<PAGE>   1

                              ARRANGEMENT AGREEMENT

                            MADE AS OF APRIL 1, 2001

                                     BETWEEN

                          ALLIANCE FOREST PRODUCTS INC.

                                       AND

                              BOWATER INCORPORATED


<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                              <C>
ARTICLE 1.........................................................................................................1
   1.1.    Definitions............................................................................................1
   1.2.    Interpretation Not Affected by Heading.................................................................6
   1.3.    Article References.....................................................................................6
   1.4.    Number and Gender......................................................................................6
   1.5.    Date for Any Action....................................................................................6
   1.6.    Alliance Subsidiaries..................................................................................6
   1.7.    Currency...............................................................................................6
   1.8.    Schedules..............................................................................................6
   1.9.    Accounting Matters.....................................................................................7
   1.10.   Material...............................................................................................7
ARTICLE 2.........................................................................................................7
   2.1.    Arrangement............................................................................................7
   2.2.    Effective Date.........................................................................................8
   2.3.    Alliance Approval......................................................................................8
   2.4.    Bowater Approval.......................................................................................9
   2.5.    Shareholder Rights Plan................................................................................9
ARTICLE 3.........................................................................................................9
   3.1.    Representations........................................................................................9
   3.2.    Investigation..........................................................................................9
   3.3.    Survival of Representations and Warranties............................................................10
ARTICLE 4........................................................................................................10
   4.1.    Representations.......................................................................................10
   4.2.    Investigation.........................................................................................10
   4.3.    Survival of Representations and Warranties............................................................10
ARTICLE 5........................................................................................................10
   5.1.    Consultation..........................................................................................10
   5.2.    Covenants of Alliance.................................................................................11
   5.3.    Covenants of Bowater..................................................................................17
   5.4.    Covenants Regarding Non-Solicitation..................................................................20
   5.5.    Notice by Alliance of Superior Proposal Determination.................................................21
   5.6.    Access to Information.................................................................................22
   5.7.    Mutual Standstill.....................................................................................23
   5.8.    Insurance.............................................................................................24
   5.9.    Ancillary Agreements..................................................................................24
   5.10.   Merger of Covenants...................................................................................25
ARTICLE 6........................................................................................................25
   6.1.    Mutual Conditions.....................................................................................25
   6.2.    Alliance Conditions...................................................................................27
   6.3.    Bowater Conditions....................................................................................28
   6.4.    Notice and Cure Provisions............................................................................29
   6.5.    Merger of Conditions..................................................................................29
   6.6.    Proxy Circular Mailing................................................................................29
</TABLE>


<PAGE>   3

<TABLE>
<S>                                                                                                             <C>
ARTICLE 7........................................................................................................30
   7.1.    Amendment.............................................................................................30
   7.2.    Mutual Understanding Regarding Amendments.............................................................31
ARTICLE 8........................................................................................................31
   8.1.    Bowater Break Fee Event...............................................................................31
   8.2.    General Remedies......................................................................................32
ARTICLE 9........................................................................................................33
   9.1.    Termination...........................................................................................33
ARTICLE 10.......................................................................................................33
   10.1.   Expenses..............................................................................................33
   10.2.   Notices...............................................................................................34
   10.3.   Time of the Essence...................................................................................35
   10.4.   Entire Agreement......................................................................................35
   10.5.   Further Assurances....................................................................................35
   10.6.   Governing Law.........................................................................................36
   10.7.   Execution in Counterparts.............................................................................36
   10.8.   Waiver................................................................................................36
   10.9.   Enurement and Assignment..............................................................................36
   10.10.  English/French Language...............................................................................36
SCHEDULE A - Plan of Arrangement
SCHEDULE B - Representations and Warranties of Alliance
SCHEDULE C - Representations and Warranties of Bowater
</TABLE>


<PAGE>   4

                              ARRANGEMENT AGREEMENT

         THIS AGREEMENT made the 1st day of April, 2001,

B E T W E E N:

                   ALLIANCE FOREST PRODUCTS INC.,
                   a corporation existing under the laws of Canada,

                   (hereinafter called "ALLIANCE"),

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

         AND WHEREAS the parties hereto intend to carry out the transaction
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 WITNESSES 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:

         "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
         any similar transaction involving Alliance or any Subsidiary of
         Alliance, or a


<PAGE>   5

                                                                          Page 2

         proposal to do so, excluding the Arrangement and the transaction
         permitted pursuant to Section 5.2;

         "ALLIANCE COMMON SHAREHOLDERS" means the holders of Alliance Common
         Shares;

         "ALLIANCE COMMON SHARES" means the common shares of Alliance;

         "ALLIANCE DISCLOSURE LETTER" means the disclosure letter prepared by
         Alliance dated the date hereof and delivered to Bowater
         contemporaneously with the execution and delivery of this Agreement;

         "ALLIANCE MEETING" means such meeting or meetings of Alliance Common
         Shareholders as are required to be held in accordance with the Interim
         Order;

         "ALLIANCE PLANS" has the meaning set out in Section 16 of Schedule B;

         "ARRANGEMENT" means the arrangement involving Alliance 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 Alliance
         in respect of the Arrangement required by the CBCA to be sent to the
         Director after the Final Order is made;

         "BOWATER CANADA" means Bowater Canada Inc., a corporation incorporated
         under the federal laws of Canada;

         "BOWATER COMMON SHAREHOLDERS" means the holders of Bowater Common
         Shares;

         "BOWATER COMMON SHARES" means the shares of common stock, U.S.$1.00 per
         share, of Bowater;

         "BOWATER DISCLOSURE LETTER" means the disclosure letter prepared by
         Bowater dated the date hereof and delivered to Alliance
         contemporaneously with the execution and delivery of this Agreement;

         "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;

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

         "CANADIAN ALLIANCE PLANS" means those Alliance Plans which apply or in
         any way relate to employees of Alliance or any Subsidiary who are
         employed in Canada;

         "CODE" means the United States Internal Revenue Code of 1986, as
         amended;


<PAGE>   6

                                                                          Page 3

         "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated
         as of March 29, 2001 between Alliance and Bowater;

         "COURT" means the Superior Court of Quebec, District of Montreal;

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

         "DISSENT RIGHTS" means the rights of dissent of the Alliance Common
         Shareholders 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;

         "EMPLOYEE COMPENSATION AND BENEFIT ARRANGEMENTS" means:

         (a)      salaries, wages, bonuses, vacation entitlements, commissions,
                  fees, severance or termination plans, stock option plans,
                  stock purchase plans, stock appreciation plans, incentive
                  plans, deferred compensation plans, profit-sharing plans,
                  equity or equity-based compensation plans and other similar
                  benefits, plans, arrangements or policies; and

         (b)      insurance, health, welfare, disability, pension, supplementary
                  pension, retirement, travel, hospitalization, medical, dental,
                  legal, counselling, eye care and other similar benefits, plans
                  or arrangements (including, without limitation, all "EMPLOYEE
                  BENEFIT PLANS", as defined in Section 3(3) of ERISA);

         "ENCUMBRANCE" includes, without limitation, any mortgage, pledge,
         assignment, charge, lien, security interest, easement, encroachment,
         lease, pledge, hypothecation, title retention agreement, adverse
         interest in property, or any 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 and any claim in this respect;

         "ENVIRONMENTAL APPROVALS" means all permits, certificates, licences,
         authorizations, approvals, 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 and preservation of the
         environment (including, without limitation, ambient air, surface water,
         ground water, land surface and subsurface strata) and employee and
         public health and safety;

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
         amended, and the rules and regulations promulgated thereunder or with
         respect thereto;

         "EXCHANGEABLE SHARES" means the shares to be issued by Bowater Canada
         in connection with the Arrangement that are exchangeable for Bowater
         Common Shares;

<PAGE>   7

                                                                          Page 4

         "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,
         territorial, state, regional, municipal, local or other government,
         governmental, quasi-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, and
         includes any first nations to the extent that they have jurisdiction
         and lawful authority under the law;

         "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 or which when
         released into the environment is likely to cause, at some immediate or
         future time, harm or degradation to the environment or risk to human
         health, including, without limitation, PCBs, asbestos and hydrocarbons;

         "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 Alliance and the Alliance
         Meeting under the CBCA with respect to the Arrangement;

         "IRS" means the Internal Revenue Service of the United States of
         America;

         "LAW(S)" means all statutes, laws, by-laws, rules, regulations, orders,
         ordinances, decrees, directives, protocols, codes, standards,
         guidelines, policies, notices, directions and judgments or other
         requirements of any Governmental Entity;

         "LEGAL PROCEEDING(S)" means any litigation, action, suit,
         investigation, hearing, claim, complaint, grievance, arbitration
         proceeding or other proceeding and includes any appeal or review and
         any application for same;

         "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used
         in connection with Alliance 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 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 Alliance Common Shares or Bowater Common Shares,
         respectively, immediately following and reasonably attributable to the
         announcement of this Agreement and the transaction contemplated hereby,
         or (iii) the forest products industry in general (including commodity
         prices), and


<PAGE>   8

                                                                          Page 5

         not specifically relating to Alliance or Bowater or their respective
         Subsidiaries, respectively;

         "PARTIES" means Alliance 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 Article 7 hereof;

         "PROXY CIRCULAR" means the management proxy circular prepared by
         Alliance for the Alliance Meeting;

         "RIGHTS PLAN RESOLUTION" means the resolution of the Alliance Common
         Shareholders approving the waiver of the application of the Alliance
         Shareholder Rights Plan Agreement to the Arrangement;

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

         "SECURITIES AUTHORITIES" means each securities commission and each
         securities regulatory authority (including applicable stock exchanges)
         in each of the Provinces of Canada and in the United States and in such
         other jurisdictions in which securities filing or reporting
         requirements are applicable to Alliance or Bowater, as the case may be;

         "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,
         each Subsidiary of Alliance being disclosed in the Alliance Disclosure
         Letter;

         "SUPERIOR PROPOSAL" has the meaning ascribed to such term in Section
         5.4(a);

         "TAX RETURNS" means all returns, declarations, reports, elections,
         forms, information returns, statements and other documents required to
         be filed with any taxing authority relating to Tax and/or Taxes;

         "TAX" and "TAXES" have the meaning ascribed thereto in Section 15 of
         Schedule B; and

         "US ALLIANCE PLANS" means those Alliance Plans which apply or in any
         way relate to employees of Alliance or any Subsidiary who are employed
         in the United States of America.


<PAGE>   9

                                                                          Page 6

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.     ALLIANCE SUBSIDIARIES

         To the extent any representations, warranties, covenants or agreements
contained herein relate, directly or indirectly, to a Subsidiary of Alliance,
each such provision shall be construed as a covenant by Alliance 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 and C annexed to this Agreement, being the Plan of
Arrangement (including the provisions attaching to the Exchangeable Shares), and
the representations and


<PAGE>   10

                                                                          Page 7

warranties of Alliance and Bowater, 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 Alliance shall have the meanings attributable thereto under Canadian
generally accepted accounting principles as approved from time to time by the
Canadian Institute of Chartered Accountants, or any successor entity, applicable
as at the date on which such principles are approved and all determinations of
an accounting nature in respect of Alliance required to be made shall be made in
a manner consistent with such 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 such 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 or would significantly
impede the ability to complete the Arrangement in accordance with this
Agreement.

                                    ARTICLE 2

                                 THE ARRANGEMENT

2.1.     ARRANGEMENT

         (a)      As soon as reasonably practicable, Alliance shall apply to the
                  Court pursuant to section 192 of the CBCA for an order
                  approving the Arrangement and, in connection with such
                  application, Alliance 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 Alliance
                           Meeting for the purpose of considering and, if deemed
                           advisable, approving the Arrangement; 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, Alliance shall deliver Articles of
                  Arrangement to the Director and such other


<PAGE>   11

                                                                          Page 8

                  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)      each shareholder of Alliance (other than shareholders
                           who validly exercise Dissent Rights and who are
                           ultimately entitled to be paid the fair value of the
                           Alliance Common Shares held by them) shall be
                           entitled to receive for each Alliance Common Share
                           held (A) $13 cash and (B) 0.166 Exchangeable Shares
                           or Bowater Common Shares on the terms and subject to
                           the limitations and conditions set out in the Plan of
                           Arrangement; and

                  (ii)     Bowater shall become the holder, indirectly through
                           one or more Subsidiaries of Bowater (including the
                           Subsidiary of Bowater issuing the Exchangeable
                           Shares), of all of the issued and outstanding
                           Alliance Common Shares (other than those Alliance
                           Common Shares held by Alliance 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.     ALLIANCE APPROVAL

         (a)      Alliance represents as of the date hereof that its directors
                  (other than those directors who are advisors or legal counsel
                  for Alliance and who abstain from voting) have determined
                  unanimously that:

                  (i)      the Arrangement is fair to the Alliance Common
                           Shareholders and is in the best interests of
                           Alliance; and

                  (ii)     Alliance's Board of Directors unanimously will
                           recommend (including without limitation in the Proxy
                           Circular) that the Alliance Common Shareholders vote
                           in favour of the Arrangement (subject to Section
                           5.4);

         (b)      Alliance represents as of the date hereof that its Board of
                  Directors has received opinions from each of BMO Nesbitt Burns
                  Inc. and Merrill Lynch & Co., the financial advisors to
                  Alliance, that the consideration to be received by the


<PAGE>   12

                                                                          Page 9

                  Alliance Common Shareholders under the Arrangement is fair,
                  from a financial point of view, to the Alliance Common
                  Shareholders; and

         (c)      Alliance represents as of the date hereof that each of its
                  directors has advised it that he intends to vote the Alliance
                  Common Shares held by them in favour of the Arrangement and
                  will, accordingly, so represent in the Proxy Circular.

2.4.     BOWATER APPROVAL

         Bowater represents as of the date hereof that its Board of Directors
has determined unanimously that this Agreement is in the best interests of
Bowater.

2.5.     SHAREHOLDER RIGHTS PLAN

         Alliance covenants and represents to Bowater that its Board of
Directors has resolved to take all action necessary in order to ensure that the
Separation Time (as defined in the Amended Alliance Shareholder Rights Plan
Agreement dated as of December 1, 1999, as amended as of April 18, 2000) does
not occur in connection with this Agreement or the Arrangement and, subject to
Section 5.4, to recommend to the Alliance Common Shareholders that they approve
such resolutions (which shall be considered at the Alliance Meeting and be
included in the Proxy Circular), including the Rights Plan Resolution, and take
such actions as may be necessary in order to waive, and permit the Board of
Directors to waive, the application of the Alliance Shareholder Rights Plan
Agreement to this Agreement and to the Arrangement and covenants to take all
action necessary pursuant to the Alliance Shareholder Rights Plan Agreement to
seek such waiver and the consent of the Alliance Common Shareholders to such
waiver.

                                    ARTICLE 3

                   REPRESENTATIONS AND WARRANTIES OF ALLIANCE

3.1.     REPRESENTATIONS

         Alliance 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 Alliance pursuant to
this Agreement.


<PAGE>   13

                                                                         Page 10

3.3.     SURVIVAL OF REPRESENTATIONS AND WARRANTIES

         The representations and warranties of Alliance 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 Alliance the representations and warranties as
set forth in Schedule C to this Agreement and acknowledges that Alliance is
relying upon those representations and warranties in connection with entering
into this Agreement.

4.2.     INVESTIGATION

         Any investigation by Alliance 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.


<PAGE>   14

                                                                         Page 11

5.2.     COVENANTS OF ALLIANCE

         Subject to the terms and conditions of the Interim Order and to
applicable laws and regulations, Alliance covenants and agrees that until the
Effective Date or the day upon which this Agreement is terminated, whichever is
earlier:

         (a)      in a timely and expeditious manner, it shall 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 Proxy
                  Circular earlier than as required hereby;

         (b)      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
                           Alliance;

                  (ii)     prepare, in consultation with Bowater, and file a
                           Proxy Circular with respect to the Alliance 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
                           Alliance and not containing any misrepresentation (as
                           defined under applicable securities Laws) with
                           respect thereto;

                  (iii)    use its commercially reasonable efforts to solicit
                           from the Alliance Common Shareholders proxies in
                           favour of approval of the Arrangement and the Rights
                           Plan Resolution and take all other action that is
                           necessary or desirable to secure the approval of the
                           Arrangement and the Rights Plan Resolution by the
                           Alliance Common Shareholders at the Alliance Meeting;

                  (iv)     use its commercially reasonable efforts to convene
                           the Alliance Meeting for the purpose of considering a
                           special resolution approving the Arrangement and the
                           Rights Plan Resolution by July 19, 2001, but in any
                           event no later than September 30, 2001, and
                           distribute copies of this Agreement (or a written
                           summary thereof prepared by Alliance in form and
                           substance reasonably satisfactory to Bowater), in
                           each case as ordered by the Interim Order;


<PAGE>   15

                                                                         Page 12

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

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

         (c)      in a timely and expeditious manner, it shall prepare (in
                  consultation with Bowater) and file any mutually agreed (or
                  otherwise required by applicable Laws) amendments or
                  supplements to the Proxy Circular with respect to the Alliance
                  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;

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

         (e)      it shall 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 Alliance and the receipt of the written confirmation of
                  Bowater that the conditions precedent in favour of Bowater
                  have been satisfied or waived by Bowater, 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 shall furnish promptly to Bowater a copy of each notice,
                  report, schedule or other document or communication delivered,
                  filed or received by Alliance in connection with the
                  Arrangement or the Interim Order, the Alliance Meeting or any
                  other meeting of Alliance 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 (including, without
                  limitation, all Securities Authorities) in connection with, or
                  in any way affecting, the transaction contemplated herein;

         (g)      it shall assist and cooperate in the preparation and filing
                  with all applicable Securities Authorities 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 Bowater Canada of the 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) in, respectively, Canada and the United States;


<PAGE>   16

                                                                         Page 13

         (h)      except as contemplated in this Agreement, 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;

         (i)      except as contemplated in this Agreement, 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 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
                                    Subsidiaries;

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

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

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

                  (vi)     acquire or agree to acquire any interest in 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 Legal


<PAGE>   17

                                                                         Page 14

                           Proceeding or any matter which could give rise to a
                           Legal Proceeding or any liabilities, except such as
                           have been reserved against in its financial
                           statements delivered to Bowater, 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 on terms
                           that are substantially the same as the existing
                           credit facilities that are to be renewed or replaced,
                           incur or commit to provide guarantees, or issue any
                           amount of debt securities;

                  (ix)     incur or commit to capital expenditures prior to the
                           Effective Date, individually or in the aggregate,
                           exceeding $15,000,000, unless such capital
                           expenditure is currently provided for in Alliance's
                           current capital expenditures program as disclosed in
                           the Alliance Disclosure Letter;

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

         (j)      without the prior written consent of Bowater, it shall not,
                  and shall not allow any of its Subsidiaries to:

                  (i)      other than in the usual, ordinary and regular course
                           of business and consistent with past practice or
                           pursuant to existing Employee Compensation and
                           Benefit Arrangements enter into increase or modify
                           any Compensation and Benefit Arrangements, collective
                           bargaining agreements or similar agreements, plans,
                           policies or arrangements with, increase any benefits
                           payable to, or make any loan to, any officers,
                           directors or employees of it; or

                  (ii)     other than in the usual, ordinary and regular course
                           of business and consistent with past practice or
                           pursuant to existing Employee Compensation and
                           Benefit Arrangements in the case of employees who are
                           not officers or directors, take any action with
                           respect to the entering into increasing or modifying
                           of any Employee Compensation and Benefit
                           Arrangements, collective bargaining agreement or
                           similar agreements, plans, policies or arrangements
                           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 Alliance from
                  taking such actions as are 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, Alliance agrees to keep Bowater informed as to
                  the arrangements which


<PAGE>   18

                                                                         Page 15

                  Alliance believes are necessary to fulfil such condition in
                  Section 6.3(f) so that Bowater can participate in the
                  decisions made by Alliance;

         (k)      it shall not allow (and shall cause each of its
                  Subsidiaries not to allow) its current insurance (or
                  re-insurance) policies 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 Alliance (including former
                  directors and officers) if requested by Bowater and on such
                  terms as approved by Bowater;

         (l)      it shall:

                  (i)      use its commercially reasonable efforts to preserve
                           intact its business organizations and goodwill,
                           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
                           transaction 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);

         (m)      it shall not and shall cause its Subsidiaries not to settle or
                  compromise any Legal Proceeding or any matter which could give
                  rise to a Legal Proceeding brought by any present, former or
                  purported holder of any of its securities in connection with
                  the transaction contemplated by this Agreement or the
                  Arrangement prior to the Effective Date without the prior
                  written consent of Bowater;

         (n)      except in the usual, ordinary and regular course of business
                  and consistent with past practice or as contemplated herein,
                  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


<PAGE>   19

                                                                         Page 16

                  to an existing contract or series of related existing
                  contracts would be material to Alliance or any of its
                  Subsidiaries or which would have a material adverse effect on
                  Alliance or any of its Subsidiaries;

         (o)      it shall use its 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 transaction
                  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 transaction 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 transaction contemplated
                           hereby or 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;

         (p)      it shall not take any action, refrain from taking any action
                  or (subject to its commercially reasonable efforts) 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 Alliance is required to take any such
                  action or refrain from taking such action as a result of this
                  Agreement, Alliance shall immediately notify Bowater in
                  writing of such circumstances;

         (q)      it shall, 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


<PAGE>   20

                                                                         Page 17

                  with respect to the operation of its business and the
                  businesses of its Subsidiaries; 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 Alliance and Bowater are competitors;

         (r)      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 transaction contemplated
                  herein and take all reasonable action necessary to be in
                  compliance with such Laws;

         (s)      it shall 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;

         (t)      it shall not allow the indebtedness of Alliance and its
                  Subsidiaries for borrowed money (whether current or long term)
                  to exceed $500 Million;

         (u)      it shall co-operate with Bowater in a timely and expeditious
                  manner and shall use its commercially reasonable efforts to
                  facilitate an orderly merger on the Effective Date of
                  Alliance's business with Bowater's business including, without
                  limitation, ensuring Bowater has sufficient access to
                  information for its purpose in accordance with the provisions
                  of Section 5.6 hereof.

5.3.     COVENANTS OF BOWATER

         Bowater covenants and agrees that until the Effective Date or the day
upon which this Agreement is terminated, whichever is earlier:

         (a)      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 Exchangeable Shares and Bowater
                  Common Shares, as are specified in the Plan of Arrangement and
                  the Final Order to be taken or done by Bowater or any
                  Subsidiary of Bowater;

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

         (c)      it shall use its 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


<PAGE>   21

                                                                         Page 18

                  transaction 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 transaction 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 transaction contemplated
                           hereby or the Arrangement;

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

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

         (d)      it shall:

                  (i)      ensure that its authorized and issued capital
                           includes one share of special voting stock of
                           Bowater, which entitles the holder of record to a
                           number of votes at meetings of holders of Bowater
                           Common Shares equal to the number of 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 Exchangeable Shares may be honoured;

         (e)      in a timely and expeditious manner, it shall provide to
                  Alliance all information as may be reasonably requested by
                  Alliance 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
                  Proxy Circular with respect to the Alliance Meeting or in any
                  amendments or supplements to such Proxy Circular complying in
                  all material respects with all applicable Laws on the date of
                  mailing


<PAGE>   22

                                                                         Page 19

                  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, Bowater agreeing to use its
                  commercially reasonable efforts to provide such information to
                  Alliance in a timely and expeditious manner;

         (f)      it shall prepare and file with all applicable Securities
                  Authorities 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 a Subsidiary of Bowater of
                  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) in, respectively, Canada
                  and the United States;

         (g)      it shall use its commercially reasonable efforts to enable the
                  Exchangeable Shares to be issued under the Arrangement to be
                  conditionally approved for listing on The Toronto Stock
                  Exchange, subject to filing of required documentation and
                  subject to meeting the listing requirements of The Toronto
                  Stock Exchange;

         (h)      it shall:

                  (i)      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
                           transaction 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

                  (ii)     promptly notify Alliance 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); and

         (i)      it shall 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.


<PAGE>   23

                                                                         Page 20

5.4.     COVENANTS REGARDING NON-SOLICITATION

         (a)      Alliance shall not, directly or indirectly, through any
                  officer, director, employee, representative or agent of
                  Alliance 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, approve or recommend any Acquisition Proposal or
                  cause Alliance to enter into any agreement related to any
                  Acquisition Proposal, or withdraw or modify in a manner
                  adverse to Bowater the approval of the Board of Directors of
                  Alliance of the transaction contemplated hereby; 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 Alliance 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 Alliance
                  determines in good faith, after consultation with financial
                  advisors and after receiving an opinion of outside counsel to
                  the effect that the Board of Directors of Alliance 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 Alliance's
                  shareholders than the transaction contemplated by this
                  Agreement (any such Acquisition Proposal being referred to
                  herein as a "SUPERIOR PROPOSAL");

         (b)      Alliance shall promptly notify Bowater of any current
                  Acquisition Proposals or of any future Acquisition Proposal of
                  which its directors or senior officers become aware, or any
                  amendments to the foregoing, or any request for non-public
                  information relating to Alliance or any of its Subsidiaries in
                  connection with an Acquisition Proposal or for access to the
                  properties, books or records of Alliance or any Subsidiary by
                  any person or entity that informs Alliance or such 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 Bowater may
                  reasonably request including the identity of the person making
                  such proposal, inquiry or contact;

         (c)      If Alliance receives a request for material non-public
                  information from a person who proposes a bona fide Acquisition
                  Proposal in respect of Alliance (the existence and content of
                  which have been disclosed to Bowater), and the Board of
                  Directors of Alliance 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 Alliance 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 Alliance; provided, however, that the person making
                  the


<PAGE>   24

                                                                         Page 21

                  Acquisition Proposal shall not be precluded thereunder from
                  making the Acquisition Proposal, and provided further that
                  Alliance sends a copy of any such confidentiality agreement to
                  Bowater immediately upon its execution and Bowater is provided
                  with a list of or copies of the information provided to such
                  person and is immediately provided with access to similar
                  information to which such person was provided, and provided
                  further that if the Confidentiality Agreement does not contain
                  a standstill provision which is substantially similar to that
                  contained in Section 5.7 and such provision is more favourable
                  to the other party thereto than that contained in Section 5.7
                  in respect of Bowater, the provisions of Section 5.7 as they
                  relate to Bowater and the corresponding provisions of the
                  Confidentiality Agreement shall be deemed to be amended to
                  include such more favourable terms; and

         (d)      Alliance 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 any of such
                  persons.

5.5.     NOTICE BY ALLIANCE OF SUPERIOR PROPOSAL DETERMINATION

         Alliance 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 (a)
it has provided Bowater with a copy of the Acquisition Proposal document which
the Board of Directors of Alliance has determined would be a Superior Proposal,
and (b) 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. Such Acquisition
Proposal document shall constitute confidential Information for the purposes of
Section 5.6(c) and Evaluation Material for the purposes of the Confidentiality
Agreement.

         During such five Business Day period, Alliance 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
Alliance 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 Alliance would
result in the Acquisition Proposal not being a Superior Proposal. If the Board
of Directors of Alliance so determines, it will enter into an amended agreement
with Bowater reflecting Bowater's amended proposal. If the Board of Directors of
Alliance determines that the Acquisition Proposal is nonetheless a Superior
Proposal Section 8.1 shall apply.

         Alliance 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 (b) of this Section 5.5 to initiate an
additional five Business Day notice period.
<PAGE>   25
                                                                         Page 22


5.6.     ACCESS TO INFORMATION

         (a)      Subject to Section 5.6(c) and applicable Laws, upon reasonable
                  notice, Alliance 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, consultants, customers, suppliers and
                  such other persons as Bowater reasonably believes it has a
                  business purpose in contacting (with full opportunity to
                  discuss the Alliance business including its financial
                  condition, results of operation and prospects) and, during
                  such period, Alliance shall (and shall cause each of its
                  Subsidiaries to) furnish promptly to Bowater all information
                  (including photocopies thereof when requested by Bowater)
                  concerning Alliance's business, properties, personnel,
                  consultants, customers and suppliers as Bowater may reasonably
                  request. Nothing in the foregoing shall require Alliance 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. Bowater will use its
                  commercially reasonable efforts to consult with Alliance prior
                  to consultation with any third party with respect to whom
                  Bowater does not otherwise have a business relationship in the
                  ordinary course of business.

         (b)      Subject to Section 5.6(c) and applicable Laws, upon reasonable
                  notice, Bowater shall afford Alliance's counsel and its
                  financial advisors, BMO Nesbitt Burns Inc. and Merrill Lynch &
                  Co, an opportunity to conduct due diligence on Bowater and its
                  Subsidiaries to enable each of them 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 transaction
                  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


<PAGE>   26

                                                                         Page 23


                  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; (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 later of: (a) September 30, 2001; and (b) the earlier of (i) the Effective
Date and (ii) the termination of this Agreement, other than pursuant to this
Agreement (including without limitation Section 5.5), the Arrangement and the
transaction contemplated hereby, 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
may determine: (A) acquire, agree to acquire or make any proposal to acquire, in
any manner, any securities or property of the other Party; (B) assist, advise or
encourage any other persons to acquire or agree to acquire, in any manner, any
security or property of the other Party; (C) solicit proxies of the shareholders
of the other Party or form, join in or in any way participate in a proxy group
with respect to the voting of any voting securities of the other Party (but for
greater certainty Alliance acknowledges that Bowater and its agents and advisors
(including Goldman, Sachs & Co.) will be entitled to solicit proxies and
otherwise influence any person to vote in favour of the Arrangement at the
Alliance Meeting and Bowater acknowledges that Alliance and its agents and
advisors (including BMO Nesbitt Burns Inc. and Merrill Lynch & Co) will be
entitled to solicit proxies and otherwise influence any person to vote in favour
of the Arrangement at the Alliance Meeting); (D) seek any modification to or
waiver of the agreements and obligations under the Confidentiality Agreement,
save and except to the extent provided for in Section 5.4(c), or (E) make any
public announcement with respect to the foregoing, except as may be required by
applicable law or regulatory authorities. For the purpose of this Section 5.7, a
Party shall include Subsidiaries of such Party and their successors. The
provisions of this Section 5.7 shall be of no force or effect against Bowater in
the event that:

         (a)      a third party in no way related to Bowater makes or enters
                  into an agreement to make a take-over bid to acquire directly
                  or indirectly more than 50% of the then outstanding Alliance
                  Common Shares or enters into an agreement with respect to an
                  amalgamation, plan of arrangement or similar regrouping
                  combination to the same effect involving Alliance; or that

         (b)      Bowater proposes to enter into a plan of arrangement, or such
                  other form of transaction in virtue of which Bowater proposes
                  to acquire directly or indirectly


<PAGE>   27

                                                                         Page 24


                  all of the then outstanding Alliance Common Shares at a price
                  equal to or higher than $26 per share payable in a combination
                  of up to 50% of the total purchase price in cash and the
                  balance in Bowater Common Shares or in shares of Bowater's
                  listed Canadian Subsidiary exchangeable into Bowater Common
                  Shares.

5.8.     INSURANCE

         (a)      Bowater shall ensure that the by-laws of Alliance or of any
                  corporation continuing following any amalgamation, merger,
                  plan of arrangement, consolidation or winding-up of Alliance
                  with or into one or more other persons (a "SURVIVING
                  CORPORATION") shall contain the provisions with respect to
                  indemnification now set forth in Alliance's By-Laws (or as
                  provided in Article Eleventh of Bowater's Restated Certificate
                  of Incorporation), which provision shall, unless required by
                  Law, not be amended, repealed or otherwise modified for a
                  period of six (6) 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 or officers of Alliance; and Bowater shall, subject
                  to applicable Law, ensure that the obligations of Alliance
                  under any indemnification agreements between Alliance and its
                  directors and officers previously disclosed to Bowater in the
                  Alliance Disclosure Letter 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
                  Alliance or any Surviving Corporation to maintain Alliance'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 Alliance
                  and providing no less coverage than Alliance's existing
                  directors' and officers' insurance, for all present and former
                  directors and officers of Alliance, covering claims made prior
                  to or within such period of time. At the election of Bowater
                  and upon reasonable notice to Alliance, Alliance will acquire
                  the insurance through a "DISCOVERY" endorsement referred to in
                  Section 5.2(k) of this Agreement prior to the Effective Date;
                  and

         (c)      Alliance will not, and Alliance 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 or cause an
                  increase in the premiums therefor.

5.9.     ANCILLARY AGREEMENTS

         The Parties agree that the support agreement and the voting and
exchange trust agreement referenced in the provisions attaching to the
Exchangeable Shares set out on Exhibit 1 to Schedule A annexed hereto shall
apply to the Arrangement contemplated herein.


<PAGE>   28

                                                                         Page 25


5.10.    MERGER OF COVENANTS

         The covenants set out in this Agreement (except for Sections 5.6(c),
5.8, 5.9, 5.10, 8.1 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 Alliance and Bowater to complete the transaction
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:

         (a)      the Interim Order shall have been granted in form and
                  substance satisfactory to Alliance 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 Proxy Circular shall have
                  been passed at the Alliance Meeting, duly approving the
                  Arrangement, in accordance with the Interim Order;

         (c)      the Final Order shall have been granted in form and substance
                  satisfactory to Alliance 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;

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

         (e)      the Effective Date shall be on or before September 30, 2001,
                  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 transaction
                                    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


<PAGE>   29

                                                                         Page 26


                                    transaction contemplated herein which is
                                    materially adverse to either Alliance or
                                    Bowater;

         (g)      all consents, waivers, permits, orders and approvals of any
                  Governmental Entity (other than as contemplated in Section
                  6.1(h), (i) and (j) which shall be subject to the specific
                  provisions thereof) 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 Alliance 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 Alliance or Bowater or reasonably
                  satisfactory evidence thereof shall have been delivered to
                  each Party;

         (h)      Bowater shall have received evidence satisfactory to Bowater,
                  and on terms and conditions satisfactory to Bowater, that the
                  Minister designated under the Investment Canada Act has been
                  satisfied or has been deemed to have been satisfied that the
                  transaction contemplated by this Agreement and the Plan of
                  Arrangement is likely to be of net benefit to Canada;

         (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 shall have been earlier terminated;

         (j)      the applicable waiting period under section 123 of the
                  Competition Act (Canada) shall have expired and Bowater shall
                  have been advised in writing by the Commissioner of
                  Competition appointed under the Competition Act (Canada) that
                  he has determined not to make an application for an order
                  under section 92 or section 100 of the Competition Act
                  (Canada) in respect of the Arrangement, or an advance ruling
                  certificate shall have been issued under section 102 of the
                  Competition Act (Canada) in respect of the Arrangement;

         (k)      the Bowater Common Shares issuable pursuant to the Arrangement
                  shall have been conditionally approved for listing on the New
                  York Stock Exchange, subject to the filing of required
                  documentation and the issue of the Exchangeable Shares shall
                  have been conditionally approved by The Toronto Stock
                  Exchange, subject to meeting The Toronto Stock Exchange
                  listing requirements relating to numbers of holders of shares
                  and subject to the filing of required documentation. Any
                  required prospectus exemptions shall have been obtained or be
                  available with respect to the issuance of the Exchangeable
                  Shares and the Bowater Common Shares under the Arrangement and
                  such securities shall not be subject to resale restrictions
                  in, respectively, Canada and the United States other than in
                  respect of control persons and subject to the requirements of
                  general application; and

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


         The foregoing conditions are for the mutual benefit of Alliance and
Bowater and may be waived, in whole or in part, by Alliance and Bowater at any
time. If any of the said conditions


<PAGE>   30

                                                                         Page 27


precedent shall not be complied with or waived as aforesaid on or before
September 30, 2001, 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.     ALLIANCE CONDITIONS


         The obligation of Alliance to complete the transaction 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
                  the transaction contemplated or permitted by this Agreement or
                  except for any failure or breach 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 purpose
                  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 Alliance the
                  certificate of two qualified officers of Bowater certifying
                  such accuracy on the Effective Date; and

         (b)      Bowater shall have complied with its covenants herein, unless
                  the failure to comply with such covenants would not
                  individually or in the aggregate have a material adverse
                  effect on Bowater or materially impede the completion of the
                  Arrangement or the other transactions contemplated in this
                  Agreement, and Bowater shall have provided to Alliance the
                  certificate of two qualified officers of Bowater certifying
                  that Bowater has so complied with its covenants herein; and

         (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 Alliance has,
                  or is reasonably likely to have, a material adverse effect on
                  Bowater.


         The foregoing conditions precedent are for the benefit of Alliance and
may be waived, in whole or in part, by Alliance in writing at any time. If any
of the said conditions shall not be complied with or waived by Alliance on or
before September 30, 2001 or, if earlier, the date required for their
performance, then Alliance may rescind and terminate this Agreement by written
notice to Bowater.


<PAGE>   31

                                                                         Page 28


6.3.     BOWATER CONDITIONS

         The obligation of Bowater to complete the transaction 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 Alliance 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
                  the transaction 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 Alliance 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 Alliance shall have provided to Bowater the
                  certificate of two qualified officers of Alliance certifying
                  such accuracy on the Effective Date;

         (b)      Alliance shall have complied with its covenants herein, unless
                  the failure to comply with such covenants would not
                  individually or in the aggregate have a material adverse
                  effect on Alliance or materially impede the completion of the
                  Arrangement or the other transactions contemplated in this
                  Agreement, and Alliance shall have provided to Bowater the
                  certificate of two qualified officers of Alliance certifying
                  that Alliance 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 Bowater has,
                  or is reasonably likely to have, a material adverse effect on
                  Alliance;

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

         (e)      the indebtedness of Alliance and its Subsidiaries for borrowed
                  money (whether current or long term) shall not have exceeded
                  $500 Million, as at the Effective Date;

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

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


<PAGE>   32

                                                                         Page 29


         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, 2001 or, if earlier, the date required for the performance
thereof, then Bowater may rescind and terminate this Agreement by written notice
to Alliance.

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 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 transaction 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
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, 2001 and the expiration of a
period of 30 days from such notice. If such notice has been delivered prior to
the date of the Alliance Meeting, such meeting shall be postponed until the
expiry of such period.

6.5.     MERGER OF CONDITIONS

         The conditions set out in Sections 6.1, 6.2, 6.3 and 6.6 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 in respect thereof under the CBCA. Alliance
acknowledges and agrees that it shall have no right to file Articles of
Arrangement unless such conditions have been satisfied, fulfilled or waived.

6.6.     PROXY CIRCULAR MAILING

         (a)      It shall be a condition precedent to the obligation of Bowater
                  to complete the transaction contemplated hereby and to the
                  mailing of the Proxy Circular by


<PAGE>   33

                                                                         Page 30


                  Alliance that prior to mailing or otherwise delivering the
                  Proxy Circular to the Alliance Common Shareholders, Alliance
                  shall have obtained from Societe de developpement industriel
                  ("SDI"), in form and substance acceptable to Bowater, a
                  written authorization of SDI to the change of control which
                  will arise as a result of the Arrangement and SDI shall have
                  provided its written confirmation, in form and substance
                  acceptable to Bowater (the written authorization and
                  confirmation of SDI being referred to collectively as the "SDI
                  CONSENT") that such change of control shall not constitute a
                  default under the Credit Agreement (the "SDI AGREEMENT")
                  between SDI and Alliance dated July 8, 1998, nor shall there
                  be, as a result of such change of control, any premium,
                  penalty or other payment owing by Alliance or its successors,
                  pursuant to the SDI Agreement; for certainty, Alliance will be
                  in the same position under the SDI Agreement after the change
                  of control provided by this Agreement as before such change.

         (b)      If any of the said conditions shall not be complied with or
                  waived by Bowater on or before June 18, 2001, Bowater shall be
                  permitted to rescind and terminate this Agreement by written
                  notice to Alliance. The foregoing conditions are for the sole
                  benefit of Bowater and may be waived by it in writing at any
                  time, in whole or in part, and on such terms as it may
                  prescribe. A termination of this Agreement as a result of the
                  failure of Alliance to obtain the SDI Consent shall not result
                  in the occurrence of a Bowater Break Fee Event pursuant to
                  Section 8.1 of this Agreement.

                                    ARTICLE 7

                                    AMENDMENT

7.1.     AMENDMENT

         This Agreement may, at any time and from time to time before or after
the holding of the Alliance Meeting, be amended by mutual written agreement of
the Parties hereto without further notice to or authorization on the part of the
Alliance Common 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.


<PAGE>   34

                                                                         Page 31


         Notwithstanding any other provision of this Agreement, Bowater reserves
the right to utilize a Subsidiary other than Bowater Canada for the purpose of
issuing shares which are exchangeable for Bowater Common Stock in the place and
stead of Bowater Canada and in such instance, all references herein to
Exchangeable Shares shall be to the exchangeable shares of such Subsidiary and
all references to Bowater Canada shall be deemed to refer to such Subsidiary and
the representations and warranties with respect to Bowater Canada contained in
Schedule C hereof shall be amended in accordance with the terms hereof in order
to refer to such Subsidiary. Any such utilization of an alternate subsidiary
shall provide the Alliance Common Shareholders with the same rights and
privileges as those initially contemplated.

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 Alliance, for Bowater and its Subsidiaries, and for Alliance 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. Any proposals made
in respect of the foregoing will be subject to continued good faith discussions
between the parties.

         The Parties mutually agree that if a Party proposes any 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.     BOWATER BREAK FEE EVENT

If

         (i) the Board of Directors of Alliance shall have (A) failed to
         recommend or withdrawn or modified its approval or recommendation of
         the Arrangement, (B) taken any action or failed to take any action with
         the result that Alliance is in breach of clause (iii) of Section
         5.2(b), (C) approved or recommended any Acquisition Proposal, (D)
         determined at the conclusion of the process set out in Section 5.5 that
         any Acquisition Proposal is a Superior Proposal, or (E) resolved to
         take any of the foregoing actions whether or not permitted under the
         terms hereof, or

         (ii) an Acquisition Proposal shall have been made known to Alliance or
         made directly to the Alliance Common Shareholders or any person has
         publically announced an intention


<PAGE>   35

                                                                         Page 32


         to make an Acquisition Proposal, and after such Acquisition Proposal
         shall have been made known, made or announced, (A) the Alliance Common
         Shareholders do not approve the Arrangement and the Rights Plan
         Resolution, or (B) a meeting of the Alliance Common Shareholders to
         consider the Arrangement and the Rights Plan Resolution has not been
         held by September 30, 2001, or

         (iii) (A) the Alliance Common Shareholders do not approve the
         Arrangement and the Rights Plan Resolution, or (B) a meeting of the
         Alliance Common Shareholders to consider the Arrangement and the Rights
         Plan Resolution has not been held by September 30, 2001, and at any
         time within three (3) months after the earlier to occur of the Alliance
         Meeting and September 30, 2001, an Acquisition Proposal shall be made
         known, made or announced as described in clause (ii) above, and any
         transaction arising from such Acquisition Proposal (including a
         competing transaction) is consummated either at such time or at any
         time thereafter,

(each of the events described in clauses (i), (ii) and (iii) being referred to
as a "BOWATER BREAK FEE EVENT"), then provided that, with respect to the Bowater
Break Fee Events listed in subparagraphs (ii)(B) and (iii) above, Bowater is not
in material breach of its covenants under this Agreement and its representations
are true and correct (unless any breach or incorrectness individually or in the
aggregate did not have a materially adverse effect on Bowater or materially
impede the completion of the transactions contemplated hereby) Alliance shall
pay to Bowater, in the case of clause (i), one Business Day after taking any
such action, and, in the case of clause (ii) (A), on the Business Day following
such vote, and, in the case of clause (ii) (B), on October 1, 2001, and, in the
case of clause (iii) on the Business Day following the date of the consummation
of the transaction arising from the Acquisition Proposal, U.S.$20 million in
immediately available funds to an account designated by Bowater; provided,
however, that, in the case of a Bowater Break Fee Event under clause (i) or
(ii), this Agreement shall not have been duly terminated prior to the occurrence
of such Bowater Break Fee Event

         Alliance shall not be obligated to make more than one payment pursuant
to this Section 8.1.

8.2.     GENERAL REMEDIES

         For greater certainty, the Parties agree that the terms of Section
9.1(b) apply in the event of a termination of this Agreement in conjunction with
a Bowater Break Fee Event, subject to the payment of the amount pursuant to this
Article 8 being the sole monetary remedy of Bowater as a result of the
occurrence of a Bowater Break Fee Event.


<PAGE>   36

                                                                         Page 33


                                    ARTICLE 9

                                   TERMINATION

9.1.     TERMINATION


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

                           (i)      by mutual written consent of Alliance and
                                    Bowater;

                           (ii)     as provided in Sections 6.1, 6.2, 6.3 and
                                    6.6;

                           (iii)    by Bowater upon the occurrence of a Bowater
                                    Break Fee Event as provided in Section 8.1;
                                    or

                           (iv)     by Alliance upon any determination by
                                    Alliance that an Acquisition Proposal
                                    constitutes a Superior Proposal, subject to
                                    the payment of the break fee payable to
                                    Bowater under Section 8.1.


         (b) If this Agreement is terminated in accordance with the provisions
of Section 9.1(a), no party shall have any further liability to perform its
obligations hereunder except as provided in Sections 8.1 and 8.2 and as
otherwise expressly contemplated hereby. Except as provided in Section 8.2 with
respect to Bowater's monetary remedy in the event of a Bowater Break Fee Event,
neither the termination of this Agreement nor anything contained in this Section
9.1(b) shall relieve any party from any liability for any breach by it of this
Agreement, including from any inaccuracy in its representations and warranties
and any non-performance by it of its covenants made herein, unless otherwise
expressly stipulated herein. Except as provided in Section 8.2 with respect to
Bowater's monetary remedy in the event of a Bowater Break Fee Event, 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.

                                   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 transaction
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.


<PAGE>   37

                                                                         Page 34


         Alliance and Bowater represent and warrant to each other that, except
for BMO Nesbitt Burns Inc. and Merrill Lynch & Co, in the case of Alliance, 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 transaction 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 hand delivery of same or by sending same
by facsimile transmission or by express courier 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 by hand or by express courier delivery, 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 receipt 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 Alliance:

                  Alliance Forest Products Inc.
                  1000 de La Gauchetiere Street West
                  Suite 2820
                  Montreal (Quebec) Canada
                  H3B 4W5

                  Attention: Martin Longpre, Secretary and Corporate Counsel
                  Fax:       (514) 954-2167

         with a copy to:

                  Lavery de Billy
                  1 Place Ville-Marie
                  Suite 4000
                  Montreal (Quebec) Canada
                  H3B 4M4

                  Attention: Andre Laurin
                  Fax:       (514) 871-8977


<PAGE>   38

                                                                         Page 35


         (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 Milner Casgrain LLP
                  1 First Canadian Place
                  Suite 4100, P.O. Box 100
                  Toronto, Ontario
                  M5X 1B2

                  Attention:  Jeffery Barnes
                  Fax:        (416) 863-4592


10.3.    TIME OF THE ESSENCE

         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.


<PAGE>   39

                                                                         Page 36


10.6.    GOVERNING LAW

         This Agreement shall be governed by, and be construed in accordance
with, the laws of the Province of Quebec 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 Quebec. Each Party hereby irrevocably attorns to the jurisdiction of
the Courts of the Province of Quebec 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.

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.

10.10.   ENGLISH/FRENCH LANGUAGE

         The parties confirm that it is their wish that this Agreement as well
as any other documents relating hereto, including notices, have been and shall
be drawn up in English only. Les parties aux presents confirment leur volonte
que cette convention de meme tous les documents, y compris tous avis, s'y
rattachant, soient rediges en anglais seulement.


<PAGE>   40

                                                                         Page 37


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


                                   ALLIANCE FOREST PRODUCTS INC.

                                   Per:
                                       -----------------------------------------
                                       Pierre Monahan
                                       President and Chief Executive Officer

                                   Per:
                                       -----------------------------------------
                                       Robert Despres
                                       Chairman of the Board

                                   BOWATER INCORPORATED

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

<PAGE>   41




                                   SCHEDULE A

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

<PAGE>   42

                          ALLIANCE FOREST PRODUCTS INC.

                               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 April 1, 2001
between Alliance 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 Alliance Common Shares at the Alliance Shareholders' Meeting.

         "ALLIANCE" means Alliance Forest Products Inc., a corporation
subsisting under the Act.

         "ALLIANCE COMMON SHARES" means the common shares in the capital of
Alliance.

         "ALLIANCE OPTIONS" means all stock options and similar rights providing
an option or right to acquire securities of Alliance, as well as stock
appreciation rights including, without limitation, any options or rights granted
under Alliance's Employee Stock Incentive Plans.

         "ALLIANCE SHAREHOLDERS' MEETING" means the special meeting of the
shareholders of Alliance (including any adjournment thereof) convened as
provided by the Interim Order to consider, and if deemed advisable, approve the
Arrangement.

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


<PAGE>   43

                                                                          Page 2

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

         "BOWATER COMMON SHARES" means the shares of common stock of Bowater,
US$1.00 par value per share.

         "BOWATER ELECTED SHARE" means any Alliance 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
the Cash Portion and 0.166 Bowater Common Shares or that is deemed to be a
Bowater Elected Share pursuant to Section 2.2(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 PORTION" means $13 for each Alliance Common Share.

         "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 Superior Court of Quebec, District of Montreal.

         "DEPOSITARY" means the Montreal Trust Company of Canada (or such other
trust company) appointed by Bowater for the purpose of, among other things,
exchanging certificates representing Alliance Common Shares for cash and
Exchangeable Shares or Bowater Common Shares, as the case may be.

         "DISSENT PROCEDURES" has the meaning set out in Section 3.1.

         "DISSENTING SHAREHOLDER" means a holder of Alliance 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.

         "EXCHANGEABLE SHARES" means the non-voting exchangeable shares in the
capital of Bowater Canada.

         "EXCHANGEABLE SHARE ELECTED SHARE" means any Alliance 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 the Cash Portion and 0.166 Exchangeable Shares.


<PAGE>   44

                                                                          Page 3

         "EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares, the text of
which (without Exhibit I thereto) is attached hereto as Exhibit 1.

         "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.

         "PROXY CIRCULAR" means the management proxy circular of Alliance to be
prepared and sent to the shareholders of Alliance in connection with the
Alliance Shareholders' Meeting.

         "LETTER OF TRANSMITTAL" means collectively a Letter of Transmittal and
Election Form in the forms accompanying the Proxy Circular.

         "LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the
Exchangeable Share Provisions.

         "MEETING DATE" means the date of the Alliance Shareholders' Meeting.

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

         "OUTSTANDING ALLIANCE COMMON SHARES" means the Alliance 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 the
Exchangeable Share Provisions.

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>   45

                                                                          Page 4

1.4      CURRENCY

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

                                   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)      each Bowater Elected Share will be transferred by the
                           holder thereof to Bowater Holdings in exchange for
                           the Cash Portion and 0.166 Bowater Common Shares, and
                           the name of each such holder will be removed from the
                           register of holders of Alliance 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 Alliance Common Shares
                           accordingly;

                  (b)      Bowater Holdings will transfer to Bowater Canada all
                           the Alliance 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 Alliance Common Shares and Bowater Canada
                           will be added to the register of holders of Alliance
                           Common Shares accordingly;

                  (c)      each Exchangeable Share Elected Share will be
                           transferred by the holder thereof to Bowater Canada
                           in exchange for the Cash Portion and 0.166
                           Exchangeable Shares, and the name of each such holder
                           will be removed from the register of holders of
                           Alliance Common Shares and added to the register of
                           holders of Exchangeable Shares and Bowater Canada
                           will be added to the register of holders of Alliance
                           Common Shares accordingly; and

                  (d)      all outstanding Alliance Options shall be terminated.

2.2      ELECTIONS

                  (a)      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 Alliance
                           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. (Montreal


<PAGE>   46

                                                                          Page 4

                           Time) on the Business Day immediately preceding the
                           Meeting Date to receive (i) cash and Exchangeable
                           Shares or (ii) cash and Bowater Common Shares, or a
                           combination of (i) and (ii), in exchange for such
                           holder's Alliance 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
                           Alliance, including the form of the Letter of
                           Transmittal containing the elections and the
                           procedures governing transmittal.

                  (b)      Each Alliance Common Share in respect of which an
                           effective election has not been made (other than
                           Alliance Common Shares held by Dissenting
                           Shareholders who are ultimately entitled to be paid
                           the fair value of the Alliance Common Shares held by
                           them) will be deemed to be a Bowater Elected Share
                           and will receive the Cash Portion and 0.166 Bowater
                           Common Shares on the basis set forth herein.

                                   ARTICLE 3

                                RIGHTS OF DISSENT

3.1      RIGHTS OF DISSENT

         Holders of Alliance 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 Alliance Common Shares shall be deemed to have
                           transferred such Alliance Common Shares to Alliance
                           for cancellation on the Effective Date prior to any
                           of the steps described in Sections 2.1; or

                  (b)      are ultimately not entitled, for any reason, to be
                           paid fair value for their Alliance Common Shares
                           shall be deemed to have participated in the
                           Arrangement on the same basis as a non-dissenting
                           holder of Alliance Common Shares and shall receive
                           cash and Bowater Common Shares on the basis set forth
                           herein,

but in no case shall Bowater, Bowater Holdings, Bowater Canada, Alliance or any
other Person be required to recognize such holders as holders of Alliance Common
Shares after the Effective Time, and the names of such holders of Alliance
Common Shares shall be deleted from the registers of holders of Alliance Common
Shares at the Effective Time.


<PAGE>   47

                                                                          Page 6

                                   ARTICLE 4

                        CERTIFICATES AND FRACTION 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 Alliance Common Shares
who will receive cash and Exchangeable Shares in connection with the
Arrangement, sufficient cash and certificates representing the Exchangeable
Shares issued pursuant to Section 2.1 upon the exchange of Alliance Common
Shares. Upon surrender to the Depositary for cancellation of a certificate which
immediately prior to the Effective Time represented Alliance Common Shares that
were exchanged for the cash and 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 Alliance 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 aggregate cash to which such
holder is entitled under the Arrangement and 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 4.3 and any cash in lieu
of fractional Exchangeable Shares pursuant to Section 4.4), and the certificate
so surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Alliance Common Shares that is not registered in the transfer
records of Alliance, the relevant amount of cash may be paid to and a
certificate representing the proper number of Exchangeable Shares may be issued
to the transferee if the certificate representing such Alliance 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
Alliance Common Shares that were exchanged for the cash and Exchangeable Shares
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender (i) the cash and 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 4.4, 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 4.3. 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.

4.2      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 Alliance Common Shares
who will receive cash and Bowater Common Shares in connection with the
Arrangement, sufficient cash and certificates representing the Bowater Common
Shares issued pursuant to Section 2.1 in exchange for outstanding Alliance
Common Shares. Upon surrender to the Depositary for cancellation of a
certificate which immediately prior to the Effective Time represented
outstanding Alliance


<PAGE>   48

                                                                          Page 7

Common Shares that were exchanged for cash and 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 Alliance 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 aggregate cash to which such holder
is entitled under the Arrangement and 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 4.3 and any cash in lieu of fractional
Bowater Common Shares pursuant to Section 4.4), and the certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Alliance Common Shares which is not registered in the transfer
records of Alliance, the relevant amount of cash may be paid to and a
certificate representing the proper number of Bowater Common Shares may be
issued to the transferee if the certificate representing such Alliance 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 Alliance Common Shares that were exchanged for cash and 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 cash and 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 4.4 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 4.3. 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 Holdings.

4.3      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 be paid to the holder of any
unsurrendered certificate which immediately prior to the Effective Time
represented outstanding Alliance 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 4.4, 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 Alliance 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 4.4,
(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.


<PAGE>   49

                                                                          Page 8

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

Notwithstanding the foregoing, Bowater Canada or Bowater, respectively, shall be
entitled to deposit cash with the Depositary to enable the Depositary to make
cash payments provided for in paragraphs (a) and (b) above, in which case the
Exchangeable Shares or Bowater Common Shares, as the case may be, that would
otherwise be sold by the Depositary will be surrendered to Bowater Canada or
Bowater or no such shares will be issued.

4.5      LOST CERTIFICATES

         In the event any certificate which immediately prior to the Effective
Time represented one or more outstanding Alliance 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


<PAGE>   50

                                                                          Page 9

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
certificates representing, as applicable, Exchangeable Shares or Bowater Common
Shares (and any dividends or distributions with respect thereto and any cash
pursuant to Section 4.3) deliverable in accordance with such holder's Letter of
Transmittal. 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.

4.6      EXTINCTION OF RIGHTS

         Any certificate which immediately prior to the Effective Time
represented outstanding Alliance 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.

4.7      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 Alliance 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 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


<PAGE>   51

                                                                         Page 10

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 CALL RIGHTS

         By virtue of the Arrangement and the Exchangeable Share Provisions,
each holder of Alliance Common Shares who receives Exchangeable Shares under the
Arrangement, and the assignees from time to time of such Exchangeable Shares,
shall be subject to the Liquidation Call Right and the Redemption Call Right of
Bowater Holdings as referred to in the Exchangeable Share Provisions and, for
the purposes of this Plan of Arrangement, set out verbatim in Sections 5.2 and
5.3. Capitalized terms used in Sections 5.2 and 5.3 and not otherwise defined in
this Plan of Arrangement shall have the meaning ascribed thereto in the
Exchangeable Share Provisions. In addition, such holders and their assignees as
aforesaid shall be subject to all other rights of Bowater Holdings contained in
the Exchangeable Share Provisions, including, without limitation, the Retraction
Call Right (as defined in the Exchangeable Share Provisions).

5.2      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 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


<PAGE>   52

                                                                         Page 11

                           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 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 4.7 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 4.7 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


<PAGE>   53

                                                                         Page 12

                           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.

5.3      REDEMPTION CALL RIGHT

                  (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 or before 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


<PAGE>   54

                                                                         Page 13

                           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 Call Purchase Price less any amounts
                           withheld pursuant to Section 4.7 hereof. Provided
                           that Bowater Holdings has complied with the immediate
                           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 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 4.7 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

         Alliance 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
Alliance Shareholders' Meeting, approved by the Court, and (iv) communicated to
holders of Alliance Common Shares if and as required by the Court.


<PAGE>   55

                                                                         Page 14

         Any amendment, modification or supplement to this Plan of Arrangement
may be proposed by Alliance at any time prior to the Alliance Shareholders'
Meeting (provided that Bowater shall have consented thereto) with or without any
other prior notice or communication, and, if so proposed and accepted by the
Persons voting at the Alliance 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 Alliance Shareholders' Meeting shall
be effective only if (i) it is consented to by each of Alliance and Bowater, and
(ii), if required by the Court, it is consented to by holders of the Alliance
Common Shares voting in the manner directed by the Court.


<PAGE>   56

                                    EXHIBIT 1

                     PROVISIONS ATTACHING TO THE NON-VOTING
                   EXCHANGEABLE SHARES OF BOWATER CANADA INC.

                                   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.

         "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,


<PAGE>   57

                                  -2-


                  (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 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 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, a copy of which is annexed hereto as Exhibit I.


<PAGE>   58
                                      -3-


         "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, 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:

                  (c)      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; or

                  (d)      a transaction is proposed that will result in Control
                           of Bowater being acquired by any Person, in which
                           case (in the event that the Board of Directors elects
                           to redeem the Exchangeable Shares) the Redemption
                           Date will be the date immediately prior to the date
                           the acquisition of Control of Bowater occurs pursuant
                           to such transaction.

         "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.

         "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.


<PAGE>   59
                                      -4-


         "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 Montreal Trust Company of 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 Montreal Trust Company of Canada, 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

         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


<PAGE>   60
                                      -5-


                  (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.

         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,


<PAGE>   61
                                      -6-


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 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.


<PAGE>   62
                                      -7-


                                   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 and paid to date on the Bowater Common
Shares shall have been declared and paid in full on the Exchangeable Shares.

                                   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 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


<PAGE>   63
                                      -8-


                  (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 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


<PAGE>   64
                                      -9-


these share provisions, such holders shall not be entitled to share in any
further distribution of the assets of Bowater Canada.

                                   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.


<PAGE>   65
                                      -10-


         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 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 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



<PAGE>   66
                                      -11-


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 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


<PAGE>   67
                                      -12-


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,
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; provided, however, that in the event of a redemption of the
Exchangeable Shares at the election of the Board of Directors (or a purchase by
Bowater Holdings as a result thereof) upon a transaction being proposed that
would result in Control of Bowater being acquired by any Person, Bowater Canada
shall cause such notice to be sent at least the number of days prior to the
Redemption Date established by the Board of Directors as the Board of Directors
determines to be reasonably practicable under the circumstances; provided
further, however, that in each case the accidental failure or omission to give
such notice to fewer than 10% of the holders of the Exchangeable Shares shall
not affect the validity of such notice of redemption. 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.

         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


<PAGE>   68
                                      -13-


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.

                                   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


<PAGE>   69
                                      -14-


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 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.

<PAGE>   70
                                      -15-


                                   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:

                           (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


<PAGE>   71

                                      -16-


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 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


<PAGE>   72

                                      -17-


                           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 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 the Transfer Agent and 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.


<PAGE>   73

                                      -18-


         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 C$72.6061.


<PAGE>   74


                                   SCHEDULE A
                              NOTICE OF RETRACTION

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


         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>   75

                                      -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 at 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)

----------------------------------------------     ---------------------------
Street Address or P.O. Box                         Signature of Shareholder


----------------------------------------------     ---------------------------
City, Province and Postal Code                     Signature Guaranteed by


<PAGE>   76

                                      -3-


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>   77
                                   SCHEDULE B

                   REPRESENTATIONS AND WARRANTIES OF ALLIANCE

1.       Organization. Each of Alliance and its 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 Alliance are, except as disclosed in
the Alliance Disclosure Letter, owned free and clear of all 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. The Alliance Disclosure Letter discloses the names and
jurisdictions of incorporation or formation, as applicable, of each of
Alliance's Subsidiaries.

2.       Capitalization. The authorized capital of Alliance consists of an
unlimited number of Alliance Common Shares. As of March 31, 2001, there were
30,264,729 Alliance Common Shares outstanding and 3,000,000 Alliance Common
Shares were reserved, in the aggregate, for issuance in respect of the various
Employee Stock Incentive Plans of which 2,821,482 Alliance Common Shares are
under option. Furthermore, Alliance may be required to issue Alliance Common
Shares pursuant to the Alliance Employee Share Purchase Plan at a rate of
approximately 10,000 Alliance Common Shares per month in accordance with the
terms of such employee stock option plan. Except as described in the immediately
three (3) preceding sentences, and except for the rights issued in connection
with the Alliance Shareholder Rights Plan Agreement dated as of December 1,
1999, there are no options, warrants, conversion privileges or other rights,
agreements, arrangements or commitments obligating Alliance or any Subsidiary to
issue or sell any shares of Alliance or any of its Subsidiaries or securities or
obligations of any kind convertible into or exchangeable for any shares of
Alliance, 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
Alliance or any Subsidiary. There have been no Alliance Common Shares issued
since March 31, 2001, other than pursuant to the exercise of stock option
entitlements under the Employee Stock Incentive Plans described above and as
disclosed in the Alliance Disclosure Letter. All outstanding Alliance 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 Alliance or
any Subsidiary having the right to vote (or, that are convertible for or
exercisable into securities having the right to vote) with the holders of the
Alliance Common Shares on any matter. There are no outstanding contractual
obligations of Alliance or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any of their respective outstanding securities or with respect
to the voting or disposition of any outstanding securities of Alliance or any of
its Subsidiaries.

3.       Authority. Alliance has the requisite corporate capacity, power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement by Alliance and the
consummation by Alliance of the transaction


<PAGE>   78

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 2



contemplated by this Agreement have been duly authorized by the Board of
Directors of Alliance and, subject to the approval of the Alliance Common
Shareholders at the Alliance Meeting, no other corporate proceedings on the part
of Alliance are necessary to authorize this Agreement or the transaction
contemplated hereby other than in connection with the approval by the Board of
Directors of Alliance of the Proxy Circular, and other matters relating to the
implementation of the Arrangement. This Agreement has been duly executed and
delivered by Alliance and constitutes a legal, valid and binding obligation of
Alliance, enforceable against Alliance 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 for the approval of the
Arrangement at the Alliance Meeting and the obtaining of and the consents,
approvals, orders, authorizations, declarations and filings referred to in
Section 6.1 of this Agreement, the execution and delivery by Alliance of this
Agreement and performance by it of its obligations hereunder and the completion
of the Arrangement and the transaction contemplated hereby, 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 of its Subsidiaries' 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 of its Subsidiaries;

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

                  (iii)    any contract, agreement, license, franchise or permit
                  to which Alliance or any of its Subsidiaries is bound or is
                  subject or is the beneficiary;

         (b)      give rise to any right of termination or acceleration of
         indebtedness of Alliance or any of its Subsidiaries, or cause any third
         party indebtedness of Alliance or any of its Subsidiaries to come due
         before its stated maturity or cause any available credit of Alliance or
         any of its Subsidiaries 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 of its Subsidiaries, or
         restrict, hinder, impair or limit the ability of Alliance or any of its
         Subsidiaries to carry on the business of Alliance or such 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
Alliance or any of its Subsidiaries. No consent, approval, order or
authorization of, or declaration or filing with, any Governmental Entity or
other party is required to be obtained by Alliance and its Subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
by Alliance of the transaction contemplated hereby other than (i) any approvals


<PAGE>   79

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 3



required by the Interim Order, (ii) the Final Order, (iii) filings with the
Director under the CBCA and filings with and approvals required by applicable
Securities Authorities, and (iv) any other consents, waivers, permits, orders or
approvals referred to in Section 6.1 of this Agreement. Alliance and each of its
Subsidiaries has all requisite power and authority to own, lease and operate and
to carry on their businesses as now being conducted. Alliance and each of its
Subsidiaries is, and has been at all times it was required to be, duly
registered, licensed or qualified and in good standing to transact business in
each jurisdiction in which the nature of its business or the assets owned,
leased or operated by it make such registration, licensing necessary, save and
except where the absence of any such registration, licence or qualification
would not be material.

4.       Material Customers and Suppliers. Except as disclosed in the Alliance
Disclosure Letter, there is no single customer or supplier of Alliance or its
Subsidiaries, the loss of which would have a material adverse effect on
Alliance. Alliance has no knowledge of any intent by any of its fifteen (15)
largest customers or fifteen (15) largest suppliers to terminate its
arrangements with Alliance or any of its Subsidiaries, nor is there any
provision in any agreement with any of said customers or suppliers which would
cause or permit any such agreement to be terminated as a result of the
Arrangement.

5.       No Defaults. Except as disclosed in the Alliance Disclosure Letter,
neither Alliance nor any of its Subsidiaries has had any notice of any 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.

6.       Intellectual Property. To the best of its knowledge, Alliance 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 Alliance and its Subsidiaries taken as a whole.

7.       Absence of Changes. Since December 31, 2000, and except with respect to
the transaction contemplated by this Agreement and as disclosed in the Alliance
Disclosure Letter (i) Alliance 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
Alliance or its Subsidiaries have been incurred, (iii) there has not been any
material change (as defined under the Securities Act (Ontario)) in the affairs
of Alliance or in the financial condition, results of operation, business or
prospects of Alliance, (iv) as of the date hereof, there are no material change
reports filed with the Securities Authorities which remain confidential, (v)
Alliance has not declared or paid any dividends or distributions on any of its
outstanding shares, (vi) Alliance has not effected or passed any resolution to
approve a split, combination or reclassification of any of its outstanding
shares, (vii) Alliance has not granted any increase in the aggregate cash
compensation payable to any employee, except in the ordinary course of business
consistent with past practice, or granted to any employee any increase in
severance or termination pay, (viii) Alliance has not effected any change in its
accounting methods, principles or practices, (ix)


<PAGE>   80

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 4



Alliance has not issued, granted, declared or agreed to issue, grant or declare
any option, warrant, conversion privilege or other right, in respect of the
issuance or sale of any shares of Alliance or any of its Subsidiaries or of any
securities of any kind convertible into or exchangeable for any shares of
Alliance or any of its Subsidiaries; and (x) Alliance has not adopted or
materially amended any collective bargaining agreement or any Employee
Compensation and Benefit Arrangements. The last material filings made by
Alliance with Securities Authorities were the Annual Report, Annual Financial
Statements, Management Discussion and Analysis and the Management Proxy Circular
filed with the Securities Authorities on or about March 19, 2001.

8.       Employment Agreements

         (a)      Except as disclosed in the Alliance Disclosure Letter,
                  Alliance is not a party to any written or oral policy,
                  agreement, obligation or understanding providing for:

                  (i)      severance or termination payments to, or any
                           employment agreement with, any senior executive of
                           Alliance; or

                  (ii)     change of control payments to any employee of
                           Alliance.

         (b)      Except as disclosed in the Alliance Disclosure Letter, (i)
                  neither Alliance nor any of its Subsidiaries is a party to any
                  collective bargaining agreement; (ii) none of the employees of
                  Alliance or any Subsidiary (the "Employees") is represented in
                  his or her capacity as an employee of Alliance or any
                  Subsidiary, nor has Alliance nor any Subsidiary recognized any
                  labour organization or employee association nor has any labour
                  organization or employee association been elected as the
                  collective bargaining agent of any Employees; (iii) neither
                  Alliance nor any Subsidiary has received notice of any
                  application for certification, nor is there any union
                  organization activity involving any of the Employees in
                  progress, pending or, to the best of Alliance's knowledge,
                  threatened, nor has there ever been union representation
                  involving any of the Employees; (iv) there are not any
                  current, pending or, to the best of Alliance's knowledge,
                  threatened strikes or any current, pending or threatened
                  lockouts at either Alliance or any of its Subsidiaries.

         (c)      To the best of Alliance's knowledge and except as disclosed in
                  the Alliance Disclosure Letter, neither Alliance nor any of
                  its Subsidiaries is subject to or has received notice of any
                  claim for wrongful dismissal, constructive dismissal or any
                  other tort claim, actual or threatened, or any Legal
                  Proceedings, actual or threatened, relating to employment or
                  termination of employment of employees or independent
                  contractors.

         (d)      To the best of its knowledge and except as disclosed in the
                  Alliance Disclosure Letter, Alliance and all of its
                  Subsidiaries have operated in all material respects 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, civil
                  rights, discrimination, wages, hours, the Worker Adjustment
                  and


<PAGE>   81

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 5





                  Retraining Notification Act and any similar state or local
                  "MASS LAYOFF" or "PLANT CLOSING" Law, collective bargaining,
                  labour relations and the collection and payment of withholding
                  and/or social security Taxes and any similar Taxes and there
                  are no current, pending or, to the best of Alliance's
                  knowledge, threatened proceedings before any Governmental
                  Entity with respect to any of the areas listed herein.

9.       Disclosure. Alliance has publicly disclosed in documents filed with the
Securities Authorities or has disclosed to Bowater in the Alliance Disclosure
Letter, all such 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 Alliance or any of its Subsidiaries.

10.      Financial Statements. The audited consolidated statements of earnings,
statements of retained earnings and contributed surplus, consolidated statements
of cash flows and consolidated balance sheets of Alliance for the fiscal years
ended December 31, 1998, December 31, 1999 and December 31, 2000, as contained
in Alliance's 1998, 1999 and 2000 Annual Reports, were prepared in accordance
with generally accepted accounting principles in Canada consistently applied and
fairly present the consolidated financial condition of Alliance at the
respective dates indicated and the results of operations of Alliance (on a
consolidated basis) for the period covered.

11.      Books and Records. Except as disclosed in the Alliance Disclosure
Letter, the corporate records and minute books of Alliance and its 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 disclosed in the Alliance Disclosure Letter,
there are no Legal Proceedings including, without limitation, product liability
claims, in progress, pending, affecting or, to the best of Alliance's knowledge,
threatened against or relating to Alliance or any of its Subsidiaries or
affecting any of their properties or assets, nor is Alliance aware of any basis
for any such Legal Proceeding; neither Alliance nor any of its Subsidiaries is
subject to any outstanding order, writ, injunction or decree that has had or is
reasonably likely to have a material adverse effect on Alliance or any of its
Subsidiaries or prevent or materially delay consummation of the transaction
contemplated by this Agreement or the Arrangement.

13.      Environmental. Alliance, its Subsidiaries and all operations of
Alliance and its 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 Alliance, any
of its Subsidiaries or any of their respective operations. Neither Alliance nor
any of its Subsidiaries 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 Alliance or any of its
                  Subsidiaries, including, without limitation, any


<PAGE>   82

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 6



                  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
Alliance or any of its Subsidiaries.

14.      Insurance. Policies of insurance including, without limitation, product
liability policies, in force as of the date hereof naming Alliance (or, as
applicable, any of its Subsidiaries) as an insured adequately cover all risks
reasonably and prudently foreseeable in the operation and conduct of the
business of Alliance and its Subsidiaries. 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 transaction contemplated hereby or by the
Arrangement.

15.      Tax Matters. Alliance and each of its Subsidiaries have timely filed,
or caused to be timely filed, all Tax Returns required to be filed by them (all
of which returns were true, correct and complete in all material respects) and
have paid, or caused to be paid, unless the same are currently being contested
by Alliance in good faith, all Taxes that are due and payable, and Alliance 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, except where there would be no
material liability for the failure to file such 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.

         Alliance and each of its Subsidiaries has withheld from each payment
made by it the amount of all Taxes and other deductions required to be withheld
therefrom and has paid all such amounts and instalments of Taxes due and payable
within the time prescribed under any Tax legislation, except where there would
be no material liability for the failure to so withhold.

         Except as disclosed in the Alliance Disclosure Letter, neither Alliance
nor any of its Subsidiaries has received any assessment, reassessment or any
other written notification that any material issues have been raised (and are
currently pending) by the Canada Customs and Revenue Agency, 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 there are no Legal Proceedings in progress, pending or
threatened against Alliance or any of its Subsidiaries and no agreements,
waivers or other arrangements providing for an extension of time with respect to
the assessment or reassessment of any Taxes by, or levying of any governmental
charges have been given or requested with respect to Alliance or any of its
Subsidiaries. To the best of Alliance's knowledge, 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
Alliance nor any of its Subsidiaries (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 Alliance or any Subsidiary has or could have any
liabilities in


<PAGE>   83

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 7



respect of Taxes. Alliance 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.


         Neither Alliance nor any Subsidiary has ever been subject to the
application of Section 78, Section 79 or Sections 80 to 80.04 of the Tax Act,
where such application (either individually or when taken with other
applications of these provisions) would be material.


         "TAX" and "TAXES" means, with respect to any entity, (i) 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, goods and services tax, harmonized sales tax, 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 or disability insurance or compensation, employee health taxes,
stamp taxes, occupation taxes, premium taxes, property taxes, windfall profits
taxes, alternative or add-on minimum taxes, 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 (ii) any
liability for the payment of any amount of the type described in the immediately
preceding clause (i) 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.


         Neither Alliance nor any of its Subsidiaries is a "PASSIVE FOREIGN
INVESTMENT COMPANY" as defined in Section 1297 of the Code. Alliance is not a
"CONTROLLED FOREIGN CORPORATION" as defined in Section 957 of the Code. Neither
Alliance nor any of its Subsidiaries has entered into any closing agreements
with the IRS with respect to any disputed or contested Tax. Neither Alliance nor
any of its Subsidiaries has made any change of accounting method which would
give rise to Tax liability pursuant to Section 481 of the Code nor have they
filed a Form 3115 with the IRS. Neither Alliance nor any of its Subsidiaries is
or has been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.

16.      Pensions and Employee Compensation and Benefits

         (a)      Except as set out in the Alliance Disclosure Letter, there are
                  no Employee Compensation and Benefit Arrangements (whether
                  written or unwritten) maintained or contributed to, or
                  provided by, Alliance or any Subsidiary for the benefit of any
                  of the current or former employees of Alliance or any of its
                  Subsidiaries or their respective dependants or beneficiaries
                  (the "ALLIANCE PLANS"). None of the Alliance Plans is a
                  multi-employer plan or a multiemployer plan, as defined in the
                  Income Tax Act (Canada) and in Section 3(37) of ERISA,
                  respectively, (both terms to be hereinafter referred to as
                  "MULTI-EMPLOYER PLAN"),


<PAGE>   84

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 8



                  nor has Alliance nor any Subsidiary ever been obligated to
                  contribute to a Multiemployer Plan.

         (b)      Alliance and each of its Subsidiaries have complied, in all
                  material respects, with all the terms of, and all applicable
                  Laws in respect of, the Employee Compensation and Benefit
                  Arrangements maintained, contributed to or provided by
                  Alliance and each of its Subsidiaries, including, without
                  limitation, the terms of any collective agreements, funding
                  and investment contracts or obligations arising under or
                  relating or applicable thereto.

         (c)      To the best of Alliance's knowledge and except as disclosed in
                  the Alliance Disclosure Letter, the Alliance Plans have been
                  maintained, administered, and invested in all material
                  respects, in accordance with their terms and with all
                  applicable Laws and, in respect of the U.S. Alliance Plans in
                  accordance with all applicable provisions of ERISA and the
                  Code and, in respect of the Canadian Alliance Plans, in
                  accordance with the Income Tax Act (Canada) and pension
                  legislation, where applicable. Except as disclosed in the
                  Alliance Disclosure Letter, all of the Alliance Plans are
                  fully funded on both a solvency and a wind-up basis and in
                  good standing with all required regulatory authorities.

         (d)      The Alliance Plans are intended to qualify under Section 401
                  of the Code or registered under the Income Tax Act (Canada),
                  where applicable, and the trusts maintained pursuant thereto
                  have been determined to be so qualified or so registered and
                  exempt from federal income taxation under Section 501 of the
                  Code or under the Income Tax Act (Canada), as applicable, and
                  nothing has occurred with respect to the operation of the
                  Alliance Plans which is reasonably likely to cause the loss of
                  such qualification, exemption or registration, as applicable,
                  or the imposition of any material liability, penalty or tax
                  under ERISA, the Code, the Income Tax Act (Canada) or
                  provincial pension legislation, as applicable, except where
                  there would be no material liability for failure to make such
                  qualifications.

         (e)      To the best of Alliance's knowledge, all contributions
                  (including all employer contributions and employee salary
                  reduction contributions) required to have been made under any
                  of the Alliance Plans or by law (without regard to any waivers
                  granted under Section 412 of the Code), to any funds or trusts
                  established thereunder or in connection therewith have been
                  made by the due date thereof (including any valid extension),
                  and all contributions for any period ending on or before the
                  Effective Date which are not yet due will have been paid on or
                  prior to the Effective Date. Except as disclosed in the
                  Alliance Disclosure Letter, no accumulated funding
                  deficiencies exist in any of the U.S. Alliance Plans subject
                  to Section 412 of the Code, or in any of the Canadian Alliance
                  Plans.

         (f)      There are no current pending or, to the best of Alliance's
                  knowledge, threatened Legal Proceedings which have been
                  asserted or instituted against any of the


<PAGE>   85

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                          PAGE 9



                  Alliance Plans, the assets of any of the trusts under such
                  plans or the plan sponsor or the plan administrator, or
                  against any fiduciary of the Company Plans with respect to the
                  operation of such plans (other than routine benefit claims
                  made in the ordinary course), nor does Alliance have knowledge
                  of facts which could form the basis for any such Legal
                  Proceeding.

         (g)      Except as disclosed in the Alliance Disclosure Letter, none of
                  the Alliance Plans provide for post-retirement or
                  post-employment life or health insurance, benefit or coverage
                  for any participant or any beneficiary of a participant,
                  except as may be required under the Consolidated Omnibus
                  Budget Reconciliation Act of 1985, as amended.

         (h)      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 Alliance 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.

         (i)      Neither Alliance nor its Subsidiaries are making any payments
                  to Employees or their dependents in respect of long term
                  disability, accidental death and dismemberment, or similar
                  benefits, other than benefits which are fully insured.

         (j)      No withdrawals of assets have been made from the assets of any
                  Alliance Plans, except withdrawals for the purposes of paying
                  or arranging the payment of benefits or proper expenses of
                  such plans in accordance with their terms and applicable Laws.

         (k)      Except as disclosed in the Alliance Disclosure Letter, neither
                  Alliance nor any of its Subsidiaries has taken any
                  contribution holidays in respect of the Alliance Plans, and
                  where contribution holidays have been taken, they were taken
                  in accordance with the applicable terms and conditions of the
                  Alliance Plans and upon independent advice confirming the
                  right of Alliance and its Subsidiaries to do so.

         (l)      Except as disclosed in the Alliance Disclosure Letter, no
                  representations have been made to Employees or former
                  employees of Alliance or its Subsidiaries, who may or who are
                  eligible to receive benefits from an Alliance Plan, to the
                  effect that the assets of any such plan (or any predecessor
                  plan whose assets and liabilities have been transferred to
                  such Alliance Plan) must be used exclusively for the provision
                  of benefits to Employees or former employees of Alliance or
                  its Subsidiaries, and cannot revert to Alliance or its
                  Subsidiaries, as applicable.


<PAGE>   86

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                         PAGE 10



         (m)      Except as disclosed in the Alliance Disclosure Letter, no
                  amendments or improvements to the Alliance Plans have been
                  promised and no amendments or improvements to the Alliance
                  Plans will have been promised before the Effective Date,
                  except as required by applicable Laws or by applicable
                  regulatory authorities.


17.      Property. Except as disclosed in the Alliance Disclosure Letter,
Alliance and its Subsidiaries have good and marketable title to their respective
real property interests including, without limitation, fee simple estate or
equivalent of and in real property, leases, easements, rights of way, permits or
licences from land owners or authorities permitting the use of land by Alliance
and its Subsidiaries, necessary to permit the operation of their respective
businesses as presently owned and conducted save and except for any deficiency,
omission or breach having no materially adverse consequences.

18.      Reports. Alliance 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, 1998 (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 "ALLIANCE DOCUMENTS"). The Alliance 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. Alliance has not filed any confidential material change
report with any Securities Authorities which at the date hereof remains
confidential.

19.      Compliance with Laws. Alliance and its 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 Alliance or any of its Subsidiaries.

20.      Licenses, Etc. Alliance and each of its 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, 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 Alliance or any of its Subsidiaries.

21.      Contracts. The Alliance Disclosure Letter contains a list of all
contracts, leases, agreements, commitments, obligations and arrangements,
written or oral, of any nature or kind, which provide for ongoing obligations of
Alliance or any of its Subsidiaries (other than Non-Material Contracts) (in this
Section 21, the "Contracts"). There is not in progress, pending or, to the best
of Alliance's knowledge, threatened any cancellation of or default under the
Contracts except as disclosed in the Alliance Disclosure Letter. Except as
disclosed in the Alliance Disclosure Letter (A) each of the Contracts is in full
force and effect and is binding upon Alliance and/or its Subsidiaries, as the
case may be, in accordance with its terms, (B) neither


<PAGE>   87

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                         PAGE 11



Alliance, nor any of its Subsidiaries, as the case may be, nor the other
contracting parties to the Contracts are in breach of or in default (whether
with notice or lapse of time or both) under any such Contracts, (C) no such
Contract has been amended or modified (other than amendments or modifications to
Contracts in the ordinary course of business, copies of which have been provided
to Bowater by Alliance), and (D) no consent, approval, permit or acknowledgement
is required under any of the Contracts from any party thereto or any other
person in connection with the completion of the transaction herein contemplated.

The Term "Non-Material Contracts" means any Contract which: (i) is not with an
officer, director or employee of Alliance or any Subsidiary, nor with another
division or an affiliate of Alliance or any Subsidiary or other person not at
arms' length with Alliance or any Subsidiary; and (ii) involves payments,
receipts, commitments or obligations of less than $250,000 per annum, or is
terminable at the option of Alliance or any Subsidiary, as applicable, without
penalty upon not more than 30 days notice, provided that the aggregate of all
payments, receipts, commitments and obligations under all such Non-Material
Contracts will not be in excess of $1,000,000 per annum.

22.      Non-Competition Agreements. Except as disclosed in the Alliance
Disclosure Letter, neither Alliance nor any of its Subsidiaries is a party to or
bound by any non-competition agreement or any other agreement or obligation
which purports to limit adversely the manner or the localities in which all or
any material portion of the business of Alliance or its Subsidiaries is or would
be conducted.

23.      Insurance Matters. Alliance 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 Alliance (including former directors and officers)
would not be available for the 3 (three) years following the Effective Date as
provided in Section 5.8 of the Arrangement Agreement. There have not been any
Legal Proceedings asserted against Alliance with respect to any directors' or
officers' indemnification agreement referred to in Section 5.8. Alliance has not
taken any action, and Alliance is not aware that the insureds under the policy
referred to in Section 5.8 have taken any action, which would impair the
coverage under such insurance policy.

24.      Brokers, Agents, Etc. Brokers or Finders. No agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in connection
with any of the transactions contemplated by this Agreement, based upon
arrangements made by or on behalf of Alliance except for BMO Nesbitt Burns Inc.
and Merrill Lynch & Co, whose fees and expenses will be paid by Alliance in
accordance with the agreements with such firm, copies of which has been
previously provided to Bowater.

25.      Opinion of Alliance's Financial Advisors. Alliance has received
opinions from BMO Nesbitt Burns Inc. and Merrill Lynch & Co dated the date of
this Agreement, to the effect that, as of such date, the consideration to be
received by the Alliance Common Shareholders under the Arrangement is fair, from
a financial point of view, to the Alliance Common Shareholders, a copy of which
opinion has been made available to Bowater.


<PAGE>   88

                                                                      SCHEDULE B
                                      REPRESENTATIONS AND WARRANTIES OF ALLIANCE
                                                                         PAGE 12



26.      Native Land Claims. Except as disclosed in the Alliance Disclosure
Letter, neither Alliance nor its Subsidiaries has had any notice of any claim of
right, title or jurisdiction which is outstanding at the date hereof which has
been made or established to or over any lands owned or used by Alliance or any
of its Subsidiaries or any waters or products harvested therefrom by any person,
including any aboriginal peoples, and there is not in progress, pending or, to
the best of Alliance's knowledge, threatened any Legal Proceeding, which, if
successful, would adversely affect in any material respect the right of Alliance
or any of its Subsidiaries to use and enjoy such lands in the manner heretofore
used and enjoyed by Alliance and its Subsidiaries.

27.      Timber Supply and Forest Management.

         (a)      The Alliance Disclosure Letter discloses to Bowater all of the
                  timber supply and forest management permits and licences made
                  pursuant to the Forest Act (Quebec) and the Crown Lands and
                  Forests Act (New Brunswick) to which any of the Alliance or
                  any of its Subsidiaries is a party in respect of their
                  respective businesses or the supply of wood from Crown lands
                  used in the operation of the such business, including without
                  limitation all Crown timber licences and Crown timber
                  sub-Licences under or pursuant to which wood from Crown lands
                  is used by such business (the "TIMBER TENURES").

         (b)      Alliance and each of its Subsidiaries has observed and
                  performed all covenants, agreements and obligations on its
                  part to be observed or performed under the provisions of each
                  of the Timber Tenures, the Forest Act (Quebec) and the Crown
                  Lands and Forests Act (New Brunswick) and the respective
                  regulations thereunder, and all other applicable forestry
                  legislation save and except for any deficiency, omission or
                  breach having no materially adverse consequences.

         (c)      Alliance and each of its Subsidiaries is not in breach of any
                  of the timber cutting rights or permits or industrial,
                  management or operating plans issued or filed pursuant to any
                  of the Timber Tenures save and except for any deficiency,
                  omission or breach having no materially adverse consequences.

         (d)      The Timber Tenures are in full force and effect and Alliance
                  and each of its Subsidiaries is in compliance with all forest
                  management agreements and other agreements to which Alliance
                  and each of its Subsidiaries is a party in connection with the
                  Timber Tenures and with all industrial, management and
                  operating plans relating to the Timber Tenures. All such plans
                  are up to date and have been duly approved by the appropriate
                  regulatory authorities.

28.      Foreign Private Issuer. Alliance is a "FOREIGN PRIVATE ISSUER" as
defined in Rule 36-4 under the United States Securities Exchange Act of 1934.


<PAGE>   89


                                   SCHEDULE C

                    REPRESENTATIONS AND WARRANTIES OF BOWATER

1.       Organization. Bowater has been duly incorporated under the laws of the
State of Delaware and Bowater Canada has been duly incorporated under the
federal laws of Canada, and each of Bowater and Bowater Canada 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
Bowater's Subsidiaries (including, without limitation, Bowater Canada) 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 the Bowater Disclosure Letter, 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 March 15, 2001 there were
50,361,846 Bowater Common Shares outstanding and one share of Special Voting
Stock outstanding. As of March 22, 2001 there were reserved, in the aggregate,
for issuance in respect of Bowater's Stock Incentive Plans 3,472,250 Bowater
Common Shares of which 550,667 were yet to be granted and 2,921,583 were
outstanding but unexercised. Except as described in the immediately preceding
sentences or disclosed in the Bowater Disclosure Letter, there are no options,
warrants, conversion privileges or other rights, agreements, arrangements or
commitments obligating Bowater to issue or sell any shares of Bowater or
securities or obligations of any kind convertible into or exchangeable for any
shares of Bowater. There have been no Bowater Common Shares issued since March
15, 2001, other than pursuant to the exercise of stock option entitlements and
upon exchange of Exchangeable Shares. The authorized capital of Bowater Canada
consists of an unlimited number of common shares, an unlimited number of
non-voting exchangeable shares and 1,000 non-voting preferred shares. As of
December 31, 2000 there were 58,866,346 common shares, 5,138,672 non-voting
exchangeable shares (of which, as of March 15, 2001, 1,228,150 were held by
non-affiliates of Bowater) and 1,000 non-voting preferred shares outstanding.
There are no options, warrants, conversion privileges or other rights,
agreements, arrangements or commitments obligating Bowater Canada to issue or
sell any shares of Bowater Canada or securities or obligations of any kind
convertible into or exchangeable for any shares of Bowater Canada.

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


<PAGE>   90

                                                                      SCHEDULE C
                                       REPRESENTATIONS AND WARRANTIES OF BOWATER
                                                                          PAGE 2



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 for obtaining the consents, approvals, orders, authorizations,
declarations and filings 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 transaction
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 of its Subsidiaries' 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
                           of its Subsidiaries;

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

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

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

         (c)      result in the imposition of any encumbrance, charge or lien
                  upon any of its assets, or restrict, hinder, impair or limit
                  the ability of Bowater to carry on the business of Bowater 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. 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 in connection with the execution and delivery of this Agreement or
the consummation by Bowater of the transaction 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 and Securities Authorities, (iv)
any other consents, waivers, permits, orders or approvals referred to in Section
6.1 of this Agreement.

Bowater and each of its Subsidiaries have all requisite power and authority to
own, lease and operate and to carry on their businesses as now being conducted.
Bowater and each of its Subsidiaries is, and has been at all times it was
required to be, duly registered, licensed or qualified and in good standing to
transact business in each jurisdiction in which the nature of its


<PAGE>   91

                                                                      SCHEDULE C
                                       REPRESENTATIONS AND WARRANTIES OF BOWATER
                                                                          PAGE 3



business or the assets owned, leased or operated by it make such registration,
licensing necessary, save and except where the absence of any such registration,
licence or qualification would not be material.

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.

5.       Absence of Changes. Since December 31, 2000, and except with respect to
the present transaction contemplated by this Agreement and as disclosed in the
Bowater Disclosure Letter, (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, (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; (iv) Bowater has
not effected or passed any resolution to approve a split, combination or
reclassification of any of its outstanding shares, (v) Bowater has not effected
any change in its accounting methods, principles or practices, other than as
required by United States generally accepted accounting principles; and (vi)
Bowater has not issued, granted, declared or agreed to issue, grant or declare
any warrant, conversion privilege or other right, in respect of the issuance or
sale of any shares of Bowater or any of its Subsidiaries or of any securities of
any kind convertible into or exchangeable for any shares of Bowater or any of
its Subsidiaries.

6.       Disclosure. Bowater has publicly disclosed in documents filed with the
SEC or has disclosed to Alliance in the Bowater Disclosure Letter all such
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.

7.       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, 2000, and such statements of Bowater for the years ended December
31, 1998 and December 31, 1999, as contained in Bowater's 1998 and 1999 Annual
Reports, were prepared in accordance with United States 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.

8.       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, 1998 (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



<PAGE>   92

                                                                      SCHEDULE C
                                       REPRESENTATIONS AND WARRANTIES OF BOWATER
                                                                          PAGE 4



misrepresentation (as defined in relevant securities legislation) and (b)
complied in all material respects with the requirements of applicable securities
legislation.

9.       Compliance with Laws. Bowater has complied with and is 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.