -


450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
the SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC at http://www.sec.gov. The public may obtain information on the
operation of the Commission's public reference facilities by calling the
Commission in the United States at l-800-SEC-0330.

     The Company also files reports and other information with the securities
regulator authorities in all provinces of Canada. The filings are electronically
available from the System for Electronic Document Analysis and Retrieval (SEDAR)
(http://www.sedar.com), the Canadian equivalent of the SEC's electronic
document gathering and retrieval system.

I.   SUBSIDIARY INFORMATION

     Not applicable.

     ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents,
in respect of the Company's long-term debt obligations, principal cash flows and
related weighted average interest rates by expected maturity dates. The
information is presented in Canadian dollar equivalents, which is the Company's
reporting currency.

<TABLE>
<CAPTION>
                                                                           DECEMBER 31, 2003
                              ----------------------------------------------------------------------------------------------------
                                                                        EXPECTED MATURITY DATE
                              ----------------------------------------------------------------------------------------------------
                                                                                                                           Fair
                                 2004       2005      2006        2007       2008        Thereafter        Total         Value(1)
                              ---------    ------    -------    --------    -------     ------------    -----------    -----------
<S>                           <C>          <C>      <C>        <C>          <C>         <C>             <C>            <C>
LIABILITIES                                                      (CDN.$ EQUIVALENT IN THOUSANDS)
Long-Term Debt:
  Fixed Rate................    710,482       --         --      162,063         --           --           872,543      327,608
    Average Interest Rate...       9.70%      --         --         9.25%        --           --              9.62%
</TABLE>
------------------

(1)  Fair value determined based on the quoted trading price of the underlying
     Notes as at December 31, 2003 translated at the foreign exchange rate at
     December 31, 2003.

FOREIGN CURRENCY EXCHANGE RATE RISK

     The table below provides information about the Company's financial
instruments by functional currency and presents such information in U.S.
dollars. The table summarizes information with respect to the Company's U.S.
dollar-denominated long-term debt obligations that are sensitive to foreign
currency exchange rates. The table presents principal cash flows and related
weighted average interest rates by expected maturity dates:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31, 2003
                              ----------------------------------------------------------------------------------------------------
                                                                     EXPECTED MATURITY DATE
                              ----------------------------------------------------------------------------------------------------
                                                                                                                           Fair
                                2004         2005      2006       2007          2008        Thereafter        Total       Value(1)
                              ----------    -------    ------   ---------    ----------     -----------    -----------   ---------
<S>                           <C>           <C>        <C>      <C>          <C>            <C>             <C>          <C>
ON-BALANCE SHEET FINANCIAL                                             (US$ IN THOUSANDS)
INSTRUMENTS
Cdn. $ Functional Currency:
  Liabilities
  Long-Term Debt:
    Fixed Rate..............    548,000         --        --     125,000             --              --        673,000     252,686
       Average Interest Rate       9.70%        --        --        9.25%            --              --           9.62%
</TABLE>

------------------
(1)  Fair value determined based on the quoted trading price of the underlying
     Notes as at December 31, 2003.

     For the impact of changes in foreign exchange rates on operations and
long-term debt, please see "Item 5. Operating and Financial Review and Prospects
- D. Trend Information - Foreign Currencies".

     ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

<PAGE>
                                     - 74 -


                                     PART II

     ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     As a result of the CCAA proceedings and the suspension of interest payments
due on its long-term debt, the Company is in default of its long-term debt
covenants under its Notes. The effect of the Initial Order granted under the
CCAA was to stay the current obligations of the Company until a Plan could be
approved and implemented. The general stay of proceedings against creditors has
been continued until June 11, 2004. See "Item 4. Information on the Company - A.
History and Development of the Company". The suspended interest payments on the
Notes will, on May 31, 2004, amount to approximately US$138.2 million in the
aggregate.

     The Class A Preferred Shares, Series 4, have a cumulative annual dividend,
generally payable quarterly, of 6% until January 31, 2004 and thereafter at the
greater of (i) 6% and (ii) one half of bank prime rate plus 1%. The Company
deferred the payment of quarterly cumulative dividends on the Class A Preferred
Shares, Series 4, from December 1, 1998, which in the aggregate amounted to
$23.4 million, on January 31, 2004.

     ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS

     None. See, however, "Item 4. Information on the Company - A. History and
Development of the Company - Plan of Compromise and Arrangement" for proposed
changes.

     ITEM 15. CONTROLS AND PROCEDURES

     The Company's principal executive officer and principal financial officer
have evaluated the effectiveness of the disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) of the Company as of the
end of the period covered by this annual report. Based on such evaluation, the
conclusion of such officers is that such controls and procedures are effective
to ensure to a reasonable assurance level that material information relating to
the Company, including its consolidated subsidiaries, is made known to them by
others within the Company and its consolidated subsidiaries, particularly during
the period in which this annual report is being prepared.

     During and after such evaluation, there were no significant changes in the
Company's internal controls or in other factors that has materially affected
these controls or is reasonably likely to materially affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

     ITEM 16. RESERVED

     ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT

     The Company has at least one audit committee financial expert serving on
its audit committee. The audit committee financial expert is W.E. Aziz.

     ITEM 16B CODE OF ETHICS

     The Company has not adopted a code of ethics that applies to its principal
executive officers, principal financial officer, principal accounting officer,
controller or persons performing similar functions because of its current
financial situation and CCAA proceedings. Over the past two and half years, the
Company has focussed its attention on exploring potential financial solutions to
its financial difficulties and considering possible restructuring alternatives.
Pursuant to an agreement with the Restricted Group, the Company has filed the
Plan with the Court, which Plan has the support of the Restricted Group. It is
expected that if the Plan is approved by the Affected Creditors and the Court
and all the conditions of the Plan are satisfied, the business and operations of
the Company will be transferred to and continued under a new corporate entity,
Lumberco, on the Plan Implementation Date. After the transfer of the business
and operations of the Company, it is anticipated that the new directors of
Lumberco will consider corporate governance matters, including the code of
ethics, for the new corporate entity.

     ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES

     KPMG LLP is the Company's auditors. KMPG LLP was first appointed as the
Company's auditors in 1999 and has since then served as the Company's auditors.


<PAGE>
                                      - 75 -


     For the years ended December 31, 2002 and 2003, professional services were
performed and fees paid to KPMG LLP as follows:

                                          2002                 2003

         Audit Fees                    $300,000             $315,000

         Audit Related Fees(1)         $221,450             $165,050

         Tax Fees(2)                   $378,800             $131,851

         All Other Fees(3)             $ 58,000             $ 40,883

     (1)  consisting of professional services with respect to reviews of
          quarterly financial statements, audits of pension plans, involvement
          with Canadian and U.S. annual reports and accounting related
          assistance, primarily the review of the implication to the Company of
          new accounting standards and research on accounting issues.

     (2)  consisting of fees for tax return preparation, compliance work and tax
          planning.

     (3)  consisting of forensic assignments.

     KPMG Inc., an affiliate of KPMG LLP, was paid $82,965 and $480,743 for its
services as Monitor appointed under CCAA proceedings for the years ended
December 31, 2002 and 2003, respectively.

     The audit committee pre-approves all services to be rendered by its
auditors. In particular, the audit committee pre-approves individually all
non-audit services to be rendered by its auditors.

     ITEM 16D     EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     Not yet applicable.

     ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS

     Not applicable.

                                    PART III

     ITEM 17. FINANCIAL STATEMENTS

     (a)  Financial Statements:

     1.   Auditors' Report of KPMG LLP.

     2.   Consolidated Balance Sheets at December 31, 2003 and 2002.

     3.   Consolidated Statements of Operations and Consolidated Statements of
          Retained Earnings (Deficit) for the years ended December 31, 2003,
          2002 and 2001.

     4.   Consolidated Statements of Cash Flows for the years ended December 31,
          2003, 2002 and 2001.

     5.   Notes to Consolidated Financial Statements.


<PAGE>













                      Consolidated Financial Statements of



                      DOMAN  INDUSTRIES  LIMITED



                      Years ended December 31, 2003, 2002 and 2001



<PAGE>
(KPMG LOGO)

     KPMG LLP
     CHARTERED ACCOUNTANTS                        Telephone (604) 691-3000
     Box 10426, 777 Dunsmuir Street               Telefax   (604) 691-3031
     Vancouver BC V7Y 1K3                         www.kpmg.ca
     Canada


AUDITORS' REPORT TO THE DIRECTORS


We have audited the consolidated balance sheets of Doman Industries Limited as
at December 31, 2003 and 2002 and the consolidated statements of operations,
deficit and cash flows for each of the years in the three year period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards and auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the three year period then ended in accordance with Canadian generally
accepted accounting principles.



KPMG LLP (signed)


Chartered Accountants

Vancouver, Canada
February 6, 2004 except as to note 18
which is as of May 11, 2004



COMMENTS BY AUDITOR FOR US READERS ON CANADA - US REPORTING DIFFERENCE


In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the financial statements, and when there is change in accounting
principles that has a material effect on the comparability of the Company's
financial statements, such as the change described in note 2(k)(ii). Our report
to the directors dated February 6, 2004, except as to note 18 which is as of May
11, 2004, is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions or to such change in
accounting principles in the auditor's report when these are adequately
disclosed in the financial statements.



KPMG LLP (signed)


Chartered Accountants

Vancouver, Canada
February 6, 2004, except as to note 18
which is as of May 11, 2004



(FOOTER LOGO)

              KPMG LLP, A CANADIAN LIMITED LIABILITY PARTNERSHIP IS THE CANADIAN
              MEMBER OF KPMG INTERNATIONAL, A SWISS INCORPORATING COMMISSION.
<PAGE>
                                     - 78 -

DOMAN INDUSTRIES LIMITED
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)

December 31, 2003 and 2002
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                  <C>
Assets

Current assets:
     Cash                                                                  $       21,561       $       22,599
     Accounts receivable                                                           68,317               86,038
     Inventory (note 3)                                                           159,020              199,989
     Prepaid expenses                                                               6,763               10,363
-----------------------------------------------------------------------------------------------------------------------------
                                                                                  255,661              318,989

Investments (note 4)                                                               10,786                9,784

Property, plant and equipment (note 5)                                            460,415              485,091

Other assets (note 6)                                                              22,190               30,062
-----------------------------------------------------------------------------------------------------------------------------

                                                                           $      749,052       $      843,926
-----------------------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Deficiency

Current liabilities:
     Bank indebtedness (note 7)                                            $       30,427       $       21,819
     Accounts payable and accrued liabilities                                     124,818              102,730
     Accounts payable subject to compromise (note 8)                              110,862               45,366
     Current portion of long-term debt subject to compromise (note 9)             503,042                    -
     Current portion of long-term debt (note 9)                                   207,440                    -
-----------------------------------------------------------------------------------------------------------------------------
                                                                                  976,589              169,915

Long-term debt subject to compromise (note 9)                                     162,063              809,309

Long-term debt (note 9)                                                                 -              252,416

Other liabilities                                                                  29,725               27,807
-----------------------------------------------------------------------------------------------------------------------------
                                                                                1,168,377            1,259,447

Shareholders' deficiency:
     Share capital (note 10(a)):
         Preferred shares                                                          64,076               64,076
         Common and non-voting shares                                             242,942              242,942
     Deficit                                                                     (726,343)            (722,539)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                 (419,325)            (415,521)
-----------------------------------------------------------------------------------------------------------------------------

                                                                           $      749,052       $      843,926
-----------------------------------------------------------------------------------------------------------------------------

Going concern (note 1)
Commitment and contingencies (note 14)


See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:


/s/ J.H. Doman                       Director             /s/ Ian Danvers                     Director
------------------------------------                      -----------------------------------

</TABLE>





<PAGE>
                                       - 79 -

DOMAN INDUSTRIES LIMITED
Consolidated Statements of Operations
(Expressed in thousands of Canadian dollars, except for share and per
share amounts)

Years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>                    <C>
Sales (notes 2(h) and 14(b))                            $       589,015    $      634,934         $    769,977

Costs and expenses:
     Cost of goods sold                                         602,487           562,520              738,281
     Selling and administration                                  18,080            19,036               19,831
     Amortization of property, plant and equipment
       (note 16(a))                                              45,973            48,481               67,235
     Write-down of property, plant and equipment and
       operating restructuring costs (notes 5 and 12)             7,986            67,454              291,737
-----------------------------------------------------------------------------------------------------------------------------
                                                                674,526           697,491            1,117,084
-----------------------------------------------------------------------------------------------------------------------------

Operating earnings (loss)                                       (85,511)          (62,557)            (347,107)

Interest expense (note 16(b)):
     Cash interest paid or payable                              (96,438)         (102,714)            (100,955)
     Amortization of deferred finance costs                      (4,411)           (5,268)              (5,846)
     Foreign exchange gains (losses) on translation
       of long-term debt                                        189,180            10,228              (66,561)
-----------------------------------------------------------------------------------------------------------------------------
                                                                 88,331           (97,754)            (173,362)

Other income (note 16(c))                                         2,200             4,275               14,399

Financial restructuring costs (note 13)                          (7,790)           (7,259)                   -
-----------------------------------------------------------------------------------------------------------------------------

Loss before income taxes                                         (2,770)         (163,295)            (506,070)

Income tax expense (recovery) (note 11)                           1,034               810              (93,216)
-----------------------------------------------------------------------------------------------------------------------------

Net loss                                                         (3,804)         (164,105)            (412,854)

Provision for dividends on preferred shares                      (4,779)           (4,499)              (4,514)
-----------------------------------------------------------------------------------------------------------------------------

Net loss attributable to common and non-voting
   shares                                               $        (8,583)   $     (168,604)        $   (417,368)
-----------------------------------------------------------------------------------------------------------------------------

Loss per share:
     Basic                                              $        (0.20)    $       (3.97)         $     (9.82)
     Diluted                                                     (0.20)            (3.97)               (9.82)

Weighted average number of common and non-voting
   shares outstanding (thousands of shares)                      42,481            42,481               42,481

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.



<PAGE>
                                       - 80 -



DOMAN INDUSTRIES LIMITED
Consolidated Statements of Deficit
(Expressed in thousands of Canadian dollars)

Years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                  <C>
Deficit, beginning of year:
     As previously reported                               $    (722,539)     $   (547,882)        $   (135,028)
     Cumulative effect of adoption of new accounting
       standard (note 2(k))                                           -           (10,552)                   -
-----------------------------------------------------------------------------------------------------------------------------
     As restated                                               (722,539)         (558,434)            (135,028)

Net loss                                                         (3,804)         (164,105)            (412,854)
-----------------------------------------------------------------------------------------------------------------------------

Deficit, end of year                                      $    (726,343)     $   (722,539)        $   (547,882)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.



<PAGE>
                                       - 81 -



DOMAN INDUSTRIES LIMITED
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)

Years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                  <C>
Cash provided by (used in):

Operations:
     Net loss                                             $      (3,804)     $   (164,105)        $   (412,854)
     Items not involving cash:
         Write-down of property, plant and
           equipment (notes 5 and 12)                             5,986            53,288              276,158
         Amortization of property, plant and equipment           45,973            48,481               67,235
         Amortization and write-down of deferred charges          4,411             9,069                5,846
         Foreign currency translation loss (gain)              (189,180)          (10,228)              66,561
         Future income taxes                                          -                 -              (95,775)
         Gain on property, plant and equipment disposals         (2,174)           (5,527)              (5,180)
         Gain on senior notes buy-back                                -                 -              (18,294)
         Loss on disposal of investments                              -                 -                5,760
         Long-term restructuring costs                                -                 -                4,789
         Other                                                    5,679             2,076                1,404
-----------------------------------------------------------------------------------------------------------------------------
                                                               (133,109)          (66,946)            (104,350)
     Net change in non-cash working capital
       items (note 16(d))                                       149,874            38,900              134,868
-----------------------------------------------------------------------------------------------------------------------------
                                                                 16,765           (28,046)              30,518

Investments:
     Additions to property, plant and equipment                 (29,170)          (29,612)             (43,621)
     Disposals of property, plant and equipment                   3,761            14,274               11,048
     Other                                                       (1,002)              298                 (582)
-----------------------------------------------------------------------------------------------------------------------------
                                                                (26,411)          (15,040)             (33,155)

Financing:
     Bank indebtedness                                            8,608            20,510                1,309
     Senior Notes buy-back                                            -                 -              (23,431)
     Finance costs                                                    -            (1,101)              (1,960)
-----------------------------------------------------------------------------------------------------------------------------
                                                                  8,608            19,409              (24,082)
-----------------------------------------------------------------------------------------------------------------------------

Decrease in cash                                                 (1,038)          (23,677)             (26,719)

Cash, beginning of year                                          22,599            46,276               72,995
-----------------------------------------------------------------------------------------------------------------------------

Cash, end of year                                       $        21,561      $     22,599         $     46,276
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Supplementary information (note 16(e))

See accompanying notes to consolidated financial statements.




<PAGE>
                                       - 82 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001




1.   GOING CONCERN:

     On November 7, 2002 the Company was granted protection from its creditors
     under the Companies Creditors Arrangement Act ("CCAA"), pursuant to an
     Order ("Court Order") issued by the Supreme Court of British Columbia (the
     "Court"). Under terms of the Court Order, the Company is required to
     present to the Court a Plan of Arrangement and Compromise (the "Plan")
     setting out the terms of the restructuring of its debt and other
     obligations. The effect of the Court Order is to stay the Company's current
     obligations to creditors until the Plan can be approved and implemented.

     Since November 7, 2002, the Company has been negotiating the terms of the
     Plan with various stakeholders including committees of unsecured
     bondholders and secured bondholders, other unsecured creditors, preferred
     shareholders and common shareholders (together, referred to as the
     "Stakeholders"). In addition, the Company and its advisors have been
     actively pursuing refinancing opportunities with potential lenders and
     investors and possible asset sales to third parties to generate proceeds to
     reduce or replace the Company's existing debt.

     Since November 7, 2002 and to the current date, the Company has received
     various non-binding term sheets from various creditor groups and third
     parties relating to the restructuring of the Company including various
     proposals for the acquisition of certain of the Company's assets by third
     parties. The Company has been working with its advisors, the Court
     appointed monitor, the Court, various third parties and the Stakeholders to
     finalize a Plan to present to the Court. Throughout this process, the Court
     has granted the Company continued protection under CCAA with the latest
     extension granted to April 5, 2004.

     Although the Company has not filed a Plan for the Court's consideration,
     negotiations to date and the various non-binding term sheets received for
     restructuring or asset sales clearly indicate that the Company's creditors
     that are subject to compromise will likely receive consideration for their
     claims that is substantially less than the amount of their claims, whether
     or not the consideration is in the form of cash or equity of the Company
     and that current shareholders will receive little or no consideration.

     There can be no assurance that the Company will successfully emerge from
     its reorganization proceedings. Approval of a Plan and emergence from
     reorganization proceedings are subject to a number of conditions.

     As a result of the CCAA proceedings and the suspension of interest payments
     due on its long-term debt, the Company is in default of its long-term debt
     covenants under its secured and unsecured notes.

     Basis of presentation:

     The accompanying consolidated financial statements have been prepared on a
     going concern basis, which assumes that the Company will be able to realize
     its assets and discharge its obligations in the normal course of business.
     There is doubt about the appropriateness of the use of the going concern
     assumption because of the CCAA reorganization proceedings and circumstances
     relating to this event, including the Company's current debt structure,
     recent losses and cash flow. As such, realization of assets and discharge
     of liabilities are subject to significant uncertainty.





<PAGE>
                                       - 83 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001


1.   GOING CONCERN (CONTINUED):

     The consolidated financial statements do not reflect adjustments that would
     be necessary if the going concern basis was not appropriate. If the going
     concern basis was not appropriate for these consolidated financial
     statements, then significant adjustments would be necessary to the carrying
     value of assets and liabilities, the reported revenues and expenses, and
     the balance sheet classifications used. The appropriateness of the going
     concern basis is dependent upon, among other things, confirmation of a plan
     of reorganization, future profitable operations and the ability to generate
     sufficient cash from operations and financing arrangements to meet
     obligations.

     If a Plan is confirmed by the Court, the reorganized Company will be
     required to adopt fresh start accounting in accordance with Canadian GAAP.
     This accounting will require that assets and liabilities be recorded at
     their fair values at the date of emergence from the Company's
     reorganization proceedings. As a result, the reported amounts in the
     consolidated financial statements could materially change, because they do
     not give effect to any adjustments to the carrying value of assets and
     liabilities that may ultimately result from the adoption of fresh start
     accounting.


2.   SIGNIFICANT ACCOUNTING POLICIES:

     These consolidated financial statements are prepared in accordance with
     Canadian generally accepted accounting principles ("Canadian GAAP"), which
     require management to make assumptions and estimates that affect the
     reported amounts of assets and liabilities and disclosures of contingent
     assets and liabilities at the date of the financial statements and the
     reported amounts of revenues and expenses during the reporting periods.
     Actual results could differ from those estimates.

     Information regarding United States generally accepted accounting
     principles ("US GAAP") as it affects the Company's consolidated financial
     statements is presented in note 17.

     The significant policies are summarized below.

     (a) Basis of consolidation:

         These consolidated financial statements include the accounts of Doman
         Industries Limited and all of its subsidiaries (see note 16(i))
         (individually and collectively referred to as the "Company"). All
         intercompany balances and transactions have been eliminated on
         consolidation.

     (b) Inventory:

         Inventory, other than supplies which are valued at cost, are valued at
         the lower of average cost and net realizable value.

     (c) Investments:

         Investments in companies over which the Company has the ability to
         exercise significant influence are accounted for using the equity
         method whereby the Company's proportionate share of earnings and losses
         is included in earnings. Dividends received are credited to the
         investment accounts.

         Other investments are accounted for using the cost method whereby
         income is included in earnings when received or receivable.





<PAGE>
                                       - 84 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001


2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (d) Property, plant and equipment:

         Property, plant and equipment, including those under capital leases,
         are initially recorded at cost, including capitalized interest and
         start-up costs incurred for major projects during the period of
         construction. Amortization of the pulp mills is provided on a
         unit-of-production basis over twenty-five years except for (i) the
         modernized portion of the Squamish pulp mill which is over forty years
         and (ii) other major replacements and renewals which are over twelve
         years. Amortization of the solid wood facilities and equipment is
         provided for the period these facilities are in operation on a
         straight-line basis over fifteen to twenty years for buildings and
         major plant and equipment and over five to ten years for mobile and
         office equipment. These rates reflect the estimated useful lives of the
         assets. Amortization of timberlands and logging roads is computed on
         the basis of the volume of timber cut.

         The Company conducts reviews for the impairment of property, plant and
         equipment whenever events or changes in circumstances indicate that the
         carrying amount of an asset may not be recoverable. An impairment loss
         would be recognized when estimates of future cash flows expected to
         result from the use of an asset and its eventual disposition are less
         than its carrying amount. During 2003, 2002 and 2001, the Company
         recorded impairment losses (note 5).

     (e) Deferred financing costs:

         These costs are amortized on a straight-line basis over the term of the
         related debt. The amount of the amortization is included in interest on
         long-term debt.

     (f) Foreign currency translation:

         Transactions denominated in US dollars have been translated into
         Canadian dollars at the approximate rate of exchange prevailing at the
         time of the transaction. Monetary assets and liabilities have been
         translated into Canadian dollars at the year-end exchange rate. All
         exchange gains and losses are included directly in earnings. Exchange
         gains and losses included in earnings that relate to long-term debt are
         considered to be an integral part of financing costs and accordingly,
         are included in interest expense.

     (g) Reforestation obligation:

         Timber is harvested under various licences issued by the Province of
         British Columbia. The future estimated reforestation obligation is
         accrued on the basis of the volume of timber cut. The non-current and
         current portion of this obligation are included in other liabilities
         and accounts payable and accrued liabilities, respectively.

     (h) Revenue recognition:

         Sales are recognized at the time products are shipped to external
         customers. Sales are recorded net of countervailing and anti-dumping
         duties.





<PAGE>
                                       - 85 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001


2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (i) Income taxes:

         The Company uses the liability method of accounting for future income
         taxes. Under the liability method, future income tax assets and
         liabilities are determined based on temporary differences (differences
         between the accounting basis and the tax basis of the assets and
         liabilities), and are measured using the currently enacted, or
         substantively enacted, tax rates and laws expected to apply when these
         differences reverse. A valuation allowance is recorded against any
         future income tax asset if it is more likely than not that the assets
         will not be realized.

     (j) Employee future benefits:

         The Company recognizes the cost of retirement benefits and certain
         other post-employment benefits over the periods in which the employees
         render services to the entity in return for the benefits and with
         respect to pensions, requires the use of a discount rate, that is set
         with reference to market interest rates on high-quality debt
         instruments, to measure the accrued pension benefit obligation.

     (k) Adoption of new accounting standards:

         (i)  Stock-based compensation:

              Effective January 1, 2002, the Company adopted the new
              recommendations of the Canadian Institute of Chartered Accountants
              ("CICA") in respect of Stock-based Compensation and Other
              Stock-based Payments. This new standard is mandatory for fiscal
              years beginning on or after January 1, 2002. Under this new
              standard, stock-based compensation awards that can be settled in
              cash or other assets should be valued at fair value at the grant
              date of the award treated as compensation expense in the period in
              which the award is granted. The Company was already complying with
              all disclosures required by the new standards in its audited
              consolidated financial statements at December 31, 2001. There have
              been no stock-based compensation awards since that time.

         (ii) Goodwill and other intangible assets:

              Effective January 1, 2002, the Company adopted the new
              recommendations of the CICA relating to Goodwill and Other
              Intangible Assets. This new standard is mandatory for fiscal years
              beginning on or after January 1, 2002. Under this new standard,
              goodwill and intangible assets with indefinite lives are no longer
              amortized and are to be tested for impairment annually by
              comparing the book value with the fair value of the goodwill or
              intangible assets. Any deficiency in the book value compared to
              the fair value is to be recognized as an impairment loss.
              Intangible assets with a definite life are amortized to their
              estimated residual values over their estimated useful lives.

              As a result of the new standard, the Company has written off the
              balance of goodwill at December 31, 2001 of $10,552,000 by a
              charge to opening January 1, 2002 retained earnings.

     (l) Comparative figures:

         Certain comparative figures have been reclassified to conform with the
         financial statement presentation adopted in the current year.




<PAGE>
                                       - 86 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001


3.   INVENTORY:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                  <C>
     Raw materials                                                           $      2,710         $      1,916
     Logs                                                                          45,027               76,695
     Finished pulp                                                                  9,871               21,868
     Lumber                                                                        73,957               70,919
     Supplies and other                                                            27,455               28,591
-----------------------------------------------------------------------------------------------------------------------------

                                                                             $    159,020         $    199,989
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

4.   INVESTMENTS:

     Included in investments at December 31, 2003 is $3,291,000 (2002 -
     $2,212,000) of restricted cash resulting from the sale of collateralized
     property. The funds must be used to invest in replacement collateral or to
     purchase senior secured notes.


5.   PROPERTY, PLANT, EQUIPMENT AND GOODWILL:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                              Accumulated
                                                                             amortization             Net book
     2003                                                        Cost     and write-downs                value
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                   <C>
     Land, buildings and equipment:
         Pulp mills                                    $      734,895       $     551,231         $    183,664
         Solid wood facilities                                255,398             162,826               92,572
         Land                                                  13,189                   -               13,189
-----------------------------------------------------------------------------------------------------------------------------
                                                            1,003,482             714,057              289,425

     Timberlands                                              153,992              56,074               97,918
     Logging roads                                            349,444             276,372               73,072
-----------------------------------------------------------------------------------------------------------------------------

                                                       $    1,506,918       $   1,046,503         $    460,415
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
     At December 31, 2003, the Company reviewed the carrying value of its pulp
     mills and sawmills and determined that based on current economic conditions
     and plans, the carrying value for one of the Company's sawmills was not
     likely recoverable from future cash flows from operations and or sale and
     that an adjustment to the carrying value was required to equipment for a
     sawmill that was shut down in 2001. As a result, the Company recorded a
     write-down of the property, plant and equipment by $5,986,000 (2002 -
     $53,288,000).





<PAGE>
                                       - 87 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



5.   PROPERTY, PLANT, EQUIPMENT AND GOODWILL (CONTINUED):
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                              Accumulated
                                                                             amortization             Net book
     2002                                                        Cost     and write-downs                value
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                   <C>
     Land, buildings and equipment:
         Pulp mills                                    $      735,184       $     541,598         $    193,586
         Solid wood facilities                                269,771             176,186               93,585
         Land                                                  13,151                   -               13,151
-----------------------------------------------------------------------------------------------------------------------------
                                                            1,018,106             717,784              300,322

     Timberlands                                              154,206              39,886              114,320
     Logging roads                                            336,427             265,978               70,449
-----------------------------------------------------------------------------------------------------------------------------

                                                       $    1,508,739       $   1,023,648         $    485,091
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

6.   OTHER ASSETS:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>
     Pension and post retirement (note 16(f))                                 $    18,622          $    21,730
     Deferred financing costs, net of amortization                                  2,266                6,677
     Other                                                                          1,302                1,655
-----------------------------------------------------------------------------------------------------------------------------

                                                                              $    22,190          $    30,062
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

7.   BANK CREDIT FACILITY:

     In March 2002, the Company established a three-year revolving credit
     facility, secured by receivables and inventory, which bears an interest
     rate of prime plus 1%. The size of this asset-backed facility is determined
     by the level of outstanding receivables and inventory, but cannot exceed
     $65,000,000.

     At December 31, 2003, of the $59,648,000 of the facility that was available
     to the Company, $30,427,000 (2002 - $21,819,000) had been drawn down and
     $2,912,000 (2002 - $6,629,000) was used to support standby letters of
     credit.


8.   ACCOUNTS PAYABLE SUBJECT TO COMPROMISE:

     Accounts payable subject to compromise consist of the following (note 1):
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                   <C>
     Trade payables                                                          $     17,751          $    18,634
     Interest on 8-3/4% unsecured Senior Notes                                     65,342               15,332
     Interest on 9-1/4% unsecured Senior Notes                                     27,769               11,400
-----------------------------------------------------------------------------------------------------------------------------

                                                                             $    110,862          $    45,366
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>





<PAGE>
                                       - 88 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



9.   LONG-TERM DEBT:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>
     Doman Industries Limited:
         Senior Notes (US $388,000,000), 8.75% due in 2004                   $    503,042       $      612,109
         Senior Notes (US$125,000,000), 9.25% due in 2007                         162,063              197,200
         Senior Secured Notes (US$160,000,000), 12.00%
           due in 2004                                                            207,440              252,416
-----------------------------------------------------------------------------------------------------------------------------

                                                                             $    872,545       $    1,061,725
-----------------------------------------------------------------------------------------------------------------------------

     The long-term debt is classified in the balance sheet in accordance with
     its terms of repayment and compromise as follows:

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------

     Current portion of long-term debt subject to compromise                 $    503,042          $         -
     Current portion of long-term debt                                            207,440                    -
     Long-term debt subject to compromise                                         162,063              809,309
     Long-term debt                                                                     -              252,416
-----------------------------------------------------------------------------------------------------------------------------

                                                                             $    872,545          $ 1,061,725
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The Senior Notes are guaranteed by all of the Company's subsidiaries,
     except for Doman Industries (US) Limited and Doman's Freightways Ltd. The
     8.75% Senior Notes are unsecured and are redeemable at the option of the
     Company at any time after March 15, 1999 at their principal amount plus (i)
     a premium (which decreases annually to 2002) and (ii) any accrued and
     unpaid interest. The 12.00% Senior Notes are redeemable at the option of
     the Company at any time after July 1, 2002 at their principal amount plus
     (i) a premium (which decreases annually to 2003) and (ii) any accrued and
     unpaid interest.

     The 12.00% Senior Notes are secured by a first priority lien upon a portion
     of the Company's timber tenures, eight of the Company's solid wood
     facilities, the Squamish pulp mill and the value-added lumber
     remanufacturing plant. The 9.25% Senior Notes are unsecured and are
     redeemable at the option of the Company at any time after November 15, 2002
     at their principal amount plus (i) a premium (which decreases annually to
     2005) and (ii) any accrued and unpaid interest. The Indentures governing
     the Senior Notes contain certain restrictions regarding, among other
     things, the ability of the Company to incur additional indebtedness (with
     certain exceptions) and the payment of cash dividends in certain
     circumstances.

     Long-term debt principal payments under the agreements without considering
     default provisions are as follows:
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>
     2004                                                                                         $    710,482
     2005                                                                                                    -
     2006                                                                                                    -
     2007                                                                                              162,063
-----------------------------------------------------------------------------------------------------------------------------

                                                                                                  $    872,545
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>





<PAGE>
                                       - 89 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



10.  SHARE CAPITAL:

     (a) Authorized and issued share capital:
         Authorized shares (without par value):
              5,000,000 Class A preferred 100,000 Class B preferred unlimited
              Class A common unlimited Class B non-voting
         Issued shares:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                  <C>
         Preferred shares issued:
              1,281,526 Class A preferred, series 4                          $     64,076         $     64,076

         Common shares issued:
              4,774,971 Class A common                                                903                  903
              37,706,012 Class B non-voting, series 2                             242,039              242,039
-----------------------------------------------------------------------------------------------------------------------------
                                                                                  242,942              242,942
-----------------------------------------------------------------------------------------------------------------------------

                                                                             $    307,018         $    307,018
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
     (b) Rights of classes of issued shares:

         The Class A preferred shares, series 4 have a cumulative annual
         dividend, generally payable quarterly, of 6% until January 31, 2004 and
         thereafter at the greater of (i) 6% and (ii) one-half of bank prime
         rate plus 1%. These preferred shares are redeemable at the option of
         the Company at any time at $50.00 per share plus any accrued and unpaid
         dividends. The Class A preferred shares carry the right to one vote at
         the Annual General meeting on all matters, other than the election of
         the directors in which respect they are entitled to vote separately, as
         a class, for up to two directors.

         The Class A common shares are convertible at the option of the holder
         into Class B non-voting shares, series 2 on a share-for-share basis.
         The Class B non-voting shares, series 2 have the same rights as the
         Class A common shares except that (i) they have no right to vote at
         meetings of shareholders and (ii) they are not convertible into another
         class of shares of the Company. However, if an offer to purchase is
         made to all or substantially all of the holders of the Class A common
         shares, each Class B non-voting share, series 2 shall, in certain
         circumstances, be deemed to be a Class A common share.





<PAGE>
                                     - 90 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



10.  SHARE CAPITAL (CONTINUED):

     (c) Changes in issued shares:

         Common and non-voting shares:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                Number of shares
                                                 --------------------------------------------
                                                                   Class B,
                                                   Class A         series 2             Total           Amount
-----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>               <C>            <C>
         Balance, December 31, 2003 and
            2002                                 4,774,971       37,706,012        42,480,983     $    242,942
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
     (d) Dividends:

         The payment of quarterly cash dividends on the common and non-voting
         shares was suspended by the Company in the third quarter of 1996. The
         Company has deferred the payment of the quarterly cumulative dividends
         on the Series 4 Class A preferred shares from December 1, 1998 in the
         aggregate amount of $23,010,000.

11.  INCOME TAXES:

     Income tax expense for the years ended December 31, 2003 and 2002 differs
     from the amount that would be computed by applying Federal and Provincial
     statutory rates as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                  <C>
     Net loss before taxes                                $      (2,770)     $   (163,295)        $   (506,070)
-----------------------------------------------------------------------------------------------------------------------------

     Combined Basic Federal and Provincial
       income tax rates                                          35.62%            35.62%               38.62%

     Expected income tax recovery                         $        (987)     $    (58,166)        $   (195,444)

     Tax effect of:
         Capital gains tax rate on unrealized foreign
           exchange gain                                        (33,693)                -                    -
         Change in future tax rates                                   -                 -                7,079
         Increase in valuation allowance                         25,191            41,907               84,053
         Losses expiring during the year                         14,243                 -                    -
         Change in characterization of unrealized foreign
           exchange losses and other filing differences               -            18,591                    -
         Non-deductible goodwill amortization                         -                 -                9,241
         Large corporations tax                                   1,034               810                2,559
         Other                                                   (4,754)           (2,332)                (704)
-----------------------------------------------------------------------------------------------------------------------------
                                                                  2,021            58,976              102,228
-----------------------------------------------------------------------------------------------------------------------------

     Income tax expense (recovery) per financial
       statements                                         $       1,034      $        810         $    (93,216)
-----------------------------------------------------------------------------------------------------------------------------

     Income tax expense (recovery) comprised of:
         Current income tax expense                       $       1,034      $        810         $      2,559
         Future income tax recovery                                   -                 -              (95,775)
-----------------------------------------------------------------------------------------------------------------------------

                                                          $       1,034      $        810         $    (93,216)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>





<PAGE>
                                     - 91 -


DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



11.  INCOME TAXES:

     The tax effects of temporary differences that give rise to significant
     portions of future tax assets and future tax liabilities at December 31,
     2003 and 2002 are presented below:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                  <C>
     Future tax assets:
         Losses carried forward                                              $    176,683         $    172,968
         Unrealized foreign exchange loss                                               -               23,494
         Accrued restructuring costs                                                2,229                3,068
         Inventory, primarily due to timing of realization
           of inter-company profits and write-downs                                 6,257                2,438
         Reforestation obligation, due to accrual
           for financial statement purposes                                         1,247                  993
         Deferred finance costs, due to differences in
           timing of deductibility for tax                                          2,186                   70
         Other                                                                      6,583                4,228
-----------------------------------------------------------------------------------------------------------------------------
                                                                                  195,185              207,259
     Valuation allowance                                                         (151,151)            (125,960)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                   44,034               81,299

     Future tax liabilities:
         Property, plant and equipment, due to differences in net
           book value and unamortized capital cost                                (35,125)             (79,359)
         Pensions, due to accrual for financial statement purposes                   (492)              (1,865)
         Unrealized foreign exchange gain                                          (8,339)                   -
         Other                                                                        (78)                 (75)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                  (44,034)             (81,299)
-----------------------------------------------------------------------------------------------------------------------------

     Net future tax liability                                                $          -         $          -
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     At December 31, 2003, the Company has unused tax losses carried forward of
     $488,000,000 (2002 - $474,000,000) expiring between 2004 and 2010 which are
     available to reduce taxable income. The ability of the Company to utilize
     the losses carried forward is not considered more likely than not and
     therefore, a valuation allowance has been provided against the tax assets.


12.  WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT AND OPERATING RESTRUCTURING
     COSTS:

     The Company recorded restructuring costs, property, plant and equipment
     write-downs and other items consisting of the following:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                  <C>
     Severance and other restructuring costs                $     2,000      $      3,156         $     14,584
     Inventory write-down                                             -            11,010                  995
     Property, plant and equipment write-downs                    5,986            53,288              276,158
-----------------------------------------------------------------------------------------------------------------------------

                                                            $     7,986      $     67,454         $    291,737
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                     - 92 -


DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



13.  FINANCIAL RESTRUCTURING COSTS:

     The Company has incurred the following pre-tax charges for costs associated
     with reorganizing its affairs under the protection of CCAA as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>
     Investment banking and financing                                           $   4,648           $    2,599
     Legal                                                                          2,039                1,686
     Monitoring                                                                       359                   81
     Other                                                                            744                  270
     Write-off of deferred finance costs                                                -                2,623
-----------------------------------------------------------------------------------------------------------------------------

                                                                                $   7,790           $    7,259
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

14.  COMMITMENT AND CONTINGENCIES:

     (a) Operating leases:

         Future minimum lease payments at December 31, 2003 under operating
         leases were as follows:

<TABLE>

-----------------------------------------------------------------------------------------------------------------------------

<S>                                                                                               <C>
         2004                                                                                     $      4,593
         2005                                                                                            3,175
         2006                                                                                            2,298
         2007                                                                                            1,483
         2008                                                                                              867
         Thereafter                                                                                        192
-----------------------------------------------------------------------------------------------------------------------------

                                                                                                   $    12,608
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (b) Contingencies:

         (i)  Softwood lumber duties:

              On March 21, 2002 and further adjusted on April 25, 2002, the US
              Department of Commerce ("USDOC") issued its final determination in
              the countervailing and antidumping investigations. The USDOC's
              final determination in the countervailing investigation resulted
              in a duty rate of 18.79% to be posted by cash deposits from the
              effective date of the Final Order (May 22, 2002 as discussed
              below). The USDOC's final determination in the antidumping
              investigation resulted in Company specific duty rates ranging from
              2.18% to 12.44% on the six companies investigated and an all other
              rate of 8.43% for all other companies including this Company.

              On May 16, 2002, the US International Trade Commission ("USITC")
              published its final written determination on injury and stated
              that Canadian softwood lumber threatens material injury to the US
              industry. As a result, effective from the Final Order date of May
              22, 2002, cash deposits are required for shipments at the rates
              determined by the USDOC. All prior bonds or cash deposits posted
              prior to May 22, 2002 were refunded.




<PAGE>
                                     - 93 -


DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



14.  COMMITMENT AND CONTINGENCY (CONTINUED):

     (b) Contingencies (continued):

         (i)  Softwood lumber duties (continued):

              The Company has recorded countervailing and antidumping duties at
              27.22% totalling $36,088,000 (2002 - $22,271,000) for the year
              ended December 31, 2003. These amounts have been recorded as a
              reduction of sales revenue. Cumulative duties from May 22, 2002,
              when cash deposits were made necessary for shipments of Canadian
              lumber into the U.S., until December 31, 2003 total $58,359,000.

              The Company had accrued $6,627,000 for the period from August 17,
              2001 to December 15, 2001 representing the preliminary USDOC
              countervailing duty rate of 19.31%, and $7,119,000 for the period
              from November 6, 2001 to May 6, 2002, representing the preliminary
              USDOC antidumping duty rate of 12.58%. In April 2002, the Company
              reversed these accruals, totaling $13,746,000 to reflect the
              effective date of the Final Order. The reversal has been recorded
              as a credit to sales. Of the reversal in the second quarter,
              $12,390,000 related to fiscal 2001 sales and $1,356,000 to 2002
              sales. Any further adjustments resulting from a change in the
              countervailing and antidumping duty rates will be made
              prospectively.

              The Company and other Canadian forest product companies, the
              Federal Government and Canadian Provincial governments ("Canadian
              Interests") categorically deny the US allegations and strongly
              disagree with the final countervailing and antidumping
              determinations made by the USITC and USDOC. Canadian Interests
              continue to aggressively defend the Canadian industry in this US
              Trade dispute. Canadian Interests have appealed these decisions to
              NAFTA panels and the WTO. The final amount of countervailing and
              antidumping duties that may be assessed on Canadian softwood
              lumber exports to the US cannot be determined at this time and
              will depend on appeals of the final determinations to any
              reviewing courts, NAFTA or WTO panels. Notwithstanding the final
              rates established in the investigations, the final liability for
              the assessment of countervailing and antidumping duties will not
              be determined until each annual administrative review process is
              complete.

         (ii) Litigation and claims:

              In the normal course of its business activities, the Company is
              subject to a number of claims and legal actions that may be made
              by customers, suppliers and others in respect of which either an
              adequate provision has been made or for which no material
              liability is expected.




<PAGE>
                                     - 94 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



14.  COMMITMENT AND CONTINGENCY (CONTINUED):

     (b) Contingencies (continued):

         (iii)    The Forest Revitalization Plan:

              In March 2003, the Government of B.C. ("Crown") introduced the
              Forestry Revitalization Plan (the "Plan") that provides for
              significant changes to Crown forest policy and to the existing
              allocation of Crown timber tenures to licensees. The changes
              prescribed in the Plan include the elimination of minimum cut
              control regulations, the elimination of existing timber processing
              regulations, and the elimination of restrictions limiting the
              transfer and subdivision of existing licensees. As well, through
              legislation, licensees, including the Company, will be required to
              return 20% of their replaceable tenure to the Crown. The Plan
              states that approximately half of this volume will be
              redistributed to open up opportunities for woodlots, community
              forests and First Nations and the other half will be available for
              public auction. The Crown has acknowledged that licensees will be
              fairly compensated for the return of tenure and related costs such
              as roads and bridges.

              The effect of the 20% timber take-back is expected to result in a
              reduction of approximately 685,000 m3 of the Company's existing
              annual allowable cut on their replaceable tenures. The effect of
              the Plan on the Company's financial position and results of
              operations cannot be determined at this time. The Company will
              record the effects of the Plan at the time the amounts to be
              recorded are estimable.


15.  SEGMENTED INFORMATION:

     (a) Industry segments:

         The Company is an integrated Canadian forest products company operating
         in two industry segments. The Solid Wood Segment comprises the
         Company's timber harvesting, reforestation, sawmilling, value-added
         lumber remanufacturing and lumber marketing operations. The Pulp
         Segment comprises the Company's dissolving sulphite and kraft ("NBSK")
         pulp manufacturing, pulp management and sales operations.
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                             December 31, 2003
                                                          ----------------------------------------------------
                                                             Solid wood              Pulp                Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                <C>
         Sales:
              To external customers                       $     388,966      $    200,049       $      589,015
              To other segment (1)                               58,584                 -               58,584
-----------------------------------------------------------------------------------------------------------------------------

                                                          $     447,550      $    200,049       $      647,599
-----------------------------------------------------------------------------------------------------------------------------

         Segmented operating earnings (loss)                $   (31,637)     $    (47,240)        $    (78,877)
         General corporate expenses                                                                    (14,424)
         Interest expense                                                                               88,331
         Other income (expense)                                                                          2,200
         Income tax expense                                                                             (1,034)
-----------------------------------------------------------------------------------------------------------------------------

         Net loss                                                                                 $     (3,804)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>
                                     - 95 -


DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



15.  SEGMENTED INFORMATION (CONTINUED):

     (a) Industry segments (continued):
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                             December 31, 2003
                                                          ----------------------------------------------------
                                                             Solid wood              Pulp                Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                  <C>
         Identifiable assets                                $   484,188      $    250,510         $    734,698
         Corporate assets, including investments                                                        14,354
-----------------------------------------------------------------------------------------------------------------------------

                                                                                                  $    749,052
-----------------------------------------------------------------------------------------------------------------------------

         Amortization of property, plant and equipment      $    36,340      $      9,633         $     45,973
-----------------------------------------------------------------------------------------------------------------------------

         Capital expenditures                               $    28,434      $        736         $     29,170
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                             December 31, 2002
                                                          ----------------------------------------------------
                                                             Solid wood              Pulp                Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                <C>
         Sales:
              To external customers                       $     463,727      $    171,207       $      634,934
              To other segment (1)                               45,270                 -               45,270
-----------------------------------------------------------------------------------------------------------------------------

                                                          $     508,997      $    171,207       $      680,204
-----------------------------------------------------------------------------------------------------------------------------

         Segmented operating earnings (loss)                $    34,467      $    (86,727)        $    (52,260)
         General corporate expenses                                                                    (10,942)
         Interest expense                                                                              (97,754)
         Other income (expense)                                                                         (2,339)
         Income tax expense                                                                               (810)
-----------------------------------------------------------------------------------------------------------------------------

         Net loss                                                                                 $   (164,105)
-----------------------------------------------------------------------------------------------------------------------------

         Identifiable assets                                $   543,397      $    282,102         $    825,499
         Corporate assets, including investments                                                        18,427
-----------------------------------------------------------------------------------------------------------------------------

                                                                                                  $    843,926
-----------------------------------------------------------------------------------------------------------------------------

         Amortization of property, plant and equipment      $    38,278      $     10,203         $     48,481
-----------------------------------------------------------------------------------------------------------------------------

         Capital expenditures                               $    29,808      $       (196)        $     29,612
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>
                                     - 96 -



DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



15.  SEGMENTED INFORMATION (CONTINUED):

     (a) Industry segments (continued):
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                             December 31, 2001
                                                          ----------------------------------------------------
                                                             Solid wood              Pulp                Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                  <C>
         Sales:
              To external customers                         $   532,037      $    237,940         $    769,977
              To other segment (1)                               27,400                 -               27,400
-----------------------------------------------------------------------------------------------------------------------------

                                                            $   559,437      $    237,940         $    797,377
-----------------------------------------------------------------------------------------------------------------------------

         Segmented operating earnings (loss)                $   (39,504)     $   (301,923)        $   (341,427)
         General corporate expenses                                                                     (5,680)
         Interest expense                                                                             (173,362)
         Other income (expense)                                                                         14,399
         Income tax recovery                                                                            93,216
-----------------------------------------------------------------------------------------------------------------------------

         Net loss                                                                                 $   (412,854)
-----------------------------------------------------------------------------------------------------------------------------

         Identifiable assets                                $   592,530      $    358,868         $    951,398
         Corporate assets, including investments                                                        23,134
-----------------------------------------------------------------------------------------------------------------------------

                                                                                                  $    974,532
-----------------------------------------------------------------------------------------------------------------------------

         Amortization of property, plant and equipment      $    42,232      $     25,003         $     67,235
-----------------------------------------------------------------------------------------------------------------------------

         Capital expenditures                               $    42,952      $        669         $     43,621
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

         (1)  Inter-segment sales are accounted for at prevailing market prices.

     (b) Geographic information:

         (i)  Sales:

              The Company's sales, based on the known origin of the customer,
              during the last two years were as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>                  <C>
              Canada                                       $    151,452      $    175,180         $    214,986
              United States                                     170,777           204,932              230,333
              Asia                                              175,495           184,728              221,521
              Europe                                             80,113            62,438               89,433
              Other                                              11,178             7,656               13,704
-----------------------------------------------------------------------------------------------------------------------------

                                                           $    589,015      $    634,934         $    769,977
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
         (ii) Property, plant and equipment:
              All of the Company's property, plant and equipment are located in
              British Columbia, Canada.





<PAGE>
                                     - 97 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



16.  OTHER INFORMATION:

     (a) Amortization of property, plant and equipment:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>                  <C>
         Amortization of buildings and equipment            $    19,167       $    20,425          $    33,097
         Amortization of timberlands and logging roads           26,806            28,056               34,138
-----------------------------------------------------------------------------------------------------------------------------

                                                            $    45,973       $    48,481          $    67,235
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (b) Interest expense:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>                 <C>
         Bank indebtedness                                  $     2,891       $       995         $          -
         Long-term debt                                         (91,222)           96,759              174,279
-----------------------------------------------------------------------------------------------------------------------------
                                                                (88,331)           97,754              174,279
         Interest income                                              -                 -                 (917)
-----------------------------------------------------------------------------------------------------------------------------

                                                            $   (88,331)      $    97,754         $    173,362
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Interest on long-term debt includes foreign currency translation gains
         (losses) amounting to $189,180,000 in 2003, $10,228,000 in 2002 and
         ($66,561,000) in 2001, and amortization of deferred financing costs
         amounting to $4,411,000 in 2003, $5,268,000 in 2002 and $5,846,000 in
         2001.

     (c) Other income (expense):
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>                  <C>
         Gain (loss) on sale of properties                  $     2,174       $     5,526          $      (580)
         BC Corporations capital tax                                  -              (118)              (3,423)
         Write-off of deferred financing costs                        -            (1,178)                   -
         Gain on buy-back of Senior Notes                             -                 -               18,294
         Other                                                       23                36                   46
         Equity in operating earnings of significantly
           influenced investees                                       3                 9                   62
-----------------------------------------------------------------------------------------------------------------------------

                                                            $     2,200       $     4,275          $    14,399
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>
                                     - 98 -



DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



16.  OTHER INFORMATION (CONTINUED):

     (d) Changes in non-cash working capital items:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                  <C>
         Decrease (increase) in:
              Accounts receivable                           $    17,721      $    (17,606)        $     50,033
              Inventories                                        40,969            27,275              104,995
              Prepaid expenses                                    3,600            (1,262)              (1,354)

         Increase (decrease) in:
              Accounts payable and accrued liabilities           87,584            30,493              (18,806)
-----------------------------------------------------------------------------------------------------------------------------

                                                            $   149,874      $     38,900         $    134,868
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (e) Supplementary cash flow information:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                  <C>
         Cash paid for:
              Interest                                      $    96,438      $    102,716         $    100,954
              Income taxes                                        1,034             2,506                2,559

         Non-cash item:
              Trade-in of equipment for new equipment
                under operating leases                                -               463                    -

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (f) Pension plans:
         (i)  The Company's hourly paid employees are members of union pension
              plans established pursuant to collective bargaining agreements.
              The aggregate contributions made by the Company and charged to
              earnings amounted to $8,751,000 in 2003 and $7,762,000 in 2002. An
              expense was recorded in 2002 of $1,700,000 to recognize accrued
              benefit obligations arising under hourly bridging plans which are
              unfunded arrangements.
         (ii) The Company has defined benefit pension plans which cover
              substantially all salaried employees. The plans provide pensions
              based on length of service and final average annual earnings (as
              defined). The Company also has health care plans covering certain
              hourly and retired salaried employees.




<PAGE>
                                     - 99 -



DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



16.  OTHER INFORMATION (CONTINUED):

     (f) Pension plans (continued):

         Information about the Company's salaried pension plans and other
         non-pension benefits, in aggregate, for 2003 is as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                 Salaried          Non-pension
                                                                            pension plans                plans
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                                          <C>                  <C>
         Plan assets:
              Market value, beginning of year                                $     91,416         $          -
              Company contributions                                                   610                  447
              Employees' contributions                                                140                    -
              Benefits paid                                                        (5,757)                (447)
              Actual return on assets                                              12,670                    -
-----------------------------------------------------------------------------------------------------------------------------

              Market value, end of year                                      $     99,079         $          -
-----------------------------------------------------------------------------------------------------------------------------

         Accrued benefit obligation:
              Balance at beginning of year                                   $     98,691         $     11,759
              Company current service cost                                          2,901                  336
              Past service cost                                                         -                    -
              Employees' contributions                                                140                    -
              Benefits paid                                                        (5,757)                (447)
              Interest on obligation                                                6,570                  939
              Actuarial loss (gain)                                                 3,223                2,813
-----------------------------------------------------------------------------------------------------------------------------

              Balance at end of year                                         $    105,768         $     15,400
-----------------------------------------------------------------------------------------------------------------------------

         Funded status (end of year):
              Funded status surplus (deficit)                                $     (6,689)        $    (15,400)
              Unamortized past service costs                                          203                4,431
              Unamortized net actuarial losses                                     18,552                    -
-----------------------------------------------------------------------------------------------------------------------------

              Balance sheet asset                                            $     12,066         $    (10,969)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Included in the above pension plan accrued benefits obligations are the
         liabilities for the Supplementary Plans which are unfunded
         arrangements. At December 31, 2003, the accrued benefit obligations for
         these Plans are $8,732,000 (2002 - $7,992,000).




<PAGE>
                                    - 100 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



16.  OTHER INFORMATION (CONTINUED):

     (f) Pension plans (continued):

         The significant actuarial assumptions adopted in measuring the
         Company's accrued benefit obligations are as follows:
<TABLE>

-----------------------------------------------------------------------------------------------------------------------------

<S>                                                                 <C>
         Discount rate at beginning of year:
              Pension plans                                                                              6.75%
              Non-pension plans                                                                          6.75%

         Discount rate at end of year:
              Pension plans                                                                              6.25%
              Non-pension plans                                                                          6.50%

         Expected long term return on assets:
              WFP and Doman Plan                                                                         7.50%
              Other plans                                                                                  n/a
         Rate of compensation increases                                                                   3.5%
         Health care cost trend rate                                6.5% for 2004 grading down to 4.2% in 2010

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

         The Company's salaried pension and non-pension benefits expense for
         2003 is as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                 Salaried          Non-pension
                                                                            pension plans                plans
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                  <C>
         Current service cost                                              $    2,901,000       $      336,000
         Interest on obligation                                                 6,570,000              939,000
         Expected return on assets                                             (6,668,000)                   -
         Amortization of past service cost                                          9,000                    -
         Amortization of net actuarial loss                                       968,000              154,000
-----------------------------------------------------------------------------------------------------------------------------

                                                                           $    3,780,000       $    1,429,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (g) Concentration of credit risk:

         The Company has significant exposures to individual customers. However,
         all of the Company's sales are either made on a cash basis, without
         credit terms, or are insured with the Export Development Corporation or
         a private United States credit insurance company.




<PAGE>
                                    - 101 -



DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



16.  OTHER INFORMATION (CONTINUED):

     (h) Fair value of financial instruments:

         The estimated fair values of the Company's financial instruments as at
         December 31, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                        2003                                   2002
                                          -----------------------------           ----------------------------
                                             Carrying              Fair              Carrying             Fair
                                               amount             value                amount            value
-----------------------------------------------------------------------------------------------------------------------------

<S>                                     <C>               <C>                   <C>               <C>
         Accounts receivable            $      68,317     $      68,317         $      86,038     $     86,038
         Other investments                     10,786            10,786                 9,784            9,784
         Accounts payable and
           accrued liabilities                235,680           235,680               148,096          148,096
         8.75% Senior Notes                   503,042            83,631               612,109           76,514
         9.25% Senior Notes                   162,063            26,943               197,200           24,650
         12.00% Senior Notes                  207,440           217,034               252,416          232,538
-----------------------------------------------------------------------------------------------------------------------------

                                        $   1,187,328     $     642,391         $   1,305,643     $    577,620
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

         The fair value of the Company's accounts receivable, bank indebtedness,
         and accounts payable and accrued liabilities was estimated to
         approximate their carrying values due to the immediate or short-term
         maturity of these financial instruments. The fair value of the
         Company's other investments, as a result of their nature, was also
         estimated to approximate their carrying values. The fair value of the
         Company's Senior Notes was estimated based on the last quoted market
         prices, where they existed, or on the current rates available to the
         Company for similar debt.

     (i) Subsidiaries:

         The active subsidiaries of the Company, all wholly owned, are as
         follows:

              Western Pulp Limited Partnership
              Doman Forest Products Limited
              Western Forest Products Limited
              Western Pulp Inc.
              Eacom Timber Sales Ltd.
              Doman-Western Lumber Ltd.





<PAGE>
                                    - 102 -



DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



17.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES:

     As indicated in note 2, these consolidated financial statements have been
     prepared in accordance with Canadian GAAP, which, in the case of the
     Company, the measurement principles of which conform in all material
     respects with US GAAP, except as set forth below.

     (a) Adjustments to consolidated statements of operations:
         (i)  Net loss:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                   2003              2002                 2001
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                        <C>              <C>                   <C>
              Net loss in accordance with Canadian GAAP    $     (3,804)    $    (164,105)        $   (412,854)
              Adjustments for pensions (c)                          500               500                  500
              Write-down of property, plant and equipment (d)     2,098           (41,954)                   -
              Asset retirement obligations (e)                        -                 -                    -
              Future tax impact of adjustments (f)                 (925)           14,766                 (679)
              Increase in valuation allowance resulting
                adjustments (f)                                     925           (14,766)              (5,775)
-----------------------------------------------------------------------------------------------------------------------------

              Net loss in accordance with US GAAP                (1,206)         (205,559)            (418,808)
              Provision for dividends on preferred shares        (4,779)           (4,499)              (4,514)
-----------------------------------------------------------------------------------------------------------------------------

              Loss available to common shareholders        $     (5,985)    $    (210,058)        $   (423,322)
-----------------------------------------------------------------------------------------------------------------------------

              Weighted average number of shares
                outstanding                                      42,481            42,481               42,481
-----------------------------------------------------------------------------------------------------------------------------

              Basic loss per share in accordance
                with US GAAP                               $     (0.14)     $      (4.94)         $     (9.96)

              Diluted loss per share in accordance
                with US GAAP                                     (0.14)            (4.94)               (9.96)

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

         (ii) Sales:
              Under Canadian GAAP, the Company includes freight costs totalling
              $56,324,000 (2002 - $58,894,000; 2001 - $69,368,000) and
              countervailing and anti-dumping duties on export sales to the
              United States of $36,088,000 (2002 - $9,881,000; 2001 -
              $12,390,000) as deductions from sales in the statement of
              operations. Under US GAAP such costs are included as costs of
              goods sold. As a result, sales, cost of goods sold and total costs
              and expenses for the year ended December 31, 2003 would increase
              under US GAAP by $92,412,000 (2002 - $68,775,000; 2001 -
              $81,758,000).
         (iii)Under US GAAP, supplies inventory write-downs of nil (2002 -
              $11,010; 2001 - nil) is included in cost of goods sold.



<PAGE>
                                    - 103 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



17.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES (CONTINUED):

     (b)  Adjustments to consolidated assets, liabilities and shareholders'
          equity:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                     2003                 2002
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                  <C>
         Total assets in accordance with Canadian GAAP                     $      749,052       $      843,926
         Adjustment for pensions (c)                                              (15,212)             (15,712)
         Write-down of property, plant and equipment (d)                          (39,856)             (41,954)
         Future income taxes relating to:
              Adjustment for pensions (c)                                           5,419                5,597
              Asset retirement obligations                                           (783)                   -
              Decrease in valuation allowance due to adjustments (f)               (4,636)              (5,597)
-----------------------------------------------------------------------------------------------------------------------------

         Total assets in accordance with US GAAP                           $      693,984       $      786,260
-----------------------------------------------------------------------------------------------------------------------------

         Total liabilities in accordance with Canadian GAAP                $    1,168,377       $    1,259,447
         Asset retirement obligations (e)                                          (2,200)                   -
         Future income taxes relating to:
              Write-down of property, plant and equipment (d)                     (14,197)             (14,944)
              Increase in valuation allowance due to adjustments (f)               14,197               14,944
-----------------------------------------------------------------------------------------------------------------------------

         Total liabilities in accordance with US GAAP                      $    1,166,177       $    1,259,447
-----------------------------------------------------------------------------------------------------------------------------

         Total shareholders' deficiency in accordance
           with Canadian GAAP                                              $     (419,325)      $     (415,521)
         Cumulative change in deficit relating to:
              Adjustment for pensions (c)                                         (15,212)             (15,712)
              Write-down of property, plant and equipment (d)                     (39,856)             (41,954)
              Asset retirement obligations (e)                                      2,200                    -
-----------------------------------------------------------------------------------------------------------------------------

         Total shareholders' deficiency in accordance with US GAAP         $     (472,193)      $     (473,187)
-----------------------------------------------------------------------------------------------------------------------------


         Total liabilities and shareholders' equity                        $      693,984       $      786,260
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (c) In 2000, the Company adopted new Canadian accounting standards relating
         to pension and other post retirement benefits. The change in pensions
         and post retirement benefits was applied retroactively with an
         adjustment to opening deficit. The adjustment to assets, liabilities
         and opening deficit at December 31, 2003 under US GAAP includes
         $15,212,000 decrease in pension assets and $15,212,000 increase in
         deficit relating to experience gains which would not have been recorded
         under US GAAP but rather would be recognized over the expected average
         remaining service life of the employee group to the extent the gains
         exceeded certain thresholds. For US GAAP purposes, the 2003, 2002 and
         2001 effect of the adjustment posted has been reversed and amortization
         of the experience gain of $500,000 (2002 - $500,000; 2001 - $500,000)
         has been recorded.




<PAGE>
                                    - 104 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



17.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES (CONTINUED):

     (d) Under US GAAP, in 2001 certain pulp mill assets were classified as
         "long-lived assets to be disposed of by sale" and were written down to
         fair market value. During 2002, these assets were reclassified to
         "long-lived assets held for use" as the Company no longer intends to
         sell these assets. For Canadian GAAP purposes, the assets were measured
         at their net recoverable amount (note 2(d)). US GAAP requires that a
         long-lived asset that is reclassified be measured at the lower of its
         (a) carrying amount before the asset was classified as held for sale,
         adjusted for any amortization expense that would have been recognized
         had the asset been continuously classified as held and used, and, or
         (b) fair value at the date of the subsequent decision not to sell. In
         the case of the pulp mill assets, the lower amount was the fair value
         at the date of the subsequent decision not to sell. The fair value was
         $41,954,000 less than the net book value of the pulp mill assets. As a
         result, for US GAAP purposes, a further write-down of $41,954,000 and
         related future income tax recovery of $14,944,000 was charged to
         results from operations in 2002. The adjustment for 2003 relates to
         reversing the $2,098,000 in amortization that would not have been
         recorded had the write-down been recorded in 2002. The effects of the
         2002 and 2003 adjustments to the balance sheet are to reduce assets by
         $39,856,000 and increase the shareholders' deficiency by $39,856,000.

     (e) Under current Canadian GAAP adopted by the Company, asset retirement
         obligations (being forestry obligations) are recorded at their
         estimated amount when a liability has been incurred. Under US GAAP, FAS
         143 requires that the fair value of a liability for an asset retirement
         obligation be recognized in the period in which it is incurred if a
         reasonable estimate of fair value can be made. Under Canadian GAAP, a
         similar standard to FAS 143 is not effective until fiscal years
         commencing on or after January 1, 2004. The adjustments for 2003 relate
         to reducing the liability and deficit by $2,200,000 to reflect the
         lower fair value of the liability as a result of discounting future
         estimated cash flows as adjusted for inflation using a credit adjusted
         discount rate of 12%. The new standard did not have an effect on
         earnings for the years presented.

     (f) Under both Canadian and US GAAP, future tax assets and liabilities are
         measured using the income tax rates and income tax laws that, at the
         balance sheet date, are expected to apply when the assets are realized
         or the liabilities settled. In Canada, announcements of changes in
         income tax rates and tax laws by governments can have the effect of
         being substantively enacted at the balance sheet date even though the
         effective date is subsequent to the balance sheet date. When persuasive
         evidence exists that the government is able and committed to enacting
         the proposed changes in the foreseeable future, the substantively
         enacted rates and income tax laws are used to measure the future tax
         assets and liabilities. Under US GAAP, only the income tax rates and
         income tax laws enacted at the balance sheet date are used to measure
         the future income tax assets and liabilities. For the years ended
         December 31, 2003 and 2002, tax rate changes announced by governments
         in Canada but not yet enacted did not materially affect the amounts of
         future tax assets and liabilities reflected on the balance sheet and no
         adjustment is required for these amounts to be in accordance with US
         GAAP.




<PAGE>
                                    - 105 -

DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per
share amounts)

Years ended December 31, 2003, 2002 and 2001



17.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES (CONTINUED):

     (f) Continued:

         The future tax impact of the US GAAP adjustments noted in (c), (d) and
         (e) would result in a future income tax recovery of $925,000 for 2003
         (2002 - tax recovery of $14,766,000; 2001 - expense of $679,000,
         respectively) and a future income tax adjustment to the balance sheet
         of $4,636,000 (2002 - $5,597,000) increase in future tax assets and
         $14,197,000 (2002 - $14,944,000) decrease in future tax liabilities.
         However, due to the Company not meeting the "more likely then not"
         requirement, a valuation allowance has been provided for these amounts
         in 2003 and 2002. In 2001, a further valuation allowance adjustment of
         $5,775,000 was required to reflect a reversal of the tax benefit
         previously recorded for the pension adjustment noted in note 17 (c) due
         to the benefit no longer meeting the "more likely than not" test.

     (g) Recent accounting pronouncements:

         (i)  In November 2002, the Financial Accounting Standards Board
              ("FASB") issued Interpretation No. 45 (the "Interpretation"),
              "Guarantor's Accounting and Disclosure Requirements for
              Guarantees, Including Indirect Guarantees of Indebtedness of
              Others", which addresses the disclosure to be made by a guarantor
              in its interim and annual financial statements about its
              obligations under guarantees. The Interpretation also requires the
              recognition of a liability by a guarantor at the inception of
              certain guarantees for the non-contingent component of the
              guarantee, this is the obligation to stand ready to perform in the
              event that specified triggering events or conditions occur. The
              initial measurement of this liability is the fair value of the
              guarantee at inception.

              The disclosure requirements of the Interpretation apply at
              December 31, 2002 and the recognition and measurement provisions
              apply to all guarantees entered into or modified after December
              31, 2002. To date the Company does not have material guarantees
              that require recognition.

         (ii) In December 2003, the Financial Accounting Standards Board issued
              Interpretation No. 46R ("FIN 46R"), "Consolidation of Variable
              Interest Entities" that replaced FIN 46 that had been issued in
              January 2003. FIN 46R provides guidance on the identification of
              variable interest entities ("VIEs"), for which control is achieved
              through means other than through voting rights, and how to
              determine whether a variable interest holder should consolidate
              the VIEs. This interpretation applies to financial statements of
              public entities that have interests in VIEs or potential VIEs
              commonly referred to as special purpose entities for periods
              ending after December 15, 2003. FIN 46R applies to all public
              entities for all other types of VIEs in financial statements for
              periods ending after March 15, 2004. The Company does not expect
              the adoption of FIN 46 to have a material impact on the
              consolidated financial statements.




<PAGE>
                                    - 106 -


DOMAN INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except per share
amounts)

Years ended December 31, 2003, 2002 and 2001

--------------------------------------------------------------------------------


17.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES (CONTINUED):

     (g) Recent accounting pronouncements (continued):

         (iii)In April 2003, the FASB issued SFAS No. 149, Amendment of
              Statement 133 on "Derivative Instruments and Hedging Activities",
              which amends FASB Statements No. 133, "Accounting for Derivative
              Instruments and Hedging Activities", to clarify under what
              circumstances a contract with an initial net investment meets the
              characteristics of a derivative, to clarify when a derivative
              contains a financing component, to amend the definition of an
              underlying to conform it to language in FASB Interpretation No.
              45, "Guarantor's Accounting and Disclosure Requirements for
              Guarantees, Including Indirect Guarantees of Indebtedness of
              Others", and to amend certain other existing pronouncements. SFAS
              No. 149 is effective for contracts entered into or modified after
              June 30, 2003, and is to be applied prospectively. Implementation
              of SFAS No. 149 is not expected to have a material effect on the
              Company's financial position or results of operations.

          (iv)In May 2003, the FASB issued SFAS No. 150, "Accounting for
              Certain Financial Instruments with Characteristics of both
              Liabilities and Equity". SFAS No. 150 requires that certain
              financial instruments issued in the form of shares that are
              mandatorily redeemable as well as certain other financial
              instruments be classified as liabilities in the financial
              statements. SFAS No. 150 is effective for financial instruments
              entered into or modified after May 31, 2003 and otherwise is
              effective January 1, 2004. The provisions of this statement are
              not expected to have a material impact on the Company's
              consolidated financial position or results of operations.


18.  SUBSEQUENT EVENT:

     On May 11, 2004, a sale of the Port Alice pulpmill to Port Alice Specialty
     Cellulose Inc., a subsidiary of LaPointe Partners, Inc., was approved by
     the Supreme Court of British Columbia, with closing on the same date. Under
     the purchase and sale agreement, the purchaser acquires for one dollar
     substantially all the assets used primarily or exclusively in the Port
     Alice mill, including $2.73 million of adjusted working capital (as
     defined) and the assumption of outstanding obligations relating to the
     pulpmill, including employee and pension liabilities. The property, plant
     and equipment at the Port Alice pulpmill had been previously written down
     to one dollar in prior years.








<PAGE>
                                    - 107 -


ITEM 18. FINANCIAL STATEMENTS

See "Item 17. Financial Statements and Exhibits" for financial statements filed
as part of this annual report.

ITEM 19. EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                                 DESCRIPTION
--------                               -----------
<S>        <C>
  1.1      Certificate of Amalgamation, Amended Memorandum and Amended and Restated
           Articles of Doman Industries Limited (1)
  1.2      Certificate of Incorporation, Memorandum and Articles of 315940 B.C. Ltd.
           (1)
  1.3      Certificate of Incorporation, Memorandum and Articles of Alpine Projects
           Limited (1)
  1.4      Certificates of Change of Name, Certificate of Incorporation, Amended
           Memorandum and Articles of Diamond Lumber Sales Limited (1)
  1.5      Certificate of Incorporation, Amended Memorandum and Amended Articles of
           Doman Enterprises Limited (1)
  1.6      Certificate of Amalgamation, Amended Memorandum and Amended Articles of
           Doman Forest Products Limited (1)
  1.7      Certificate of Change of Name, Certificate of Amalgamation, Amended
           Memorandum and Articles of Doman Holdings Limited (1)
  1.8      Certificate of Incorporation, Amended Memorandum and Amended and Restated
           Articles of Doman Investments Limited (1)
  1.9      Certificates of Change of Name, Certificate of Incorporation, Amended
           Memorandum and Articles of Doman Log Supply Ltd. (1)
  1.10     Certificate of Change of Name, Certificate of Incorporation, Amended
           Memorandum and Articles of Doman-Western Lumber Ltd. (1)
  1.11     Certificate of Incorporation, Amended Memorandum and Amended and Restated
           Articles of Eacom Timber Sales Ltd.(1)
  1.12     Certificate of Incorporation, Amended Memorandum and Amended Articles of
           Quatsino Navigation Company Limited (1)
  1.13     Certificate of Change of Name, Certificate of Incorporation, Amended
           Memorandum and Amended and Restated Articles of Western Forest Products
           Limited (1)
  1.14     Certificate of Incorporation, Memorandum and Amended Articles of Western
           Pulp Inc.(1)
  1.15     Amended Certificate of Limited Partnership of Western Pulp Limited
           Partnership (1)
  1.16     Amendment to the Articles and Memorandum of Doman Forest Products Limited
           (2)
  1.17     Certificate of Continuance, Amended Articles and By-laws of Doman
           Industries Limited (3)
  1.18     Certificate of Continuance and Amended Articles of Alpine Projects Limited
           (3)
  1.19     Certificate of Continuance and Amended Articles of Diamond Lumber Sales
           Limited (3)

  1.20     Certificate of Continuance and Amended Articles of Doman Forest Products
           Limited (3)
  1.21     Certificate of Continuance and Amended Articles of Doman's Freightways Ltd.
           (3)
  1.22     Certificate of Continuance and Amended Articles of Doman Investments
           Limited (3)
  1.23     Certificate of Continuance and Amended Articles of Doman Log Supply Ltd.
           (3)
  1.24     Certificate of Continuance and Amended Articles of Doman-Western Lumber
           Ltd. (3)
  1.25     Certificate of Continuance and Amended Articles of Eacom Timber Sales Ltd.
           (3)
  1.26     Certificate of Continuance and Amended Articles of Quatsino Navigation
           Company Limited (3)
  1.27     Certificate of Continuance and Amended Articles of Western Forest Products
           Limited (3)
  1.28     Certificate of Continuance and Amended Articles of Western Pulp Inc. (3)
  1.29     Amended Bylaws of Doman Industries Limited
  2.1      Amended Stock Option Plan (1)
  2.2      Indenture dated June 18, 1999 among the Issuer, the Guarantors and Norwest
           Bank Minnesota, N.A., as trustee (including form of notes)(1)
  4.1      Registration Rights Agreement dated June 18, 1999 among the Issuer, the
           Guarantors and Bear, Stearns & Co. Inc. (1)
  4.2      Purchase and Sale Agreement of Port Alice assets between Western Pulp
           Limited Partnership and Port Alice Specialty Cellulose Inc. dated as of May
           9, 2004(4)
  4.3      Employment Agreement between Doman Industries Limited and J.H. Doman dated
           as of October 23, 2002
  4.4      Retention Agreement between Doman Industries Limited and P.G. Hosier dated
           as of March 1, 2003
  8.1      List of subsidiaries of Doman Industries Limited (3)
  12.1     Certificate of Chief Financial Officer of Doman Industries Limited pursuant
           to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the
           Sarbanes-Oxley Act of 2002
</TABLE>
<PAGE>
                                    - 108 -



<TABLE>
<S>        <C>
  12.2     Certificate of the Chief Executive Officer of Doman Industries Limited
           pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002
  13.1     Certificate of the Chief Executive Officer of Doman Industries Limited
           pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002
  13.2     Certificate of the Chief Financial Officer of Doman Industries Limited to
           18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002
  14.1     Information Circular and Proxy Statement dated May 7, 2004 and Supplemental
           U.S. Tax Disclosure relating to the Plan of Compromise and Arrangement
           dated May 28, 2004 (5)

</TABLE>

----------------------

(1)  Incorporated by reference to the Registration Statement on Form F-4 of the
     Company dated August 18, 1999.
(2)  Incorporated by reference to the Annual Report on Form 20-F of the Company
     dated June 1, 2000.
(3)  Incorporated by reference from the Annual Report on Form 20-F of the
     Company dated June 27, 2002.
(4)  Incorporated by reference from the Form 6K of the Company dated May 21,
     2004.
(5)  Incorporated by reference from the Form 6K of the Company dated May 13,
     2004 and the Form 6 of the Company dated May 28, 2004.


<PAGE>




                                   SIGNATURES

     The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this report on its behalf.


                                   DOMAN INDUSTRIES LIMITED
                                   Per: /s/ J.H. Doman
                                       ----------------------------------
                                       J.H. Doman
                                       President and Chief Executive Officer


Date:  May 21, 2004