Exhibit 2.1

                   AMENDED AND RESTATED ARRANGEMENT AGREEMENT

                            made as of March 9, 1998

                                     Between

                                   AVENOR INC.

                                       and

                              BOWATER INCORPORATED



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                              ARRANGEMENT AGREEMENT

     THIS AMENDED AND RESTATED AGREEMENT made as of the 9th day of March, 1998,

B E T W E E N:

                 AVENOR INC.,
                 a corporation existing under the laws of Canada,

                 (hereinafter called "Avenor"),

                                                    OF THE FIRST PART,

                          -- and --

                 BOWATER INCORPORATED,
                 a corporation existing under the laws of the State of Delaware,

                 (hereinafter called "Bowater"),

                                                             OF THE SECOND PART.

     WHEREAS Avenor and Bowater wish to propose an arrangement  involving Avenor
and Bowater and the shareholders of Avenor and Bowater;

     AND  WHEREAS  the  parties  hereto  intend  to carry  out the  transactions
contemplated  herein by way of an arrangement under the provisions of the Canada
Business Corporations Act;

     AND WHEREAS the parties  hereto have entered into this Agreement to provide
for the matters  referred to in the  foregoing  recitals  and for other  matters
relating to such arrangement;

     NOW  THEREFORE  THIS  AGREEMENT  WITNESSETH  that in  consideration  of the
covenants  and  agreements  herein  contained  and for other  good and  valuable
consideration  (the receipt and sufficiency of which are hereby  acknowledged by
each party), the parties hereto hereby covenant and agree as follows:

                                    ARTICLE 1

                                 INTERPRETATION

1.1  Definitions

     In this Agreement, unless the context otherwise requires:



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     "Acquisition Proposal" means any merger, amalgamation,  take-over bid, sale
of  material  assets  (or  any  lease,   long-term  supply  agreement  or  other
arrangement  having the same  economic  effect as a sale),  any material sale of
shares or  rights or  interests  therein  or  thereto  or  similar  transactions
involving  Avenor or Bowater or any Material  Subsidiaries of Avenor or Bowater,
or a proposal to do so, excluding the Arrangement and the transactions permitted
pursuant to Section 5.2;

     "Arrangement"  means the arrangement  involving Avenor and its shareholders
under the provisions of Section 192 of the CBCA, on the terms and conditions set
forth in the Plan of Arrangement;

     "Articles of  Arrangement"  means the articles of  arrangement of Avenor in
respect of the Arrangement required by the CBCA to be sent to the Director after
the Final Order is made;

     "Avenor Common Shareholders" means the holders of Avenor Common Shares;

     "Avenor Common Shares" means the common shares of Avenor;

     "Avenor  Convertible  Debentures"  means  the  7.5%  Convertible  Unsecured
Subordinated Debentures due 2004 of Avenor;

     "Avenor  Exchangeable Shares" means the shares issued by Avenor (or, at the
election of Bowater in accordance  with Section 7.2, a Subsidiary of Bowater the
common shares of which are held directly or indirectly by Bowater) in connection
with the Arrangement that are exchangeable for Bowater Common Shares;

     "Avenor Meeting" means such meetings of Avenor Shareholders as are required
to be held in accordance with the Interim Order;

     "Avenor Partially Owned Entity" means the Ponderay Newsprint Company;

     "Bowater Common Shareholders" means the holders of Bowater Common Shares;

     "Bowater  Common  Shares" means the shares of common  stock,  U.S.$1.00 par
value per share, of Bowater;

     "Bowater Meeting" means such meetings of Bowater Common Shareholders as are
required to be held in accordance with this Agreement;

     "Bowater  Resolution"  means the  resolution  to be voted on at the Bowater
Meeting by the Bowater Common Shareholders approving of the issuance of stock in
connection  with  the  Arrangement  and the  transactions  contemplated  by this
Agreement  including,   if  applicable,   an  amendment  to  Bowater's  Restated
Certificate of Incorporation;

     "business  day"  means  any day,  other  than a  Saturday,  a Sunday  and a
statutory holiday in Toronto,  Ontario,  Montreal,  Quebec or New York City, New
York;

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     "CBCA" means the Canada Business  Corporations Act, R.S.C. 1985, c. C-44,
as amended;

     "Confidentiality Agreement" means the Confidentiality Agreement dated as of
April 10, 1997 between Avenor and Bowater;

     "Court" means the Ontario Court of Justice (General Division);

     "Debt Ratio" has the meaning ascribed thereto in Schedule D hereto;

     "Director"  means the  Director  appointed  pursuant  to Section 260 of the
CBCA;

     "Dissent  Rights"  means the  rights of  dissent  of the  holders of Avenor
Common Shares in respect of the Arrangement described in Section 3.1 in the Plan
of Arrangement;

     "Effective  Date" means the date stamped  upon the Articles of  Arrangement
filed with the Director;

     "Encumbrance"   includes,   without  limitation,   any  mortgage,   pledge,
assignment, charge, lien, security interest, adverse interest in property, other
third party interest or encumbrance of any kind, whether contingent or absolute,
and any  agreement,  option,  right or  privilege  (whether by law,  contract or
otherwise) capable of becoming any of the foregoing;

     "Environmental  Approvals"  means  all  permits,  certificates,   licences,
authorizations,  consents, instructions,  registrations, directions or approvals
issued or required by Governmental Entities pursuant to Environmental Laws;

     "Environmental Laws" means all applicable Laws, including applicable common
laws,  relating to the  protection  of the  environment  and employee and public
health and safety;

     "Exchange   Ratio"  has  the  meaning  ascribed  thereto  in  the  Plan  of
Arrangement;

     "Final Order" means the order of the Court  approving the  Arrangement,  as
such  order  may be  amended  at any time  prior to the  Effective  Date or,  if
appealed, then unless such appeal is withdrawn or denied, as affirmed;

     "Governmental  Entity" means any (a)  multinational,  federal,  provincial,
state, regional,  municipal,  local or other government,  governmental or public
department,  central bank, court, tribunal,  arbitral body,  commission,  board,
bureau or agency, domestic or foreign, (b) any subdivision,  agent,  commission,
board,  or authority of any of the  foregoing or (c) any  quasi-governmental  or
private body exercising any regulatory,  expropriation or taxing authority under
or for the account of any of the foregoing;

     "Hazardous  Substance"  means  any  pollutant,  contaminant,  waste  of any
nature,  hazardous  substance,  hazardous material,  toxic substance,  dangerous
substance or dangerous good as defined,  judicially interpreted or identified in
any Environmental Law;

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     "HSR Act" means the Hart-Scott-Rodino  Antitrust  Improvements Act of 1976,
as amended, of the United States of America;

     "Interim  Order" means the interim  order of the Court,  as the same may be
amended,  pursuant to subsection 192(4) of the CBCA containing  declarations and
directions in respect of Avenor under the CBCA with respect to the Arrangement;

     "Joint Proxy Circular"  means the information  circular and proxy statement
prepared by Avenor and Bowater for the Avenor Meeting and the Bowater Meeting;

     "Laws" means all laws, by-laws,  rules,  regulations,  orders,  ordinances,
protocols,  codes, guidelines,  policies,  notices,  directions and judgments or
other requirements of any Governmental Entity;

     "material  adverse change" or "material adverse effect" means, when used in
connection  with Avenor or Bowater,  any change,  effect,  event,  occurrence or
state of facts that is, or would  reasonably  be  expected to be,  material  and
adverse to the business, operations or financial condition of such Party and its
Subsidiaries taken as a whole other than any change, effect, event or occurrence
relating to (i) the Canadian or United States  economy or securities  markets in
general,  (ii) any change in the trading  price of the Avenor  Common  Shares or
Bowater  Common  Shares,  respectively,  immediately  following  and  reasonably
attributable  to  the  announcement  of  this  Agreement  and  the  transactions
contemplated hereby, or (iii) the forest products industry in general (including
commodity prices),  and not specifically  relating to Avenor or Bowater or their
respective Subsidiaries, respectively;

     "Material  Subsidiary",  in respect of a Party,  means a Subsidiary of that
Party the total  assets of which  would  have  constituted  more than 10% of the
consolidated  assets of that  Party or the total  revenues  of which  would have
constituted  more than 10% of the  consolidated  revenues of that Party, in each
case as set out in the  financial  statements  for the year ended  December  31,
1997, and for Avenor includes Avenor Maritimes Inc.;

     "Parties" means Avenor and Bowater; and "Party" means either one of them;

     "Plan of Arrangement"  means the plan of arrangement  substantially  in the
form and content of Schedule A annexed  hereto and any  amendment  or  variation
thereto  made in  accordance  with  Section  6.1 of the Plan of  Arrangement  or
Section 7.1 hereof;

     "SEC" means the United States Securities and Exchange Commission;

     "Subsidiary"  means,  with respect to a specified body corporate,  any body
corporate of which more than 50% of the outstanding  shares ordinarily  entitled
to elect a majority of the board of directors  thereof (whether or not shares of
any other class or classes shall or might be entitled to vote upon the happening
of any event or  contingency)  are at the time owned  directly or  indirectly by
such specified body corporate and shall include any body corporate, partnership,
joint  venture or other entity over which it  exercises  direction or control or
which is in a like relation to a Subsidiary;

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provided,  however,  that, subject to Section 1.6,  "Subsidiary" for purposes of
Avenor shall include the Avenor Partially Owned Entity;

     "Tax Act" means the Income Tax Act (Canada);

     "Tax Returns" means all returns, declarations, reports, information returns
and statements required to be filed with any taxing authority relating to Taxes;
and

     "Taxes" has the meaning ascribed thereto in Section 15 of Schedule B.

1.2  Interpretation Not Affected by Heading

     The division of this  Agreement into Articles,  Sections,  subsections  and
paragraphs  and the insertion of headings are for  convenience of reference only
and shall not affect in any way the meaning or interpretation of this Agreement.

1.3  Article References

     Unless the contrary intention  appears,  references in this Agreement to an
Article, Section, subsection,  paragraph or Schedule by number or letter or both
refer to the Article, Section, subsection,  paragraph or Schedule, respectively,
bearing that designation in this Agreement.

1.4  Number and Gender

     In this Agreement,  unless the contrary intention appears,  words importing
the singular  include the plural and vice versa;  words  importing  gender shall
include all genders; and words importing persons shall include a natural person,
firm, trust, partnership,  association, corporation, joint venture or government
(including any governmental  agency,  political  subdivision or  instrumentality
thereof).

1.5  Date for Any Action

     If the date on which any action is  required to be taken  hereunder  by any
Party is not a business  day,  such action  shall be required to be taken on the
next succeeding day which is a business day in such place.

1.6  Avenor Partially Owned Entity

     Notwithstanding  any  other  provisions  hereof,  the  representations  and
warranties  given hereunder with respect to the Avenor Partially Owned Entity or
its Subsidiaries (by  incorporation in the definition of Subsidiaries)  included
in Schedule B, are given by Avenor to the best of its knowledge  only,  based on
inquiry of the management and employees of Avenor or its Subsidiaries (excluding
the Avenor  Partially Owned Entity or its  Subsidiaries)  but without inquiry of
the  management  or  employees  of the  Avenor  Partially  Owned  Entity  or its
Subsidiaries,  except for the  representations  and warranties  given respecting
Avenor's direct or indirect ownership of such Avenor

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Partially  Owned  Entity.  Covenants  given by Avenor  which refer to any of the
Subsidiaries  shall not extend to the Avenor  Partially Owned Entity;  provided,
however,  that if an issue relating to the Avenor Partially Owned Entity arises,
which issue would be the subject  matter of any of the  covenants  contained  in
this  Agreement  but for the fact that the covenants do not extend to the Avenor
Partially  Owned  Entity,  Avenor shall vote its voting  interests in the Avenor
Partially  Owned Entity in respect of such issue  consistent with complying with
the relevant covenant as though such covenant did extend to the Avenor Partially
Owned  Entity.  Avenor  shall also  exercise  any other  influence in the Avenor
Partially  Owned Entity in a manner  consistent with complying with the relevant
covenant  as though  such  covenant  did  extend to the Avenor  Partially  Owned
Entity,  subject to any applicable fiduciary duties or contractual  obligations,
other than hereunder. To the extent any representations,  warranties,  covenants
or agreements contained herein relate,  directly or indirectly,  to a Subsidiary
of any Party, other than the Avenor Partially Owned Entity,  each such provision
shall be construed  as a covenant by such Party to cause (to the fullest  extent
to which it is legally capable) such Subsidiary to perform the required action.

1.7  Currency

     Unless otherwise stated,  all references in this Agreement to sums of money
are expressed in lawful money of Canada.

1.8  Schedules

     Schedules  A, B, C and D  annexed  to this  Agreement,  being  the  Plan of
Arrangement  (including  the  provisions  attaching  to the Avenor  Exchangeable
Shares),  and the  representations  and  warranties  of Avenor and  Bowater  and
certain  definitions,  respectively,  are  incorporated  by reference  into this
Agreement and form part hereof.

1.9  Accounting Matters

     Unless  otherwise  stated,  all accounting  terms used in this Agreement in
respect of Avenor shall have the meanings  attributable  thereto under  Canadian
generally accepted accounting principles and all determinations of an accounting
nature  in  respect  of  Avenor  required  to be made  shall be made in a manner
consistent  with  Canadian  generally  accepted  accounting  principles.  Unless
otherwise  stated,  all  accounting  terms used in this  Agreement in respect of
Bowater  shall  have the  meanings  attributable  thereto  under  United  States
generally accepted accounting principles and all determinations of an accounting
nature  required  to be made in  respect  of  Bowater  shall be made in a manner
consistent with United States generally accepted accounting principles.

1.10  Material

     The terms "material" and "materially"  shall,  when used in this Agreement,
be  construed,  measured or  assessed  on the basis of whether the matter  would
materially  affect  a Party  and its  Subsidiaries  taken  as a whole  or  would
significantly  impede the ability to complete the Arrangement in accordance with
this Agreement.


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1.11  Disclosure in Writing

     The phrases  "except as  previously  disclosed  in writing"  and "except as
disclosed in writing" and similar  expressions  used in this Agreement  shall be
construed for all purposes of this Agreement as referring to a disclosure letter
prepared by each Party and  delivered  to the other  contemporaneously  with the
execution  and  delivery  of  this  Agreement.  Disclosure  by a  Party  in  any
particular  schedule or exhibit of such  disclosure  letter will be deemed to be
disclosure of the information for purposes of this Agreement.

                                    ARTICLE 2

                                 THE ARRANGEMENT

2.1  Arrangement

     (a)  As soon as  reasonably  practicable,  Avenor  shall apply to the Court
          pursuant  to  section  192 of the  CBCA  for an  order  approving  the
          Arrangement and, in connection with such application, Avenor shall:

          (i)  file, proceed with and diligently prosecute an application for an
               Interim Order providing for, among other things,  the calling and
               holding of the Avenor Meeting for the purpose of considering and,
               if deemed  advisable,  approving the  Arrangement,  which meeting
               shall  be  held  on  the  same  date  and at the  same  time,  if
               practicable, or as near as may be, as the Bowater Meeting; and

          (ii) subject to obtaining the approvals as contemplated in the Interim
               Order and as may be directed  by the Court in the Interim  Order,
               take all steps  necessary or desirable to submit the  Arrangement
               to the Court and apply for the Final Order,

               and,  subject to the  fulfilment or waiver of the  conditions set
               forth in Article 6, Avenor shall deliver  Articles of Arrangement
               to the  Director  and such other  documents as may be required to
               give effect to the Arrangement as soon as reasonably practicable.

     (b)  The  Articles of  Arrangement  shall,  with such other  matters as are
          necessary  to  effect  the  Arrangement,  and  all as  subject  to the
          provisions of the Plan of Arrangement, provide as follows:

          (i)  the  authorized  share  capital  of Avenor or the  Subsidiary  of
               Bowater,  as the case may be,  shall be  increased or modified by
               the creation of an unlimited number of Avenor Exchangeable Shares
               having  the  rights,  privileges,   restrictions  and  conditions
               described in the Plan of Arrangement;


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          (ii) each  shareholder of Avenor (other than  shareholders who validly
               exercise  Dissent  Rights and who are  ultimately  entitled to be
               paid the fair value of the  Avenor  Common  Shares  held by them)
               shall be entitled to receive  $35 for each  Avenor  Common  Share
               held, which shall be payable in cash, Avenor  Exchangeable Shares
               or Bowater Common Shares, or a combination  thereof, on the terms
               and subject to the limitations and conditions set out in the Plan
               of Arrangement; and

         (iii) Bowater shall become the holder,  directly or indirectly,  of all
               of the issued and  outstanding  Avenor  Common Shares (other than
               those Avenor Common Shares held by Avenor Common Shareholders who
               have exercised Dissent Rights).

2.2  Effective Date

     The Arrangement  shall become effective on the Effective Date and the steps
to be carried out  pursuant to the  Arrangement  shall  become  effective on the
Effective Date in the order set out in the Plan of Arrangement.

2.3  Avenor Approval

     (a)  Avenor  represents  as of the  date  hereof  that its  directors  have
          determined unanimously that:

          (i)  the  Arrangement is fair to its  shareholders  and is in the best
               interests of Avenor; and

          (ii) its Board of Directors will recommend that its shareholders  vote
               in favour of the Arrangement;

     (b)  Avenor  represents  as of the date hereof that its Board of  Directors
          has  received  an  opinion  from RBC  Dominion  Securities  Inc.,  the
          financial  advisor  to  Avenor,  that the  Arrangement  is fair from a
          financial point of view to the Avenor Common Shareholders; and

     (c)  Avenor  represents  as of the  date  hereof  that its  directors  have
          advised it that they intend to vote the Avenor  Common  Shares held by
          them in favour of the Arrangement and will, accordingly,  so represent
          in the Joint Proxy Circular.

2.4  Bowater Approval

     (a)  Bowater  represents  as of the date  hereof  that its  directors  have
          determined unanimously that:


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          (i)  its Board of Directors will recommend that its shareholders  vote
               in favour of the Bowater Resolution at the Bowater Meeting; and

          (ii) this Agreement is in the best interests of Bowater;

     (b)  Bowater  represents  as of the date hereof that its Board of Directors
          has received  opinions  from TD Securities  Inc. and Goldman,  Sachs &
          Co.,  the  financial  advisors  to  Bowater,   that  the  transactions
          contemplated by this Agreement are fair from a financial point of view
          to Bowater; and

     (c)  Bowater  represents  as of the date  hereof  that its  directors  have
          advised it that they intend to vote the Bowater  Common Shares held by
          them in favour of the Bowater  Resolution  and will,  accordingly,  so
          represent in the Joint Proxy Circular.

2.5  Shareholder Rights Plan

     Avenor covenants and represents that its Board of Directors has resolved to
take all  action  necessary  in order to  ensure  that the  Separation  Time (as
defined in the Avenor  Shareholder Rights Plan Agreement dated October 20, 1995)
does not occur in  connection  with this  Agreement or the  Arrangement,  and to
recommend to the Avenor Common  Shareholders  that they approve such resolutions
and take such actions as may be necessary in order to waive the  application  of
the Avenor  Shareholder  Rights  Plan  Agreement  to this  Agreement  and to the
Arrangement  effective  immediately prior to the Effective Date and covenants to
take all  action  necessary  pursuant  to the  Avenor  Shareholder  Rights  Plan
Agreement to seek such waiver.

                                    ARTICLE 3

                    REPRESENTATIONS AND WARRANTIES OF AVENOR

3.1  Representations

     Avenor hereby makes to Bowater the  representations  and  warranties as set
forth in Schedule B to this Agreement and  acknowledges  that Bowater is relying
upon those  representations and warranties in connection with entering into this
Agreement.

3.2  Investigation

     Any investigation by Bowater and its advisors shall not mitigate,  diminish
or  affect  the  representations  and  warranties  of  Avenor  pursuant  to this
Agreement.

3.3  Survival of Representations and Warranties


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     The  representations  and warranties of Avenor  contained in this Agreement
shall not survive the  completion  of the  Arrangement  and shall  expire and be
terminated and extinguished on the Effective Date.

                                    ARTICLE 4

                    REPRESENTATIONS AND WARRANTIES OF BOWATER

4.1  Representations

     Bowater  hereby makes to Avenor the  representations  and warranties as set
forth in Schedule C to this  Agreement and  acknowledges  that Avenor is relying
upon those  representations and warranties in connection with entering into this
Agreement.

4.2  Investigation

     Any  investigation by Avenor and its advisors shall not mitigate,  diminish
or affect  the  representations  and  warranties  of  Bowater  pursuant  to this
Agreement.

4.3  Survival of Representations and Warranties

     The  representations  and warranties of Bowater contained in this Agreement
shall not survive the  completion  of the  Arrangement  and shall  expire and be
terminated and extinguished on the Effective Date.

                                    ARTICLE 5

                                    COVENANTS

5.1  Consultation

     The Parties agree to consult with each other in issuing any press  releases
or otherwise  making  public  statements  with respect to this  Agreement or the
Arrangement  and in making any filings  with any  federal,  provincial  or state
governmental or regulatory  agency or with any securities  exchange with respect
thereto. Each Party shall use its commercially  reasonable efforts to enable the
other Party to review and comment on all such press  releases and filings  prior
to release  thereof.  The Parties  agree to issue  jointly a press  release with
respect to this Agreement as soon as  practicable,  in a form acceptable to each
Party,  and each Party agrees to file a copy of this Agreement  with  applicable
regulatory authorities.

5.2  Covenants of Avenor


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     Avenor covenants and agrees that,  except as contemplated in this Agreement
or the  Arrangement,  until  the  Effective  Date or the  day  upon  which  this
Agreement is terminated, whichever is earlier:

     (a)  in a timely and  expeditious  manner,  it will file,  proceed with and
          diligently  prosecute  an  application  to the Court  for the  Interim
          Order;  provided,  however,  that  notwithstanding  the  foregoing the
          Parties agree to consult regarding,  as soon as possible,  seeking the
          Interim  Order and mailing the Joint Proxy  Circular  earlier  than as
          required hereby;

     (b)  in a timely and expeditious manner it will:

          (i)  forthwith  carry  out  such  terms  of the  Interim  Order as are
               required under the terms thereof to be done by Avenor;

          (ii) prepare,  in  consultation  with Bowater,  and file a Joint Proxy
               Circular  with  respect to the  Avenor  Meeting  and the  Bowater
               Meeting in all  jurisdictions  where the same is  required  to be
               filed and mail the same as  ordered by the  Interim  Order and in
               accordance with all applicable Laws, in all  jurisdictions  where
               the same is required, complying in all material respects with all
               applicable  Laws on the date of mailing  thereof  and  containing
               full, true and plain disclosure of all material facts relating to
               the    Arrangement    and   Avenor   and   not   containing   any
               misrepresentation  (as defined under applicable  securities laws)
               with respect thereto;

         (iii) convene  the Avenor  Meeting on a date  agreed to by the  Parties
               which shall be no later than  September  30, 1998 and  distribute
               copies of this Agreement (or a written summary  thereof  prepared
               by  Avenor  in form  and  substance  reasonably  satisfactory  to
               Bowater), in each case as ordered by the Interim Order;

          (iv) provide  notice  to  Bowater  of the  Avenor  Meeting  and  allow
               Bowater's  representatives  to attend the Avenor  Meeting  unless
               such attendance is prohibited by the Interim Order; and

          (v)  conduct the Avenor Meeting in accordance  with the Interim Order,
               the by-laws of Avenor and any instrument  governing such meeting,
               as applicable, and as otherwise required by applicable Laws;

     (c)  in a timely and expeditious  manner,  it will prepare (in consultation
          with Bowater) and file any mutually  agreed (or otherwise  required by
          applicable Laws) amendments or supplements to the Joint Proxy Circular
          with  respect to the Avenor  Meeting  and mail the same as required by
          the Interim Order and in accordance  with all applicable  Laws, in all
          jurisdictions  where the same is  required,  complying in all material
          respects with all applicable legal requirements on the date of mailing
          thereof;

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     (d)  subject to the approval of the  Arrangement  at the Avenor  Meeting in
          accordance with the provisions of the Interim Order, it will forthwith
          file,  proceed with and diligently  prosecute an  application  for the
          Final Order;

     (e)  it will  forthwith  carry out the terms of the  Interim  Order and the
          Final  Order and,  subject  to the  receipt  of the Final  Order,  the
          satisfaction  of the conditions  precedent in favour of Avenor and the
          receipt of the written  confirmation  of Bowater  that the  conditions
          precedent in favour of Bowater have been  satisfied,  file Articles of
          Arrangement  and the Final  Order with the  Director  in order for the
          Arrangement to become effective;

     (f)  except for proxies and other non-substantive  communications,  it will
          furnish promptly to Bowater a copy of each notice, report, schedule or
          other document or communication delivered, filed or received by Avenor
          in connection  with the  Arrangement or the Interim Order,  the Avenor
          Meeting or any other  meeting of Avenor  security  holders or class of
          security  holders  which  all such  holders,  as the case may be,  are
          entitled to attend, any filings under applicable Laws and any dealings
          with regulatory  agencies in connection with, or in any way affecting,
          the transactions contemplated herein;

     (g)  in a timely and  expeditious  manner,  it will  provide to Bowater all
          information  as may be reasonably  requested by Bowater or as required
          by the Interim Order or applicable Laws with respect to Avenor and its
          Subsidiaries  and  their  respective  businesses  and  properties  for
          inclusion  in the Joint  Proxy  Circular  with  respect to the Bowater
          Meeting  or in any  amendments  or  supplements  to such  Joint  Proxy
          Circular  complying in all material respects with all applicable legal
          requirements on the date of mailing thereof and containing  full, true
          and plain  disclosure of all material facts relating to Avenor and not
          containing  any   misrepresentation   (as  defined  under   applicable
          securities laws) with respect thereto;

     (h)  it will prepare and file with all applicable securities commissions or
          similar  securities  regulatory  authorities  of Canada and the United
          States all necessary  applications  to seek  exemptions,  if required,
          from  the  prospectus,  registration  and  other  requirements  of the
          applicable  securities  laws of Canada and the  United  States for the
          issue by Avenor or the  Subsidiary of Bowater,  as the case may be, of
          Avenor  Exchangeable Shares and the issue by Bowater of Bowater Common
          Shares  pursuant  to the  Arrangement  and the  resale of such  shares
          (other than by control  persons and subject to requirements of general
          application);

     (i)  except as previously  disclosed in writing to Bowater,  it shall,  and
          shall  cause  each of its  Subsidiaries  to,  conduct  its  and  their
          respective  businesses only in, and not take any action except in, the
          usual,  ordinary and regular  course of business and  consistent  with
          past practice;


                                       12

<PAGE>



     (j)  except as  previously  disclosed in writing to Bowater,  it shall not,
          without the prior written consent of Bowater,  which consent shall not
          be unreasonably withheld, directly or indirectly do or permit to occur
          any of the following:

          (i)  issue,  sell,  pledge,  lease,  dispose of,  encumber or agree to
               issue, sell, pledge, lease, dispose of or encumber (or permit any
               of its Subsidiaries to issue,  sell, pledge,  lease,  dispose of,
               encumber or agree to issue,  sell, pledge,  lease,  dispose of or
               encumber):

               (A)  any shares of, or any options,  warrants,  calls, conversion
                    privileges or rights of any kind to acquire any shares of it
                    or any of its  Subsidiaries,  other  than  (I) the  issue of
                    Avenor Common  Shares on the exercise of Avenor  Convertible
                    Debentures;  or  (II)  pursuant  to the  exercise  of  stock
                    options (whether vested or unvested)  currently  outstanding
                    or under existing  share  issuance plans in accordance  with
                    their current terms;

               (B)  except in the usual, ordinary and regular course of business
                    and consistent  with past practice,  any assets of it or any
                    of its Material Subsidiaries;

          (ii) amend or propose to amend its articles or by-laws or those of any
               of its Material Subsidiaries;

         (iii) split,  combine or reclassify any of its outstanding  shares,  or
               declare,  set  aside or pay any  dividend  or other  distribution
               payable in cash, stock, property or otherwise with respect to its
               shares (other than regular quarterly  dividends in respect of its
               common shares, in amounts consistent with past practice);

          (iv) redeem,  purchase  or offer to  purchase  (or  permit  any of its
               Material  Subsidiaries to redeem,  purchase or offer to purchase)
               any  shares  or  other  securities  of it or any of its  Material
               Subsidiaries,  unless  otherwise  required  by the  terms of such
               securities;

          (v)  reorganize,  amalgamate  or  merge  it or  any  of  its  Material
               Subsidiaries with any other person,  corporation,  partnership or
               other business organization whatsoever;

          (vi) acquire or agree to acquire any person, corporation, partnership,
               joint  venture or other  business  organization  or  division  or
               acquire or agree to acquire any assets,  which, in each case are,
               individually or in the aggregate, material;

         (vii) except in the usual,  ordinary and regular course of business and
               consistent  with past practice:  (A) satisfy or settle any claims
               or liabilities,  except such as have been reserved against in its
               financial statements delivered to Bowater,

                                       13

<PAGE>


               which  are,  individually  or in  the  aggregate,  material;  (B)
               relinquish any contractual  rights which are,  individually or in
               the  aggregate,  material;  or (C) enter into any interest  rate,
               currency or commodity  swaps,  hedges or other similar  financial
               instruments;

        (viii) except for the purpose  of  the renewal of or the  replacement of
               existing   credit   facilities,   incur  or  commit  to   provide
               guarantees,  incur any  indebtedness  for borrowed money or issue
               any amount of debt securities,  which are, individually or in the
               aggregate, material;

          (ix) incur or commit to capital  expenditures  prior to the  Effective
               Date, individually or in the aggregate, exceeding $50 million;

          (x)  make any changes to its existing accounting practices or make any
               material tax election;

     (k)  without the prior written consent of Bowater,  which consent shall not
          be  unreasonably  withheld,  it shall not, and shall cause each of its
          Subsidiaries to not:

          (i)  other than as  previously  disclosed  in writing to Bowater or in
               the usual, ordinary and regular course of business and consistent
               with past practice or pursuant to existing  employment,  pension,
               supplemental pension,  termination,  compensation arrangements or
               policies,  enter  into  or  modify  any  employment,   severance,
               collective   bargaining  or  similar   agreements,   policies  or
               arrangements with, or grant any bonuses, salary increases,  stock
               options,   pension  or  supplemental  pension  benefits,   profit
               sharing, retirement allowances, deferred compensation,  incentive
               compensation,  severance or termination  pay to, or make any loan
               to, any officers or directors of it; or

          (ii) other than as  previously  disclosed  in writing to Bowater or in
               the usual, ordinary and regular course of business and consistent
               with past practice or pursuant to existing  employment,  pension,
               supplemental pension,  termination,  compensation arrangements or
               policies,  in the  case of  employees  who are  not  officers  or
               directors,  take any action with respect to the entering  into or
               modifying of any employment,  severance, collective bargaining or
               similar  agreements,  policies or arrangements or with respect to
               the  grant  of any  bonuses,  salary  increases,  stock  options,
               pension  or  supplemental   pension  benefits,   profit  sharing,
               retirement   allowances,    deferred   compensation,    incentive
               compensation,  severance or termination  pay or any other form of
               compensation or profit sharing or with respect to any increase of
               benefits payable;

               provided that the foregoing  shall not prevent Avenor from taking
               such action that is  reasonably  necessary so that the  condition
               relating to the exercise or termination of stock options referred
               to in Section 6.3(f) can be fulfilled. In such regard, Avenor

                                       14

<PAGE>


               agrees to keep  Bowater  informed  as to the  arrangements  which
               Avenor  believes  are  necessary  to fulfill  such  condition  in
               Section  6.3(f) so that Bowater can  participate in the decisions
               made by Avenor;

     (l)  it shall use its reasonable  commercial  efforts (or cause each of its
          Subsidiaries  to use  reasonable  commercial  efforts)  to  cause  its
          current  insurance (or  re-insurance)  policies not to be cancelled or
          terminated  or  any  of  the  coverage  thereunder  to  lapse,  unless
          simultaneously   with  such   termination,   cancellation   or  lapse,
          replacement  policies   underwritten  by  insurance  and  re-insurance
          companies of nationally  recognized  standing providing coverage equal
          to or greater than the coverage  under the  cancelled,  terminated  or
          lapsed policies for  substantially  similar premiums are in full force
          and  effect  and,  at or  prior  to the  Effective  Date,  to  acquire
          insurance through a "discovery"  endorsement which protects  directors
          and officers of Avenor  (including  former  directors and officers) if
          requested by Bowater and on such terms as approved by Bowater;

     (m)  it shall:

          (i)  use its  reasonable  commercial  efforts,  and cause  each of its
               Subsidiaries  to  use  its  reasonable   commercial  efforts,  to
               preserve  intact its  business  organizations  and  goodwill,  to
               maintain  satisfactory  relationships  with  suppliers,   agents,
               distributors,  customers and others having business relationships
               with it or its Subsidiaries;

          (ii) not take any action,  or permit any of its  Subsidiaries  to take
               any action, that would interfere with or be inconsistent with the
               completion of the  transactions  contemplated  hereunder or would
               render,  or  that  reasonably  may be  expected  to  render,  any
               representation or warranty made by it in this Agreement untrue in
               any material  respect at any time prior to the Effective  Date if
               then made; and

         (iii) promptly notify Bowater of any material  adverse  change,  or any
               change  which could  reasonably  be expected to become a material
               adverse  change,  in respect  of its or any of its  Subsidiaries'
               businesses or in the operation of its or any of its Subsidiaries'
               businesses or in the operation of its or any of its Subsidiaries'
               properties,  and of any  material  Governmental  Entity  or third
               party complaints,  investigations or hearings (or  communications
               indicating that the same may be contemplated);

     (n)  it shall  not and  shall  cause  its  Subsidiaries  not to  settle  or
          compromise  any claim  brought  by any  present,  former or  purported
          holder of any of its  securities in connection  with the  transactions
          contemplated  by  this  Agreement  or  the  Arrangement  prior  to the
          Effective  Date  without the prior  written  consent of Bowater,  such
          consent not to be unreasonably withheld;


                                       15

<PAGE>


     (o)  except in the usual,  ordinary  and  regular  course of  business  and
          consistent  with past practice,  or except as previously  disclosed in
          writing to Bowater  or as  required  by  applicable  Laws,  it and its
          Subsidiaries  shall not enter into or modify in any  material  respect
          any contract, agreement,  commitment or arrangement which new contract
          or series of related  new  contracts  or  modification  to an existing
          contract or series of related existing  contracts would be material to
          Avenor or which would have a material adverse effect on Avenor;

     (p)  it shall use all commercially  reasonable efforts to satisfy (or cause
          the  satisfaction  of) the  conditions  precedent  to its  obligations
          hereunder  set forth in Article 6 to the extent the same is within its
          control and to take, or cause to be taken, all other action and to do,
          or cause to be done, all other things  necessary,  proper or advisable
          under  all  applicable  Laws  to  complete  the  Arrangement  and  the
          transactions  contemplated  by this  Agreement,  including  using  its
          commercially reasonable efforts to:

          (i)  obtain all necessary waivers,  consents and approvals required to
               be obtained by it from other parties to loan  agreements,  leases
               and other contracts;

          (ii) obtain all necessary  consents,  approvals and  authorizations as
               are required to be obtained by it under any applicable Law;

         (iii) effect all necessary  registrations  and filings and  submissions
               of information  requested by Governmental Entities required to be
               effected  by  it in  connection  with  the  Arrangement  and  the
               transactions  contemplated  by this  Agreement,  participate  and
               appear in any  proceedings  of either Party  before  Governmental
               Entities;

          (iv) oppose,  lift or rescind any injunction or  restraining  order or
               other order or action  seeking to stop,  or  otherwise  adversely
               affecting  the  ability  of  the  Parties  to   consummate,   the
               transactions contemplated hereby or by the Arrangement;

          (v)  fulfill  all  conditions  and  satisfy  all  provisions  of  this
               Agreement and the Arrangement; and

          (vi) cooperate with Bowater in connection  with the  performance by it
               of its obligations hereunder;

     (q)  it shall not take any action,  refrain from taking any action (subject
          to its commercially  reasonable  efforts),  or permit any action to be
          taken or not taken,  inconsistent  with this  Agreement or which would
          reasonably be expected to significantly impede the consummation of the
          Arrangement,  provided  that where Avenor is required to take any such
          action or refrain from taking such action (subject to its commercially
          reasonable  efforts)  as a  result  of this  Agreement,  Avenor  shall
          immediately notify Bowater in writing of such circumstances;

                                       16

<PAGE>


     (r)  it  will,  in all  material  respects,  conduct  itself  so as to keep
          Bowater  fully  informed  as to  the  material  decisions  or  actions
          required or required to be made with  respect to the  operation of its
          business; provided that such disclosure is not otherwise prohibited by
          reason of a confidentiality obligation owed to a third party for which
          a waiver  could not be obtained or is in respect of  customer-specific
          competitively  sensitive  information  relating  to areas or  projects
          where Avenor and Bowater are competitors;

     (s)  it shall make,  or  cooperate as necessary in the making of, all other
          necessary filings and applications  under all applicable Laws required
          in connection with the transactions  contemplated  herein and take all
          reasonable action necessary to be in compliance with such Laws;

     (t)  it shall use its reasonable  commercial efforts to conduct its affairs
          and shall cause its  Subsidiaries to conduct their affairs so that all
          of its representations  and warranties  contained herein shall be true
          and correct in all material  respects on and as of the Effective  Date
          as if made on and as of such date; and

     (u)  it will not allow the Debt Ratio to exceed  70% so that the  condition
          referred to in Section 6.3(e) can be fulfilled.

5.3  Covenants of Bowater

     Bowater   covenants  and  agrees  that,  except  as  contemplated  by  this
Agreement,  the Arrangement and transactions  (including financing transactions)
necessary to implement the Arrangement, until the Effective Date or the day upon
which this Agreement is terminated, whichever is earlier:

     (a)  except as  previously  disclosed in writing to Avenor,  it shall,  and
          shall cause each of its  Subsidiaries  to,  refrain from entering into
          any  transaction  or making any other decision which would result in a
          material adverse change in Bowater;

     (b)  it shall  take  all  such  steps  and do all  such  acts  and  things,
          including  without  limitation,  making  or  causing  to be made  cash
          payments and issuing  Bowater Common  Shares,  as are specified in the
          Plan of  Arrangement  and  the  Final  Order  to be  taken  or done by
          Bowater;

     (c)  except as previously  disclosed in writing to Avenor or as required by
          (f)  below,  it shall  not  amend or  propose  to amend  its  Restated
          Certificate of Incorporation;

     (d)  except as  previously  disclosed  in writing  to Avenor,  it shall not
          split,  combine  or  reclassify  any of  its  outstanding  shares,  or
          declare,  set aside or pay any dividend or other distribution  payable
          in cash,  stock,  property  or  otherwise  with  respect to its shares
          (other  than  regular  quarterly  dividends  in  respect of its common
          shares, in

                                       17

<PAGE>


               amounts consistent with past practice, and dividends provided for
               pursuant to the provisions of its preferred shares);

     (e)  it shall use all commercially  reasonable efforts to satisfy (or cause
          the  satisfaction  of) the  conditions  precedent  to its  obligations
          hereunder  set forth in Article 6 to the extent the same is within its
          control and to take, or cause to be taken, all other action and to do,
          or cause to be done, all other things  necessary,  proper or advisable
          under  all  applicable  Laws  to  complete  the  Arrangement  and  the
          transactions  contemplated  by this  Agreement,  including  using  its
          commercially reasonable efforts to:

          (i)  obtain all necessary waivers,  consents and approvals required to
               be obtained by it from other parties to loan  agreements,  leases
               and other contracts;

          (ii) obtain all necessary  consents,  approvals and  authorizations as
               are required to be obtained by it under any applicable Law;

         (iii) effect all necessary  registrations  and filings and  submissions
               of information  requested by Governmental Entities required to be
               effected  by  it in  connection  with  the  Arrangement  and  the
               transactions contemplated by this Agreement and participate,  and
               appear in any  proceedings  of, either Party before  Governmental
               Entities;

          (iv) oppose,  lift or rescind any injunction or  restraining  order or
               other order or action  seeking to stop,  or  otherwise  adversely
               affecting  the  ability  of  the  Parties  to   consummate,   the
               transactions contemplated hereby or by the Arrangement;

          (v)  fulfill  all   conditions   precedent  to  Avenor's   obligations
               hereunder and satisfy all  provisions  of this  Agreement and the
               Arrangement applicable to it; and

          (vi) cooperate with Avenor in connection with the performance by it of
               its obligations hereunder;

     (f)  it shall:

          (i)  create one share of special voting stock of Bowater (including if
               necessary by filing  amendments  to its Restated  Certificate  of
               Incorporation),  which  entitles the holder of record to a number
               of votes at meetings of holders of Bowater Common Shares equal to
               the number of Avenor Exchangeable Shares outstanding from time to
               time; and

          (ii) authorize  Bowater Common Shares to be issued in the  Arrangement
               and a  sufficient  number of  Bowater  Common  Shares so that the
               retraction   and   exchange   rights   attached   to  the  Avenor
               Exchangeable Shares may be honoured;

                                       18

<PAGE>



     (g)  it shall not take any action,  refrain from taking any action (subject
          to its commercially  reasonable  efforts),  or permit any action to be
          taken or not taken,  inconsistent  with this  Agreement or which would
          reasonably be expected to significantly impede the consummation of the
          Arrangement,  provided that where Bowater is required to take any such
          action  or  refrain  from  taking  such  action  as a  result  of this
          Agreement,  Bowater shall immediately notify Avenor in writing of such
          circumstances;

     (h)  in a timely and expeditious manner it shall:

          (i)  forthwith  carry  out such  terms of the  Interim  Order,  as are
               required under the terms thereof to be done by Bowater;

          (ii) prepare,  in consultation  with Avenor,  and file the Joint Proxy
               Circular  with  respect to the  Avenor  Meeting  and the  Bowater
               Meeting in all  jurisdictions  where the same is  required  to be
               filed and mail the same in accordance  with all applicable  Laws,
               in all jurisdictions where the same is required, complying in all
               material respects with all applicable Laws on the date of mailing
               thereof and  containing  full,  true and plain  disclosure of all
               material  facts relating to the  Arrangement  and Bowater and not
               containing   any   misrepresentation   (as  defined   under  such
               applicable securities laws) with respect thereto;

         (iii) convene  the  Bowater  Meeting on a date agreed to by the Parties
               which shall be no later than  September 30, 1998,  and distribute
               copies of this Agreement (or a written summary  thereof  prepared
               by  Bowater  in form and  substance  reasonably  satisfactory  to
               Avenor);

          (iv) provide  notice  to  Avenor  of the  Bowater  Meeting  and  allow
               Avenor's representatives to attend the Bowater Meeting; and

          (v)  conduct the  Bowater  Meeting in  accordance  with the by-laws of
               Bowater and any instrument governing such meeting, as applicable,
               and as otherwise required by applicable Laws;

     (i)  in a timely and expeditious manner it shall,  prepare (in consultation
          with Avenor) and file any mutually  agreed (or  otherwise  required by
          applicable Laws) amendments or supplements to the Joint Proxy Circular
          with  respect to the Bowater  Meeting and mail the same as required by
          the Interim Order and in accordance  with all applicable  Laws, in all
          jurisdictions  where the same is  required,  complying in all material
          respects with all applicable Laws on the date of mailing thereof;

     (j)  except for proxies and other non-substantive communications,  it shall
          furnish promptly to Avenor a copy of each notice, report,  schedule or
          other  document  or  communication  delivered,  filed or  received  by
          Bowater in connection with the  Arrangement or the Interim Order,  the
          Bowater Meeting or any other meeting of

                                       19

<PAGE>


          Bowater  security  holders or class of security holders which all such
          holders, as the case may be, are entitled to attend, any filings under
          applicable  Laws  and  any  dealings  with   regulatory   agencies  in
          connection   with,  or  in  any  way   affecting,   the   transactions
          contemplated herein;

     (k)  in a timely and  expeditious  manner,  it shall  provide to Avenor all
          information as may be reasonably requested by Avenor or as required by
          the Interim Order or  applicable  Laws with respect to Bowater and its
          Subsidiaries  and  their  respective  businesses  and  properties  for
          inclusion  in the Joint  Proxy  Circular  with  respect  to the Avenor
          Meeting  or in any  amendments  or  supplements  to such  Joint  Proxy
          Circular  complying in all material  respects with all applicable Laws
          on the date of mailing  thereof and  containing  full,  true and plain
          disclosure  of  all  material   facts  relating  to  Bowater  and  not
          containing  any   misrepresentation   (as  defined  under   applicable
          securities laws) with respect thereto;

     (l)  assist and cooperate in the preparation and filing with all applicable
          securities commissions or similar securities regulatory authorities of
          Canada and the United  States of all  necessary  applications  to seek
          exemptions,  if required, from the prospectus,  registration and other
          requirements  of the  applicable  securities  laws of  Canada  and the
          United States for the issue by Avenor or the Subsidiary of Bowater, as
          the  case may be,  of  Avenor  Exchangeable  Shares  and the  issue by
          Bowater of Bowater Common Shares  pursuant to the  Arrangement and the
          resale of such shares  (other  than by control  persons and subject to
          requirements of general application); and

     (m)  forthwith  carry out such terms of the Final Order  required under the
          terms thereof to be done by Bowater.

5.4  Covenants Regarding Non-Solicitation

     (a)  Avenor  shall  not,  directly  or  indirectly,  through  any  officer,
          director,  employee,  representative  or agent of Avenor or any of its
          Subsidiaries,  solicit,  initiate or knowingly encourage (including by
          way of furnishing  information or entering into any form of agreement,
          arrangement  or  understanding)  the  initiation  of any  inquiries or
          proposals  regarding  an  Acquisition  Proposal,  participate  in  any
          discussions  or  negotiations   regarding  any  Acquisition  Proposal,
          withdraw or modify in a manner  adverse to Bowater the approval of the
          Board of Directors of Avenor of the transactions  contemplated hereby,
          approve or recommend any Acquisition Proposal or cause Avenor to enter
          into any  agreement  related to any  Acquisition  Proposal;  provided,
          however, that subject to Section 5.5 but notwithstanding the preceding
          part of this Section 5.4(a) and any other provision of this Agreement,
          nothing   shall   prevent  the  Board  of  Directors  of  Avenor  from
          considering,  negotiating, approving, recommending to its shareholders
          or entering into an agreement in respect of an  unsolicited  bona fide
          written  Acquisition  Proposal  that the Board of  Directors of Avenor
          determines in good faith,  after  consultation with financial advisors
          and after

                                       20

<PAGE>



          receiving  an opinion of outside  counsel to the effect that the Board
          of  Directors  of Avenor is  required  to take such action in order to
          discharge  properly its fiduciary  duties,  would,  if  consummated in
          accordance with its terms,  result in a transaction more favourable to
          Avenor's  shareholders  than  the  transaction  contemplated  by  this
          Agreement (any such Acquisition Proposal being referred to herein as a
          "Superior Proposal");

     (b)  Bowater  shall not,  directly  or  indirectly,  through  any  officer,
          director,  employee,  representative or agent of Bowater or any of its
          Subsidiaries,  solicit,  initiate or knowingly encourage (including by
          way of furnishing  information or entering into any form of agreement,
          arrangement  or  understanding)  the  initiation  of any  inquiries or
          proposals regarding an Acquisition Proposal;  provided,  however, that
          notwithstanding  any other provision of this Agreement,  nothing shall
          prevent  the  Board  of  Directors   of  Bowater   from   considering,
          negotiating,  approving,  recommending to its shareholders or entering
          into an  agreement  in respect  of an  unsolicited  bona fide  written
          Acquisition  Proposal if the Board of Directors of Bowater  determines
          in good faith,  after  consultation with financial  advisors and after
          receiving an opinion of outside counsel,  that it is required to do so
          in order to discharge properly its fiduciary duties;

     (c)  Each  Party  shall  promptly  notify  the other  Party of any  current
          Acquisition  Proposals or of any future Acquisition  Proposal of which
          directors or senior  officers  become aware,  or any amendments to the
          foregoing,  or any request for non-public information relating to such
          Party or any Material  Subsidiaries  in connection with an Acquisition
          Proposal  or for  access to the  properties,  books or records of such
          Party or any Material  Subsidiary by any person or entity that informs
          such Party or such Material  Subsidiary that it is considering making,
          or has made,  an  Acquisition  Proposal.  Such notice shall  include a
          description  of the material  terms and conditions of any proposal and
          provide such details of the proposal,  inquiry or contact as the other
          Party may  reasonably  request  including  the  identity of the person
          making such proposal, inquiry or contact;

     (d)  If Avenor receives a request for material non-public  information from
          a person who proposes a bona fide  Acquisition  Proposal in respect of
          Avenor  (the  existence  and content of which have been  disclosed  to
          Bowater),  and the Board of Directors of Avenor  determines  that such
          proposal  would be a Superior  Proposal  pursuant  to  Section  5.4(a)
          having received the advice referred to therein, then, and only in such
          case,  the Board of Directors of Avenor may,  subject to the execution
          of a  confidentiality  agreement  containing  a  standstill  provision
          substantially  similar to that contained in Section 5.7,  provide such
          person with access to information regarding Avenor; provided, however,
          that the person making the Acquisition Proposal shall not be precluded
          thereunder from making the Acquisition Proposal,  and provided further
          that  Avenor  sends a copy of any such  confidentiality  agreement  to
          Bowater  immediately upon its execution and Bowater is provided with a
          list of or

                                       21

<PAGE>


          copies of the  information  provided  to such  person and  immediately
          provided with access to similar  information  to which such person was
          provided; and

     (e)  Each Party shall ensure that its officers, directors and employees and
          its  Subsidiaries  and any  financial  advisors  or other  advisors or
          representatives  retained  by it are aware of the  provisions  of this
          Section  5.4,  and it  shall be  responsible  for any  breach  of this
          Section  5.4  by  its   financial   advisors  or  other   advisors  or
          representatives.

5.5  Notice by Avenor of Superior Proposal Determination

     Avenor shall not accept, approve,  recommend or enter into any agreement in
respect of an Acquisition  Proposal (other than a confidentiality  agreement) on
the  basis  that it would  constitute  a  Superior  Proposal  unless  (i) it has
provided  Bowater with a copy of the  Acquisition  Proposal  document  which the
Board of Directors of Avenor has determined  would be a Superior  Proposal,  and
(ii) five  business  days shall have  elapsed from the later of the date Bowater
received notice of the proposed determination to accept,  approve,  recommend or
enter into an agreement in respect of such  Acquisition  Proposal,  and the date
Bowater  received  a copy  of the  Acquisition  Proposal  document.  Information
provided  shall  constitute  confidential  Information  for  purposes of Section
5.6(c).

     During such five  business  day period,  Avenor  acknowledges  that Bowater
shall have the opportunity,  but not the obligation, to offer to amend the terms
of this  Agreement  and the  Arrangement.  The Board of Directors of Avenor will
review any offer by Bowater to amend the terms of this  Agreement  in good faith
in order to  determine,  in its  discretion  in the  exercise  of its  fiduciary
duties,  whether  Bowater's  offer upon acceptance by Avenor would result in the
Acquisition Proposal not being a Superior Proposal. If the Board of Directors of
Avenor so  determines,  it will  enter into an amended  agreement  with  Bowater
reflecting  Bowater's  amended  proposal.  If the Board of  Directors  of Avenor
determines  that the  Acquisition  Proposal is nonetheless a Superior  Proposal,
Avenor will pay to Bowater the break fee payable to Bowater under Section 8.2.

     Avenor also  acknowledges  and agrees that each successive  modification of
any  Acquisition  Proposal  shall  constitute  a new  Acquisition  Proposal  for
purposes of the requirement under clause (ii) of this Section 5.5 to initiate an
additional five business day notice period.

5.6  Access to Information

     (a)  Subject to Section 5.6(c) and applicable Laws, upon reasonable notice,
          Avenor  shall (and shall  cause  each of its  Subsidiaries  to) afford
          Bowater's  officers,   employees,   counsel,   accountants  and  other
          authorized  representatives and advisors  ("Representatives")  access,
          during  normal  business  hours  from the date  hereof  and  until the
          earlier of the Effective Date or the termination of this Agreement, to
          its  properties,  books,  contracts  and  records  as  well  as to its
          management personnel, and, during such period, Avenor shall (and shall
          cause each of its  Subsidiaries  to)  furnish  promptly to Bowater all
          information concerning Avenor's business,  properties and personnel as
          Bowater may reasonably request. Nothing in the foregoing shall require

                                       22

<PAGE>


          Avenor to disclose  information  subject to a written  confidentiality
          agreement with third parties,  or  customer-specific  or competitively
          sensitive information relating to areas or projects where Bowater is a
          competitor.

     (b)  Subject to Section 5.6(c) and applicable Laws, upon reasonable notice,
          Bowater shall afford Avenor's counsel and its financial advisors,  RBC
          Dominion  Securities  Inc., an opportunity to conduct due diligence on
          Bowater and its Subsidiaries to enable RBC Dominion Securities Inc. to
          prepare and deliver its written fairness opinion.

     (c)  The Parties  acknowledge  that  certain  information  provided to each
          other under Section 5.6(a) and Section 5.6(b) above will be non-public
          and/or proprietary in nature (the "Information").  Except as permitted
          below,  each Party will keep  Information  confidential  and will not,
          without the prior  written  consent of the other,  disclose it, in any
          manner  whatsoever,  in whole or in part,  to any  other  person,  and
          neither  Party will use it for any purpose  other than to evaluate the
          transaction contemplated by this Agreement. The Parties will each make
          all  reasonable,  necessary and  appropriate  efforts to safeguard the
          Information  from disclosure to anyone other than as permitted  hereby
          and to control  the  copies,  extracts  or  reproductions  made of the
          Information. The Information may be provided to the representatives of
          a Party who require  access to the same to assist it in  proceeding in
          good faith with the transactions  contemplated by this Agreement,  and
          whose  assistance  is required for such  purposes,  provided that such
          Party has first informed such  representatives  to whom Information is
          provided that the representative  has the same obligations,  including
          as to confidentiality,  restricted use and otherwise,  that such Party
          has with respect to such  Information.  This provision shall not apply
          as to  such  portions  of the  Information  that:  (a)  are or  become
          generally available to the public other than as a result of disclosure
          by the receiving Party or its representatives; (b) become available to
          a Party on a non-confidential basis from a source other than, directly
          or indirectly,  the other Party or its representatives,  provided that
          such  source is not to the  knowledge  of the  receiving  Party,  upon
          reasonable  inquiry,  bound by a  confidentiality  agreement  with the
          Party   providing  the   Information  or  otherwise   prohibited  from
          transmitting  the Information to the receiving Party by a contractual,
          legal or fiduciary obligation; or (c) were known to a Party or were in
          its possession on a non-confidential basis prior to being disclosed to
          it by the Party providing the Information or by someone on its behalf;
          or (d) are required by applicable Laws or court order to be disclosed.
          The provisions of this Section 5.6(c) shall survive the termination of
          this Agreement.

5.7  Mutual Standstill

     During the period  commencing on the date hereof and  continuing  until the
Effective Date or the termination of this Agreement, other than pursuant to this
Agreement  (including  without  limitation Section 5.5), the Arrangement and the
transactions  contemplated  hereby and  thereby,  each Party agrees that it will
not,  except in connection  with this  Agreement or the  Arrangement or with the
prior approval of the other Party,  which approval may be given on such terms as
the other Party

                                       23

<PAGE>


may determine:  (i) in any manner acquire, agree to acquire or make any proposal
or offer to acquire,  directly or indirectly,  any securities or property of the
other Party;  (ii) propose or offer to enter into,  directly or indirectly,  any
merger  or  business  combination  involving  the  other  Party or to  purchase,
directly or  indirectly,  a material  portion of the assets of the other  Party;
(iii) directly or indirectly,  "solicit", or participate or join with any person
in the  "solicitation"  of,  any  "proxies"  (as such  terms are  defined in the
Securities Act (Ontario), as the same may be amended from time to time) to vote,
to seek to advise or to  influence  any person with respect to the voting of any
voting  securities  of  the  other  Party  (but  for  greater  certainty  Avenor
acknowledges  that Bowater and its agents and advisors  (including TD Securities
Inc. and Goldman Sachs & Co.) will be entitled to solicit  proxies and otherwise
influence any person to vote in favour of the  Arrangement at the Avenor Meeting
or Bowater  Meeting  and  Bowater  acknowledges  that  Avenor and its agents and
advisors (including RBC Dominion Securities) will be entitled to solicit proxies
and otherwise  influence any person to vote in favour of the  Arrangement at the
Avenor Meeting or Bowater Meeting);  (iv) otherwise act alone or in concert with
others to seek to control or to influence the management,  Board of Directors or
policies of the other Party;  (v) make any public or private  disclosure  of any
consideration,  intention,  plan or  arrangement  inconsistent  with  any of the
foregoing;  or (vi) advise,  assist or encourage any of the foregoing or work in
concert with others in respect of the foregoing. For the purpose of this Section
5.7, a Party shall include Subsidiaries of such Party and their successors.  The
termination of this Agreement shall also terminate any other agreements  between
the Parties  which have a similar  effect as this Section 5.7  including but not
limited  to any such  standstill  provisions  contained  in the  Confidentiality
Agreement.

5.8  Employment Agreements and Related Matters

     Bowater  covenants  and  agrees,  and after the  Effective  Time will cause
Avenor and any successor to Avenor to agree, to honour and comply with the terms
of those existing employment and severance agreements of Avenor which Avenor has
disclosed to Bowater in writing prior to the date hereof. Bowater also covenants
and agrees,  and after the Effective Time it will cause Avenor and any successor
to  Avenor  to  agree,  that for a  period  of one  year it will  deal  with any
employees of Avenor whose  employment may be terminated after the Effective Date
in a fair and equitable manner consistent with the existing termination policies
of Avenor as disclosed to Bowater in writing.

5.9  Insurance

     (a)  Bowater shall ensure that the by-laws of Avenor or of any  corporation
          continuing  following the amalgamation,  merger,  plan of arrangement,
          consolidation  or  winding-up of Avenor with or into one or more other
          persons (a "Surviving  Corporation") shall contain the provisions with
          respect to  indemnification  now set forth in section 5.02 of Avenor's
          By-Law No. 1, as amended by Avenor's  By-Law No. 2, (or as provided in
          Article Eleventh of Bowater's  Restated  Certificate of Incorporation)
          which provision shall not be amended,  repealed or otherwise  modified
          for a period of six years from the  Effective  Date in any manner that
          would  adversely  affect the rights  thereunder  of  individuals  who,
          immediately  prior to the Effective Date,  were  directors,  officers,
          employees or agents of Avenor, unless required by

                                       24

<PAGE>



          Law, and Bowater shall ensure that the obligations of Avenor under any
          indemnification  agreements  between  Avenor  and  its  directors  and
          certain officers are assumed by the Surviving Corporation.

     (b)  Bowater   agrees  that  from  the  Effective   Date  until  the  sixth
          anniversary  of the Effective Date it will maintain or cause Avenor or
          any Surviving  Corporation to maintain Avenor's current directors' and
          officers' insurance or another policy or "discovery"  endorsement,  on
          terms and conditions  which are no less  advantageous to the directors
          and officers of Avenor and  providing no less  coverage  than Avenor's
          existing  directors'  and  officers'  insurance,  for all  present and
          former directors and officers of Avenor, covering claims made prior to
          or within  such  period of time.  At the  election of Bowater and upon
          reasonable notice to Avenor, Avenor will acquire the insurance through
          a  "discovery"  endorsement  referred  to in  Section  5.2(l)  of this
          Agreement prior to the Effective Date; and

     (c)  Avenor  will not,  and  Avenor  will use its  commercially  reasonable
          efforts  to cause  the  insured  persons  under  such  directors'  and
          officers'  insurance  policies  not to, take any  actions  which might
          impair the coverage thereunder.

5.10  Ancillary Agreements

     Bowater agrees to enter into the support  agreement and voting and exchange
trust  agreement   contemplated  by  the  provisions  attaching  to  the  Avenor
Exchangeable Shares set out on Exhibit 1 to Schedule A annexed hereto.

5.11  Merger of Covenants

     The covenants set out in this Agreement  (except for Sections 5.6(c),  5.8,
5.9, 5.10 and 10.1 which shall survive the completion of the Arrangement)  shall
not  survive  the  completion  of  the  Arrangement,  and  shall  expire  and be
terminated without recourse between the Parties upon such completion.

                                    ARTICLE 6

                                   CONDITIONS

6.1  Mutual Conditions

     The  obligations  of  Avenor  and  Bowater  to  complete  the  transactions
contemplated hereby are subject to the fulfilment of the following conditions on
or before the Effective Date or such other time as is specified below:


                                       25

<PAGE>


     (a)  the  Interim  Order  shall  have been  granted  in form and  substance
          satisfactory to Avenor and Bowater,  acting reasonably,  and shall not
          have  been set  aside or  modified  in a manner  unacceptable  to such
          Parties, acting reasonably, on appeal or otherwise;

     (b)  the  resolutions set forth in the Joint Proxy Circular shall have been
          passed  at  the  Avenor  Meeting  and  at the  Bowater  Meeting,  duly
          approving the  Arrangement,  in accordance with the Interim Order, and
          duly approving the Bowater Resolution;

     (c)  the  Final  Order  shall  have  been  granted  in form  and  substance
          satisfactory to Avenor and Bowater,  acting reasonably,  and shall not
          have  been set  aside or  modified  in a manner  unacceptable  to such
          Parties on appeal or otherwise;

     (d)  the Articles of Arrangement  relating to the  Arrangement  shall be in
          form  and  substance  satisfactory  to  Avenor  and  Bowater,   acting
          reasonably;

     (e)  the Effective Date shall be on or before  September 30, 1998,  subject
          to any extension available to a Party pursuant to Section 6.4;

     (f)  there shall be no action  taken  under any Law or by any  Governmental
          Entity that:

          (i)  makes it illegal or otherwise  directly or indirectly  restrains,
               enjoins or prohibits the  Arrangement  or any other  transactions
               contemplated herein; or

          (ii) results, or could reasonably be expected to result, in a judgment
               or assessment of damages, directly or indirectly, relating to the
               transactions contemplated herein which is materially adverse;

     (g)  all  consents,   waivers,   permits,   orders  and  approvals  of  any
          Governmental  Entity (other than as contemplated in Section  6.1(h)and
          (i)) or other  person,  and the  expiry  of any  waiting  periods,  in
          connection  with,  or  required  to permit,  the  consummation  of the
          Arrangement, the failure of which to obtain or the non-expiry of which
          would be materially adverse to Avenor or Bowater,  as the case may be,
          or materially  impede the  completion of the  Arrangement,  shall have
          been  obtained  or  received  on terms  that will not have a  material
          adverse  effect on Avenor and/or  Bowater or  reasonably  satisfactory
          evidence thereof shall have been delivered to each Party;

     (h)  the  Arrangement  shall have  received  the  allowance  or approval or
          deemed  allowance or approval by the  responsible  Minister  under the
          Investment  Canada Act in respect  of the  Arrangement,  to the extent
          such allowance or approval is required, and such allowance or approval
          shall be on terms and conditions  satisfactory to the Parties,  acting
          reasonably;

     (i)  without  limiting the scope of the  condition in Section  6.1(g),  any
          applicable  waiting  periods  under the HSR Act shall have  expired or
          been earlier  terminated and (i) the  applicable  waiting period under
          section 123 of the Competition Act (Canada) shall

                                       26

<PAGE>



          have expired without the Director of  Investigation  and Research (the
          "Competition  Director")  appointed  under the  Competition Act having
          given notice that he intends to make an application to the Competition
          Tribunal for an order under section 92 or 100 of the  Competition  Act
          in respect of the Arrangement or (ii) the  Competition  Director shall
          have issued an advance  ruling  certificate  under  section 102 of the
          Competition Act in respect of the Arrangement;

     (j)  the Avenor  Exchangeable Shares and the Bowater Common Shares issuable
          pursuant to the Arrangement shall have been conditionally approved for
          listing on The Toronto Stock Exchange and the New York Stock Exchange,
          respectively,  subject to the filing of  required  documentation,  any
          required  prospectus   exemptions  shall  have  been  obtained  or  be
          available  and  such  securities   shall  not  be  subject  to  resale
          restrictions  in Canada and the United States other than in respect of
          control   persons   and  subject  to  the   requirements   of  general
          application; and

     (k)  this Agreement shall not have been terminated pursuant to Article 9.

     The foregoing  conditions  are for the mutual benefit of Avenor and Bowater
and may be waived,  in whole or in part,  by Avenor and Bowater at any time.  If
any of the said  conditions  precedent  shall not be complied  with or waived as
aforesaid on or before September 30, 1998 or, if earlier,  the date required for
the performance  thereof,  either Party may rescind and terminate this Agreement
by written notice to the other Party.

6.2  Avenor Conditions

     The obligation of Avenor to complete the transactions  contemplated  herein
is  subject  to the  fulfilment  of the  following  conditions  on or before the
Effective Date or such other time as specified below:

     (a)  the  representations  and warranties made by Bowater in this Agreement
          shall be true and correct as of the  Effective  Date as if made on and
          as of  such  date  (except  to the  extent  such  representations  and
          warranties   speak  as  of  an  earlier  date,  in  which  event  such
          representations  and  warranties  shall be true and correct as of such
          earlier date, or except as affected by  transactions  contemplated  or
          permitted by this  Agreement or except for any failures or breaches of
          representations  and warranties which individually or in the aggregate
          would not have a material  adverse  effect on  Bowater  or  materially
          impede the  completion of the  Arrangement  or the other  transactions
          contemplated hereby, it being understood that for the purposes of this
          Section 6.2(a) any reference to materiality,  material  adverse change
          or material adverse effect in such representation or warranty shall be
          disregarded  for this  purpose),  and Bowater  shall have  provided to
          Avenor the certificate of two qualified officers of Bowater certifying
          such accuracy on the Effective Date;

     (b)  Bowater shall have complied with its covenants  herein, if the failure
          to comply with such covenants  would  individually or in the aggregate
          have a material adverse effect

                                       27

<PAGE>


          on Bowater or materially  impede the completion of the  Arrangement or
          the other  transactions  contemplated in this  Agreement,  and Bowater
          shall  have  provided  to  Avenor  the  certificate  of two  qualified
          officers of Bowater  certifying  that Bowater has so complied with its
          covenants herein;

     (c)  from the date hereof up to and  including the  Effective  Date,  there
          shall have been no change,  condition,  event or occurrence  which, in
          the  reasonable  judgment of Avenor has,  or is  reasonably  likely to
          have, a material adverse effect on Bowater; and

     (d)  the Board of Directors  of Bowater  shall have made and shall not have
          modified  or amended,  in any  material  respect,  prior to the Avenor
          Meeting and the Bowater Meeting,  an affirmative  recommendation  that
          its shareholders approve the Bowater Resolution.

     The foregoing conditions precedent are for the benefit of Avenor and may be
waived,  in whole or in part,  by Avenor in writing  at any time.  If any of the
said  conditions  shall  not be  complied  with or waived by Avenor on or before
September 30, 1998 or, if earlier,  the date required for their performance then
Avenor may rescind and terminate this Agreement by written notice to Bowater.

6.3  Bowater Conditions

     The obligation of Bowater to complete the transactions  contemplated herein
is  subject  to the  fulfilment  of the  following  conditions  on or before the
Effective Date or such other time as specified below:

     (a)  the  representations  and warranties  made by Avenor in this Agreement
          shall be true and correct as of the  Effective  Date as if made on and
          as of  such  date  (except  to the  extent  such  representations  and
          warranties   speak  as  of  an  earlier  date,  in  which  event  such
          representations  and  warranties  shall be true and correct as of such
          earlier date, or except as affected by  transactions  contemplated  or
          permitted by this  Agreement or except for any failures or breaches of
          representations  and warranties which individually or in the aggregate
          would not have a  material  adverse  effect  on  Avenor or  materially
          impede the  completion of the  Arrangement  or the other  transactions
          contemplated  hereby,  it being  understood  that for purposes of this
          Section 6.3(a) any reference to materiality,  material  adverse change
          or material adverse effect in such representation or warranty shall be
          disregarded  for this  purpose),  and Avenor  shall have  provided  to
          Bowater the certificate of two qualified officers of Avenor certifying
          such accuracy on the Effective Date;

     (b)  Avenor shall have complied with its covenants  herein,  if the failure
          to comply with such covenants  would  individually or in the aggregate
          have a  material  adverse  effect on Avenor or  materially  impede the
          completion of the Arrangement or the other  transactions  contemplated
          in this  Agreement,  and Avenor  shall have  provided  to Bowater  the
          certificate of two qualified officers of Avenor certifying that Avenor
          has so complied with its covenants herein;

                                       28

<PAGE>



     (c)  from the date hereof up to and  including the  Effective  Date,  there
          shall have been no change,  condition,  event or occurrence  which, in
          the  reasonable  judgment of Bowater has, or is  reasonably  likely to
          have, a material adverse effect on Avenor;

     (d)  the Board of  Directors  of Avenor  shall have made and shall not have
          modified  or amended,  in any  material  respect,  prior to the Avenor
          Meeting, an affirmative  recommendation that its shareholders  approve
          the Arrangement;

     (e)  the Debt Ratio  shall be less than 70% at the  Effective  Date and the
          Debt  Ratio  shall  not have  been in excess of 70% for a period of 20
          consecutive  days  during  the  period  from  the date  hereof  to the
          Effective Date;

     (f)  all stock  options  granted  by Avenor  shall have been  exercised  or
          terminated prior to the effective time of the Arrangement; and

     (g)  the holders of not more than 5% of the issued and  outstanding  Avenor
          Common Shares shall have  exercised  Dissent Rights in relation to the
          Arrangement.

     The foregoing  conditions  precedent are for the benefit of Bowater and may
be waived, in whole or in part, by Bowater in writing at any time. If any of the
said  conditions  shall not be  complied  with or waived by Bowater on or before
September  30,  1998 or,  if  earlier,  the date  required  for the  performance
thereof, then Bowater may rescind and terminate this Agreement by written notice
to Avenor.

6.4  Notice and Cure Provisions

     Each Party will give prompt notice to the other Party of the occurrence, or
failure to occur,  at any time from the date hereof until the Effective Date, of
any event or state of facts  which  occurrence  or  failure  would,  or would be
likely to:

     (a)  cause  any  of the  representations  or  warranties  of  either  Party
          contained herein to be untrue or inaccurate in any material respect on
          the date hereof or on the Effective Date; or

     (b)  result  in the  failure  to  comply  with  or  satisfy  any  covenant,
          condition  or  agreement  to be complied  with or  satisfied by either
          Party hereunder prior to the Effective Date.

     No Party may elect not to complete  the  transactions  contemplated  hereby
pursuant to the conditions  precedent  contained in Sections 6.1, 6.2 and 6.3 or
exercise any termination  right arising  therefrom,  unless forthwith and in any
event prior to the filing of the Final Order for acceptance by the Director, the
Party  intending  to rely  thereon has  delivered a written  notice to the other
Party specifying in reasonable detail all breaches of covenants, representations
and  warranties  or other  matters  which the Party  delivering  such  notice is
asserting  as the  basis  for the  non-fulfilment  of the  applicable  condition
precedent or termination right, as the case may be. If any such notice is

                                       29

<PAGE>


delivered,  provided that a Party is proceeding  diligently to cure such matter,
if such matter is susceptible to being cured,  the other Party may not terminate
this  Agreement  until the later of September  30, 1998 and the  expiration of a
period of 30 days from such notice.  If such notice has been delivered  prior to
the date of the Avenor Meeting and the Bowater  Meeting,  such meetings shall be
postponed until the expiry of such period.

6.5  Merger of Conditions

     The conditions  set out in Sections 6.1, 6.2 and 6.3 shall be  conclusively
deemed to have been satisfied, waived or released upon the filing of Articles of
Arrangement as contemplated by this Agreement, and the issuance of a certificate
of arrangement  and  certificate of amendment in respect thereof under the CBCA.
Avenor  acknowledges  and agrees that it shall have no right to file Articles of
Arrangement unless such conditions have been satisfied, fulfilled or waived.

                                    ARTICLE 7

                                    AMENDMENT

7.1  Amendment

     This  Agreement  may, at any time and from time to time before or after the
holding of the Avenor  Meeting  and the  Bowater  Meeting,  be amended by mutual
written   agreement  of  the  Parties  hereto  without   further  notice  to  or
authorization  on the  part of  their  respective  shareholders,  and  any  such
amendment may, without limitation:

     (a)  change the time for  performance of any of the  obligations or acts of
          the Parties;

     (b)  waive any inaccuracies or modify any  representation  contained herein
          or in any document delivered pursuant hereto;

     (c)  waive  compliance with or modify any of the covenants herein contained
          and  waive or  modify  performance  of any of the  obligations  of the
          Parties; and

     (d)  waive  compliance  with or  modify  any  conditions  precedent  herein
          contained;

provided,  however,  that any  such  change,  waiver  or  modification  does not
invalidate any required security holder approval of the Arrangement.


                                       30

<PAGE>


7.2  Mutual Understanding Regarding Amendments

     The Parties  will  continue  from and after the date hereof and through and
including the Effective  Date, to use their  respective best efforts to maximize
present and future financial and tax planning opportunities for the shareholders
of Avenor,  for  Bowater and for Avenor as and to the extent that the same shall
not  prejudice  any Party or its  securityholders.  The Parties will ensure that
such planning  activities do not impede the progress of the  Arrangement  in any
material way. If Avenor  effects any  transaction  before the Effective Date for
such purposes,  Bowater will be responsible  for any  structuring  and unwinding
costs if the  Arrangement  is not  effected.  Bowater  has  advised  Avenor that
Bowater will propose the  restructuring of the Arrangement so that the issuer of
Avenor  Exchangeable  Shares will be a separate  Subsidiary  of Bowater and that
Bowater  understands  that  Avenor  will,  at or  prior to the  Effective  Date,
consider  the  transfer  of  certain  assets  to  separate  corporations.  These
proposals  will be  subject to  continued  good faith  discussions  between  the
parties and Avenor has no objection to such proposals, provided that they result
in no prejudice to Avenor or its securityholders.

     The Parties  mutually agree that if a Party proposes any other amendment or
amendments to this Agreement or to the Plan of Arrangement, the other Party will
act  reasonably  in  considering  such  amendment and if the other Party and its
shareholders  are not prejudiced by reason of any such amendment the other Party
will  co-operate in a reasonable  fashion with the Party proposing the amendment
so that such amendment can be effected subject to applicable Laws and the rights
of the securityholders.

                                    ARTICLE 8

                 AGREEMENT AS TO DAMAGES AND OTHER ARRANGEMENTS

8.1  Avenor Break Fee Event

     If the Bowater Common Shareholders do not approve the Bowater Resolution at
the Bowater  Meeting (an "Avenor  Break Fee Event"),  then Bowater  shall pay to
Avenor,  on the business day  following  such vote,  $70 million in  immediately
available funds to an account designated by Avenor; provided,  however, that (i)
the Avenor Common  Shareholders  have not  disapproved  the Arrangement and (ii)
this Agreement  shall not have been duly  terminated  prior to the occurrence of
such Avenor  Break Fee Event.  Bowater  shall not be obligated to make more than
one payment pursuant to this Section 8.1.

8.2  Bowater Break Fee Event

     If (x) the Board of Directors of Avenor shall have withdrawn or modified in
a manner adverse to Bowater its approval or  recommendation  of the Arrangement,
or  approved  or  recommended  any  Superior  Proposal,  or  determined  at  the
conclusion of the process set out in Section 5.5 that any  Acquisition  Proposal
is a Superior Proposal, or resolved to take any of the foregoing actions, or (y)
an Acquisition Proposal shall have been made known to Avenor or made directly to
the Avenor Common Shareholders or any person has publicly announced an intention
to

                                       31

<PAGE>



make an Acquisition Proposal and after such Acquisition Proposal shall have been
made known, made or announced (A) the Avenor Common  Shareholders do not approve
the  Arrangement at the Avenor  Meeting or (B) the  Arrangement is not, prior to
September 30, 1998, submitted for their approval,  (each of the events described
in clauses (x) and (y) being referred to as a "Bowater  Break Fee Event"),  then
Avenor  shall pay to Bowater,  in the case of clause (x), one business day after
taking any such action,  and, in the case of clause (y) (A), on the business day
following such vote and, in the case of clause (y) (B), on November 1, 1998, $70
million in  immediately  available  funds to an account  designated  by Bowater;
provided, however, that:

     (i)  in the case of clause (y), the Bowater  Common  Shareholders  have not
          disapproved the Bowater Resolution; and

     (ii) in the case of clauses (x) and (y), this Agreement shall not have been
          duly  terminated  prior to the  occurrence  of such Bowater  Break Fee
          Event.

Avenor  shall not be  obligated  to make more than one payment  pursuant to this
Section 8.2.

8.3  Effect of Break Fee Payments; Timing of Avenor Meeting and Bowater Meeting

     For greater  certainty,  the  Parties  agree that the payment of the amount
pursuant to this Article 8 is the sole monetary  remedy of the Party entitled to
such  amount  as a result  of the  occurrence  of an  Avenor  Break Fee Event or
Bowater Break Fee Event, as the case may be.

     Nothing in this  Agreement  shall  preclude a Party  from  seeking  damages
incurred or suffered by a Party as a result of any breach of this  Agreement  by
the other Party,  seeking injunctive relief to restrain any breach or threatened
breach  of the  covenants  or  agreements  set  forth in this  Agreement  or the
Confidentiality  Agreement or otherwise to obtain specific performance of any of
such covenants or agreements,  without the necessity of posting bond or security
in connection therewith.

     The Parties  acknowledge  and agree that the Avenor Meeting and the Bowater
Meeting shall be held contemporaneously on the same day.

                                    ARTICLE 9

                                   TERMINATION

9.1  Termination

     This Agreement may be terminated at any time prior to the Effective Date:

     (a)  by mutual written consent of Avenor and Bowater;

     (b)  as provided in Sections 6.1, 6.2 and 6.3;

                                       32

<PAGE>


     (c)  by  Avenor  upon the  occurrence  of the  Avenor  Break  Fee  Event as
          provided in Section 8.1; and

     (d)  by  Bowater  upon the  occurrence  of a  Bowater  Break  Fee  Event as
          provided in Section 8.2; or

     (e)  by  Avenor  upon  any  determination  by  Avenor  that an  Acquisition
          Proposal  constitutes a Superior  Proposal,  subject to the payment of
          the break fee payable to Bowater under Section 8.2.

                                   ARTICLE 10

                                     GENERAL

10.1  Expenses

     The Parties agree that all out-of-pocket  third party transaction  expenses
incurred in connection  with this  Agreement and the  transactions  contemplated
hereby,  including legal fees,  financial advisor fees,  regulatory filing fees,
all  disbursements by advisors and printing and mailing costs,  shall be paid by
the Party incurring such expenses.

     Avenor and Bowater represent and warrant to each other that, except for RBC
Dominion  Securities  Inc.  in the case of Avenor  and TD  Securities  Inc.  and
Goldman,  Sachs & Co. in the case of Bowater,  no broker,  finder or  investment
banker is entitled to any brokerage,  finder's or other fee or commission, or to
the reimbursement of any of its expenses, in connection with the Arrangement and
the transactions contemplated hereby.

10.2  Notices

     Any notice, consent,  waiver,  direction or other communication required or
permitted  to be given under this  Agreement by a Party to the other Party shall
be in writing and may be given by  delivering  same or sending same by facsimile
transmission or by delivery  addressed to the Party to which the notice is to be
given at its address for service herein. Any notice, consent,  waiver, direction
or other  communication  aforesaid  shall, if delivered,  be deemed to have been
given and received on the date on which it was delivered to the address provided
herein (if a business day, if not, the next succeeding business day) and if sent
by facsimile  transmission be deemed to have been given and received at the time
of receipt (if a business day, if not the next  succeeding  business day) unless
actually  received  after 4:00 p.m.  at the point of  delivery  in which case it
shall be deemed to have been given and received on the next business day.

     The  address for service of each of the Parties hereto shall be as follows:

     (a)  if to Avenor:

                                       33

<PAGE>



              Avenor Inc.
              1250 Rene-Levesque Blvd. West
              21st Floor
              Montreal, Quebec H3B 4Y3

              Attention:  Marc Regnier
                          Senior Vice President, General Counsel and Secretary
              Fax:        (514) 846-5041

     with a copy to:

              Davies, Ward & Beck
              44th Floor
              1 First Canadian Place
              Toronto, Ontario
              M5X 1B1

              Attention:  J-P. Bisnaire
              Fax:        (416) 863-0871

     (b) if to Bowater:

              Bowater Incorporated
              55 East Camperdown Way
              P.O. Box 1028
              Greenville, South Carolina
              29602

              Attention:  Anthony H. Barash
                          Senior Vice-President,
                          Corporate Affairs and General Counsel
              Fax:        (864) 282-9468

     with a copy to:

              Fraser & Beatty
              1 First Canadian Place
              Suite 4100, P.O. Box 100
              Toronto, Ontario
              M5X 1B2

              Attention:    Jeffery Barnes and Jamie Plant
              Fax:          (416) 863-4592

10.3  Time of the Essence


                                       34

<PAGE>


     Time shall be of the essence in this Agreement.

10.4 Entire Agreement

     This  Agreement and the  Confidentiality  Agreement  constitute  the entire
agreement  between  the  Parties  hereto  and  cancel  and  supersede  all prior
agreements  and  understandings  between the Parties with respect to the subject
matter hereof.

10.5  Further Assurances

     Each Party shall,  from time to time,  and at all times  hereafter,  at the
request of the other  Party,  but  without  further  consideration,  do all such
further acts and execute and deliver all such further  documents and instruments
as shall be  reasonably  required  in order to fully  perform  and carry out the
terms and intent hereof.

10.6  Governing Law

     This Agreement  shall be governed by, and be construed in accordance  with,
the laws of the  Province of Ontario and the laws of Canada  applicable  therein
but the  reference  to such  laws  shall  not,  by  conflict  of laws  rules  or
otherwise, require the application of the law of any jurisdiction other than the
Province of Ontario.  Each Party hereby irrevocably  attorns to the jurisdiction
of the Courts of the Province of Ontario in respect of all matters arising under
or in relation to this Agreement.

10.7  Execution in Counterparts

     This Agreement may be executed in identical counterparts,  each of which is
and is  hereby  conclusively  deemed  to be an  original  and  the  counterparts
collectively are to be conclusively deemed to be one instrument.

10.8  Waiver

     No waiver by any Party shall be effective  unless in writing and any waiver
shall  affect  only  the  matter,  and  the  occurrence  thereof,   specifically
identified and shall not extend to any other matter or occurrence.


                                       35

<PAGE>


10.9  Enurement and Assignment

     This  Agreement  shall  enure to the  benefit  of and be  binding  upon the
Parties  hereto and their  respective  successors  and permitted  assigns.  This
Agreement may not be assigned by either Party without the prior written  consent
of the other Party.

     IN WITNESS  WHEREOF the Parties  hereto have executed this  Agreement as of
the date first above written.

                                     AVENOR INC.

                                     Per: /s/ Arthur R. Sawchuk
                                          ------------------------------
                                          Arthur R. Sawchuk
                                          President and Chief Executive Officer

                                     BOWATER INCORPORATED

                                     Per: /s/ Arnold M. Nemirow
                                          ------------------------------
                                          Arnold M. Nemirow
                                          Chairman, President and
                                          Chief Executive Officer


                                       36

<PAGE>


                                   SCHEDULE A

                               PLAN OF ARRANGEMENT
                                UNDER SECTION 192
                     OF THE CANADA BUSINESS CORPORATIONS ACT

                                    ARTICLE 1

                                 INTERPRETATION

1.1  Definitions

     In this Plan of  Arrangement,  unless  there is  something  in the  subject
matter or context  inconsistent  therewith,  the following  terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:

     "Act" means the Canada Business Corporations Act, R.S.C. 1995, c. C-44.

     "Arrangement"  means the  arrangement  under  section 192 of the Act on the
terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments thereto made in accordance with section 7.1 of the Arrangement
Agreement or made at the direction of the Court in the Final Order.

     "Arrangement  Agreement"  means  the  agreement  made as of March  9,  1998
between  Avenor  and  Bowater,  as  amended,  supplemented  and/or  restated  in
accordance  therewith  prior to the Effective  Date,  providing for, among other
things, the Arrangement.

     "Arrangement Resolution" means the special resolution passed by the holders
of the Avenor Common Shares at the Avenor Shareholders' Meeting.

     "Avenor" means Avenor Inc., a corporation subsisting under the Act.

     "Avenor Common Shares" means the common shares in the capital of Avenor.

     "Avenor Shareholders'  Meeting" means the annual and special meeting of the
shareholders  of  Avenor  (including  any  adjournment  thereof)  that  is to be
convened as provided by the Interim Order to consider,  and if deemed advisable,
approve the Arrangement.

     "Average  Trading  Price of Bowater  Common  Shares"  means the number that
equals the weighted  average  trading  price,  denominated in U.S.  dollars,  of
Bowater  Common  Shares as reported on the NYSE for the 20 days on which trading
took place on the NYSE ending on the Determination Date; provided, however, that
if such average trading price exceeds U.S.$55.6187, the Average Trading Price of
Bowater Common Shares shall be U.S.$55.6187, and if such average trading price


<PAGE>


                                       A-2

is less than  U.S.$45.5062,  the Average  Trading Price of Bowater Common Shares
shall be U.S.$45.5062.

     "Bowater" means Bowater Incorporated, a corporation existing under the laws
of the State of Delaware.

     "Bowater  Canada"  means Bowater  Canada Inc., a  corporation  incorporated
under the Act and a subsidiary of Bowater Holdings.

     "Bowater  Common  Share" means a share of common stock of Bowater,  US$1.00
par value per share.

     "Bowater Elected Share" means any Avenor Common Share that the holder shall
have  elected,  in a  duly  completed  Letter  of  Transmittal  received  by the
Depositary  no  later  than  5:00  p.m.  (Montreal  time)  on the  Business  Day
immediately  preceding the Meeting Date to exchange under the  Arrangement for a
fraction  of a Bowater  Common  Share or that is deemed to be a Bowater  Elected
Share pursuant to Section 2.3(b).

     "Bowater  Holdings"  means  Bowater  Canadian  Holdings   Incorporated,   a
corporation  incorporated under the Companies Act (Nova Scotia) and a subsidiary
of Bowater.

     "Business  Day"  means  any day,  other  than a  Saturday,  a Sunday  and a
statutory holiday in Toronto, Ontario, Montreal, Quebec or New York, New York.

     "Cash  Elected  Share" means any Avenor  Common Share that the holder shall
have  elected,  in a  duly  completed  Letter  of  Transmittal  received  by the
Depositary  no  later  than  5:00  p.m.  (Montreal  time)  on the  Business  Day
immediately preceding the Meeting Date to exchange under the Arrangement for $35
in cash or that is deemed to be a Cash Elected Share pursuant to Section 2.3(d).

     "Certificate"  means the  certificate of  arrangement  giving effect to the
Arrangement,  issued pursuant to subsection 192(7) of the Act after the Articles
of Arrangement have been filed.

     "Court" means the Ontario Court of Justice (General Division).

     "Depositary" means the depositary  appointed by Bowater for the purpose of,
among other things,  exchanging  certificates  representing Avenor Common Shares
for cash, Exchangeable Shares or Bowater Common Shares, as the case may be.

     "Determination Date" means the day which is the third Business Day prior to
the Effective Date.



<PAGE>


                                       A-3

     "Determination  Date Foreign Exchange Rate" means the number (including any
decimal  fraction) which is the value in Canadian  dollars of one U.S. dollar at
the rate of exchange  equal to the Bank of Canada's  noon spot exchange rate for
such currencies on the Determination Date.

     "Dissent Procedures" has the meaning set out in Section 3.1.

     "Dissenting  Shareholder"  means a  holder  of  Avenor  Common  Shares  who
dissents in respect of the  Arrangement  in strict  compliance  with the Dissent
Procedures.

     "Effective Date" means the date shown on the Certificate.

     "Effective Time" means 12:01 a.m. on the Effective Date.

     "Exchange  Ratio"  means the number equal to C$35 divided by the product of
(i)  the  Average   Trading  Price  of  Bowater   Common  Shares  and  (ii)  the
Determination Date Foreign Exchange Rate.

     "Exchangeable Share" means a share in the class of non-voting  exchangeable
shares in the capital of Bowater Canada.

     "Exchangeable  Share Elected  Share" means any Avenor Common Share that the
holder shall have elected, in a duly completed Letter of Transmittal received by
the  Depositary  no later than 5:00 p.m.  (Montreal  time) on the  Business  Day
immediately  preceding the Meeting Date to exchange under the  Arrangement for a
fraction of an Exchangeable  Share or that is deemed to be an Exchangeable Share
Elected Share pursuant to Section 2.1(d) or 2.3(b).

     "Exchangeable Share Provisions" means the rights, privileges,  restrictions
and conditions attaching to the Exchangeable Shares.

     "Final Order" means the final order of the Court approving the Arrangement.

     "Interim  Order"  means the interim  order of the Court made in  connection
with the process for  obtaining  shareholder  approval  of the  Arrangement  and
related matters.

     "Joint Proxy Statement" means the joint management information circular and
proxy  statement  of  Avenor  and  Bowater  to  be  prepared  and  sent  to  the
shareholders of Avenor in connection with the Avenor Shareholders' Meeting.

     "Letter of  Transmittal"  means  collectively a Letter of  Transmittal  and
Election Form in the forms accompanying the Joint Proxy Statement.

     "Liquidation  Call  Right"  has the  meaning  ascribed  thereto  in Section
5.1(a).



<PAGE>


                                       A-4

     "Liquidation  Date" has the meaning  ascribed  thereto in the  Exchangeable
Share Provisions.

     "Meeting Date" means the date of the Avenor Shareholders' Meeting.

     "NYSE" means the New York Stock Exchange, Inc.

     "Outstanding Avenor Common Shares" means the number of Avenor Common Shares
outstanding immediately prior to the Effective Time.

     "Person" includes any individual, firm, partnership, joint venture, venture
capital  fund,  association,  trust,  trustee,  executor,  administrator,  legal
personal   representative,   estate,   group,   body   corporate,   corporation,
unincorporated association or organization,  government body, syndicate or other
entity, whether or not having legal status.

     "Redemption Call Right" has the meaning ascribed thereto in Section 5.2(a).

     "Redemption  Date" has the  meaning  ascribed  thereto in the  Exchangeable
Share Provisions.

     "Share  Elected  Share"  means a Cash  Elected  Share that,  because of the
operation of the  proration  provisions  set forth in Section  2.3(b),  shall be
deemed to be an Exchangeable Share Elected Share; provided, however, that if the
holder  thereof  shall have elected in a duly  completed  Letter of  Transmittal
received  by the  Depositary  no later  than  5:00 p.m.  (Montreal  time) on the
Business Day immediately  preceding the Meeting Date to have Cash Elected Shares
that are  subject to the  proration  provisions  set forth in Section  2.3(b) be
deemed to be Bowater Elected Shares, such Cash Elected Shares shall be deemed to
be Bowater Elected Shares.

1.2  Sections and Headings

     The division of this Plan of Arrangement into sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement.  Unless otherwise indicated,  any reference in this
Plan of Arrangement  to a section or an exhibit refers to the specified  section
of or exhibit to this Plan of Arrangement.

1.3  Number, Gender and Persons

     In this Plan of Arrangement,  unless the context otherwise requires,  words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include  individuals,
corporations,  partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities of any kind.


<PAGE>


                                       A-5

                                    ARTICLE 2

                                   ARRANGEMENT

2.1  Arrangement

     Commencing at the Effective  Time,  the following  shall occur and shall be
deemed to occur in the following order without any further act or formality:

     (a)  subject to Section 2.3, each Bowater Elected Share will be transferred
          by the holder thereof to Bowater  Holdings in exchange for that number
          of fully paid and  non-assessable  Bowater  Common Shares equal to the
          Exchange Ratio,  and the name of each such holder will be removed from
          the  register  of  holders  of Avenor  Common  Shares and added to the
          register of holders of Bowater Common Shares and Bowater Holdings will
          be  added  to  the  register  of  holders  of  Avenor   Common  Shares
          accordingly;

     (b)  Bowater Holdings will transfer to Bowater Canada all the Avenor Common
          Shares then owned by Bowater Holdings and, as consideration  therefor,
          Bowater  Canada will issue an  equivalent  number of common  shares of
          Bowater  Canada to Bowater  Holdings,  and  Bowater  Holdings  will be
          removed  from the  register  of  holders of Avenor  Common  Shares and
          Bowater  Canada  will be added to the  register  of  holders of Avenor
          Common Shares accordingly;

     (c)  subject to Section 2.3, each Cash Elected Share and Exchangeable Share
          Elected  Share will be  transferred  by the holder  thereof to Bowater
          Canada in exchange for (i) in the case of a Cash Elected  Share,  C$35
          in  cash,  without  interest  thereon  and  (ii)  in  the  case  of an
          Exchangeable  Share Elected Share, that number of Exchangeable  Shares
          equal to the Exchange Ratio, and each holder who receives cash will be
          removed from the register of holders of Avenor  Common Shares and each
          holder who  receives  Exchangeable  Shares  will be  removed  from the
          register of holders of Avenor  Common Shares and added to the register
          of holders of Exchangeable Shares and Bowater Canada shall be recorded
          as the  registered  holder of such Avenor  Common Shares so exchanged;
          provided,  however,  that  where  a  holder  receives  both  cash  and
          Exchangeable  Shares,  each Avenor Common Share transferred to Bowater
          Canada by the holder  thereof will be deemed to have been  transferred
          to Bowater Canada for a combination of cash and  Exchangeable  Shares,
          with the cash  portion of such  consideration  received by such holder
          for  such  share  being  equal  to the  aggregate  cash  consideration
          received by such holder  divided by the number of Avenor Common Shares
          so transferred; and

     (d)  subject to Section 2.3,  each Avenor  Common Share in respect of which
          an  effective  election  has not been made (other  than Avenor  Common
          Shares held by Dissenting


<PAGE>


                                       A-6

          Shareholders who are ultimately  entitled to be paid the fair value of
          the  Avenor  Common  Shares  held by  them)  will be  deemed  to be an
          Exchangeable  Share Elected Share and will be  transferred  to Bowater
          Canada in exchange  for  Exchangeable  Shares in  accordance  with the
          provisions described in paragraph (c) above, and each such holder will
          be removed  from the register of holders of Avenor  Common  Shares and
          added to the  register of holders of  Exchangeable  Shares and Bowater
          Canada  shall be  recorded  as the  registered  holder of such  Avenor
          Common Shares so exchanged.

2.2  Elections

     Each Person who, at or prior to 5:00 p.m.  (Montreal  Time) on the Business
Day  immediately  preceding  the Meeting  Date,  is a holder of record of Avenor
Common  Shares,  will be  entitled,  with  respect  to all or a portion  of such
shares,  to make an  election  at or  prior to 5:00  p.m.  on the  Business  Day
immediately  preceding the Meeting Date to receive cash,  Exchangeable Shares or
Bowater Common Shares, or a combination  thereof,  in exchange for such holder's
Avenor Common Shares,  on the basis set forth herein and in accordance with such
arrangements  and  procedures  as will be agreed  upon in good faith by Bowater,
Bowater Holdings, Bowater Canada and Avenor, including the form of the Letter of
Transmittal containing the elections and the procedures governing transmittal.

2.3  Proration

     (a)  Notwithstanding  Section 2.1(c),  the maximum aggregate amount of cash
          that may be paid to holders of Avenor Common  Shares  pursuant to this
          Article 2 (the "Cash  Cap")  shall be equal to (A) the  product of (i)
          C$35,  (ii) the number of  Outstanding  Avenor Common Shares and (iii)
          0.60 less (B) the  lesser of (x) the  product  of (i) $21 and (ii) the
          number of Avenor Common Shares in respect of which a notice of dissent
          has been delivered by Dissenting  Shareholders  in accordance with the
          Act and (y) $65,000,000.

     (b)  If the product  (the  "Requested  Cash  Amount") of (i) the  aggregate
          number of Cash  Elected  Shares and (ii) C$35,  exceeds  the Cash Cap,
          then a cash proration  factor (the "Cash  Proration  Factor") shall be
          determined by dividing the Cash Cap by the  Requested  Cash Amount and
          the number of Cash  Elected  Shares of each  holder  thereof  shall be
          reduced to the  product of (x) the Cash  Proration  Factor and (y) the
          number of Cash  Elected  Shares of such  holder (the  "Available  Cash
          Elected  Shares"),  and the  difference  between  such  holder's  Cash
          Elected  Shares and such holder's  Available Cash Elected Shares shall
          be deemed to be Share Elected Shares of such holder.

     (c)  Notwithstanding  Sections 2.1(a),  (c) and (d), the maximum  aggregate
          number of  Exchangeable  Shares and Bowater  Common Shares that may be
          issued to or received


<PAGE>


                                       A-7

          by holders of Avenor  Common  Shares  pursuant to this  Article 2 (the
          "Share Cap") shall be equal to the product of (x) the Exchange  Ratio,
          (y) the number of Outstanding Avenor Common Shares and (z) 0.50.

     (d)  If the product (the  "Requested  Share  Amount") of (w) the difference
          between (A) the number of Outstanding Avenor Common Shares (other than
          Avenor  Common  Shares held by holders who have  delivered a notice of
          dissent in accordance  with the Act) and (B) the  aggregate  number of
          Cash  Elected  Shares  (such  difference,  the "Deemed  Share  Elected
          Shares") and (x) the  Exchange  Ratio,  exceeds the Share Cap,  then a
          share  proration  factor  (the  "Share  Proration  Factor")  shall  be
          determined by dividing the Share Cap by the Requested Share Amount and
          the number of Deemed Share Elected Shares of each holder thereof shall
          be reduced to the  product of (x) the Share  Proration  Factor and (y)
          the  number  of  Deemed  Share  Elected  Shares  of such  holder  (the
          "Available  Share  Elected  Shares") and the  difference  between such
          holder's Deemed Share Elected Shares and such holder's Available Share
          Elected  Shares  shall be  deemed  to be Cash  Elected  Shares of such
          holder.  If the  number  of Deemed  Share  Elected  Shares is  reduced
          pursuant to the  provisions of this paragraph (d), such reduction will
          be made pro rata as between the Exchangeable  Share Elected Shares and
          the Bowater Elected Shares of such holder.

                                    ARTICLE 3

                                RIGHTS OF DISSENT

3.1  Rights of Dissent

     Holders of Avenor Common Shares may exercise rights of dissent with respect
to such shares pursuant to and in the manner set forth in section 190 of the Act
and  this  section  3.1  (the  "Dissent  Procedures")  in  connection  with  the
Arrangement and holders who duly exercise such rights of dissent and who:

     (a)  are ultimately  entitled to be paid fair value for their Avenor Common
          Shares shall be deemed to have  transferred  such Avenor Common Shares
          to Avenor for cancellation on the Effective Date; or

     (b)  are ultimately not entitled, for any reason, to be paid fair value for
          their Avenor Common Shares shall be deemed to have participated in the
          Arrangement  on the same  basis as a  non-dissenting  holder of Avenor
          Common  Shares  and  shall  receive  Exchangeable  Shares on the basis
          determined in accordance with Section 2.1(d),

but in no case shall Bowater,  Bowater Holdings,  Bowater Canada,  Avenor or any
other Person be required to recognize  such holders as holders of Avenor  Common
Shares after the Effective Time,


<PAGE>


                                       A-8

and the names of such holders of Avenor  Common Shares shall be deleted from the
registers of holders of Avenor Common Shares at the Effective Time.

                                    ARTICLE 4

                       CERTIFICATES AND FRACTIONAL SHARES

4.1  Issuance of Certificates Representing Exchangeable Shares

     At or promptly after the Effective Time,  Bowater Canada shall deposit with
the Depositary,  for the benefit of the holders of Avenor Common Shares who will
receive  Exchangeable  Shares in connection with the  Arrangement,  certificates
representing  the  Exchangeable  Shares issued  pursuant to Section 2.1 upon the
exchange  of  Avenor  Common  Shares.  Upon  surrender  to  the  Depositary  for
cancellation  of a certificate  which  immediately  prior to the Effective  Time
represented one or more Avenor Common Shares that were exchanged for one or more
Exchangeable  Shares under the  Arrangement,  together with such other documents
and instruments as would have been required to effect the transfer of the shares
formerly represented by such certificate under the Act and the by-laws of Avenor
and such  additional  documents and instruments as the Depositary may reasonably
require, the holder of such surrendered certificate shall be entitled to receive
in  exchange  therefor,  and the  Depositary  shall  deliver to such  holder,  a
certificate  representing that number (rounded down to the nearest whole number)
of Exchangeable Shares which such holder has the right to receive (together with
any dividends or distributions  with respect thereto pursuant to Section 4.4 and
any cash in lieu of fractional  Exchangeable  Shares pursuant to Section 4.5 and
as a result of the operation of Section 2.3), and the certificate so surrendered
shall forthwith be cancelled.  In the event of a transfer of ownership of Avenor
Common  Shares  that is not  registered  in the  transfer  records of Avenor,  a
certificate  representing the proper number of Exchangeable Shares may be issued
to the transferee if the certificate  representing  such Avenor Common Shares is
presented to the Depositary,  accompanied by all documents  required to evidence
and effect such transfer. Until surrendered as contemplated by this Section 4.1,
each  certificate  which  immediately  prior to the Effective  Time  represented
Avenor Common Shares that were exchanged for Exchangeable Shares shall be deemed
at any time after the Effective Time to represent only the right to receive upon
such  surrender  (i)  the  certificate   representing   Exchangeable  Shares  as
contemplated  by this Section 4.1, (ii) a cash payment in lieu of any fractional
Exchangeable  Shares as  contemplated  by  Section  4.5 and a cash  payment as a
result of the operation of Section 2.3, and (iii) any dividends or distributions
with a record date after the  Effective  Time  theretofore  paid or payable with
respect to Exchangeable Shares as contemplated by Section 4.4.

4.2  Exchange of Certificates for Bowater Common Shares

     At or promptly  after the Effective  Time,  Bowater  Holdings shall deposit
with the Depositary,  for the benefit of the holders of Avenor Common Shares who
will  receive  Bowater  Common  Shares  in  connection  with  the   Arrangement,
certificates representing the Bowater Common Shares issued


<PAGE>


                                       A-9

pursuant to Section 2.1 in exchange for outstanding  Avenor Common Shares.  Upon
surrender to the Depositary for cancellation of a certificate  which immediately
prior to the Effective Time  represented  outstanding  Avenor Common Shares that
were exchanged for Bowater Common Shares, together with such other documents and
instruments  as would have been  required  to effect the  transfer of the shares
formerly represented by such certificate under the Act and the by-laws of Avenor
and such  additional  documents and instruments as the Depositary may reasonably
require, the holder of such surrendered certificate shall be entitled to receive
in  exchange  therefor,  and the  Depositary  shall  deliver to such  holder,  a
certificate  representing that number (rounded down to the nearest whole number)
of Bowater  Common  Shares which such holder has the right to receive  (together
with any dividends or distributions with respect thereto pursuant to Section 4.4
and any cash in lieu of fractional Bowater Common Shares pursuant to Section 4.3
and as a result  of the  operation  of  Section  2.3),  and the  certificate  so
surrendered  shall  forthwith  be  cancelled.  In the  event  of a  transfer  of
ownership  of Avenor  Common  Shares  which is not  registered  in the  transfer
records of  Avenor,  a  certificate  representing  the proper  number of Bowater
Common Shares may be issued to the  transferee if the  certificate  representing
such Avenor Common  Shares is presented to the  Depositary,  accompanied  by all
documents  required to evidence and effect such transfer.  Until  surrendered as
contemplated by this Section 4.2, each certificate  which  immediately  prior to
the Effective Time represented one or more outstanding Avenor Common Shares that
were  exchanged for Bowater  Common Shares shall be deemed at any time after the
Effective  Time to represent  only the right to receive upon such  surrender (i)
the  certificate  representing  Bowater  Common Shares as  contemplated  by this
Section 4.2, (ii) a cash payment in lieu of any fractional Bowater Common Shares
as  contemplated  by Section 4.5 and as a result of the operation of Section 2.3
and (iii) any dividends or distributions  with a record date after the Effective
Time  theretofore  paid or payable  with  respect to  Bowater  Common  Shares as
contemplated by Section 4.4.

4.3  Exchange of Certificates for Cash

     At or promptly  after the  Effective  Time,  Bowater  Canada shall  deposit
sufficient  cash with the  Depositary  for the  benefit of the holders of Avenor
Common Shares who will receive cash in  connection  with the  Arrangement.  Upon
surrender to the Depositary for cancellation of a certificate  which immediately
prior to the Effective Time  represented  outstanding  Avenor Common Shares that
were exchanged for cash,  together with such other  documents and instruments as
would  have  been  required  to  effect  the  transfer  of the  shares  formerly
represented by such certificate under the Act and the by-laws of Avenor and such
additional  documents and instruments as the Depositary may reasonably  require,
the  holder of such  surrendered  certificate  shall be  entitled  to receive in
exchange  therefor,  and the Depositary  shall deliver to such holder,  the cash
which  such  holder  has the right to receive  under the  Arrangement.  The cash
deposited with the Depositary shall be held in an interest bearing account,  and
any interest earned on such funds shall be for the account of Bowater Canada.

4.4  Distributions with Respect to Unsurrendered Certificates

     No dividends or other  distributions  declared or made after the  Effective
Time with respect to Exchangeable  Shares or Bowater Common Shares with a record
date after the Effective Time shall


<PAGE>


                                      A-10

be paid to the holder of any  unsurrendered  certificate which immediately prior
to the Effective  Time  represented  outstanding  Avenor Common Shares that were
exchanged  pursuant to Section 2.1,  and no cash  payment in lieu of  fractional
shares  shall be paid to any such  holder  pursuant to Section  4.5,  unless and
until the holder of record of such certificate  shall surrender such certificate
in accordance with Section 4.1 or 4.2. Subject to applicable law, at the time of
such surrender of any such certificate, there shall be paid to the record holder
of the  certificates  representing  whole  Common  Shares,  as the  case may be,
without  interest  (i) the amount of any cash  payable  in lieu of a  fractional
Exchangeable  Share or Bowater  Common  Share to which such  holder is  entitled
pursuant to Section 4.5,  (ii) the amount of  dividends  or other  distributions
with a record date after the  Effective  Time  theretofore  paid with respect to
such whole  Exchangeable  Share or Bowater Common Share, as the case may be, and
(iii)  at the  appropriate  payment  date,  the  amount  of  dividends  or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date  subsequent  to surrender  payable with respect to such whole
Exchangeable Share or Bowater Common Share, as the case may be.

4.5  No Fractional Shares

     No certificates or scrip  representing  fractional  Exchangeable  Shares or
fractional Bowater Common Shares shall be issued upon the surrender for exchange
of certificates  pursuant to Section 4.1 or 4.2 and no dividend,  stock split or
other change in the capital  structure of Bowater Canada or Bowater shall relate
to any such fractional security and such fractional  interests shall not entitle
the owner  thereof to vote or to  exercise  any  rights as a security  holder of
Bowater Canada or Bowater. In lieu of any such fractional securities:

     (a)  each  Person  otherwise  entitled  to  a  fractional  interest  in  an
          Exchangeable  Share will receive a cash payment equal to such Person's
          pro rata portion of the net proceeds  after  expenses  received by the
          Depositary upon the sale of whole shares  representing an accumulation
          of all fractional  interests in Exchangeable  Shares to which all such
          Persons would  otherwise be entitled.  The  Depositary  will sell such
          Exchangeable  Shares by private sale (including by way of sale through
          the  facilities  of any stock  exchange  upon  which the  Exchangeable
          Shares are then listed) as soon as  reasonably  practicable  following
          the Effective  Date. The aggregate net proceeds after expenses of such
          sale will be  distributed by the  Depositary,  pro rata in relation to
          the  respective  fractions,  among the Persons  otherwise  entitled to
          receive fractional interests in Exchangeable Shares; and

     (b)  each person otherwise  entitled to a fractional  interest in a Bowater
          Common Share will receive a cash  payment  equal to such  Person's pro
          rata  portion  of the net  proceeds  after  expenses  received  by the
          Depositary upon the sale of whole shares  representing an accumulation
          of all fractional interests in Bowater Common Shares to which all such
          Persons would  otherwise be entitled.  The  Depositary  will sell such
          Bowater Common Shares on the NYSE as soon as practicable following the
          Effective Date. The aggregate net proceeds after expenses of such sale
          will be distributed by


<PAGE>


                                      A-11

          the  Depositary,  pro rata in  relation to the  respective  fractions,
          among the Persons otherwise entitled to receive  fractional  interests
          in Bowater Common Shares.

4.6  Lost Certificates

     In the event any certificate  which immediately prior to the Effective Time
represented  one or more  outstanding  Avenor Common Shares that were  exchanged
pursuant  to Section  2.1 shall have been lost,  stolen or  destroyed,  upon the
making of an affidavit of that fact by the Person  claiming such  certificate to
be lost,  stolen or destroyed,  the  Depositary  will issue in exchange for such
lost,  stolen or  destroyed  certificate,  cash and/or one or more  certificates
representing one or more  Exchangeable  Shares or Bowater Common Shares (and any
dividends or distributions with respect thereto and any cash pursuant to Section
4.5)  deliverable in accordance  with such holder's  Letter of  Transmittal  and
subject to Section 2.3. When  authorizing such payment in exchange for any lost,
stolen or destroyed  certificate,  the Person to whom certificates  representing
Exchangeable  Shares or  Bowater  Common  Shares  are to be issued  shall,  as a
condition precedent to the issuance thereof, give a bond satisfactory to Bowater
Canada or Bowater,  as the case may be, in such sum as Bowater Canada or Bowater
may, acting reasonably,  direct or otherwise indemnify Bowater Canada or Bowater
in a manner  satisfactory  to  Bowater  Canada or  Bowater,  acting  reasonably,
against  any claim  that may be made  against  Bowater  Canada or  Bowater  with
respect to the certificate alleged to have been lost, stolen or destroyed.

4.7  Extinction of Rights

     Any certificate  which  immediately prior to the Effective Time represented
outstanding Avenor Common Shares that were exchanged pursuant to Section 2.1 and
not deposited,  with all other instruments required by Section 4.1 or 4.2, on or
prior to the third  anniversary of the Effective Date shall cease to represent a
claim or interest of any kind or nature as a  shareholder  of Bowater  Canada or
Bowater. On such date, the Exchangeable Shares or Bowater Common Shares to which
the former  registered  holder of the  certificate  referred to in the preceding
sentence was  ultimately  entitled  shall be deemed to have been  surrendered to
Bowater Canada or Bowater, as the case may be, together with all entitlements to
dividends,  distributions  and interest thereon held for such former  registered
holder.

4.8  Withholding Rights

     Bowater  Holdings,  Bowater  Canada,  Bowater and the  Depositary  shall be
entitled to deduct and  withhold  from any dividend or  consideration  otherwise
payable under this Plan of  Arrangement  to any holder of Avenor Common  Shares,
Bowater  Common Shares or  Exchangeable  Shares such amounts as Bowater  Canada,
Bowater  Holdings,  Bowater or the Depositary is required or permitted to deduct
and withhold with respect to such payment under the Income Tax Act (Canada), the
United  States  Internal  Revenue Code of 1986 or any  provision of  provincial,
state,  local or foreign tax law,  in each case as  amended.  To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
hereof as having been paid to the holder of the shares in respect of which


<PAGE>


                                      A-12

such deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate  taxing  authority.  To the extent that the
amount so required or permitted to be deducted or withheld from any payment to a
holder exceeds the cash portion of the  consideration  otherwise  payable to the
holder, Bowater Holdings,  Bowater Canada, Bowater and the Depositary are hereby
authorized to sell or otherwise  dispose of such portion of the consideration as
is necessary to provide  sufficient funds to Bowater  Holdings,  Bowater Canada,
Bowater or the Depositary,  as the case may be, to enable it to comply with such
deduction or  withholding  requirement  and Bowater  Holdings,  Bowater  Canada,
Bowater  or the  Depositary  shall  notify  the  holder  thereof  and  remit any
unapplied balance of the net proceeds of such sale.

                                    ARTICLE 5

                       CERTAIN RIGHTS OF BOWATER HOLDINGS
                         TO ACQUIRE EXCHANGEABLE SHARES

5.1  Bowater Holdings Liquidation Call Right

     (a)  Bowater  Holdings  shall have the overriding  right (the  "Liquidation
          Call  Right"),  in the  event  of  and  notwithstanding  the  proposed
          liquidation,  dissolution or winding-up of Bowater Canada  pursuant to
          Article 5 of the Exchangeable  Share Provisions,  to purchase from all
          but not less than all of the  holders  of  Exchangeable  Shares on the
          Liquidation Date all but not less than all of the Exchangeable  Shares
          held by each such  holder on payment by Bowater  Holdings of an amount
          per share  equal to (a) the  Current  Market  Price (as defined in the
          Exchangeable  Share  Provisions) of a Bowater Common Share on the last
          Business Day prior to the Liquidation  Date,  which shall be satisfied
          in full by causing to be delivered  to such holder one Bowater  Common
          Share,  plus (b) the right to receive the full amount when paid of all
          unpaid dividends on such Exchangeable  Share for which the record date
          has  occurred  prior  to  the  Liquidation  Date   (collectively   the
          "Liquidation  Call Purchase  Price").  In the event of the exercise of
          the Liquidation Call Right by Bowater  Holdings,  each holder shall be
          obligated  to sell all the  Exchangeable  Shares held by the holder to
          Bowater  Holdings  on the  Liquidation  Date  on  payment  by  Bowater
          Holdings to the holder of the Liquidation Call Purchase Price for each
          such share.

     (b)  To exercise the Liquidation  Call Right,  Bowater Holdings must notify
          Bowater Canada's transfer agent (the "Transfer  Agent"),  as agent for
          the holders of  Exchangeable  Shares,  and  Bowater  Canada of Bowater
          Holdings' intention to exercise such right at least 45 days before the
          Liquidation Date in the case of a voluntary  liquidation,  dissolution
          or winding-up of Bowater Canada and at least five Business Days before
          the  Liquidation  Date  in the  case  of an  involuntary  liquidation,
          dissolution or winding-up of Bowater  Canada.  The Transfer Agent will
          notify the holders of Exchangeable Shares as to whether or not Bowater
          Holdings has exercised


<PAGE>


                                      A-13

          the  Liquidation  Call Right  forthwith after the expiry of the period
          during which the same may be exercised by Bowater Holdings. If Bowater
          Holdings exercises the Liquidation Call Right, then on the Liquidation
          Date Bowater  Holdings  will purchase and the holders will sell all of
          the  Exchangeable  Shares then outstanding for a price per share equal
          to the Liquidation Call Purchase Price.

     (c)  For the purposes of completing the purchase of the Exchangeable Shares
          pursuant to the Liquidation Call Right, Bowater Holdings shall deposit
          with  the  Transfer  Agent,   on  or  before  the  Liquidation   Date,
          certificates  representing  the  aggregate  number of  Bowater  Common
          Shares  deliverable  by  Bowater  Holdings  in  payment  of the  total
          Liquidation  Call Purchase Price and shall waive any rights to receive
          any dividends which represent the amount of the remaining portion,  if
          any, of the total  Liquidation  Call Purchase Price,  less any amounts
          withheld  pursuant  to  Section  4.8  hereof.  Provided  that  Bowater
          Holdings has complied with the immediately  preceding sentence, on and
          after the  Liquidation  Date the rights of each holder of Exchangeable
          Shares will be limited to receiving such holder's  proportionate  part
          of the total  Liquidation  Call  Purchase  Price  payable  by  Bowater
          Holdings  (which in the case of  unpaid  dividends,  if any,  shall be
          satisfied by the payment thereof by Bowater Canada on the payment date
          for such dividends) upon  presentation  and surrender by the holder of
          certificates  representing the Exchangeable Shares held by such holder
          and the holder shall on and after the  Liquidation  Date be considered
          and deemed for all  purposes  to be the holder of the  Bowater  Common
          Shares to which it is entitled.  Upon  surrender to the Transfer Agent
          of a certificate or  certificates  representing  Exchangeable  Shares,
          together with such other  documents and instruments as may be required
          to effect a  transfer  of  Exchangeable  Shares  under the Act and the
          by-laws  of  Bowater   Canada  and  such   additional   documents  and
          instruments as the Transfer Agent may reasonably  require,  the holder
          of such surrendered  certificate or certificates  shall be entitled to
          receive in  exchange  therefor,  and the  Transfer  Agent on behalf of
          Bowater   Holdings   shall   deliver  to  such  holder,   certificates
          representing the Bowater Common Shares to which the holder is entitled
          and on the  applicable  dividend  payment  date a  cheque  or  cheques
          payable  at par at any  branch of the  bankers  of  Bowater  Canada in
          Canada in  payment  of the  remaining  portion,  if any,  of the total
          Liquidation Call Purchase Price less any amounts withheld  pursuant to
          section  4.8  hereof.  If  Bowater  Holdings  does  not  exercise  the
          Liquidation   Call  Right  in  the  manner  described  above,  on  the
          Liquidation  Date  the  holders  of the  Exchangeable  Shares  will be
          entitled  to  receive  in  exchange  therefor  the  liquidation  price
          otherwise   payable  by  Bowater   Canada  in   connection   with  the
          liquidation,  dissolution or winding-up of Bowater Canada  pursuant to
          Article 5 of the Exchangeable Share Provisions.



<PAGE>


                                      A-14

5.2  Bowater Holdings Redemption Call Right

     In addition to Bowater Holdings' rights contained in the Exchangeable Share
Provisions, including, without limitation, the Retraction Call Right (as defined
in the Exchangeable Share Provisions), Bowater Holdings shall have the following
rights in respect of the Exchangeable Shares:

     (a)  Bowater Holdings shall have the overriding right (the "Redemption Call
          Right"),  notwithstanding  the proposed redemption of the Exchangeable
          Shares by Bowater  Canada  pursuant  to Article 7 of the  Exchangeable
          Share  Provisions,  to purchase  from all but not less than all of the
          holders of Exchangeable Shares on the Redemption Date all but not less
          than  all of the  Exchangeable  Shares  held by each  such  holder  on
          payment by Bowater Holdings to the holder of an amount per share equal
          to (a) the Current Market Price (as defined in the Exchangeable  Share
          Provisions)  of a Bowater  Common Share on the last Business Day prior
          to the Redemption Date, which shall be satisfied in full by causing to
          be  delivered  to such  holder one Bowater  Common  Share plus (b) the
          right to receive the full amount when paid of all unpaid  dividends on
          such  Exchangeable  Share for which the record date has occurred prior
          to the Redemption Date, (collectively  the  "Redemption  Call Purchase
          Price").  In the event of the exercise of the Redemption Call Right by
          Bowater  Holdings,  each  holder  shall be  obligated  to sell all the
          Exchangeable  Shares  held by the  holder to Bowater  Holdings  on the
          Redemption  Date on payment by Bowater  Holdings  to the holder of the
          Redemption Call Purchase Price for each such share.

     (b)  To exercise the Redemption  Call Right,  Bowater  Holdings must notify
          the Transfer Agent,  as agent for the holders of Exchangeable  Shares,
          and Bowater  Canada of Bowater  Holdings'  intention to exercise  such
          right at least 60 days before the Redemption Date, except in the case
          of a redemption  occurring as a result of an acquisition of Control of
          Bowater (as defined in the  Exchangeable  Share  Provisions)  in which
          case Bowater  Holdings  shall  notify the  Transfer  Agent and Bowater
          Canada on the  Redemption  Date.  The  Transfer  Agent will notify the
          holders  of the  Exchangeable  Shares  as to  whether  or not  Bowater
          Holdings has exercised the Redemption  Call Right  forthwith after the
          expiry of the period during which the same may be exercised by Bowater
          Holdings.  If Bowater Holdings exercises the Redemption Call Right, on
          the  Redemption  Date Bowater  Holdings  will purchase and the holders
          will sell all of the Exchangeable  Shares then outstanding for a price
          per share equal to the Redemption Call Purchase Price.

     (c)  For the purposes of completing the purchase of the Exchangeable Shares
          pursuant to the Redemption Call Right,  Bowater Holdings shall deposit
          with  the  Transfer   Agent,   on  or  before  the  Redemption   Date,
          certificates  representing  the  aggregate  number of  Bowater  Common
          Shares  deliverable  by  Bowater  Holdings  in  payment  of the  total
          Redemption  Call Purchase  Price and shall waive any rights to receive
          any dividends which represent the amount of the remaining portion,  if
          any, of the total Redemption


<PAGE>


                                      A-15

          Call Purchase Price less any amounts withheld  pursuant to Section 4.8
          hereof.   Provided  that  Bowater   Holdings  has  complied  with  the
          immediately  preceding  sentence, on and after the Redemption
          Date the rights of each holder of Exchangeable  Shares will be
          limited to receiving such holder's  proportionate part of the
          total Redemption  Call Purchase Price payable by Bowater Holdings
          (which in the  case of  unpaid  dividends,  if any, shall be
          satisfied  by the payment  thereof  by  Bowater Canada  on the
          payment  date  for such dividends)   upon presentation   and
          surrender  by  the  holder  of certificates  representing the
          Exchangeable Shares held by such holder and the holder shall on and
          after the  Redemption  Date be  considered and deemed for all
          purposes  to be the holder of the  Bowater  Common Shares to which it
          is entitled. Upon  surrender to the Transfer Agent of a certificate or
          certificates  representing  Exchangeable  Shares, together with such
          other  documents and instruments as may be required to effect a
          transfer  of  Exchangeable  Shares  under the Act and the by-laws  of
          Bowater   Canada  and  such   additional documents  and instruments
          as the Transfer Agent may  reasonably  require,  the holder of such
          surrendered certificate or certificates shall be entitled to receive
          in exchange  therefor,  and the  Transfer  Agent on behalf of
          Bowater   Holdings   shall   deliver  to  such  holder, certificates
          representing the Bowater Common Shares to which the holder is entitled
          and on the  applicable  dividend  payment  date a  cheque  or cheques
          payable  at par at any branch of the  bankers  of  Bowater  Canada in
          Canada in payment  of the  remaining  portion,  if any,  of the total
          Redemption Call Purchase Price less any amounts  withheld
          pursuant to Section  4.8  hereof.  If  Bowater  Holdings  does
          not  exercise the Redemption Call Right in the manner described above,
          on the Redemption Date the  holders  of the Exchangeable  Shares  will
          be  entitled  to receive in exchange therefor the redemption price
          otherwise payable by Bowater Canada in connection  with the redemption
          of the Exchangeable Shares pursuant to Article 7 of the Exchangeable
          Share Provisions.

                                    ARTICLE 6

                                   AMENDMENTS

6.1  Amendments to Plan of Arrangement

     Avenor reserves the right to amend,  modify and/or  supplement this Plan of
Arrangement  at any  time  and  from  time to  time,  provided  that  each  such
amendment,  modification and/or supplement must be (i) set out in writing,  (ii)
approved by  Bowater,  (iii)  filed with the Court and,  if made  following  the
Avenor  Shareholders'  Meeting,  approved by the Court, and (iv) communicated to
holders of Avenor Common Shares if and as required by the Court.

     Any amendment,  modification  or supplement to this Plan of Arrangement may
be  proposed  by Avenor at any time  prior to the Avenor  Shareholders'  Meeting
(provided that Bowater shall have


<PAGE>


                                      A-16

consented thereto) with or without any other prior notice or communication,  and
if so proposed  and accepted by the Persons  voting at the Avenor  Shareholders'
Meeting  (other than as may be required under the Interim  Order),  shall become
part of this Plan of Arrangement for all purposes.

     Any amendment,  modification or supplement to this Plan of Arrangement that
is approved by the Court  following  the Avenor  Shareholders'  Meeting shall be
effective only if (i) it is consented to by each of Avenor and Bowater, and (ii)
if required by the Court,  it is  consented  to by holders of the Avenor  Common
Shares voting in the manner directed by the Court.




<PAGE>



                                                                       EXHIBIT 1

                           PROVISIONS ATTACHING TO THE
                               EXCHANGEABLE SHARES

     The  Exchangeable  Shares  shall  have the  following  rights,  privileges,
restrictions and conditions:

                                    ARTICLE 1

                                 INTERPRETATION

     1.1 For the purposes of these share provisions:

     "Affiliate"  of any person  means any other person  directly or  indirectly
controlling,  controlled by, or under common control with, that person.  For the
purposes of this definition,  "control"  (including,  with correlative meanings,
the terms  "controlled by" and "under common control  with"),  as applied to any
person, means the possession by another person,  directly or indirectly,  of the
power to direct or cause the  direction of the  management  and policies of that
first mentioned person,  whether through the ownership of voting securities,  by
contract or otherwise.

     "Board of Directors" means the board of directors of Bowater Canada.

     "Bowater" means Bowater Incorporated, a corporation existing under the laws
of the State of Delaware, and any successor corporation thereto.

     "Bowater  Canada"  means Bowater  Canada Inc., a  corporation  incorporated
under the Canada Business Corporations Act and a subsidiary of Bowater Holdings.

     "Bowater Common Shares" mean the shares of common stock of Bowater, US$1.00
par value per share,  and any other  securities  into  which such  shares may be
changed.

     "Bowater  Dividend  Declaration  Date" means the date on which the Board of
Directors of Bowater declares any dividend on the Bowater Common Shares.

     "Bowater  Holdings"  means  Bowater  Canadian  Holdings   Incorporated,   a
corporation  incorporated under the Companies Act (Nova Scotia) and a subsidiary
of Bowater.

     "Bowater  Holdings Call Notice" has the meaning ascribed thereto in Section
6.3 of these share provisions.

     "Business  Day"  means  any day,  other  than a  Saturday,  a Sunday  and a
statutory holiday in Montreal, Quebec or New York, New York.



<PAGE>


                                   Exhibit 1-2

     "Canadian Dollar  Equivalent"  means in respect of an amount expressed in a
foreign  currency  (the  "Foreign  Currency  Amount")  at any date  the  product
obtained by multiplying:

     (a)  the Foreign Currency Amount by,

     (b)  the noon spot  exchange  rate on such date for such  foreign  currency
          expressed in Canadian dollars as reported by the Bank of Canada or, in
          the event such spot exchange rate is not available, such exchange rate
          on such date for such foreign  currency  expressed in Canadian dollars
          as may be deemed by the Board of Directors to be appropriate  for such
          purpose.

     "Common Shares" means the common shares in the capital of Bowater Canada.

     "Control of Bowater"  means the ownership by one Person or a Person and its
Affiliates of securities  carrying a majority of the voting rights  attaching to
all outstanding securities of Bowater.

     "Current  Market Price" means,  in respect of a Bowater Common Share on any
date, the Canadian Dollar Equivalent of the average of the closing bid and asked
prices of Bowater Common Shares during a period of 20  consecutive  trading days
ending not more than three  trading  days before such date on the New York Stock
Exchange,  or, if the Bowater  Common Shares are not then quoted on the New York
Stock Exchange,  on such other stock exchange or automated  quotation  system on
which the Bowater Common Shares are listed or quoted, as the case may be, as may
be selected by the Board of Directors for such purpose; provided,  however, that
if in the opinion of the Board of Directors the public  distribution  or trading
activity of Bowater  Common  Shares  during such period does not create a market
which reflects the fair market value of a Bowater Common Share, then the Current
Market  Price of a Bowater  Common  Share  shall be  determined  by the Board of
Directors based upon the advice of such qualified independent financial advisors
as the Board of Directors may deem to be appropriate,  and provided further that
any such selection,  opinion or determination by the Board of Directors shall be
conclusive and binding.

     "Exchangeable  Shares"  mean  the  non-voting  exchangeable  shares  in the
capital of  Bowater  Canada  having the  rights,  privileges,  restrictions  and
conditions set forth herein.

     "Liquidation  Amount"  has the meaning  ascribed  thereto in Section 5.1 of
these share provisions.

     "Liquidation  Call Right" has the meaning  ascribed  thereto in the Plan of
Arrangement.

     "Liquidation Date" has the meaning ascribed thereto in Section 5.1 of these
share provisions.

     "Person" includes any individual, firm, partnership, joint venture, venture
capital  fund,  association,  trust,  trustee,  executor,  administrator,  legal
personal representative, estate, group, body


<PAGE>


                                   Exhibit 1-3

corporate, corporation,  unincorporated association or organization,  government
body, syndicate or other entity, whether or not having legal status.

     "Plan  of  Arrangement"  means  the  plan of  arrangement  relating  to the
arrangement of Avenor Inc. under section 192 of the Canada Business Corporations
Act, to which plan these share provisions are attached.

     "Preferred Shares" means the non-voting  preferred shares in the capital of
Bowater Canada.

     "Purchase  Price" has the meaning  ascribed thereto in Section 6.3 of these
share provisions.

     "Redemption  Call  Right" has the meaning  ascribed  thereto in the Plan of
Arrangement.

     "Redemption  Call Purchase Price" has the meaning  ascribed  thereto in the
Plan of Arrangement.

     "Redemption Date" means the date, if any:

     (a)  established  by the Board of Directors  for the  redemption by Bowater
Canada of Exchangeable  Shares pursuant to Article 7 of these share  provisions,
which date shall be no earlier than June 30,  2008,  unless there are fewer than
500,000  Exchangeable Shares outstanding (other than Exchangeable Shares held by
Bowater and its Affiliates),  as such number of shares may be adjusted as deemed
appropriate  by the Board of  Directors  to give  effect to any  subdivision  or
consolidation  of or stock  dividend on the  Exchangeable  Shares,  any issue or
distribution of rights to acquire Exchangeable Shares or securities exchangeable
for or convertible into Exchangeable  Shares, any issue or distribution of other
securities  or rights or  evidences  of  indebtedness  or  assets,  or any other
capital  reorganization or other transaction  affecting the Exchangeable  Shares
upon at least 60 days'  prior  written  notice of any such  acceleration  to the
registered  holders  of the  Exchangeable  Shares;  provided  however,  that the
accidental  failure or omission to give any such notice of  acceleration to less
than 10% of such holders of Exchangeable Shares shall not affect the validity of
such acceleration.; or

     (b)  Control  of  Bowater  is  acquired  by any  Person,  in which case the
Redemption  Date  will be  immediately  prior  to the  event  which  causes  the
acquisition of control.


     "Redemption Price" has the meaning ascribed thereto in Section 7.1 of these
share provisions.

     "Retracted Shares" has the meaning ascribed thereto in Section 6.1 of these
share provisions.


<PAGE>


                                   Exhibit 1-4

     "Retraction  Call Right" has the meaning ascribed thereto in Section 6.1 of
these share provisions.

     "Retraction  Date" has the meaning  ascribed  thereto in Section  6.1(b) of
these share provisions.

     "Retraction Price" has the meaning ascribed thereto in Section 6.1 of these
share provisions.

     "Retraction  Request"  has the meaning  ascribed  thereto in Section 6.1 of
these share provisions.

     "Support  Agreement" means the Support Agreement to be entered into between
Bowater, Bowater Holdings and Bowater Canada.

     "Transfer Agent" means the Secretary of Bowater Canada or such other person
as may from time to time be appointed  by Bowater  Canada as the  registrar  and
transfer agent for the Exchangeable Shares.

     "Trustee" means the trustee under the Voting and Exchange Trust  Agreement,
a corporation  organized and existing under the laws of Canada and authorized to
carry on the business of a trust company in all the provinces of Canada, and any
successor trustee appointed under the Voting and Exchange Trust Agreement.

     "Voting and Exchange Trust  Agreement"  means the Voting and Exchange Trust
Agreement to be entered into between Bowater,  Bowater Holdings,  Bowater Canada
and the Trustee.

                                    ARTICLE 2

                         RANKING OF EXCHANGEABLE SHARES

     2.1 The  Exchangeable  Shares  shall be entitled to a  preference  over the
Common Shares,  the Preferred  Shares and any other shares ranking junior to the
Exchangeable   Shares  with  respect  to  the  payment  of  dividends   and  the
distribution  of  assets  in  the  event  of  the  liquidation,  dissolution  or
winding-up of Bowater Canada,  whether  voluntary or  involuntary,  or any other
distribution  of the assets of Bowater  Canada  among its  shareholders  for the
purpose of winding up its affairs.

                                    ARTICLE 3

                                    DIVIDENDS



<PAGE>


                                   Exhibit 1-5

     3.1 A holder of an Exchangeable  Share shall be entitled to receive and the
Board of Directors  shall,  subject to applicable law, on each Bowater  Dividend
Declaration Date, declare a dividend on each Exchangeable Share:

     (a) in the case of a cash dividend  declared on the Bowater  Common Shares,
in an amount in cash for each Exchangeable Share in U.S. dollars or the Canadian
Dollar Equivalent  thereof on the Bowater Dividend  Declaration Date of the cash
dividend declared on each Bowater Common Share;

     (b) in the case of a stock  dividend  declared on the Bowater Common Shares
to be paid in Bowater Common Shares,  in such number of Exchangeable  Shares for
each Exchangeable Share as is equal to the number of Bowater Common Shares to be
paid on each Bowater Common Share; or

     (c) in the case of a dividend  declared  on the  Bowater  Common  Shares in
property other than cash or Bowater  Common  Shares,  in such type and amount of
property  for  each  Exchangeable  Share  as is  the  same  as  or  economically
equivalent  to (to be determined  by the Board of Directors as  contemplated  by
Section 3.5  hereof)  the type and amount of property  declared as a dividend on
each Bowater Common Share.

Such dividends shall be paid out of money,  assets or property of Bowater Canada
properly  applicable  to the  payment of  dividends,  or out of  authorized  but
unissued shares of Bowater Canada, as applicable.

     3.2 Cheques of Bowater  Canada  payable at par at any branch of the bankers
of Bowater Canada shall be issued in respect of any cash dividends  contemplated
by Section  3.1(a)  hereof and the sending of such a cheque to each holder of an
Exchangeable  Share shall satisfy the cash dividend  represented  thereby unless
the cheque is not paid on presentation.  Certificates  registered in the name of
the registered  holder of Exchangeable  Shares shall be issued or transferred in
respect of any stock  dividends  contemplated  by Section  3.1(b) hereof and the
sending of such a  certificate  to each  holder of an  Exchangeable  Share shall
satisfy the stock dividend  represented  thereby.  Such other type and amount of
property in respect of any dividends contemplated by Section 3.1(c) hereof shall
be issued,  distributed  or  transferred  by Bowater Canada in such manner as it
shall determine and the issuance,  distribution  or transfer  thereof by Bowater
Canada to each  holder of an  Exchangeable  Share  shall  satisfy  the  dividend
represented  thereby.  No holder of an  Exchangeable  Share shall be entitled to
recover by action or other legal  process  against  Bowater  Canada any dividend
that is  represented  by a cheque  that has not been duly  presented  to Bowater
Canada's bankers for payment or that otherwise remains unclaimed for a period of
six years from the date on which such dividend was payable.

     3.3 The record date for the  determination  of the holders of  Exchangeable
Shares  entitled to receive  payment of, and the payment  date for, any dividend
declared on the  Exchangeable  Shares under Section 3.1 hereof shall be the same
dates as the record date and payment date,  respectively,  for the corresponding
dividend declared on the Bowater Common Shares.



<PAGE>


                                   Exhibit 1-6

     3.4 If on any payment date for any dividends  declared on the  Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable  Shares then  outstanding,  any such  dividends  that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which  Bowater  Canada  shall  have  sufficient  moneys,  assets or  property
properly applicable to the payment of such dividends.

     3.5 The Board of Directors shall  determine,  in good faith and in its sole
discretion  (with the  assistance of such  reputable  and qualified  independent
financial  advisors and/or other experts as the Board of Directors may require),
economic  equivalence  for the purposes of Section 3.1(c) hereof,  and each such
determination  shall  be  conclusive  and  binding  on  Bowater  Canada  and its
shareholders.  In making each such  determination,  the following factors shall,
without  excluding  other  factors  determined  by the Board of  Directors to be
relevant, be considered by the Board of Directors:

     (a) in the case of any stock  dividend  or other  distribution  payable  in
Bowater  Common  Shares,  the number of such shares  issued in proportion to the
number of Bowater Common Shares previously outstanding;

     (b) in the case of the issuance or distribution  of any rights,  options or
warrants to  subscribe  for or purchase  Bowater  Common  Shares (or  securities
exchangeable  for or  convertible  into or  carrying  rights to acquire  Bowater
Common Shares),  the relationship between the exercise price of each such right,
option or warrant and the current  market value (as  determined  by the Board of
Directors in the manner above contemplated) of a Bowater Common Share;

     (c) in the  case of the  issuance  or  distribution  of any  other  form of
property  (including  without  limitation any shares or securities of Bowater of
any class other than  Bowater  Common  Shares,  any rights,  options or warrants
other  than  those  referred  to in  Section  3.5(b)  above,  any  evidences  of
indebtedness of Bowater or any assets of Bowater),  the relationship between the
fair market value (as  determined  by the Board of Directors in the manner above
contemplated)  of such property to be issued or distributed with respect to each
outstanding  Bowater Common Share and the current market value (as determined by
the Board of  Directors in the manner above  contemplated)  of a Bowater  Common
Share; and

     (d) in all such cases,  the general  taxation  consequences of the relevant
event to holders of Exchangeable Shares to the extent that such consequences may
differ from the taxation  consequences  to holders of Bowater Common Shares as a
result of  differences  between  taxation  laws of Canada and the United  States
(except for any differing consequences arising as a result of differing marginal
taxation rates and without regard to the individual  circumstances of holders of
Exchangeable Shares).

     For purposes of the foregoing  determinations,  the current market value of
any security  listed and traded or quoted on a securities  exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than 20 consecutive trading days ending not more


<PAGE>


                                   Exhibit 1-7

than  five  trading  days  before  the date of  determination  on the  principal
securities  exchange on which such  securities  are listed and traded or quoted;
provided,  however,  that if in the opinion of the Board of Directors the public
distribution or trading activity of such securities  during such period does not
create a market which  reflects the fair market value of such  securities,  then
the current  market value thereof shall be determined by the Board of Directors,
in good faith and in its sole discretion  (with the assistance of such reputable
and qualified  independent  financial advisors and/or other experts as the board
may require),  and provided further that any such  determination by the Board of
Directors   shall  be  conclusive   and  binding  on  Bowater   Canada  and  its
shareholders.

                                    ARTICLE 4

                              CERTAIN RESTRICTIONS

     4.1 So long as any of the  Exchangeable  Shares  are  outstanding,  Bowater
Canada shall not at any time without,  but may at any time with, the approval of
the holders of the  Exchangeable  Shares  given as  specified in Section 10.2 of
these share provisions:

     (a) pay any dividends on the Common  Shares,  the  Preferred  Shares or any
other  shares  ranking  junior to the  Exchangeable  Shares,  other  than  stock
dividends  payable in Common Shares or any such other shares  ranking  junior to
the Exchangeable Shares, as the case may be;

     (b)  redeem or  purchase  or make any  capital  distribution  in respect of
Common  Shares,  Preferred  Shares or any  other  shares  ranking  junior to the
Exchangeable Shares;

     (c) redeem or purchase any other shares of Bowater Canada  ranking  equally
with the Exchangeable  Shares with respect to the payment of dividends or on any
liquidation distribution; or

     (d) issue any  Exchangeable  Shares or any other  shares of Bowater  Canada
ranking equally with, or superior to, the Exchangeable  Shares other than by way
of stock dividends to the holders of such Exchangeable Shares.

     The  restrictions  in Sections  4.1(a),  4.1(b), 4.1(c) and 4.1(d) above
shall not apply if all dividends on the outstanding  Exchangeable Shares
corresponding to dividends declared to date and paid on the Bowater Common
Shares shall have been declared on the Exchangeable Shares and paid in full.

                                    ARTICLE 5

                           DISTRIBUTION ON LIQUIDATION

     5.1 In the event of the  liquidation,  dissolution or winding-up of Bowater
Canada or any other  distribution  of the  assets of  Bowater  Canada  among its
shareholders for the purpose of winding up


<PAGE>


                                   Exhibit 1-8

its affairs,  a holder of  Exchangeable  Shares  shall be  entitled,  subject to
applicable  law, to receive from the assets of Bowater Canada in respect of each
Exchangeable  Share held by such holder on the effective date (the  "Liquidation
Date") of such liquidation,  dissolution or winding-up,  before any distribution
of any part of the  assets of  Bowater  Canada  among the  holders of the Common
Shares,  the  Preferred  Shares  or  any  other  shares  ranking  junior  to the
Exchangeable Shares, an amount per share (the "Liquidation Amount") equal to:

     (a) the Current Market Price of a Bowater Common Share on the last Business
Day prior to the Liquidation  Date,  which shall be satisfied in full by Bowater
Canada causing to be delivered to such holder one Bowater Common Share; plus

     (b) the right to receive the full amount when paid of all unpaid  dividends
on each such Exchangeable  Share for which the record date has occurred prior to
the Liquidation Date.

     5.2 On or promptly after the Liquidation  Date, and subject to the exercise
by Bowater Holdings of the Liquidation Call Right, Bowater Canada shall cause to
be delivered to the holders of the  Exchangeable  Shares the Liquidation  Amount
for  each  such  Exchangeable  Share  upon  presentation  and  surrender  of the
certificates  representing  such Exchangeable  Shares,  together with such other
documents  and   instruments  as  may  be  required  to  effect  a  transfer  of
Exchangeable  Shares under the Canada Business  Corporations Act and the by-laws
of Bowater Canada and such additional  documents and instruments as the Transfer
Agent may reasonably  require,  at the registered office of Bowater Canada or at
any office of the Transfer Agent as may be specified by Bowater Canada by notice
to the  holders of the  Exchangeable  Shares.  Payment of the total  Liquidation
Amount for such Exchangeable Shares shall be made by delivery to each holder, at
the address of the holder recorded in the securities  register of Bowater Canada
for the  Exchangeable  Shares or by  holding  for  pick-up  by the holder at the
registered  office of Bowater  Canada or at any office of the Transfer  Agent as
may be  specified  by Bowater  Canada by notice to the  holders of  Exchangeable
Shares, on behalf of Bowater Canada of certificates  representing Bowater Common
Shares (which shares shall be duly issued as fully paid and  non-assessable  and
shall be free and clear of any lien, claim or encumbrance) and on the applicable
dividend payment date a cheque of Bowater Canada payable at par at any branch of
the bankers of Bowater  Canada in respect of the full amount of any unpaid
dividends  comprising  part of the  total Liquidation  Amount (in each case less
any  amounts  withheld  on account of tax required to be deducted and withheld
therefrom by Bowater Canada). On and after the Liquidation  Date, the holders of
the Exchangeable  Shares shall cease to be holders of such Exchangeable Shares
and shall not be entitled to exercise any of the rights of holders in respect
thereof,  other than the right to receive their proportionate part of the total
Liquidation Amount,  unless payment of the total Liquidation  Amount  for  such
Exchangeable  Shares  shall  not  be  made  upon presentation  and  surrender
of  share  certificates  in  accordance  with  the foregoing  provisions,  in
which case the  rights of the  holders  shall  remain unaffected  until  the
total  Liquidation  Amount  has been  paid in the  manner hereinbefore provided.
Bowater Canada shall have the right at any time after the Liquidation  Date to
deposit  or cause to be  deposited  the total  Liquidation Amount in respect of
the Exchangeable  Shares  represented by certificates  that have not at the
Liquidation Date been surrendered by the holders thereof in a


<PAGE>


                                   Exhibit 1-9

custodial account with any chartered bank or trust company in Canada.  Upon such
deposit being made, the rights of the holders of Exchangeable  Shares after such
deposit  shall be limited to  receiving  their  proportionate  part of the total
Liquidation  Amount (in each case less any  amounts  withheld  on account of tax
required to be deducted and withheld  therefrom) for such Exchangeable Shares so
deposited,  against  presentation and surrender of the said certificates held by
them,  respectively,  in  accordance  with the foregoing  provisions.  Upon such
payment  or  deposit  of  the  total  Liquidation  Amount,  the  holders  of the
Exchangeable  Shares shall  thereafter be considered and deemed for all purposes
to be holders of the Bowater Common Shares delivered to them or the custodian on
their behalf.

     5.3 After Bowater  Canada has satisfied its  obligations to pay the holders
of the  Exchangeable  Shares  the  Liquidation  Amount  per  Exchangeable  Share
pursuant to Section 5.1 of these share  provisions,  such  holders  shall not be
entitled to share in any further distribution of the assets of Bowater Canada.



<PAGE>


                                  Exhibit 1-10

                                    ARTICLE 6

                   RETRACTION OF EXCHANGEABLE SHARES BY HOLDER

     6.1 A holder of Exchangeable  Shares shall be entitled at any time, subject
to the exercise by Bowater  Holdings of the Retraction  Call Right and otherwise
upon compliance with the provisions of this Article 6, to require Bowater Canada
to redeem any or all of the Exchangeable  Shares  registered in the name of such
holder  for an  amount  per share  equal to (a) the  Current  Market  Price of a
Bowater  Common  Share on the last  Business Day prior to the  Retraction  Date,
which shall be  satisfied in full by Bowater  Canada  causing to be delivered to
such holder one Bowater Common Share for each  Exchangeable  Share presented and
surrendered  by the  holder,  plus (b) the right to receive the full amount when
paid of all  unpaid  dividends  thereon  for  which  the  record  date  for such
dividends  has  occurred  prior  to  the  Retraction  Date   (collectively   the
"Retraction  Price").  To effect such  redemption,  the holder shall present and
surrender  at the  registered  office of Bowater  Canada or at any office of the
Transfer Agent as may be specified by Bowater Canada by notice to the holders of
Exchangeable   Shares  the   certificate  or   certificates   representing   the
Exchangeable  Shares  which the holder  desires to have Bowater  Canada  redeem,
together with such other  documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Canada Business Corporations Act and
the by-laws of Bowater Canada and such  additional  documents and instruments as
the Transfer  Agent may  reasonably  require,  and together with a duly executed
statement (the "Retraction Request") in the form of Schedule A hereto or in such
other form as may be acceptable to Bowater Canada:

     (a) specifying that the holder desires to have all or any number  specified
therein  of  the  Exchangeable   Shares   represented  by  such  certificate  or
certificates (the "Retracted Shares") redeemed by Bowater Canada;

     (b) stating the  Business  Day on which the holder  desires to have Bowater
Canada redeem the Retracted  Shares (the "Retraction  Date"),  provided that the
Retraction  Date  shall  be not less  than 10  Business  Days  nor more  than 15
Business  Days after the date on which the  Retraction  Request is  received  by
Bowater Canada and further provided that, in the event that no such Business Day
is specified by the holder in the Retraction Request,  the Retraction Date shall
be  deemed  to be the  fifteenth  Business  Day  after  the  date on  which  the
Retraction Request is received by Bowater Canada; and

     (c)  acknowledging  the overriding  right (the  "Retraction Call Right") of
Bowater  Holdings to  purchase  all but not less than all the  Retracted  Shares
directly from the holder and that the Retraction Request shall be deemed to be a
revocable offer by the holder to sell the Retracted  Shares to Bowater  Holdings
in accordance with the Retraction Call Right on the terms and conditions set out
in Section 6.3 below.

     6.2 Subject to the  exercise by Bowater  Holdings  of the  Retraction  Call
Right,  upon  receipt  by  Bowater  Canada or the  Transfer  Agent in the manner
specified in Section 6.1 hereof of a


<PAGE>


                                  Exhibit 1-11

certificate or certificates representing the number of Exchangeable Shares which
the holder  desires to have Bowater  Canada  redeem,  together with a Retraction
Request,  and provided that the Retraction  Request is not revoked by the holder
in the  manner  specified  in  Section  6.7,  Bowater  Canada  shall  redeem the
Retracted  Shares  effective at the close of business on the Retraction Date and
shall  cause to be  delivered  to such  holder the total  Retraction  Price with
respect to such shares (provided that any unpaid  dividends  forming part of the
Retraction Price shall be paid on the payment date for such dividends). If only
a part of the Exchangeable  Shares represented by any certificate is redeemed
(or purchased by Bowater Holdings pursuant to the Retraction Call Right),  a new
certificate for the balance of such  Exchangeable  Shares shall be issued to the
holder at the expense of Bowater Canada.

     6.3 Upon receipt by Bowater Canada of a Retraction Request,  Bowater Canada
shall  immediately  notify  Bowater and Bowater  Holdings  thereof.  In order to
exercise the Retraction Call Right,  Bowater Holdings must notify Bowater Canada
of its  determination to do so (the "Bowater  Holdings Call Notice") within five
Business  Days of  notification  to Bowater  Holdings  by Bowater  Canada of the
receipt  by  Bowater  Canada of the  Retraction  Request.  If  Bowater  Holdings
delivers the Bowater  Holdings  Call Notice  within such five  Business Day time
period, and provided that the Retraction Request is not revoked by the holder in
the manner  specified in Section 6.7, the Retraction  Request shall thereupon be
considered  only to be an offer by the  holder to sell the  Retracted  Shares to
Bowater  Holdings in accordance  with the Retraction  Call Right. In such event,
Bowater Canada shall not redeem the Retracted  Shares and Bowater Holdings shall
purchase from such holder and such holder shall sell to Bowater  Holdings on the
Retraction Date the Retracted Shares for a purchase price (the "Purchase Price")
per  share  equal  to the  Retraction  Price  per  share.  For the  purposes  of
completing a purchase  pursuant to the Retraction Call Right,  Bowater  Holdings
shall  deposit  with the  Transfer  Agent,  on or before  the  Retraction  Date,
certificates  representing  Bowater  Common Shares and shall waive any rights to
receive any dividends  which represent the amount of the remaining  portion,  if
any,  of the total  Purchase  Price (in each case less any  amounts  withheld on
account  of tax  required  to be  deducted  and  withheld  therefrom  by Bowater
Holdings).  Provided  that Bowater  Holdings has complied  with the  immediately
preceding sentence, the closing of the purchase and sale of the Retracted Shares
pursuant to the Retraction Call Right shall be deemed to have occurred as at the
close of  business  on the  Retraction  Date  and,  for  greater  certainty,  no
redemption by Bowater  Canada of such  Retracted  Shares shall take place on the
Retraction  Date. In the event that Bowater  Holdings does not deliver a Bowater
Holdings Call Notice within such five Business Day period, and provided that the
Retraction  Request is not  revoked by the  holder in the  manner  specified  in
Section 6.7,  Bowater Canada shall redeem the Retracted Shares on the Retraction
Date and in the manner otherwise contemplated in this Article 6.

     6.4 Bowater Canada or Bowater  Holdings,  as the case may be, shall deliver
or cause the Transfer Agent to deliver to the relevant holder, at the address of
the  holder  recorded  in the  securities  register  of  Bowater  Canada for the
Exchangeable Shares or at the address specified in the holder's


<PAGE>


                                  Exhibit 1-12

Retraction  Request or by holding  for  pick-up by the holder at the  registered
office of  Bowater  Canada  or at any  office  of the  Transfer  Agent as may be
specified  by Bowater  Canada by notice to the holders of  Exchangeable  Shares,
certificates  representing the Bowater Common Shares (which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of any lien,
claim or encumbrance) registered in the name of the holder or in such other name
as the holder may request in payment of the total  Retraction Price or the total
Purchase Price, as the case may be, and on the applicable  dividend payment date
a cheque  payable  at par at any  branch of the  bankers  of  Bowater  Canada in
payment of the remaining  portion,  if any, of the total Retraction Price or the
total Purchase Price, as the case may be (in each case less any amounts withheld
on account of tax  required to be deducted  and  withheld  therefrom),  and such
delivery  of such  certificates  and  cheque on behalf of  Bowater  Canada or by
Bowater  Holdings,  as the case may be, or by the Transfer Agent shall be deemed
to be payment of and shall  satisfy and  discharge  all  liability for the total
Retraction Price or total Purchase Price, as the case may be, to the extent that
the same is  represented  by such share  certificates  and cheque  (plus any tax
deducted  and  withheld  therefrom  and  remitted to the proper tax  authority),
unless such cheque is not paid on due presentation.

     6.5 On and after the close of business on the  Retraction  Date, the holder
of the Retracted  Shares shall cease to be a holder of such Retracted Shares and
shall not be  entitled  to  exercise  any of the  rights of a holder in  respect
thereof,  other than the right to receive  his  proportionate  part of the total
Retraction  Price or total  Purchase  Price,  as the  case may be,  unless  upon
presentation  and surrender of  certificates  in  accordance  with the foregoing
provisions,  payment of the total  Retraction Price or the total Purchase Price,
as the case may be,  shall not be made as provided in Section 6.4, in which case
the rights of such holder shall  remain  unaffected  until the total  Retraction
Price or the  total  Purchase  Price,  as the case may be,  has been paid in the
manner  hereinbefore  provided.  On and  after  the  close  of  business  on the
Retraction  Date,  provided that  presentation and surrender of certificates and
payment of the total  Retraction  Price or the total Purchase Price, as the case
may be, has been made in accordance with the foregoing provisions, the holder of
the  Retracted  Shares so redeemed  by Bowater  Canada or  purchased  by Bowater
Holdings  shall  thereafter  be  considered  and deemed for all purposes to be a
holder of the Bowater Common Shares delivered to it.

     6.6  Notwithstanding  any other provision of this Article 6, Bowater Canada
shall not be obligated  to redeem  Retracted  Shares  specified by a holder in a
Retraction  Request to the extent that such redemption of Retracted Shares would
be contrary to solvency  requirements or other  provisions of applicable law. If
Bowater Canada believes that on any Retraction Date it would not be permitted by
any of such provisions to redeem the Retracted Shares tendered for redemption on
such date,  and provided  that Bowater  Holdings  shall not have  exercised  the
Retraction Call Right with respect to the Retracted Shares, Bowater Canada shall
only be  obligated  to  redeem  Retracted  Shares  specified  by a  holder  in a
Retraction  Request to the extent of the maximum  number that may be so redeemed
(rounded  down to a whole  number of  shares) as would not be  contrary  to such
provisions  and shall notify the holder at least two Business  Days prior to the
Retraction Date as to the number of Retracted  Shares which will not be redeemed
by Bowater  Canada.  In any case in which the  redemption  by Bowater  Canada of
Retracted Shares would be contrary to solvency  requirements or other provisions
of applicable law, Bowater Canada shall redeem Retracted Shares in accordance


<PAGE>


                                  Exhibit 1-13

with Section 6.2 of these share  provisions  on a pro rata basis and shall issue
to each holder of Retracted Shares a new certificate,  at the expense of Bowater
Canada,  representing  the  Retracted  Shares not  redeemed  by  Bowater  Canada
pursuant to Section  6.2 hereof.  Provided  that the  Retraction  Request is not
revoked by the holder in the manner  specified in Section 6.7, the holder of any
such Retracted  Shares not redeemed by Bowater Canada pursuant to Section 6.2 of
these share  provisions as a result of solvency  requirements  of applicable law
shall be deemed by giving the Retraction  Request to require Bowater to purchase
such  Retracted  Shares  from such holder on the  Retraction  Date or as soon as
practicable  thereafter  on payment by  Bowater to such  holder of the  Purchase
Price for each such Retracted  Share, all as more  specifically  provided in the
Voting and Exchange Trust Agreement.

     6.7 A holder of  Retracted  Shares may,  by notice in writing  given by the
holder to  Bowater  Canada  before the close of  business  on the  Business  Day
immediately  preceding the Retraction Date,  withdraw its Retraction Request, in
which  event such  Retraction  Request  shall be null and void and,  for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to Bowater Holdings shall be deemed to have been revoked.

                                    ARTICLE 7

               REDEMPTION OF EXCHANGEABLE SHARES BY BOWATER CANADA

     7.1 Subject to  applicable  law,  and  provided  Bowater  Holdings  has not
exercised the Redemption Call Right, Bowater Canada shall on the Redemption Date
redeem the whole of the then outstanding  Exchangeable  Shares for an amount per
share equal to (a) the Current  Market  Price of a Bowater  Common  Share on the
last Business Day prior to the Redemption Date, which shall be satisfied in full
by Bowater Canada causing to be delivered to each holder of Exchangeable  Shares
one Bowater Common Share for each Exchangeable  Share held by such holder,  plus
(b) the right to  receive  the full  amount  when paid of all  unpaid  dividends
thereon  for which the record date has  occurred  prior to the  Redemption  Date
(collectively, the "Redemption Price").

     7.2 In any case of a redemption of  Exchangeable  Shares under this Article
7, Bowater Canada shall,  at least 60 days before the Redemption  Date except in
the case of an  acquisition  of Control of Bowater,  send or cause to be sent to
each  holder of  Exchangeable  Shares a notice in writing of the  redemption  by
Bowater Canada or the purchase by Bowater  Holdings  under the  Redemption  Call
Right, as the case may be, of the  Exchangeable  Shares held by such holder.  In
the case of an  acquisition  of Control of Bowater,  the notice of redemption by
Bowater Canada or the purchase by Bowater  Holdings  under the  Redemption  Call
Right will be sent on the Redemption Date. In either case, such notice shall set
out the formula for  determining  the Redemption  Price or the  Redemption  Call
Purchase  Price,  as the case may be, the  Redemption  Date and, if  applicable,
particulars of the Redemption Call Right.


<PAGE>


                                  Exhibit 1-14

     7.3 On or after the Redemption  Date and subject to the exercise by Bowater
Holdings  of the  Redemption  Call  Right,  Bowater  Canada  shall  cause  to be
delivered  to  the  holders  of  the  Exchangeable  Shares  to be  redeemed  the
Redemption  Price  for  each  such  Exchangeable  Share  upon  presentation  and
surrender  at the  registered  office of Bowater  Canada or at any office of the
Transfer  Agent as may be  specified  by  Bowater  Canada in such  notice of the
certificates  representing  such Exchangeable  Shares,  together with such other
documents  and   instruments  as  may  be  required  to  effect  a  transfer  of
Exchangeable  Shares under the Canada Business  Corporations Act and the by-laws
of Bowater Canada and such additional  documents and instruments as the Transfer
Agent may reasonably  require.  Payment of the total  Redemption  Price for such
Exchangeable  Shares shall be made by delivery to each holder, at the address of
the holder  recorded in the securities  register of Bowater Canada or by holding
for pick-up by the holder at the  registered  office of Bowater Canada or at any
office of the  Transfer  Agent as may be  specified  by  Bowater  Canada in such
notice, on behalf of Bowater Canada of certificates  representing Bowater Common
Shares (which shares shall be duly issued as fully paid and  non-assessable  and
shall be free and clear of any lien, claim or encumbrance) and on the applicable
dividend payment date a cheque of Bowater Canada payable at par at any branch of
the  bankers  of  Bowater  Canada in  respect  of the full  amount of any unpaid
dividends  comprising part of the total  Redemption Price (in each case less any
amounts  withheld  on  account  of tax  required  to be  withheld  and  remitted
therefrom by Bowater  Canada).  On and after the Redemption Date, the holders of
the Exchangeable  Shares called for redemption shall cease to be holders of such
Exchangeable  Shares and shall not be entitled to exercise  any of the rights of
holders in respect thereof,  other than the right to receive their proportionate
part of the total Redemption Price, unless payment of the total Redemption Price
for such  Exchangeable  Shares shall not be made upon presentation and surrender
of certificates in accordance with the foregoing  provisions,  in which case the
rights of the holders shall remain  unaffected  until the total Redemption Price
has been paid in the manner hereinbefore provided. Bowater Canada shall have the
right at any time  after the  sending of notice of its  intention  to redeem the
Exchangeable  Shares as aforesaid to deposit or cause to be deposited  the total
Redemption Price of the Exchangeable Shares so called for redemption, or of such
of the said Exchangeable Shares represented by certificates that have not at the
date of such deposit been  surrendered by the holders thereof in connection with
such redemption, in a custodial account with any chartered bank or trust company
in Canada  named in such  notice  (less any  amounts  withheld on account of tax
required to be withheld and  remitted  therefrom  by Bowater  Canada).  Upon the
later of such  deposit  being made and the  Redemption  Date,  the  Exchangeable
Shares in respect  whereof such  deposit  shall have been made shall be redeemed
and the rights of the holders thereof after such deposit or Redemption  Date, as
the case may be, shall be limited to receiving their  proportionate  part of the
total  Redemption  Price  for such  Exchangeable  Shares so  deposited,  against
presentation and surrender of the said certificates held by them,  respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of the
total Redemption Price, the holders of the Exchangeable  Shares shall thereafter
be  considered  and deemed for all purposes to be holders of the Bowater  Common
Shares delivered to them or the custodian on their behalf.



<PAGE>


                                  Exhibit 1-15

                                    ARTICLE 8

                            PURCHASE FOR CANCELLATION

     8.1 Subject to applicable law and the articles of Bowater  Canada,  Bowater
Canada may at any time and from time to time  purchase for  cancellation  all or
any part of the  outstanding  Exchangeable  Shares at any price by tender to all
the holders of record of  Exchangeable  Shares then  outstanding  or through the
facilities of any stock exchange on which the Exchangeable  Shares are listed or
quoted at any price per share  together with an amount equal to all declared and
unpaid  dividends  thereon for which the record date has  occurred  prior to the
date of  purchase.  If in  response  to an  invitation  for  tenders  under  the
provisions of this Section 8.1, more Exchangeable Shares are tendered at a price
or prices  acceptable  to Bowater  Canada  than  Bowater  Canada is  prepared to
purchase,  the  Exchangeable  Shares to be purchased by Bowater  Canada shall be
purchased  as  nearly  as may be pro rata  according  to the  number  of  shares
tendered by each holder who submits a tender to Bowater  Canada,  provided  that
when shares are tendered at different  prices,  the pro rating shall be effected
(disregarding  fractions)  only with respect to the shares tendered at the price
at which more shares were tendered  than Bowater  Canada is prepared to purchase
after Bowater Canada has purchased all the shares  tendered at lower prices.  If
part only of the  Exchangeable  Shares  represented by any certificate  shall be
purchased,  a new  certificate for the balance of such shares shall be issued at
the expense of Bowater Canada.

                                    ARTICLE 9

                                  VOTING RIGHTS

     9.1 Except as required by applicable  law, the holders of the  Exchangeable
Shares  shall not be  entitled  as such to  receive  notice of or to attend  any
meeting of the shareholders of Bowater Canada or to vote at any such meeting.

                                   ARTICLE 10

                             AMENDMENT AND APPROVAL

     10.1 The rights,  privileges,  restrictions and conditions attaching to the
Exchangeable  Shares  may be added  to,  changed  or  removed  but only with the
approval  of the  holders  of  the  Exchangeable  Shares  given  as  hereinafter
specified.

     10.2 Any approval  given by the holders of the  Exchangeable  Shares to add
to, change or remove any right, privilege, restriction or condition attaching to
the Exchangeable Shares or any other matter requiring the approval or consent of
the holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law


<PAGE>


                                  Exhibit 1-16

subject to a minimum  requirement  that such approval be evidenced by resolution
passed by not less than  two-thirds  of the votes cast on such  resolution  at a
meeting of  holders of  Exchangeable  Shares  duly  called and held at which the
holders of at least 25% of the outstanding  Exchangeable Shares at that time are
present  or  represented  by proxy;  provided  that if at any such  meeting  the
holders of at least 25% of the outstanding  Exchangeable Shares at that time are
not  present  or  represented  by proxy  within  one-half  hour  after  the time
appointed for such meeting, then the meeting shall be adjourned to such date not
less than five days  thereafter  and to such time and place as may be designated
by the  Chairman  of such  meeting.  At such  adjourned  meeting  the holders of
Exchangeable  Shares  present or  represented  by proxy thereat may transact the
business for which the meeting was  originally  called and a  resolution  passed
thereat by the affirmative vote of not less than two-thirds of the votes cast on
such resolution at such meeting shall  constitute the approval or consent of the
holders of the Exchangeable Shares.

                                   ARTICLE 11

                            RECIPROCAL CHANGES, ETC.
                       IN RESPECT OF BOWATER COMMON SHARES

     11.1 Each holder of an  Exchangeable  Share  acknowledges  that the Support
Agreement provides, in part, that Bowater will not without the prior approval of
Bowater Canada and the prior approval of the holders of the Exchangeable  Shares
given in accordance with Section 10.2 of these share provisions:

     (a) issue or distribute  Bowater Common Shares (or securities  exchangeable
for or convertible  into or carrying rights to acquire Bowater Common Shares) to
the holders of all or substantially  all of the then outstanding  Bowater Common
Shares by way of stock  dividend or other  distribution,  other than an issue of
Bowater Common Shares (or  securities  exchangeable  for or convertible  into or
carrying  rights to acquire  Bowater Common Shares) to holders of Bowater Common
Shares who exercise an option to receive  dividends in Bowater Common Shares (or
securities  exchangeable  for or convertible  into or carrying rights to acquire
Bowater Common Shares) in lieu of receiving cash dividends;

     (b) issue or distribute  rights,  options or warrants to the holders of all
or  substantially  all of the then  outstanding  Bowater Common Shares entitling
them to  subscribe  for or to  purchase  Bowater  Common  Shares (or  securities
exchangeable  for or  convertible  into or  carrying  rights to acquire  Bowater
Common Shares);

     (c) issue or distribute to the holders of all or  substantially  all of the
then outstanding Bowater Common Shares:



<PAGE>


                                  Exhibit 1-17

          (i) shares or  securities  of Bowater of any class other than  Bowater
     Common Shares (other than shares  convertible  into or exchangeable  for or
     carrying rights to acquire Bowater Common Shares);

          (ii)  rights,  options or  warrants  other than those  referred  to in
     Section 11.1(b) above;

          (iii) evidences of indebtedness of Bowater; or

          (iv) assets of Bowater,

unless the economic  equivalent  on a per share basis of such  rights,  options,
securities,  shares,  evidences  of  indebtedness  or other  assets is issued or
distributed simultaneously to holders of the Exchangeable Shares.

     11.2 Each holder of an  Exchangeable  Share  acknowledges  that the Support
Agreement  further  provides,  in part,  that Bowater will not without the prior
approval  of  Bowater  Canada  and the  prior  approval  of the  holders  of the
Exchangeable  Shares  given in  accordance  with  Section  10.2 of  these  share
provisions:

          (i) subdivide,  redivide or change the then outstanding Bowater Common
     Shares into a greater number of Bowater Common Shares;

          (ii)  reduce,  combine,  consolidate  or change  the then  outstanding
     Bowater Common Shares into a lesser number of Bowater Common Shares; or

          (iii)  reclassify  or otherwise  change the Bowater  Common  Shares or
     effect  an  amalgamation,   merger,  reorganization  or  other  transaction
     affecting the Bowater Common Shares,

unless the same or an economically  equivalent  change shall  simultaneously  be
made to, or in,  the  rights of the  holders  of the  Exchangeable  Shares.  The
Support Agreement further  provides,  in part, that the aforesaid  provisions of
the Support  Agreement  shall not be changed without the approval of the holders
of the Exchangeable  Shares given in accordance with Section 10.2 of these share
provisions.

                                   ARTICLE 12

                ACTIONS BY BOWATER CANADA UNDER SUPPORT AGREEMENT

     12.1  Bowater  Canada will take all such  actions and do all such things as
shall be  necessary  or  advisable  to  perform  and  comply  with and to ensure
performance and compliance by Bowater,  Bowater Holdings and Bowater Canada with
all provisions of the Support Agreement applicable to Bowater,  Bowater Holdings
and Bowater Canada, respectively, in accordance with the terms thereof


<PAGE>


                                  Exhibit 1-18

including, without limitation, taking all such actions and doing all such things
as shall be necessary or advisable to enforce to the fullest extent possible for
the  direct  benefit of Bowater  Canada  all  rights and  benefits  in favour of
Bowater Canada under or pursuant to such agreement.

     12.2 Bowater Canada shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness  of its rights or obligations  under,
the Support  Agreement  without the approval of the holders of the  Exchangeable
Shares given in  accordance  with Section 10.2 of these share  provisions  other
than  such  amendments,  waivers  and/or  forgiveness  as  may be  necessary  or
advisable for the purposes of:

     (a) adding to the covenants of the other party or parties to such agreement
for the protection of Bowater Canada or the holders of the  Exchangeable  Shares
thereunder;

     (b) making such  provisions or  modifications  not  inconsistent  with such
agreement as may be necessary or desirable  with respect to matters or questions
arising  thereunder  which, in the opinion of the Board of Directors,  it may be
expedient to make, provided that the Board of Directors shall be of the opinion,
after consultation with counsel, that such provisions and modifications will not
be prejudicial to the interests of the holders of the Exchangeable Shares; or

     (c) making such changes in or corrections to such agreement  which,  on the
advice of counsel to Bowater  Canada,  are required for the purpose of curing or
correcting  any  ambiguity  or  defect or  inconsistent  provision  or  clerical
omission or mistake or manifest error contained therein, provided that the Board
of Directors shall be of the opinion, after consultation with counsel, that such
changes or  corrections  will not be prejudicial to the interests of the holders
of the Exchangeable Shares.

                                   ARTICLE 13

                                     LEGEND

     13.1 The certificates  evidencing the Exchangeable  Shares shall contain or
have  affixed  thereto  a legend in form and on terms  approved  by the Board of
Directors,  with respect to the Support Agreement, the provisions of the Plan of
Arrangement  relating  to the  Liquidation  Call Right and the  Redemption  Call
Right,  and the Voting and Exchange  Trust  Agreement  (including the provisions
with  respect  to the  voting  rights,  exchange  right and  automatic  exchange
thereunder).

                                   ARTICLE 14

                                     NOTICES

     14.1 Any  notice,  request  or other  communication  to be given to Bowater
Canada by a holder of Exchangeable Shares shall be in writing and shall be valid
and effective if given by mail (postage


<PAGE>


                                  Exhibit 1-19

prepaid)  or by  telecopy or by  delivery  to the  Transfer  Agent,  with a copy
addressed to the  Secretary of Bowater  Canada and addressed to the attention of
the   President  of  Bowater   Canada.   Any  such  notice,   request  or  other
communication,  if given by mail, telecopy or delivery,  shall only be deemed to
have been given and received upon actual receipt thereof by Bowater Canada.

     14.2 Any presentation  and surrender by a holder of Exchangeable  Shares to
Bowater Canada or the Transfer Agent of certificates  representing  Exchangeable
Shares in connection with the liquidation,  dissolution or winding-up of Bowater
Canada or the retraction or redemption of  Exchangeable  Shares shall be made by
registered  mail (postage  prepaid) or by delivery to the  registered  office of
Bowater  Canada or to such office of the  Transfer  Agent as may be specified by
Bowater  Canada,  in each case  addressed to the  attention of the  President of
Bowater Canada.  Any such presentation and surrender of certificates  shall only
be deemed to have been made and to be effective upon actual  receipt  thereof by
Bowater Canada or the Transfer Agent, as the case may be. Any such  presentation
and surrender of certificates  made by registered mail shall be at the sole risk
of the holder mailing the same.

     14.3 Any notice,  request or other communication to be given to a holder of
Exchangeable  Shares by or on behalf of Bowater  Canada  shall be in writing and
shall be valid and effective if given by mail  (postage  prepaid) or by delivery
to the  address of the holder  recorded  in the  securities  register of Bowater
Canada or, in the event of the address of any such holder not being so recorded,
then at the last known address of such holder. Any such notice, request or other
communication, if given by mail, shall be deemed to have been given and received
on the  third  Business  Day  following  the date of  mailing  and,  if given by
delivery,  shall be  deemed  to have  been  given  and  received  on the date of
delivery.  Accidental  failure or omission to give any notice,  request or other
communication to one or more holders of Exchangeable Shares shall not invalidate
or  otherwise  alter or affect any action or  proceeding  to be taken by Bowater
Canada pursuant thereto.

                                   ARTICLE 15

                                SPECIFIED AMOUNT

     15.1 For the purposes of subsection  191(4) of the Income Tax Act (Canada),
the specified amount in respect of an Exchangeable Share is $[ a number equal to
C$35  divided  by the  Exchange  Ratio will be  inserted  prior to the filing of
articles of Bowater Canada providing for these share provisions].



<PAGE>



                                   SCHEDULE A

                              NOTICE OF RETRACTION

To Bowater Incorporated ("Bowater"),  Bowater Canada Inc. ("Bowater Canada") and
Bowater Canadian Holdings Incorporated ("Bowater Holdings")

     This notice is given  pursuant to Article 6 of the  provisions  (the "Share
Provisions")   attaching  to  the   Exchangeable   Share(s)  of  Bowater  Canada
represented by this  certificate and all capitalized  words and expressions used
in this  notice  that are  defined  in the Share  Provisions  have the  meanings
ascribed to such words and expressions in such Share Provisions.

     The  undersigned  hereby  notifies  Bowater  Canada  that,  subject  to the
Retraction Call Right referred to below, the undersigned desires to have Bowater
Canada redeem in accordance with Article 6 of the Share Provisions:

     |_|  all share(s) represented by this certificate; or

     |_|  _____________ share(s) only.

     The  undersigned  hereby  notifies  Bowater Canada that the Retraction Date
shall be __________________.


NOTE:     The  Retraction  Date must be a Business Day and must not be less than
          10 Business  Days nor more than 15  Business  Days after the date upon
          which this notice is received by Bowater Canada.  In the event that no
          such Business Day is specified  above,  the  Retraction  Date shall be
          deemed to be the 15th Business Day after the date on which this notice
          is received by Bowater Canada.

     The undersigned  acknowledges the Retraction Call Right of Bowater Holdings
to purchase all but not less than all the Retracted  Shares from the undersigned
and that this notice shall be deemed to be a revocable  offer by the undersigned
to sell the  Retractable  Shares to  Bowater  Holdings  in  accordance  with the
Retraction  Call Right on the Retraction  Date for the Purchase Price and on the
other terms and conditions set out in Section 6.3 of the Share Provisions.  This
notice of  retraction,  and the offer to sell the  Retracted  Shares to  Bowater
Holdings,  may be revoked and  withdrawn  by the  undersigned  only by notice in
writing given to Bowater  Canada at any time before the close of business on the
Business Day immediately preceding the Retraction Date.

     The undersigned acknowledges that if, as a result of solvency provisions of
applicable  law,  Bowater Canada is unable to redeem all Retracted  Shares,  the
undersigned  will be deemed to have  exercised the Exchange Right (as defined in
the Voting and Exchange  Trust  Agreement) so as to require  Bowater to purchase
the unredeemed Retracted Shares.


<PAGE>


                                       A-2


     The undersigned  hereby represents and warrants to Bowater,  Bowater Canada
and Bowater Holdings that the undersigned:

     |_|  is 

 (select one)

     |_|  is not

a  non-resident  of Canada for  purposes  of the Income  Tax Act  (Canada).  The
undersigned  acknowledges  that  in  the  absence  of  an  indication  that  the
undersigned is not a non-resident of Canada,  withholding on account of Canadian
tax will be made from amounts  payable to the  undersigned  on the redemption or
purchase of the Retracted Shares.

     The undersigned  hereby represents and warrants to Bowater,  Bowater Canada
and  Bowater  Holdings  that the  undersigned  has good title to, and owns,  the
share(s)  represented  by this  certificate  to be acquired by Bowater,  Bowater
Canada or  Bowater  Holdings,  as the case may be,  free and clear of all liens,
claims and encumbrances.


(Date)      (Signature of Shareholder)                  (Guarantee of Signature)

|_|  Please check box if the  securities  and any cheque(s)  resulting  from the
     retraction or purchase of the  Retracted  Shares are to be held for pick-up
     by the shareholder by the Transfer Agent,  failing which the securities and
     any cheque(s)  will be mailed to the last address of the  shareholder as it
     appears on the register.

NOTE:     This panel must be completed and this certificate,  together with such
          additional  documents  as the  Transfer  Agent  may  require,  must be
          deposited  with the Transfer  Agent.  The securities and any cheque(s)
          resulting from the retraction or purchase of the Retracted Shares will
          be issued and  registered in, and made payable to,  respectively,  the
          name of the  shareholder  as it  appears  on the  register  of Bowater
          Canada  and the  securities  and any  cheque(s)  resulting  from  such
          retraction  or  purchase  will be  delivered  to such  shareholder  as
          indicated above,  unless the form appearing  immediately below is duly
          completed.



          Date

Name of Person in Whose  Name  Securities  or  Cheque(s)  Are to be  Registered,
Issued or Delivered (please print)



<PAGE>


                                       A-3


City, Province and Postal Code
         Signature Guaranteed by

NOTE:    If  the  notice  of  retraction  is for  less  than  all of the  shares
         represented  by  this  certificate,   a  certificate  representing  the
         remaining  share(s) of Bowater Canada  represented by this  certificate
         will be issued  and  registered  in the name of the  shareholder  as it
         appears on the register of Bowater  Canada,  unless the Share  Transfer
         Power on the share  certificate  is duly  completed  in respect of such
         share(s).


<PAGE>


                                   SCHEDULE B

                  REPRESENTATIONS AND WARRANTIES OF AVENOR INC.

1.   Organization.  Each of Avenor and its Material  Subsidiaries  has been duly
     incorporated or formed under all applicable Laws, is validly subsisting and
     has full  corporate or legal power and authority to own its  properties and
     conduct  its  businesses  as  currently  owned  and  conducted.  All of the
     outstanding  shares of capital stock and other  ownership  interests of its
     Subsidiaries are validly issued, fully paid and non-assessable and all such
     shares and other ownership interests owned directly or indirectly by Avenor
     are, except as disclosed in writing, to Bowater or pursuant to restrictions
     on transfer contained in constating documents,  rights of first refusal and
     similar rights restricting transfer contained in shareholders,  partnership
     or  joint  venture   agreements  for  or  pursuant  to  existing  financing
     arrangements  involving Subsidiaries which are not wholly owned, owned free
     and clear of all material liens,  claims or  encumbrances  and there are no
     outstanding options,  rights,  entitlements,  understandings or commitments
     (contingent or otherwise) regarding the right to acquire any such shares of
     capital  stock or other  ownership  interests  in any of its  Subsidiaries.
     Avenor has disclosed in writing to Bowater the names and  jurisdictions  of
     incorporation of each of its Subsidiaries.

2.   Capitalization.  The authorized  capital of Avenor consists of an unlimited
     number  of Avenor  Common  Shares.  As of  December  31,  1997  there  were
     65,534,625  Avenor Common Shares  outstanding  and 1,500,000  Avenor Common
     Shares were reserved, in the aggregate,  for issuance in respect of the Key
     Employee Stock Incentive Plan of which  1,240,969  Avenor Common Shares are
     subject  to  issuance  under  the Key  Employee  Stock  Incentive  Plan and
     5,693,115  Avenor Common Shares are issuable on exercise of the outstanding
     Avenor Convertible Debentures and no more than 400,000 Avenor Common Shares
     are  issuable  under  Avenor's  Employee  Share  Purchase  Plan.  Except as
     described in the immediately preceding sentence,  and except for the rights
     issued in  connection  with the Avenor  Shareholder  Rights Plan  Agreement
     dated  October  20,  1995,  there  are  no  options,  warrants,  conversion
     privileges  or  other  rights,  agreements,   arrangements  or  commitments
     obligating  Avenor or any  Subsidiary to issue or sell any shares of Avenor
     or any  of its  Subsidiaries  or  securities  or  obligations  of any  kind
     convertible into or exchangeable  for any shares of Avenor,  any Subsidiary
     or any  other  person,  nor is there  outstanding  any  stock  appreciation
     rights,  phantom  equity or similar  rights,  agreements,  arrangements  or
     commitments  based upon the book value,  income or any other  attribute  of
     Avenor or any  Subsidiary.  There have been no Avenor  Common Shares issued
     since  December  31,  1997,  other than  pursuant to the  exercise of stock
     option  entitlements  and 4,487 Avenor Common Shares issued under  Avenor's
     Employee Share Purchase  Plan.  All  outstanding  Avenor Common Shares have
     been duly  authorized and are validly issued and  outstanding as fully paid
     and  non-assessable  shares,  free  of  pre-emptive  rights.  There  are no
     outstanding bonds,  debentures or other evidences of indebtedness of Avenor
     or any  Subsidiary  having  the right to vote




<PAGE>


                                       B-2

     (or, other than the Avenor Convertible Debentures, that are convertible for
     or exercisable  into securities  having the right to vote) with the holders
     of the  Avenor  Common  Shares  on any  matter.  There  are no  outstanding
     contractual obligations of Avenor or any of its subsidiaries to repurchase,
     redeem or  otherwise  acquire  any of its  outstanding  securities  or with
     respect to the voting or disposition of any  outstanding  securities of any
     of its Subsidiaries.


3.   Authority.  Avenor has the requisite corporate power and authority to enter
     into this Agreement and to perform its obligations hereunder. The execution
     and delivery of this Agreement by Avenor and the  consummation by Avenor of
     the  transactions  contemplated by this Agreement have been duly authorized
     by the Board of Directors of Avenor and,  subject to shareholder  approval,
     no other  corporate  proceedings  on the part of Avenor  are  necessary  to
     authorize this Agreement or the transactions contemplated hereby other than
     in connection  with the approval by the Board of Directors of Avenor of the
     Joint Proxy Circular,  the issuance of Avenor Exchangeable Shares and other
     matters relating to the  implementation of the Arrangement.  This Agreement
     has been duly executed and delivered by Avenor and  constitutes a valid and
     binding obligation of Avenor, enforceable against Avenor in accordance with
     its terms, subject to bankruptcy,  insolvency,  reorganization,  fraudulent
     transfer,  moratorium  and other  applicable  Laws relating to or affecting
     creditors'  rights  generally,  to general  principles of equity and public
     policy.  Except as  disclosed in writing to Bowater on or prior to the date
     hereof,  the  approval  of the  Arrangement  Agreement  and  the  consents,
     approvals, orders, authorizations,  declarations and filings referred to in
     Section 6.1 of this Agreement, the execution and delivery by Avenor of this
     Agreement  and  performance  by it of its  obligations  hereunder  and  the
     completion of the Arrangement and the  transactions  contemplated  thereby,
     will not:

     (a) result in a violation or breach of,  require any consent to be obtained
under or give rise to any termination rights under any provision of:

          (i) its or any Material  Subsidiary's  certificate  of  incorporation,
     articles,  by-laws or other  charter  documents,  including  any  unanimous
     shareholder  agreement  or any other  agreement or  understanding  with any
     party holding an ownership interest in any Material Subsidiary;

          (ii) any law, regulation, order, judgment or decree; or

          (iii)any contract,  agreement,  license,  franchise or permit to which
     Avenor  or  any  Material  Subsidiary  is  bound  or is  subject  or is the
     beneficiary;

     (b) give rise to any right of termination or acceleration of  indebtedness,
or cause any third party  indebtedness to come due before its stated maturity or
cause any available credit to cease to be available; or


<PAGE>

                                      B-3


     (c) result in the imposition of any encumbrance, charge or lien upon any of
its assets or the assets of any Material Subsidiary, or restrict, hinder, impair
or limit  the  ability  of  Avenor or any  Material  Subsidiary  to carry on the
business  of  Avenor  or any  Material  Subsidiary  as and where it is now being
carried on or as and where it may be carried on in the future,

which would, individually or in the aggregate, have a material adverse effect on
Avenor.  Except as  previously  disclosed  in writing to  Bowater,  no  consent,
approval,  order or  authorization  of,  or  declaration  or  filing  with,  any
Governmental  Entity or other party is required to be obtained by Avenor and its
Subsidiaries  in connection with the execution and delivery of this Agreement or
the  consummation by Avenor of the transactions  contemplated  hereby other than
(i) any approvals  required by the Interim  Order,  (ii) the Final Order,  (iii)
filings with the Director under the CBCA and filings with and approvals required
by  provincial  securities  authorities  and  stock  exchanges,  (iv) any  other
consents,  waivers,  permits,  orders or approvals referred to in Section 6.1 of
this Agreement and (v) any other consents,  approvals,  orders,  authorizations,
declarations or filings which, if not obtained,  would not in the aggregate have
a material adverse effect on Avenor.

     4.   Material  Customers.  There is no  single  customer  of  Avenor or its
          Subsidiaries,  the loss of which would have a material  adverse effect
          on Avenor.

     5.   No Defaults. Except as disclosed in writing to Bowater, neither Avenor
          nor any of its  Subsidiaries is in default under,  and there exists no
          event, condition or occurrence which, after notice or lapse of time or
          both, would  constitute such a default under any material  contract or
          agreement to which it is a party which  would,  if  terminated  due to
          such default, cause a material adverse effect with respect to Avenor.

     6.   Intellectual Property. Avenor and its Subsidiaries own, or are validly
          licensed  or  otherwise  have the right to use,  all  patents,  patent
          rights, trademarks,  trade names, service marks, copyrights,  know how
          and other proprietary  intellectual  property rights that are material
          to the conduct of the business of Avenor and its Subsidiaries taken as
          a whole.

     7.   Absence of Changes.  Since  December 31, 1997,  and except as has been
          previously  disclosed  in  writing  to  Bowater  or has been  publicly
          disclosed  prior to the date  hereof in any  document  filed  with the
          Ontario  Securities  Commission  (the  "Securities  Authorities")  (i)
          Avenor has  conducted  its  business  only in the ordinary and regular
          course of business  consistent with past practice,  (ii) other than in
          the  ordinary  and  regular  course of business  consistent  with past
          practice,  no  liabilities  or  obligations  of  any  nature  (whether
          absolute,  accrued,  contingent or otherwise) which would individually
          or in the  aggregate be material to Avenor have been  incurred,  (iii)
          there  has  not  been  any  material  change  (as  defined  under  the
          Securities Act (Ontario)) in the affairs of Avenor or in the financial
          condition, results of operations or business of Avenor, (iv) as of the
          date  hereof,  there are no  material  change  reports  filed with


<PAGE>
                                      B-4


          the Securities  Authorities which remain confidential,  (v) Avenor has
          not  declared or paid any  dividends  or  distributions  on any of its
          outstanding shares (other than regular quarterly  dividends in respect
          of the Avenor  Common  Shares  consistent  with past  practice),  (vi)
          Avenor has not effected or passed any  resolution  to approve a split,
          combination  or  reclassification  of any of its  outstanding  shares,
          (vii)  Avenor has not  granted  any  increase  in the  aggregate  cash
          compensation payable to any executive officer,  except in the ordinary
          course of business  consistent  with past practice,  or granted to any
          such officer of any increase in severance or termination  pay,  (viii)
          Avenor  has  not  effected  any  change  in  its  accounting  methods,
          principles or practices, and (ix) Avenor has not adopted or materially
          amended any collective  bargaining agreement,  bonus, pension,  profit
          sharing, stock purchase,  stock option or other benefit plan. The last
          filing by Avenor with  Securities  Authorities  was the 1997 financial
          statements and management's  discussion and analysis  relating thereto
          filed with the Securities Authorities on or about March 4, 1998.

         8.  Employment Agreements

     (a) Other than as  disclosed  in writing to Bowater on or prior to the date
hereof, or except as set forth in the proxy circular prepared in connection with
the Annual Meeting of Avenor held in 1997,  Avenor is not a party to any written
or oral policy,  agreement,  obligation or understanding providing for severance
or  termination  payments  to, or any  employment  agreement  with,  any  senior
executive of Avenor.

     (b) Other than as  disclosed  in writing to Bowater on or prior to the date
hereof,  neither Avenor nor any Material Subsidiary is a party to any collective
bargaining  agreement  nor  subject  to any  application  for  certification  or
threatened  or apparent  union-organizing  campaigns  for  employees not covered
under a collective  bargaining  agreement nor are there any current,  pending or
threatened strikes or lockouts at either Avenor or any Material  Subsidiary that
would individually or in the aggregate have a material adverse effect on Avenor.

     (c) Other than as  disclosed  in writing to Bowater on or prior to the date
hereof,  neither Avenor nor any Material  Subsidiary is subject to any claim for
wrongful  dismissal,  constructive  dismissal or any other tort claim, actual or
threatened, or any litigation,  actual or threatened,  relating to employment or
termination  of employment of employees or  independent  contractors  other than
those claims or such  litigation as would  individually  or in the aggregate not
have a material adverse effect on Avenor.

     (d) Other than as  disclosed  in writing to Bowater on or prior to the date
hereof or are not material,  Avenor and all Material  Subsidiaries have operated
in accordance  with all  applicable  Laws with respect to employment and labour,
including,  but not limited to,  employment and labour  standards,  occupational
health and safety,  employment equity, pay equity, workers' compensation,  human
rights and labour  relations  and there are no  current,  pending or  threatened
proceedings before any board or tribunal with respect to any of the areas listed
herein  other than where the  failure to so


<PAGE>
                                      B-5


operate or such proceedings which,  individually or in the aggregate,  would not
have a material adverse effect on Avenor.

     9.   Disclosure.  Avenor has publicly disclosed in documents filed with the
          Securities Authorities or disclosed to Bowater in writing, on or prior
          to the date hereof, any information regarding any event,  circumstance
          or action taken or failed to be taken which could  individually  or in
          the aggregate have a material adverse effect on Avenor.

     10.  Financial Statements.  The audited consolidated statement of financial
          position and related  consolidated  statements  of income,  changes in
          financial  position and contributed  surplus and retained  earnings of
          Avenor for the fiscal year ending  December 31, 1997,  and the audited
          consolidated  statement of financial position and related consolidated
          statements of income,  changes in financial position and statements of
          contributed surplus and retained earnings for the years ended December
          31, 1995 and December 31, 1996, as contained in Avenor's 1995 and 1996
          Annual Reports,  were prepared in accordance  with generally  accepted
          accounting  principles  in  Canada  consistently  applied  and  fairly
          present  the  consolidated   financial  condition  of  Avenor  at  the
          respective dates indicated and the results of operations of Avenor (on
          a consolidated basis) for the period covered.

     11.  Books and Records.  The  corporate  records and minute books of Avenor
          and the Material  Subsidiaries  have been maintained  substantially in
          accordance  with all applicable  Laws and are complete and accurate in
          all material respects.

     12.  Litigation,  Etc. Except as set forth or specifically reflected in any
          document  filed with the  Securities  Authorities,  or as disclosed in
          writing  to  Bowater  prior to the  date  hereof,  there is no  claim,
          action,  proceeding or  investigation  pending or, to the knowledge of
          Avenor,  threatened  against  or  relating  to Avenor or any  Material
          Subsidiary or affecting  any of their  properties or assets before any
          court  or  governmental  or  regulatory  authority  or body  that,  if
          adversely  determined,  is likely to have a material adverse effect on
          Avenor and its Material Subsidiaries,  taken as a whole, or prevent or
          materially delay consummation of the transactions contemplated by this
          Agreement or the Arrangement, nor is Avenor aware of any basis for any
          such claim,  action,  proceeding or investigation.  Neither Avenor nor
          any Material  Subsidiary is subject to any  outstanding  order,  writ,
          injunction  or decree that has had or is  reasonably  likely to have a
          material  adverse  effect on Avenor or  prevent  or  materially  delay
          consummation of the transactions contemplated by this Agreement or the
          Arrangement.

     13.  Environmental.  All operations of Avenor and its Material Subsidiaries
          have been,  and are now, in compliance  with all  Environmental  Laws,
          except where the failure to be in compliance would not individually or
          in the aggregate have a material


<PAGE>
                                      B-6


          adverse effect on Avenor.  Except as Avenor has publicly  disclosed in
          documents  filed with the  Securities  Authorities  or as disclosed in
          writing to Bowater  prior to the date hereof,  neither  Avenor nor any
          Material Subsidiary is aware of, or is subject to:

     (a) any  proceeding,  application,  order or  directive  which  relates  to
environmental health or safety matters, and which may require any material work,
repairs, construction or expenditures; or

     (b) any demand or notice  with  respect to the breach of any  Environmental
Laws applicable to Avenor or any Subsidiary,  including, without limitation, any
regulations  respecting  the  use,  storage,   treatment,   transportation,   or
disposition of Hazardous Substances,

which  individually or in the aggregate would have a material  adverse effect on
Avenor.

     14.  Insurance. Policies of insurance in force as of the date hereof naming
          Avenor  as an  insured  adequately  cover  all  risks  reasonably  and
          prudently  foreseeable in the operation and conduct of the business of
          Avenor and the Material  Subsidiaries for which,  having regard to the
          nature of such risk and the relative cost of obtaining  insurance,  it
          is in the opinion of Avenor acting  reasonably to seek such insurances
          rather than provide for self insurance. All such policies of insurance
          shall  remain in full force and effect and shall not be  cancelled  or
          otherwise  terminated  as a result  of the  transactions  contemplated
          hereby or by the Arrangement  other than such  cancellations  as would
          not individually or in the aggregate have a material adverse effect on
          Avenor.

     15.  Tax Matters. Avenor and each of its Subsidiaries have timely filed, or
          caused to be filed,  all Tax Returns required to be filed by them (all
          of which  returns were correct and complete in all material  respects)
          and have  paid,  or  caused  to be paid,  all  Taxes  that are due and
          payable,  in each case  except  for any such Tax  Returns or Taxes the
          non-filing  or  non-payment  of which  have not had and  would  not be
          reasonably  likely to have a material  adverse  effect on Avenor,  and
          Avenor has provided  adequate  accruals in accordance  with  generally
          accepted   accounting   principles  in  its  most  recently  published
          financial  statements  for any Taxes for the  period  covered  by such
          financial  statements that have not been paid, whether or not shown as
          being due on any Tax Returns. Since such publication date, no material
          Tax liability not reflected in such  statements or otherwise  provided
          for has been  assessed,  proposed to be assessed,  incurred or accrued
          other than in the ordinary course of business.

     Except as otherwise disclosed in writing to Bowater, neither Avenor nor any
Subsidiary has received any written  notification  that any material issues have
been raised (and are  currently  pending) by Revenue  Canada,  the United States
Internal  Revenue  Service or any other  taxing  authority,  including,  without
limitation,  any sales tax authority,  in connection with any of the Tax Returns
referred to above,  and no waivers of statutes of limitations have been given or
requested with respect to Avenor or any Subsidiary,  in each case except for any
such  written  notices or waivers  which have 


<PAGE>
                                      B-7


not had and would not be likely to have a material adverse effect on Avenor.  To
the best of the  knowledge  of  Avenor,  there  are no  material  proposed  (but
unassessed) additional Taxes and none have been asserted. No Tax liens have been
filed  other  than for Taxes not yet due and  payable.  Neither  Avenor  nor any
Avenor  Subsidiary  (i) has made an  election  to be  treated  as a  "consenting
corporation"  under  Section  341(f)  of the  Code or (ii) is a party to any Tax
sharing or other similar  agreement or  arrangement of any nature with any other
person  pursuant to which Avenor or any Avenor  Subsidiary has or could have any
liabilities  in respect of Taxes.  Avenor has not made an election under Section
897(i) of the Code to be treated  as a  domestic  corporation  for  purposes  of
Sections 897, 1445 and 6039C of the Code.

     "Tax" and "Taxes" means,  with respect to any entity,  (A) all income taxes
(including  any tax on or  based  upon  net  income,  gross  income,  income  as
specially defined,  earnings,  profits or selected items of income,  earnings or
profits) and all capital taxes, gross receipts taxes, environmental taxes, sales
taxes, use taxes, ad valorem taxes, value added taxes, transfer taxes, franchise
taxes, license taxes, withholding taxes, payroll taxes, employment taxes, Canada
or Quebec Pension Plan premiums,  excise, severance,  social security,  workers'
compensation,  unemployment insurance or compensation,  stamp taxes,  occupation
taxes,  premium taxes,  property taxes,  windfall profits taxes,  alternative or
add-on  minimum  taxes,  goods and services tax,  customs duties or other taxes,
fees, imports, assessments or charges of any kind whatsoever,  together with any
interest and any penalties or additional amounts imposed by any taxing authority
(domestic or foreign) on such entity,  and any interest,  penalties,  additional
taxes and  additions to tax imposed with respect to the  foregoing,  and (B) any
liability for the payment of any amount of the type described in the immediately
preceding clause (A) as a result of being a "transferee"  (within the meaning of
section  6901 of the Code or any other  applicable  law) of another  entity or a
member of an affiliated or combined group.

     16.  Pension and Employee Benefits

     (a) Other than as  disclosed  in writing to Bowater on or prior to the date
hereof or in any  document  previously  filed with the  Securities  Authorities,
Avenor has complied,  in all material  respects,  with all the terms of, and all
applicable Laws in respect of, the pension and other employee  compensation  and
benefit obligations of Avenor and its Material Subsidiaries, including the terms
of any collective  agreements,  funding and investment  contracts or obligations
applicable  thereto,  arising  under  or  relating  to  each of the  pension  or
retirement  income  plans or  other  employee  compensation  or  benefit  plans,
agreements,  policies,  programs,  arrangements or practices, whether written or
oral,  which are  maintained  by or binding  upon Avenor or any of its  Material
Subsidiaries  (collectively  referred to as the  "Avenor  Plans") and all Avenor
Plans are fully funded and in good standing with such regulatory  authorities as
may be applicable.

     (b) No step has been  taken,  no event has  occurred  and no  condition  or
circumstance  exists  that has  resulted in or could  reasonably  be expected to
result in any Avenor Plan being ordered or required to be terminated or wound up
in whole or in part or having  its  registration  under  applicable  legislation
refused or revoked,  or being placed under the  administration of any trustee or
receiver or


<PAGE>
                                      B-8


regulatory  authority  or  being  required  to pay  any  material  Taxes,  fees,
penalties or levies under applicable Laws. There are no actions,  suits,  claims
(other than  routine  claims for payment of  benefits in the  ordinary  course),
trials,  demands,  investigations,  arbitrations or other  proceedings which are
pending or  threatened  in respect  of any of the Avenor  Plans or their  assets
which  individually or in the aggregate would have a material  adverse effect on
Avenor.

     17.  Property. Other than as disclosed in writing to Bowater on or prior to
          the date hereof,  Avenor and its Material  Subsidiaries  have good and
          sufficient  title to the real property  interests  including,  without
          limitation,  fee  simple  estate  of and  in  real  property,  leases,
          easements,  rights of way,  permits or  licences  from land  owners or
          authorities  permitting  the use of land by  Avenor  and its  Material
          Subsidiaries,  necessary to permit the operation of its  businesses as
          presently owned and conducted except as disclosed in writing to Avenor
          and except for such failure of title that would individually or in the
          aggregate not have a material adverse effect on Avenor.

     18.  Reports.  Avenor has filed with the  Securities  Authorities  true and
          complete copies of all forms, reports, schedules, statements and other
          documents  required  to be filed by it since  January  1,  1996  (such
          forms, reports, schedules,  statements and other documents,  including
          any financial  statements or other documents,  including any schedules
          included  therein,  are  referred to as the "Avenor  Documents").  The
          Avenor  Documents,  at  the  time  filed,  (a)  did  not  contain  any
          misrepresentation (as defined in the Securities Act (Ontario)) and (b)
          complied in all material  respects with the requirements of applicable
          securities legislation. Avenor has not filed any confidential material
          change report with any Securities Authorities which at the date hereof
          remains confidential.

     19.  Compliance with Laws.  Since December 31, 1997, and except as has been
          publicly disclosed prior to the date hereof in any document filed with
          the Securities Authorities,  Avenor and its Material Subsidiaries have
          complied  with and are not in violation of any  applicable  Laws other
          than  non-compliance  or violations which would not individually or in
          the aggregate have a material adverse effect on Avenor.

     20.  Licenses,  Etc.  Except as disclosed in writing to Bowater on or prior
          to the date hereof, Avenor and each of its Material Subsidiaries owns,
          possesses,  or has obtained and is in compliance  with,  all licenses,
          permits  (including  permits  required  under   Environmental   Laws),
          certificates,  orders,  grants and other authorizations of or from any
          Governmental  Entity  necessary  to  conduct  its  businesses  as  now
          conducted or as proposed to be conducted, the failure to own, possess,
          obtain or be in compliance with which would not individually or in the
          aggregate have a material adverse effect on Avenor.

     21.  Certain  Contracts.  Except as  disclosed  in writing to Bowater on or
          prior to the  date  hereof,  neither  Avenor  nor any of its  Material
          Subsidiaries is a party to or bound by

<PAGE>
                                      B-9


          any  non-competition  agreement or any other  agreement or  obligation
          which  purports to limit the manner or the  localities in which all or
          any  material  portion  of the  business  of  Avenor  or its  Material
          Subsidiaries  is or would be conducted other than such contracts which
          individually  or in the  aggregate  would not have a material  adverse
          effect on the current business or operations of Avenor.

     22.  Insurance  Matters.  Avenor is not aware at the date of this Agreement
          of any reason why insurance  through a "discovery"  endorsement  which
          protects  the  directors  and  officers  of Avenor  (including  former
          directors  and  officers)  would  not be  available  for the six years
          following the Effective Date as provided in Section 5.9,  "Insurance",
          of the Arrangement Agreement.  There have not been any claims asserted
          against   Avenor  with   respect  to  any   directors'   or  officers'
          indemnification  agreement  referred to in Section 5.9. Avenor has not
          taken any action,  and Avenor is not aware that the insureds under the
          policy  referred to in Section 5.9 have taken any action,  which would
          impair the coverage under such insurance policy.


<PAGE>


                                   SCHEDULE C

                    REPRESENTATIONS AND WARRANTIES OF BOWATER

1.   Organization.  Each of Bowater and its Material  Subsidiaries has been duly
     incorporated or formed under all applicable Laws, is validly subsisting and
     has full  corporate or legal power and authority to own its  properties and
     conduct  its  businesses  as  currently  owned  and  conducted.  All of the
     outstanding  shares of capital stock and other  ownership  interests of its
     Subsidiaries are validly issued, fully paid and non-assessable and all such
     shares and other  ownership  interests  owned  directly  or  indirectly  by
     Bowater  are,  except as  disclosed  in  writing,  to Avenor or pursuant to
     restrictions on transfer contained in constating documents, rights of first
     refusal and similar rights restricting  transfer contained in shareholders,
     partnership  or  joint  venture  agreements  for or  pursuant  to  existing
     financing  arrangements  involving Subsidiaries which are not wholly owned,
     owned free and clear of all  material  liens,  claims or  encumbrances  and
     there are no outstanding options, rights,  entitlements,  understandings or
     commitments  (contingent  or otherwise)  regarding the right to acquire any
     such shares of capital  stock or other  ownership  interests  in any of its
     Subsidiaries.

2.   Capitalization.  The authorized  capital of Bowater consists of 110,000,000
     shares  consisting of 10,000,000 of Serial Preferred  Stock,  U.S.$1.00 par
     value and 100,000,000  Bowater Common Shares. As of December 31, 1997 there
     were 40,321,105  Bowater Common Shares outstanding and 264,318 8.40% Series
     C Cumulative  Preferred  Stock  outstanding.  As of December 31, 1997 there
     were reserved, in the aggregate, for issuance in respect of Bowater's Stock
     Incentive Plans  2,549,000  Bowater Common Shares of which 642,000 have yet
     to be granted and 1,907,000 were outstanding but unexercised as at December
     31, 1997. In addition,  Bowater has  established  the  1997-1999  Long Term
     Incentive  Plan,  which could result in the issuance of up to an additional
     991,878  Bowater  Common  Shares.  Except as described  in the  immediately
     preceding sentences, there are no options, warrants,  conversion privileges
     or other rights, agreements, arrangements or commitments obligating Bowater
     or any  Subsidiary  to issue or sell any  shares of  Bowater  or any of its
     Subsidiaries or securities or obligations of any kind  convertible  into or
     exchangeable for any shares of Bowater, any Subsidiary or any other person.
     There have been no Bowater  Common Shares  issued since  December 31, 1997,
     other than pursuant to the exercise of stock option entitlements.

3.   Authority. Bowater has the requisite corporate power and authority to enter
     into this Agreement and to perform its obligations hereunder. The execution
     and delivery of this Agreement by Bowater and the  consummation  by Bowater
     of  the  transactions   contemplated  by  this  Agreement  have  been  duly
     authorized by the Board of Directors of Bowater and, subject to shareholder
     approval,  no  other  corporate  proceedings  on the  part of  Bowater  are
     necessary to authorize  this  Agreement  or the  transactions  contemplated
     hereby other than in connection with the approval by the Board of 


<PAGE>


                                       C-2

     Directors of Bowater of the Joint Proxy  Circular,  the issuance of Bowater
     Common  Shares and other  matters  relating  to the  implementation  of the
     Arrangement. This Agreement has been duly executed and delivered by Bowater
     and  constitutes  a valid and binding  obligation  of Bowater,  enforceable
     against  Bowater  in  accordance  with its terms,  subject  to  bankruptcy,
     insolvency,  reorganization,  fraudulent  transfer,  moratorium,  and other
     applicable Laws relating to or affecting  creditors' rights  generally,  to
     general  principles  of equity and public  policy.  Except as  disclosed in
     writing  to  Avenor on or prior to the date  hereof,  the  approval  of the
     Bowater  Resolution and the consents,  approvals,  orders,  authorizations,
     declarations  and filings  court and  regulatory  approvals  referred to in
     Section 6.1 of this  Agreement,  the  execution  and delivery by Bowater of
     this Agreement and performance by it of its  obligations  hereunder and the
     completion of the Arrangement and the  transactions  contemplated  thereby,
     will not:

     (a) result in a violation or breach of,  require any consent to be obtained
under or give rise to any termination rights under any provision of:

          (i) its or any Material  Subsidiary's  certificate  of  incorporation,
     articles,  by-laws or other  charter  documents,  including  any  unanimous
     shareholder  agreement  or any other  agreement or  understanding  with any
     party holding an ownership interest in any Material Subsidiary;

          (ii) any law, regulation, order, judgment or decree; or

          (iii) any contract,  agreement,  license, franchise or permit to which
     Bowater  or any  Material  Subsidiary  is  bound  or is  subject  or is the
     beneficiary;

     (b) give rise to any right of termination or acceleration of  indebtedness,
or cause any third party  indebtedness to come due before its stated maturity or
cause any available credit to cease to be available; or

     (c) result in the imposition of any encumbrance, charge or lien upon any of
its assets or the assets of any Material Subsidiary, or restrict, hinder, impair
or limit the  ability  of  Bowater or any  Material  Subsidiary  to carry on the
business  of Bowater  or any  Material  Subsidiary  as and where it is now being
carried  on or as and where it may be  carried on in the  future,

which  would, individually  or in the  aggregate, have a material adverse effect
on Bowater. Except as  disclosed  in writing  to  Avenor,  no consent, approval,
order or authorization  of, or  declaration or filing with,  any  Governmental
Entity or other  party is required  to be  obtained  by Bowater  and its
Subsidiaries  in connection with the execution and delivery of this Agreement or
the consummation by Bowater of the transactions  contemplated hereby other than
(i) any approvals required by the Interim Order, (ii) the Final Order,  (iii)
filings which may be required  under  the  Delaware  General  Corporation  Law
and  filings  with and approvals required by the SEC, state and provincial
securities  authorities and stock exchanges, (iv) any other consents,  waivers,
permits, orders or approvals


<PAGE>


                                       C-3


referred  to in  Section  6.1 of this  Agreement  and (v)  any  other  consents,
approvals,  orders,  authorizations,  declarations  or  filings  which,  if  not
obtained, would not in the aggregate have a material adverse effect on Bowater.

     4.   Funds Available. Bowater has sufficient funds or financing commitments
          available to carry out its  obligations  under this  Agreement  and in
          respect of the  Arrangement  and to pay all related fees and expenses.
          Bowater has provided to Avenor the terms of such  financing as set out
          in commitment  letters of The Chase Manhattan Bank both dated March 5,
          1998 in favour of Bowater.

     5.   Absence of Changes.  Since  December 31, 1997,  and except as has been
          previously  disclosed  in  writing  to  Avenor  or has  been  publicly
          disclosed prior to the date hereof in any document filed with the SEC,
          (i)  Bowater has  conducted  its  business  only in the  ordinary  and
          regular course of business  consistent with past practice,  (ii) other
          than in the ordinary and regular  course of business  consistent  with
          past practice,  no  liabilities or obligations of any nature  (whether
          absolute,  accrued,  contingent or otherwise) which would individually
          or in the  aggregate  be material to Bowater have been  incurred,  and
          (iii)  there is no  material  fact that exists on the date hereof that
          has not been  disclosed in the  disclosure  documents of Bowater filed
          with the SEC,  which if publicly  disclosed,  would reflect a material
          adverse change in the affairs of Bowater.

     6.   Employment Agreements. Other than as disclosed in writing to Avenor on
          or prior to the date  hereof,  Bowater  has  disclosed  all that it is
          required by Law to publicly  disclose  with respect to any  agreement,
          obligation or  understanding  providing  for severance or  termination
          payments to, or any employment  agreement  with, any senior  executive
          officer of Bowater.

     7.   Disclosure. Bowater has publicly disclosed in documents filed with the
          SEC or disclosed to Avenor in writing, on or prior to the date hereof,
          any information  regarding any event,  circumstance or action taken or
          failed to be taken which could individually or in the aggregate have a
          material adverse effect on Bowater.

     8.   Financial   Statements.   The  audited   consolidated   statement   of
          operations,  consolidated  balance  sheet,  consolidated  statement of
          capital accounts and  consolidated  statement of cash flows of Bowater
          for the fiscal year ending  December 31, 1997, and such  statements of
          Bowater for the years ended  December  31, 1995 and December 31, 1996,
          as contained in Bowater's 1995 and 1996 Annual Reports,  were prepared
          in  accordance   with   generally   accepted   accounting   principles
          consistently  applied and fairly  present the  consolidated  financial
          condition of Bowater at the respective dates indicated and the results
          of  operations  of Bowater  (on a  consolidated  basis) for the period
          covered.

<PAGE>

                                      C-4


     9.   Litigation,  Etc. Except as set forth or specifically reflected in any
          document  filed  with the SEC,  or as  disclosed  in writing to Avenor
          prior to the date hereof,  there is no claim,  action,  proceeding  or
          investigation  pending or, to the  knowledge  of  Bowater,  threatened
          against or relating to Bowater or any Material Subsidiary or affecting
          any of their  properties or assets before any court or governmental or
          regulatory authority or body that, if adversely determined,  is likely
          to have a material  adverse effect on Bowater or prevent or materially
          delay consummation of the transactions contemplated by this Agreement,
          nor is  Bowater  aware  of any  basis  for  any  such  claim,  action,
          proceeding  or   investigation.   Neither  Bowater  nor  any  Material
          Subsidiary is subject to any outstanding  order,  writ,  injunction or
          decree that has had or is reasonably likely to have a material adverse
          effect on Bowater or prevent or materially  delay  consummation of the
          transactions contemplated by this Agreement.

     10.  Environmental. All operations of Bowater and its Material Subsidiaries
          have been,  and are now, in compliance  with all  Environmental  Laws,
          except where the failure to be in compliance would not individually or
          in the aggregate have a material adverse effect on Bowater.  Except as
          Bowater has publicly  disclosed in documents filed with the SEC or has
          disclosed  in  writing  to Avenor  prior to the date  hereof,  neither
          Bowater nor any Material Subsidiary is aware of, or is subject to:

     (a) any  proceeding,  application,  order or  directive  which  relates  to
environmental health or safety matters, and which may require any material work,
repairs, construction or expenditures; or

     (b) any demand or notice  with  respect to the breach of any  Environmental
Laws applicable to Bowater or any Subsidiary, including, without limitation, any
regulations  respecting  the  use,  storage,   treatment,   transportation,   or
disposition of Hazardous Substances,

which  individually or in the aggregate would have a material  adverse effect on
Bowater.

     11.  Insurance. Policies of insurance in force as of the date hereof naming
          Bowater  as an  insured  adequately  cover  all risks  reasonably  and
          prudently  foreseeable in the operation and conduct of the business of
          Bowater and the Material  Subsidiaries for which, having regard to the
          nature of such risk and the relative cost of obtaining  insurance,  it
          is in the opinion of Bowater acting reasonably to seek such insurances
          rather than provide for self insurance. All such policies of insurance
          shall  remain in full force and effect and shall not be  cancelled  or
          otherwise  terminated  as a result  of the  transactions  contemplated
          hereby or by the Arrangement  other than such  cancellations  as would
          not individually or in the aggregate have a material adverse effect on
          Bowater.

     12.  Tax Matters.  Except as  disclosed  in writing to Avenor,  Bowater and
          each of its  Subsidiaries  have  filed on a timely  basis  (or  within
          permitted extensions), or caused 


<PAGE>

                                      C-5

          to be  filed,  all Tax  Returns  required  to be filed by them (all of
          which returns were correct and complete in all material  respects) and
          have paid,  or caused to be paid,  all Taxes that are due and payable,
          in each case except for any such Tax  Returns or Taxes the  non-filing
          or  non-payment  of which  have not had and  would  not be  reasonably
          likely to have a material  adverse effect on Bowater,  and Bowater has
          provided  adequate  accruals in  accordance  with  generally  accepted
          accounting   principles  in  its  most  recently  published  financial
          statements  for any Taxes for the  period  covered  by such  financial
          statements that have not been paid,  whether or not shown as being due
          on any Tax  Returns.  Since such  publication  date,  no material  Tax
          liability not reflected in such  statements or otherwise  provided for
          has been assessed,  proposed to be assessed, incurred or accrued other
          than in the ordinary course of business.

     Except as otherwise disclosed in writing to Avenor, neither Bowater nor any
Subsidiary has received any written  notification  that any material issues have
been raised (and are  currently  pending) by Revenue  Canada,  the United States
Internal  Revenue  Service or any other  taxing  authority,  including,  without
limitation,  any sales tax authority,  in connection with any of the Tax Returns
referred to above,  and no waivers of statutes of limitations have been given or
requested with respect to Bowater or any Subsidiary, in each case except for any
such  written  notices or waivers  which have not had and would not be likely to
have a material  adverse  effect on  Bowater.  To the best of the  knowledge  of
Bowater,  there are no material  proposed (but unassessed)  additional Taxes and
none have been  asserted.  No Tax liens have been filed other than for Taxes not
yet due and payable.  Neither Bowater nor any Bowater Subsidiary (i) has made an
election to be treated as a "consenting corporation" under Section 341(f) of the
Code or (ii)  is a party  to any Tax  sharing  or  other  similar  agreement  or
arrangement of any nature with any other person pursuant to which Bowater or any
Bowater Subsidiary has or could have any liabilities in respect of Taxes.

     13. Pension and Employee Benefits

     (a) Other  than as  disclosed  in writing to Avenor on or prior to the date
hereof,  Bowater has complied,  in all material respects,  with all the terms of
and all  applicable  Laws  (including  funding  requirements)  in respect of the
pension and other employee  compensation and benefit  obligations of Bowater and
its Material Subsidiaries.

     (b) No step has been  taken,  no event has  occurred  and no  condition  or
circumstance  exists  that has  resulted in or could  reasonably  be expected to
result in any Bowater Plan being  ordered or required to be  terminated or wound
up in whole or in part or having its registration  under applicable  legislation
refused or revoked,  or being placed under the  administration of any trustee or
receiver or regulatory  authority or being  required to pay any material  Taxes,
fees,  penalties or levies under applicable  Laws. There are no actions,  suits,
claims  (other than  routine  claims for  payment of  benefits  in the  ordinary
course),  trials,  demands,  investigations,  arbitrations or other  proceedings
which are pending or  threatened in respect of any of the Bowater Plans or their
assets which  individually  or in the  aggregate  would have a material  adverse
effect on Bowater.


<PAGE>

                                      C-6

     14.  Property.  Other than as disclosed in writing to Avenor on or prior to
the date hereof,  Bowater and its Material Subsidiaries have good and sufficient
title to the real property interests including,  without limitation,  fee simple
estate of and in real property,  leases,  easements,  rights of way,  permits or
licences from land owners or  authorities  permitting the use of land by Bowater
and  its  Material  Subsidiaries,  necessary  to  permit  the  operation  of its
businesses as presently  owned and  conducted  except as disclosed in writing to
Bowater and except for such failure of title that would  individually  or in the
aggregate not have a material adverse effect on Bowater.

     15. Reports. Bowater has filed with the SEC true and complete copies of all
forms, reports,  schedules,  statements and other documents required to be filed
by it since  January 1, 1996 (such forms,  reports,  schedules,  statements  and
other  documents,   including  any  financial  statements  or  other  documents,
including  any  schedules  included  therein,  are  referred to as the  "Bowater
Documents").  The Bowater Documents,  at the time filed, (a) did not contain any
misrepresentation   and  (b)  complied  in  all  material   respects   with  the
requirements of applicable securities legislation.

     16.  Compliance with Laws.  Since December 31, 1997, and except as has been
publicly  disclosed prior to the date hereof in any document filed with the SEC,
Bowater  and  its  Material  Subsidiaries  have  complied  with  and  are not in
violation of any applicable Laws other than  non-compliance  or violations which
would not  individually  or in the aggregate  have a material  adverse effect on
Bowater.

     17. Licenses,  Etc. Except as has been publicly disclosed prior to the date
hereof in any document filed with SEC or disclosed in writing to Avenor, Bowater
and each of its Material Subsidiaries owns, possesses, or has obtained and is in
compliance  with,  all  licenses,  permits  (including  permits  required  under
Environmental   Laws),   certificates,   costs,   orders,   grants   and   other
authorizations  of or from any  Governmental  Entity  necessary  to conduct  its
businesses as now conducted or as proposed to be conducted,  the failure to own,
possess,  obtain or be in compliance with which would not individually or in the
aggregate have a material adverse effect on Bowater.


<PAGE>


                                   SCHEDULE D

     "Capitalized  Lease" shall mean any lease,  the obligation for Rentals with
respect to which is required to be  capitalized on a balance sheet of the lessee
in accordance with generally accepted Canadian accounting principles.

     "Capitalized  Rentals" shall mean as of the date of any  determination  the
amount  at  which  the  aggregate  Rentals  due  and to  become  due  under  all
Capitalized  Leases under which the Company or any  Subsidiary is a lessee would
be reflected as a liability on a  consolidated  balance sheet of the Company and
its Subsidiaries.

     "Company" means Avenor Inc.

     "Consolidated  Shareholders' Equity" shall mean, as of any date as of which
the  amount  thereof  is to be  determined,  the  amount of the  stated  capital
accounts  plus (or minus in the case of a  deficit)  the  surplus  and  retained
earnings of the Company and its Subsidiaries,  all determined in accordance with
generally  accepted  Canadian  accounting  principles,  on a consolidated  basis
eliminating intercompany items.

     "Consolidated  Total  Capitalization"  shall  mean,  as of the  date of any
determination  thereof,  the  sum  of  (a)  Consolidated  Funded  Debt  and  (b)
Consolidated Shareholders' Equity.

     "Current Debt" shall mean, as of the date of any determination thereof, all
Indebtedness other than Funded Debt, including all payments that are required to
be made on Funded  Debt  within one year from the date of any  determination  of
Current  Debt.  "Consolidated"  when used as a prefix to Current Debt shall mean
the  aggregate  amount  of  all  such  Current  Debt  of  the  Company  and  its
Subsidiaries on a consolidated basis eliminating intercompany items.

     "Debt Ratio" shall mean, as of the date of any determination  thereof,  the
ratio between (a) the sum of (i) Consolidated  Funded Debt and (ii) Consolidated
Current Debt, and (b) the sum of (i) Consolidated Total  Capitalization and (ii)
Consolidated Current Debt.

     "Funded Debt" of any Person shall mean (a) all Indebtedness  having a final
maturity of one or more than one year from the date of origin  thereof (or which
is renewable or  extendible at the option of the obligor for a period or periods
more than one year from the date of origin),  excluding  all payments in respect
thereof  that are  required  to be made  within  one  year  from the date of any
determination  of Funded Debt,  whether or not included in Current Debt, (b) all
Capitalized   Rentals,  and  (c)  all  Guarantees  of  Funded  Debt  of  others.
"Consolidated" when used as a prefix to any Funded Debt shall mean the aggregate
amount  of all  such  Funded  Debt  of the  Company  and its  Subsidiaries  on a
consolidated basis eliminating intercompany items.

     "Guarantees"  by  any  Person  shall  mean  all  obligations   (other  than
endorsements  in the ordinary  course of business of negotiable  instruments for
deposit or collection) of such Person  guaranteeing  or in effect,  guaranteeing
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner,  whether  directly or  indirectly,  which in accordance


<PAGE>


with generally accepted Canadian accounting  principles shall be classified upon
a balance  sheet of such Person as a liability of such Person.  For the purposes
of all  computations  made under this  Agreement,  a Guaranty  in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness  equal to the
principal  amount  of such  Indebtedness  for  borrowed  money  which  has  been
guaranteed,  and a Guaranty in respect of any other  obligation  or liability or
any dividend shall be deemed to be Indebtedness  equal to the maximum  aggregate
amount of such obligation, liability or dividend.

     "Indebtedness" of any Person shall mean and include all obligations of such
Person  which  in  accordance  with  generally   accepted  Canadian   accounting
principles  shall  be  classified  upon  a  balance  sheet  of  such  Person  as
liabilities for borrowed money of such Person.  For the purpose of computing the
"Indebtedness"   of  any  Person,   there  shall  be  excluded  any   particular
Indebtedness  to the extent that, upon or prior to the maturity  thereof,  there
shall have been  deposited  with the proper  depository  in trust the  necessary
funds  (or  evidences  of such  Indebtedness,  if  permitted  by the  instrument
creating such Indebtedness) for the payment,  redemption or satisfaction of such
Indebtedness;  and  thereafter  such  funds and  evidences  of  Indebtedness  so
deposited shall not be included in any computation of the assets of such Person.

     "Person" shall mean an individual, partnership, unincorporated association,
unincorporated syndicate, unincorporated organization, trust, trustee, executor,
administrator, or other legal representative.

     "Rentals"  shall mean and include all fixed  rents  (including  as such all
payments  which the lessee is obligated to make to the lessor on  termination of
the lease or surrender of the property)  payable by the Company or a Subsidiary,
as lessee or sublessee under a lease of real or personal property,  but shall be
exclusive  of any amounts  required  to be paid by the  Company or a  Subsidiary
(whether  or not  designated  as  rents  or  additional  rents)  on  account  of
maintenance, repairs, insurance, taxes and similar charges. Fixed rent under any
so-called  "percentage  rents" shall be computed  solely on the basis of minimum
rents, if any,  required to be paid by the lessee  regardless of sales volume or
gross revenues.

     "Subsidiary"  shall mean,  as to any  particular  parent  corporation,  any
corporation  of which more than 50% (by  number of votes) of the  voting  shares
shall be owned by such parent  corporation and/or one or more corporations which
are themselves subsidiaries of such parent corporation.