##### 



| |                                                                             
| | ----------------------------------------------------------------------------
| | As filed with the Securities and Exchange
    Commission on October 18, 2004

Registration
No. 333-




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U.S. SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C. 20549




---

Form F-4

REGISTRATION STATEMENT


UNDER


THE SECURITIES ACT OF 1933




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Ainsworth Lumber Co. Ltd.

(Exact name of Registrant as specified in its
charter)


|                                                                      |  |                                                              |  |                                         
|--------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------
|British Columbia                                                      |  | 8731                                                         |  | Not Applicable                          
|(Province or other Jurisdiction
    of Incorporation or Organization) |  | (Primary Standard Industrial
    Classification Code Number) |  | (I.R.S. Employer
    Identification No.)

Ainsworth Engineered Corp.

(Exact name of Registrant as specified in its
charter)


|                                                                      |  |                                                              |  |                                         
|--------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------
|Nova Scotia                                                           |  | 8731                                                         |  | Not Applicable                          
|(Province or other Jurisdiction
    of Incorporation or Organization) |  | (Primary Standard Industrial
    Classification Code Number) |  | (I.R.S. Employer
    Identification No.)

Ainsworth Engineered (USA), LLC

(Exact name of Registrant as specified in its
charter)


|                                                                      |  |                                                              |  |                                         
|--------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                              |  | 8731                                                         |  | 331100810                               
|(Province or other Jurisdiction
    of Incorporation or Organization) |  | (Primary Standard Industrial
    Classification Code Number) |  | (I.R.S. Employer
    Identification No.)

1055 Dunsmuir Street

Vancouver, British Columbia


Canada V7X 1L3


(604) 661-3200


(Address and telephone number of
Registrants principal executive offices)


CT Corporation System

111 Eighth Avenue


New York, New York 10011


(212) 894-8940


(Name, address and telephone number of agent
for service)




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Copies to:

Christopher W. Morgan, Esq.

Skadden, Arps, Slate, Meagher & Flom
LLP


222 Bay Street


Suite 1750, P.O. Box 258


Toronto, Ontario M5K 1J5


(416) 777-4700




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Approximate
date of commencement of proposed sale of the securities to the
public:As soon as practicable after
this Registration Statement becomes effective.

If
this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of earlier effective registration statement for
the same
offering.    o

If
this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.    o



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CALCULATION OF REGISTRATION FEE

|                            |  |                  |  |                  |  |                |  |             
|--------------------------- |  | ---------------- |  | ---------------- |  | -------------- |  | ------------
|                           
|                           
|                           
|                           
|                            |  | Proposed Maximum |  | Proposed Maximum |  | Amount of     
|Title of Each Class of      |  | Principal Amount |  | Offering Price   |  | Aggregate      |  | Registration
|Securities to be Registered |  | to be Registered |  | per Unit(1)      |  | Offering Price |  | Fee         
|                           
|                           
|7 1/4% Senior Notes         |  | $275,000,000     |  | 100%             |  | $275,000,000   |  | $34,842.50  
|                           
|Senior Floating Rate Notes  |  | $175,000,000     |  | 100%             |  | $175,000,000   |  | $22,172.50  
|                           
|Guarantees                  |  | (1)              |  | (1)              |  | (1)            |  | (1)         
|                           
|                           



|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The guarantees by Ainsworth Engineered Corp.
    and Ainsworth Engineered (USA), LLC are being registered
    hereunder without separate consideration.



---

The
Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Commission acting pursuant to said Section 8(a), may
determine.



---








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##### 



|The information in this
prospectus is not complete and may be changed. We may not
exchange these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these exchange notes and is
not soliciting an offer to buy these notes in any state where
the offer or sale is not permitted.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUBJECT TO COMPLETION, DATED
OCTOBER 18, 2004

US$450,000,000

Ainsworth Lumber Co. Ltd.

OFFER TO EXCHANGE

all outstanding

7 1/4% Senior Notes due October 1, 2012

(US$275,000,000 aggregate principal amount) and


Senior Floating Rate Notes due October 1, 2010


(US$175,000,000 aggregate principal amount)


for

7 1/4% Senior Notes due October 1, 2012

(US$275,000,000 aggregate principal amount)


which have been registered under the Securities Act of 1933
and


Senior Floating Rate Notes due October 1, 2010


(US$175,000,000 aggregate principal amount)


which have been registered under the Securities Act of
1933


US$275,000,000
aggregate principal amount of 7 1/4% Senior Notes due
October 1, 2012, referred to in this prospectus as the
original fixed rate notes, and US$175,000,000 aggregate
principal amount of Senior Floating Rate Notes due
October 1, 2010, referred to in this prospectus as the
original floating rate notes, were originally issued and sold by
us on September 22, 2004 in a transaction that was exempt
from registration under the Securities Act and resold to
qualified institutional buyers in compliance with Rule 144A
under the Securities Act and to persons outside the United
States in compliance with Regulation S under the Securities
Act. The original fixed rate notes and the original floating
rate notes are referred to collectively in this prospectus as
the original notes.

The
new 7 1/4% Senior Notes due October 1, 2012, or the
new fixed rate notes, and the new Senior Floating Rate Notes due
October 1, 2010, or the new floating rate notes, evidence
the same respective indebtedness as the original notes, and
their terms are identical, in each case, to the terms of the
original notes, except that the new fixed rate notes and new
floating rate notes will be registered under the Securities Act,
will not contain restrictions on transfer or provisions relating
to special interest under circumstances related to the timing of
the exchange offer, will bear different CUSIP numbers from the
original notes and will not entitle the holders to registration
rights. The new fixed rate notes and the new floating rate notes
are referred to collectively in this prospectus as the exchange
notes.

Our
offer to exchange the exchange notes for original notes will
expire at 5:00 p.m., New York City time,
on                     ,           ,
unless we extend the offer. The terms of the exchange offer are
described in this prospectus.

We
do not intend to list the exchange notes on any national
securities exchange and do not expect that an established
trading market for the exchange notes will develop.



---

See
Risk Factors beginning on page 17 for a
discussion of risks that you should consider in connection with
tendering your original notes in the exchange offer.



---

Neither
the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of the Exchange Notes to be
distributed in the exchange offer or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary
is a criminal offense.



---

The date of this prospectus
is                     ,
2004.



---



##### 



PART I

INFORMATION REQUIRED TO BE

DELIVERED TO OFFEREES OR PURCHASERS




---



##### 



TABLE OF CONTENTS


|                                                                                          |  |      |     | 
|----------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                          |  | Page
|                                                                                          |  |     
|Presentation of Financial Information                                                     |  |      | i   | 
|Exchange Rate Data                                                                        |  |      | ii  | 
|Summary                                                                                   |  |      | 1   | 
|Risk Factors                                                                              |  |      | 17  | 
|Special Note Regarding Forward-Looking Statements                                         |  |      | 29  | 
|Market and Industry Data and Forecasts                                                    |  |      | 30  | 
|Use of Proceeds                                                                           |  |      | 31  | 
|Capitalization                                                                            |  |      | 32  | 
|Selected Consolidated Financial and Other Data                                            |  |      | 33  | 
|Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 36  | 
|Markets in Which We Operate                                                               |  |      | 48  | 
|Our Business                                                                              |  |      | 51  | 
|Co-ownership Arrangements for High Level                                                  |  |      | 68  | 
|Corporate Information                                                                     |  |      | 70  | 
|Management                                                                                |  |      | 72  | 
|Related Party Transactions                                                                |  |      | 78  | 
|Share Capital Structure                                                                   |  |      | 78  | 
|Description of Other Indebtedness                                                         |  |      | 80  | 
|The Exchange Offer                                                                        |  |      | 81  | 
|Description of Notes                                                                      |  |      | 91  | 
|Plan of Distribution                                                                      |  |      | 135 | 
|Income Tax Considerations                                                                 |  |      | 136 | 
|Legal Matters                                                                             |  |      | 140 | 
|Experts                                                                                   |  |      | 140 | 
|Where You Can Find More Information                                                       |  |      | 141 | 
|Index to Consolidated Financial Statements                                                |  |      | F-1 | 



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You should rely only on the information
contained in or incorporated by reference into this prospectus
or to which we have referred you. We have not authorized anyone
to provide you with information that is different. This document
may only be used where it is legal to sell these securities. The
information in this document and the documents incorporated by
reference may only be accurate on the date of such
documents.





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##### 



PRESENTATION OF FINANCIAL
INFORMATION

Our consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in Canada, or Canadian GAAP. To the extent applicable
to our consolidated financial statements, these principles
conform in all material respects with generally accepted
accounting principles in the United States, or U.S. GAAP,
except as described in note 22 to our audited consolidated
financial statements included elsewhere in this prospectus and
note 7 to our unaudited interim consolidated financial
statements included elsewhere in this prospectus. The financial
statements of Voyageur Panel Limited, or Voyageur, which we
acquired on May 19, 2004, included in this prospectus have
been prepared in accordance with Canadian GAAP. To the
extent applicable to Voyageurs financial statements, these
principles conform in all material respects with U.S. GAAP,
except as described in note 13 to Voyageurs audited
financial statements included elsewhere in this prospectus. The
financial statements relating to the three OSB facilities
located in Minnesota, or the Minnesota OSB facilities, that we
are acquiring from Potlatch Corporation, or Potlatch, included
in this prospectus have been prepared in accordance with
Canadian GAAP. To the extent applicable to the audited financial
statements relating to the Minnesota OSB facilities, these
principles conform in all material respects with U.S. GAAP,
except as described in note 11 to the audited financial
statements relating to the Minnesota OSB facilities included
elsewhere in this prospectus. The pro forma financial
information included elsewhere in this prospectus has been
prepared in accordance with Canadian GAAP, and gives effect to
the offering of US$210 million aggregate principal amount
of 6.750% senior notes due March 15, 2014 that we completed
in March of 2004, our acquisition of Voyageur and the related
offering by us of US$110 million aggregate principal amount
of 6.750% senior notes due March 15, 2014, our acquisition
of the Minnesota OSB facilities and the offering of original
notes. To the extent applicable to the pro forma financial
information, these principles conform in all material respects
to U.S. GAAP, except as disclosed in note 6 to the pro
forma financial information included elsewhere in this
prospectus.

In this prospectus we use EBITDA, which we define
as operating earnings before amortization and write-down of
capital assets, plus other income. EBITDA is not a measure of
performance under Canadian GAAP or U.S. GAAP. We have
included EBITDA in this prospectus because we believe that, in
addition to net income (loss), EBITDA provides investors with a
basis to evaluate our operating performance and ability to incur
and service debt and to fund capital expenditures. To evaluate
EBITDA, the components of EBITDA, such as net income and
interest charges and the variability of such components over
time, should also be considered. Investors should be cautioned,
however, that EBITDA should not be construed as an alternative
to net income (loss) (as determined in accordance with Canadian
GAAP or U.S. GAAP) as an indicator of our operating
performance, or as an alternative to cash flows from operating,
investing and financing activities (as determined in accordance
with Canadian GAAP or U.S. GAAP) as a measure of liquidity
or our ability to meet all our cash needs. Our method of
calculating EBITDA may differ from the methods used by other
companies and, as a result, the EBITDA measures presented in
this prospectus may not be comparable to other similarly titled
measures disclosed by other companies. For a reconciliation of
EBITDA to net income (loss), see footnote 7 under
Selected Consolidated Financial and Other Data.

i



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##### 



EXCHANGE RATE DATA

We present our consolidated financial statements
in Canadian dollars and the Voyageur financial statements are
also presented in Canadian dollars. The financial statements
relating to the Minnesota OSB facilities included elsewhere in
this prospectus have been presented in United States dollars.
The pro forma financial information included in this prospectus
has been presented in Canadian dollars. In this prospectus,
except where otherwise indicated, all dollar amounts are
expressed in Canadian dollars, references to $ or
dollars are to Canadian dollars and references to
US$ and U.S. dollars are to United
States dollars.

The following table sets forth, for each period
indicated, the low and high exchange rates for Canadian dollars
expressed in U.S. dollars, the exchange rate at the end of
such period and the average of such exchange rates on the last
day of each month during such period, based on the inverse of
the noon buying rate in the City of New York for cable transfers
in Canadian dollars as certified for customs purposes by the
Federal Reserve Bank of New York:

|           |  |                         |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|---------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|           |  |                        
|           |  | Year ended December 31,
|           |  |                        
|           |  | 1999                    |        | 2000 |  | 2001 |        | 2002 |  | 2003
|           |  |                         |        |      |  |      |        |      |  |     
|Low        |  |                         | 0.6535 |      |  |      | 0.6410 |      |  |      | 0.6241 |  |  |  | 0.6200 |  |  |  | 0.6349 | 
|High       |  |                         | 0.6925 |      |  |      | 0.6969 |      |  |      | 0.6697 |  |  |  | 0.6619 |  |  |  | 0.7738 | 
|Period End |  |                         | 0.6925 |      |  |      | 0.6669 |      |  |      | 0.6279 |  |  |  | 0.6329 |  |  |  | 0.7738 | 
|Average    |  |                         | 0.6744 |      |  |      | 0.6725 |      |  |      | 0.6444 |  |  |  | 0.6368 |  |  |  | 0.7186 | 

The following table sets forth, for each of the
last six months, for Canadian dollars expressed in
U.S. dollars, the low and high exchange rates and the
exchange rate at the end of the month based on the inverse of
the noon buying rate as described above:

|             |  |                 |        |     |  |      |        |      |  |        |        |           |  |  |        |  |  |  |        |  |  |  |        | 
|------------ |  | --------------- | ------ | --- |  | ---- | ------ | ---- |  | ------ | ------ | --------- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|             |  |                
|             |  | Last six months
|             |  |                
|             |  | April           |        | May |  | June |        | July |  | August |        | September
|             |  |                 |        |     |  |      |        |      |  |        |        |          
|Low          |  |                 | 0.7293 |     |  |      | 0.7158 |      |  |        | 0.7261 |           |  |  | 0.7489 |  |  |  | 0.7506 |  |  |  | 0.7651 | 
|High         |  |                 | 0.7637 |     |  |      | 0.7364 |      |  |        | 0.7459 |           |  |  | 0.7644 |  |  |  | 0.7714 |  |  |  | 0.7906 | 
|End of Month |  |                 | 0.7293 |     |  |      | 0.7317 |      |  |        | 0.7459 |           |  |  | 0.7521 |  |  |  | 0.7595 |  |  |  | 0.7906 | 

On October 18, 2004, the inverse of the noon
buying rate was US$0.7968 = $1.00.

ii



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##### 



SUMMARY The following section summarizes more detailed
information presented later in this prospectus. You should read
the entire prospectus, including, in particular, the Risk
Factors beginning on page 17 and our consolidated
financial statements and the related notes included elsewhere in
this prospectus. Unless the context otherwise suggests,
we, us, our and similar
terms, as well as references to Ainsworth, refer to
Ainsworth Lumber Co. Ltd. and its consolidated subsidiaries,
references to Voyageur refer to Voyageur Panel
Limited, predecessor to our wholly-owned subsidiary Ainsworth
Engineered Corp. and the Minnesota OSB facilities
refers to the three OSB facilities located in the northern
Minnesota towns of Bemidji, Cook and Grand Rapids that we have
acquired from Potlatch Corporation. In this prospectus, except
where otherwise indicated, all amounts are expressed in Canadian
dollars, references to $ and Cdn$ are to
Canadian dollars and references to US$ are to United
States dollars. As used in this prospectus, msf
means one thousand square feet,  3/8 of an inch thick,
mmsf means one million square feet,  3/8 of an
inch thick, bsf means one billion square
feet,  3/8 of an inch thick, North Central
( 7/16) refers to  7/16 of an inch thick
North Central OSB, a product whose price is used as a benchmark
in the OSB industry, msf North Central
( 7/16) refers to one thousand square feet of
North Central ( 7/16), m3 means cubic
meters and RISI refers to Resource Information
Systems Inc., an independent paper and forest products industry
research firm. Ainsworth Lumber Co. Ltd. Overview We are a leading manufacturer of engineered wood
products including oriented strand board, or OSB, and specialty
overlaid plywood. We are currently the fourth largest
manufacturer of OSB in North America and we believe one of the
lowest-cost suppliers of OSB to the markets we serve. Based in
Vancouver, British Columbia, we own and operate three modern,
strategically located Canadian OSB manufacturing facilities, and
we maintain a 50% ownership interest in a fourth Canadian
facility, the High Level OSB facility. High Level has the
largest design capacity of any OSB facility in the world and we
believe that when production reaches design capacity it will be
one of the worlds lowest cost OSB facilities. We also own
and operate three OSB manufacturing facilities located in
northern Minnesota, as described more fully below. In addition
to our OSB operations, we are one of the two largest
manufacturers of specialty overlaid plywood in North America. We have long-term timber tenure agreements with
the provincial governments of British Columbia, Alberta and
Ontario, and other long-term supply agreements that currently
provide approximately 85% of the wood fiber requirements for our
operations. We sell our products to North American and
offshore export markets, primarily Japan. We have a
well-established sales presence and long-standing customer
relationships in our largest markets. For the year ended
December 31, 2003, over 30% of our revenue was generated
from our AinsworthEngineered® value-added products,
including export-standard OSB and specialty industrial OSB and
plywood products. These products generally exhibit more stable
pricing and command a premium price over commodity OSB sheathing
and commodity plywood sheathing products. On May 19, 2004, we acquired all of the
outstanding shares of Voyageur Panel Limited, a private Canadian
company that owns and operates an OSB facility in Barwick,
Ontario, approximately 440 kilometers (275 miles) north of
Minneapolis, Minnesota. The Barwick facility is equipped to
produce four grades of OSB, including three grades of
value-added OSB. In 2003, approximately 83% of the sales volume
for the Barwick facility was commodity-grade OSB sheathing
panels. Since acquiring the Barwick facility, we have increased
its annual production capacity by approximately 7%, from
440 mmsf to the current annual capacity of 470 mmsf. We


1



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##### 



have also implemented key management changes and
renegotiated several commercial contracts on more favorable
terms. We expect to increase the production of value-added OSB
manufactured at the Barwick facility from 17% of sales volume in
2003 to 40% by 2006. For the year ended December 31, 2003,
substantially all of the Barwick facilitys shipments were
to the United States, primarily to customers located in the
Central region of the United States.
 On September 22, 2004, we acquired all of
the assets and certain related net working capital used by
Potlatch in the operation of three OSB facilities that are
located in the northern Minnesota towns of Bemidji, Cook and
Grand Rapids. The assets were acquired by Ainsworth
Engineered (USA), LLC, our wholly owned subsidiary. In
connection with the acquisition, we paid Potlatch a purchase
price of approximately US$457.5 million (including certain
adjustments upon closing). The Minnesota OSB facilities consist of three
mills that produce commodity and value-added OSB products. The
combined annual production capacity of the Minnesota OSB
facilities was 1,350 mmsf, as of December 31, 2003;
combined production of the three mills for the year ended
December 31, 2003 was 1,337 mmsf. The
Minnesota OSB facilities primarily serve the Central and
Western regions of the United States. The Minnesota OSB
facilities are located near our existing OSB facility in
Barwick, Ontario. The majority of production at the Minnesota OSB
facilities consists of commodity grade structural and
underlayment OSB panel products. However, Potlatch has spent the
past several years developing and marketing a series of
specialty OSB products that are designed to meet specific
construction applications, such as providing a radiant heat
barrier, moisture resistance, insect resistance and fungal
resistance. For the first six months of 2004, approximately 24%
of the Minnesota OSB facilities sales volume was added products.
These value-added OSB products can command a premium price
relative to commodity panels. The value-added product portfolio
of the Minnesota OSB facilities includes the following premium
products:  
    OxTreme (a specialty flooring product);
    Luminox (a heat resistant product);
    OxTerminator (a termite resistant product);
    Stairtread (a specialty stairway product); and
    OxRimboard (a specialty floor systems product). The Minnesota OSB facilities employed
approximately 600 salaried and hourly workers, as of
August 25, 2004. Hourly employees at the Grand Rapids
facility (approximately 130 individuals) are covered under a
collective bargaining agreement with the Paper,
Allied-Industrial, Chemical and Energy Workers International
Union. All other employees at the Minnesota OSB facilities are
non-union. Our common shares are traded on the Toronto Stock
Exchange and for the year ended December 31, 2003, we
generated revenues of $542.0 million, EBITDA of
$201.6 million and net income of $123.7 million. For
the six months ended June 30, 2004, we generated
revenues of $431.7 million, EBITDA of $237.4 million
and net income of $51.6 million. For the year ended
December 31, 2003, we generated 82% of our revenues from
OSB sales. For the fiscal year ended December 31, 2003,
Voyageur generated revenues of $143.7 million, adjusted
EBITDA of $56.9 million and net earnings of
$7.0 million. For the fiscal year ended December 31,
2003, the Minnesota OSB facilities generated net sales of
US$314.5 million, EBITDA of US$109.1 million and net
earnings of US$56.9 million. For the six months ended
June 30, 2004, the Minnesota OSB facilities generated net
sales of US$233.5 million, EBITDA of US$123.7 million
and net earnings of US$70.1 million. After giving effect to
the Voyageur acquisition and the purchase of


2



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##### 



the Minnesota OSB facilities, on a pro forma
basis as set forth herein, for the year ended December 31,
2003, we would have generated revenues of $1,126.3 million,
EBITDA of $411.3 million and net income of
$192.6 million, and for the six months ended June 30,
2004, we would have generated revenues of $814.1 million,
EBITDA of $445.1 million and net income of
$151.4 million.
 OSB Industry Overview OSB is a structural panel used in building
applications, primarily as a substitute for plywood. Growth in
the structural panel industry, which includes plywood and OSB,
is primarily driven by residential and commercial construction
activity. The relative abundance of fast growing deciduous and
under-utilized coniferous trees, combined with an automated
manufacturing process, results in a significant cost advantage
for OSB over plywood. RISI estimates that in 2003 the average
variable cost of production of OSB was $140 per msf in western
Canada, $161 per msf in the U.S. North Central region and $142
per msf in Ontario and Quebec, compared to a 2003 average
variable cost of production of plywood of $265 per msf in
British Columbia and $260 per msf in the southern United States.
Declining plywood-quality timber supplies are expected to
continue to limit the efficient production of plywood. We
believe OSBs lower cost and comparable performance
characteristics versus plywood will continue to drive the market
shift from plywood to OSB and support the growth of our
business. According to RISI, OSBs share of the North
American structural panel market has increased from 33% in 1994
to 57% in 2003 and is projected to grow to 68% of the market by
2008. Furthermore, RISI estimates that between 1994 and 2003,
annual consumption of OSB in North America grew at a 9%
compounded annual rate over the period. In addition to the
growing commodity sheathing market, OSB continues to penetrate
new markets through the use of new manufacturing techniques that
incorporate OSB into higher valued specialty industrial products
such as webstock, rimboard, radiant barrier sheathing and stair
systems. OSB benchmark prices increased significantly in
2003, averaging US$293 per msf North Central ( 7/16),
an 84% increase over 2002 average OSB prices. This increase
resulted from tight supply and demand conditions in the
structural panels market, brought on by a robust new home
construction market. Structural panel market prices have
remained relatively high in 2004. In April 2004, OSB benchmark
prices reached a record high of US$520 per msf North Central
( 7/16). The average monthly OSB benchmark price for
the first six months of 2004 was US$433 per msf North Central
( 7/16). RISI is forecasting benchmark prices in 2004
to average a record high US$376 per msf North Central
( 7/16), an increase of approximately 28% over 2003
average prices. According to RISI, North American housing
starts, a major driver of structural panel demand, are expected
to average 2.0 million per year between 2004 and 2008, and
OSB demand is expected to grow at a 5.4% compounded annual
growth rate over the same period. The industry is consolidated with the top eight
suppliers controlling more than 88% of North American capacity.
Due to long lead times associated with the construction and ramp
up of new OSB mills, major capacity additions have traditionally
taken 18 months to come on line and several additional
months to reach full production levels. Given these dynamics,
RISI expects the demand capacity ratio for OSB to average 87%
from 2004 through 2008. Competitive Strengths and
Opportunities We believe that our business has the following
competitive strengths and opportunities: Established Modern OSB Facilities.Our existing four established
Canadian OSB facilities, 100 Mile House (British Columbia),
Grande Prairie (Alberta), High Level (Alberta) and Barwick
(Ontario), utilize modern automated equipment and have economies
of scale that increase efficiency and provide us with
competitive advantages. The High Level facility, which we jointly


3



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##### 



own with another OSB producer, is the
worlds largest OSB facility at 860 mmsf per year
design capacity, twice that of the average North American
single-line OSB facility. When High Level reaches its design
capacity, we expect it to be one of the worlds lowest-cost
OSB facilities, benefiting from economies of scale, a low-cost
wood supply and state-of-the-art manufacturing equipment. High
Level utilizes a continuous press that results in greater
production capacity, faster press times and higher productivity.
Our wholly-owned Grande Prairie facility, the second-largest
capacity single-line facility in the world after High Level, was
recently benchmarked by an independent forest products research
firm against 18 other North American OSB facilities and scored
in the top quartile in a number of key operational measures,
including total production costs, employee productivity and wood
recovery. Production at our wholly-owned 100 Mile House facility
is focused on value-added products that command premium pricing
and generally yield higher margins than commodity OSB sheathing.
For the year ended December 31, 2003, 100 Mile Houses
value-added OSB products represented 63% of this facilitys
total output. The Barwick facility was completed in 1997, and
uses modern automated equipment that allows us to obtain
operating cost efficiencies in a flexible manufacturing
environment, which means that we can adjust our relative
production of commodity and value-added OSB products to changes
in market price and customer demand. At current rates of
production, the High Level, Grande Prairie, 100 Mile House and
Barwick facilities will provide annual OSB volumes of
approximately 690 mmsf (of which 50% is ours),
670 mmsf, 425 mmsf and 470 mmsf, respectively.
Our acquisition of the Minnesota OSB facilities has
significantly enhanced our geographic balance, flexibility and
product diversity. It also allowed us to optimize our overall
efficiency and increase our ability to provide excellent service
and flexibility to customers in the Central and Western regions
of the United States. The acquisition also resulted in us
obtaining additional intellectual property that will enable us
to access new specialty product markets across our entire
operations.
 Proven OSB Operators.Our senior managers average over
20 years of experience in the forest products industry and
most of them have played key roles in the design and
implementation of the 100 Mile House, Grande Prairie and High
Level OSB facilities. All three OSB facilities were completed
on-time and on-budget. We completed construction of 100 Mile
House in 1994 with a design capacity of 360 mmsf per year and
currently operate the mill at approximately 425 mmsf per year,
or 18% above original design capacity. Similarly, we completed
construction of the Grande Prairie facility in 1995 with a
design capacity of 540 mmsf per year and currently operate the
mill at approximately 670 mmsf per year, or 24% above original
design capacity. We also have improved our OSB profitability by
reducing production costs while manufacturing a greater
percentage of value-added products. Since acquiring the Barwick
facility on May 19, 2004, we have increased its production
capacity by approximately 7%. The Barwick facility currently has
an annual production capacity of 470 mmsf, which we believe
we can increase to 500 mmsf by 2006. According to an
independent benchmarking study of 19 North American OSB
mills, we have one of the best asset utilization rates in the
industry, expressed in terms of OSB production per square foot
of press. The Minnesota OSB facilities had an aggregate annual
production capacity of 1,350 mmsf, as of December 31, 2003,
which we believe we can increase to 1,500 mmsf by the end
of 2007. Leading Market Positions.We are a leader in the value-added
markets we serve, including export-standard OSB and specialty
industrial products. We have the largest installed capacity
designed to serve the growing Japanese OSB market. Both our 100
Mile House and Grande Prairie facilities were specifically
designed to economically produce three-foot wide panels used in
Japanese construction, as compared with four-foot wide panels
used in North America. We are also a principal supplier of
specialty overlaid plywood used to manufacture long-lasting
concrete forming panels for the Canadian, United States and
United Kingdom construction markets. Growing Value-Added Product Mix.Our business strategy is to
continue to increase our revenues generated from value-added
products including OSB webstock and rimboard, export-


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standard OSB and specialty overlaid plywood.
These products command premium pricing, particularly during
cyclical lows for commodity products, which enhances our
profitability. Value-added products also exhibit more stable
pricing than commodity OSB. We plan to continue to use our
versatile manufacturing equipment to enhance our offerings of
high-quality AinsworthEngineered® value-added
products across our OSB and specialty plywood businesses. We
believe that our value-added product strategy improves our
financial results and helps us maintain profitability through
industry cycles. We also believe that our acquisition of the
Minnesota OSB facilities has provided us with a significant
opportunity to expand our value-added product mix. For the first
six months of 2004, approximately 24% of the Minnesota OSB
facilities sales volume was value-added products. We
believe we will be able to increase output of value-added
products to approximately 40% of total sales volume for the
Minnesota OSB facilities by 2007.
 Strategically Located OSB Facilities.The 100 Mile House, Grande Prairie
and High Level facilities are within close proximity to western
ports, providing us with a transportation cost and logistical
advantage for supplying the Japanese and western United States
markets. For example, the proximity of our 100 Mile House
facility to the port of Vancouver allows us to supply our
Japanese customers with less lead-time and at a lower cost than
our competitors. In addition, all three of our western OSB
facilities have direct rail access, which facilitates the
cost-effective shipping of our products into the western United
States. The U.S. Census Bureau has predicted the population
in the western states we serve will grow at nearly double the
rate of the total U.S. population over the next decade,
which we believe will further increase the demand for OSB to
meet housing requirements in some of the markets we serve. The
Barwick facility, located immediately adjacent to the U.S.
border in western Ontario, also has direct rail access, which
provides us with competitive access to the Central region of the
United States. The Minnesota OSB facilities, located in northern
Minnesota, close to our Barwick facility, have increased our
presence in this important market and further diversified our
customer base. In addition, the Minnesota OSB facilities each
have direct access to rail and highway transportation, which
allows them to provide cost-effective shipping to the western
United States. Facilities Within the last 10 years we have been
involved in the construction of three OSB facilities in western
Canada, including 100 Mile House in British Columbia (completed
in 1994), Grande Prairie in Alberta (completed in 1995) and High
Level in Alberta (completed in 2000). We also operate a
specialty overlaid plywood mill in Savona, British Columbia, an
associated veneer plant in Lillooet, British Columbia and own a
temporarily-closed finger-joined lumber mill in Abbotsford,
British Columbia. On May 19, 2004 we acquired Voyageur,
which operated an OSB facility in Barwick, Ontario. Our
facilities represent total annual capacity of approximately
3,345 mmsf of OSB and 155 mmsf of specialty overlaid
plywood. We have some of the most modern, productive
manufacturing facilities in North America. We believe that our
modern facilities will require only modest maintenance capital
expenditures for the foreseeable future. In fiscal 2004, we
expect to have capital expenditures of approximately
$17 million to maintain current operations (including
expected maintenance capital expenditures relating to the
Minnesota OSB facilities). Oriented Strand Board Grande Prairie.We own and operate the
worlds second-largest capacity single-line OSB facility
(after the High Level OSB facility) in Grande Prairie, Alberta,
which has an annual production capacity of approximately 670
mmsf. Grande Prairie uses a 12-foot wide forming line and press
that provides the flexibility to produce, on a cost-efficient
basis, a variety of panel


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dimensions and grades to suit both North American
and Japanese markets. Grande Prairies low-cost position is
supported by an abundant low-cost fiber supply, economies of
scale and superior up-time and on-grade performance. In 2002, we
invested approximately $9 million in Grande Prairie to
increase capacity and reduce production costs.
 100 Mile House.We own and operate our 100 Mile
House, British Columbia facility, which has an annual production
capacity of approximately 425 mmsf. The 100 Mile House facility
was the first OSB facility to use a nine-foot wide forming line
and press that provides significant efficiency advantages over
the more traditional eight-foot wide press and allows us to
profitably serve the Japanese market where three-foot wide OSB
is the standard. Our proximity to the port of Vancouver provides
a significant competitive advantage on shipping costs and
delivery time to the growing Japanese market, where we are the
market leader. The 100 Mile House facility is our principal
source of value-added OSB products for both our North American
and Japanese customers. For the year ended December 31,
2003, 63% of production was value-added OSB products. Barwick.We
own and operate a modern OSB mill located in Barwick,
Ontario, for which construction was completed in 1997. The
facility currently has an annual production capacity of
approximately 470 mmsf per year, and for the year ended
December 31, 2003, approximately 17% of sales volume was of
value-added OSB products. We believe that, for the foreseeable
future, the Barwick facility will require only modest
expenditures for maintenance and capital improvements in line
with historical averages. We also believe that with minimal
additional investment, we can improve the facility in the short
term through initiatives designed to reduce cost and increase
production capacity to 500 mmsf per year. High Level.We are a 50% co-owner of the OSB
facility at High Level, Alberta, which is designed to be the
largest OSB facility in the world at 860 mmsf per year
design capacity. We believe the High Level OSB facility will be
one of the worlds lowest cost producers of commodity
sheathing OSB once full production is achieved. High Level
utilizes modern technology with a 12-foot wide forming line and
continuous press. High Level has low-cost timber allocations
granted by the government of Alberta and long-term volume supply
agreements that together provide approximately 92% of its timber
needs at full capacity. This timber is secured through 2016 at
very competitive stumpage rates. The facility, which commenced
operations in October 2000, is now operating at approximately
80% of design capacity and continues to ramp up to full design
capacity. High Level contributed approximately 158 mmsf to our
total OSB sales volume for the six months ended June 30,
2004, and we expect our share of production will be increased to
430 mmsf per year once the facility is operating at design
capacity. The Minnesota OSB
Facilities.Our Minnesota OSB
facilities are located in the northern Minnesota towns of
Bemidji, Cook and Grand Rapids. The Bemidji facilitys two
production lines had a combined annual production capacity of
535 mmsf, as of December 31, 2003. Production in the
twelve months ended December 31, 2003 totaled
529 mmsf, of which approximately 80% was commodity products
and approximately 20% was value-added and over-sized products.
The Cook facilitys single production line had an annual
production capacity of 440 mmsf, as of December 31,
2003. For the twelve months ended December 31, 2003,
production at the Cook facility totaled 436 mmsf, nearly
all of which was commodity OSB. The Grand Rapids facilitys
single production line had an annual production capacity of
375 mmsf, as of December 31, 2003. For the twelve
months ended December 31, 2003, the Grand Rapids facility
produced 372 mmsf, comprised of approximately 40% of
commodity products and approximately 60% of value-added and
over-sized products. We have identified certain improvements
that we feel will result in enhancements to existing production
capacity at each of the Minnesota OSB facilities. We expect to
increase total annual production capacity at the Minnesota OSB
facilities from 1,350 mmsf as of December 31, 2003, to
1,500 mmsf by the end of 2007. We also expect to increase the


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production of value-added OSB manufactured at the
Minnesota OSB facilities from 24% of sales volume in 2003 to 40%
by 2007.
 Specialty Overlaid Plywood We own and operate a specialty overlaid plywood
mill in Savona, British Columbia, and an associated veneer plant
in Lillooet, British Columbia. Specialty overlaid plywood is a
high performance wood product used in concrete forms, trailer
decking and paint-grade signs and earns premium prices over
commodity plywood. We are one of the two largest manufacturers
of specialty overlaid plywood in North America and our
Pourform® brands of concrete forming products are
recognized for their superior performance characteristics and
longevity. Pourform® products are used in a diverse
mix of concrete forming applications, including residential and
high-rise construction, sports complexes, and highway and
airport infrastructure projects. Our Lillooet veneer plant
produces veneer principally for use in the Savona mill. The
Lillooet plant has the ability to supply all of our Savona
veneer needs; however, we also sell veneer to third parties
depending on prevailing market conditions. We invested
approximately $21 million in our Savona mill and Lillooet
plant in the late 1990s to enhance our product offerings and
lower our operating costs.   Our corporate address is Suite 3194, Bentall
IV, P.O. Box 49307, 1055 Dunsmuir Street, Vancouver,
British Columbia, Canada V7X 1L3. Our telephone number is
(604) 661-3200.


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The Exchange Offer On September 22, 2004, we completed a
private offering of the original notes. We entered into a
registration rights agreement with the initial purchasers in the
private offering in which we agreed to deliver to you this
prospectus as part of the exchange offer and agreed to
(1) file the registration statement, of which this
prospectus forms a part, by November 22, 2004, (2) use
our best efforts to have the registration statement declared
effective by February 21, 2005, and (3) complete the
exchange offer within 45 days after the registration statement
of which this prospectus forms a part becomes effective under
the Securities Act. You are entitled to exchange in the exchange
offer your original notes for exchange notes which evidence the
same indebtedness as the original notes, the terms of which are
substantially identical to the terms of the original notes,
except that the exchange notes will be registered under the
Securities Act and will not contain restrictions on transfer or
provisions relating to special interest under circumstances
related to the timing of the exchange offer, will bear a
different CUSIP number than the original notes and will not
entitle their holders to registration rights.  The Exchange Offer
    
    With this exchange offer, we are offering to
    exchange (1) an aggregate principal amount of up to
    US$275.0 million of the new fixed rate notes for a like
    principal amount of the original fixed rate notes, and
    (2) an aggregate principal amount of up to
    US$175 million of the new floating rate notes for a like
    principal amount of the original floating rate notes.Expiration Date
    
    The exchange offer will expire at 5:00 p.m.,
    New York City time
    on                     ,           ,
    unless we, in our sole discretion, extend it. See Exchange
    Offer  Expiration of the Exchange Offer; Extensions;
    Amendments.Exchange Date
    
    We will exchange the original notes promptly
    following the expiration date. See Exchange
    Offer  Terms of the Exchange Offer.Procedures for Tendering Old Securities
    
    For information on procedures for tendering
    original notes, see Exchange Offer  Procedures
    for Tendering.Taxation
    
    The exchange of the original notes for the
    exchange notes in the exchange offer will generally not be a
    taxable exchange. We believe you will not recognize any gain or
    loss for U.S. federal income tax purposes upon exchanging
    original notes for exchange notes in the exchange offer. See
    Income Tax Considerations  U.S. Federal
    Income Tax Considerations.No taxes on income (including taxable capital
    gains) will be payable by a U.S. holder for Canadian
    federal income tax purposes solely as a consequence of the
    exchange of the original notes. See Income Tax
    Considerations  Canadian Federal Income Tax
    Considerations.Resale
    
    Based upon the position of the staff of the SEC
    as described in previous no-action letters issued to third
    parties, we believe that a holder who exchanges the original
    notes for exchange notes in the exchange offer and who satisfies
    certain other conditions generally may offer for resale, sell
    and otherwise transfer the exchange


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notes without further registration under the
    Securities Act and without delivery of a prospectus that
    satisfies the requirements of Section 10 of the Securities
    Act.Any holder of the original notes using the
    exchange offer to participate in a distribution of the exchange
    notes cannot rely on the no-action letters referred to above.
    See Exchange Offer  Purpose and Effect of the
    Exchange Offer.Remaining Old Notes
    
    If you do not tender your original notes in the
    exchange offer or if we do not accept your original notes for
    exchange as described under Exchange Offer 
    Terms of the Exchange Offer you will continue to hold
    these original notes, and they will continue to bear legends
    restricting their transfer.Exchange Agent
    
    The Bank of New York will act as exchange agent
    for the exchange offer. See Exchange Offer 
    Exchange Agent for the exchange agents address and
    telephone number.Use of Proceeds
    
    We will not receive any proceeds from the
    exchange offer. See Use of Proceeds.


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The Exchange Notes The summary below describes the principal
terms of the exchange notes. Certain of the terms and conditions
described below are subject to important limitations and
exceptions. The Description of Notes section of this
prospectus contains a more detailed description of the terms and
conditions of the exchange notes.  Issuer
    
    Ainsworth Lumber Co. Ltd.Securities Offered
    
    US$275,000,000 aggregate principal amount of
    7 1/4% Senior Notes due 2012.US$175,000,000 aggregate principal amount of
    Senior Floating Rate Notes due 2010.Maturity
    
    The Fixed Rate Notes will mature on
    October 1, 2012.The Floating Rate Notes will mature on
    October 1, 2010.Interest Rate
    
    The Fixed Rate Notes will bear interest at a rate
    of 7 1/4% per annum (calculated using a 360 day year).The Floating Rate Notes will bear interest at a
    rate per annum equal to LIBOR plus 3.75%. Interest on the
    Floating Rate Notes will be reset quarterly.Interest Payment Dates
    
    We will pay interest on the Fixed Rate Notes on
    June 30 and December 30, commencing December 30,
    2004. Interest will accrue on the Fixed Rate Notes from the
    issue date of the Fixed Rate Notes.We will pay interest on the Floating Rate Notes
    on March 30, June 30, September 30 and
    December 30, commencing December 30, 2004. Interest
    will accrue on the Floating Rate Notes from the issue date of
    the Floating Rate Notes.Ranking
    
    The exchange notes will be our senior unsecured
    obligations and will rank pari passu with our existing and
    future senior unsecured debt and senior to all existing and
    future subordinated debt. The guarantees by our subsidiaries
    will rank pari passu with the existing and future senior
    unsecured debt of our subsidiaries that guarantee the notes.Subsidiary Guarantees
    
    On the issue date, Ainsworth Engineered Corp.,
    successor to Voyageur, and Ainsworth Engineered (USA), LLC, each
    a North American Restricted Subsidiary, will unconditionally
    guarantee the exchange notes.If we create or acquire a new North American
    Restricted Subsidiary, it will guarantee the exchange notes
    unless we designate such subsidiary as a Non-Guarantor
    Restricted Subsidiary under the indenture.Optional Redemption
    
    We cannot redeem the new fixed rate notes until
    October 1, 2008, and the new floating rate notes until
    October 1, 2006. Thereafter, in each case, we may redeem
    some or all of the exchange notes at the redemption prices
    listed in the Description of Notes section under the


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heading Optional Redemption, plus
    accrued interest to the date of redemption.Optional Redemption After Equity Offerings
    
    At any time on one or more occasions
    (i) before October 1, 2007, we may redeem up to 35% of
    the aggregate principal amount of the new fixed rate notes
    outstanding at a redemption price equal to 107.25% of the
    principal amount of thereof and (ii) before October 1,
    2006, we may redeem up to 35% of the aggregate principal amount
    of the new floating rate notes outstanding at a redemption price
    equal to 100% of the principal amount of thereof plus a premium
    equal to the rate per annum on the new floating rate notes
    applicable on the date on which notice of redemption is given,
    with money that we raise in one or more equity offerings, as
    long as: we redeem the applicable exchange
    notes within 60 days of completing the equity offering; and at least 65% of the aggregate
    principal amount of the exchange notes issued of the applicable
    series remains outstanding after the redemption of the notes.Tax Redemption
    
    If we become obligated to pay withholding taxes
    related to payments on the exchange notes as a result of changes
    affecting Canadian withholding taxes, we may redeem all, but not
    less than all, of the exchange notes at 100% of their principal
    amount plus accrued and unpaid interest to the redemption date.
    See Description of Notes 
    Redemption  Redemption for Changes in Canadian
    Withholding Taxes.U.S. Withholding
    
    Interest paid with respect to the exchange notes
    generally will be treated as if paid by a U.S. corporation
    for U.S. federal income tax purposes. Accordingly, interest
    paid to a holder that is not a U.S. person generally will
    be subject to U.S. federal withholding unless the interest
    qualifies for an exemption, such as the portfolio interest
    exemption. See U.S. Federal Income Tax
    Considerations.Change of Control Offer
    
    If a change in control occurs, we must offer to
    repurchase the exchange notes at 101% of their face amount, plus
    accrued interest.We might not be able to pay you the required
    price for exchange notes you present to us at the time of a
    change of control, because: we might not have enough funds at
    that time; or the terms of our senior debt may
    prevent us from paying.Asset Sale Proceeds
    
    If we or our subsidiaries engage in asset sales,
    we generally must either invest the net cash proceeds from such
    sales in our business within a period of time, prepay


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senior debt or make an offer to purchase a
    principal amount of the exchange notes equal to the excess net
    cash proceeds. The purchase price of the exchange notes will be
    100% of their principal amount, plus accrued interest.Restrictive Covenants of the Indenture
    
    The indenture under which the exchange notes will
    be issued will, among other things, restrict our ability to: incur additional indebtedness; pay dividends and make distributions; repurchase stock; make certain investments; transfer or sell assets; create liens; enter into transactions with
    affiliates; issue or sell stock of subsidiaries; create dividend or other payment
    restrictions affecting restricted subsidiaries; and merge, consolidate, amalgamate or
    sell all or substantially all of our assets to another person.During any future period in which Moodys
    Investors Service and Standard and Poors Ratings Services
    have each assigned an investment grade rating to the exchange
    notes, some of the covenants will cease to be in effect with the
    exception of the covenants that contain limitations on, among
    other things, the designation of restricted and unrestricted
    subsidiaries, consolidations, amalgamations, mergers and
    transfers of assets and liens. These covenants are subject to
    other important qualifications and limitations. For more details
    see Description of Notes  Certain
    Covenants.Exchange and Registration Rights Agreement
    
    We agreed to file, by November 22, 2004, an
    exchange offer registration statement relating to the exchange
    offer and to use our best efforts to cause the registration
    statement to become effective by February 21, 2005. This
    prospectus is a part of the exchange offer registration
    statement. In the event that the applicable law or
    interpretations of the staff of the SEC do not permit us to
    effect the exchange offer, we will use our best efforts to cause
    to become effective a shelf registration statement with respect
    to the resale of the original notes and to keep the resale
    registration statement effective for a period of up to two years.If the registration statement does not be come
    effective, or if the exchange offer is not completed, in each
    case within


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specified time periods, special interest will
    accrue and be payable. See The Exchange Offer 
    Purpose and Effect of the Exchange Offer. Risk Factors You should carefully consider all of the
information in this prospectus. In particular, you should read
the specific risk factors under the section entitled Risk
Factors for a discussion of certain material risks
involved with an investment in the notes.


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Ainsworth Summary Historical and Pro Forma
Financial and Other Data

You should read the summary consolidated
financial historical and other data set forth below in
conjunction with our consolidated financial statements and the
related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations,
in each case included elsewhere in this prospectus. Our
statement of operations data for the fiscal years ended
December 31, 2003, 2002 and 2001 has been derived from our
audited consolidated financial statements, which are included
elsewhere in this prospectus. Our statement of operations data
for the six months ended June 30, 2004 and 2003 and our
balance sheet data as at June 30, 2004 have been derived
from our unaudited consolidated financial statements, which are
included elsewhere in this prospectus. The following table also
sets forth summary pro forma consolidated financial data for the
fiscal year ended December 31, 2003 and the six months
ended June 30, 2004. The summary pro forma consolidated
financial data set forth below gives effect to the offering of
US$210 million aggregate principal amount of 6.750% senior
notes due March 15, 2014 that we completed in March of
2004, our acquisition of Voyageur on May 19, 2004 and the
related offering by us of US$110 million aggregate
principal amount of 6.750% senior notes due March 15, 2014
that we completed in May of 2004, the acquisition of the
Minnesota OSB facilities and this offering as if they had
each occurred on January 1, 2003, and have been derived
from our historical financial statements for the year ended
December 31, 2003 and the six months ended
June 30, 2004, Voyageurs historical financial
statements for the year ended December 31, 2003 and the
three months ended March 31, 2004 and the historical
financial statements relating to the Minnesota OSB
facilities for the year ended December 31, 2003 and the
six months ended June 30, 2004, all of which are
included elsewhere in this prospectus. The pro forma
consolidated financial data is based on available information
and certain assumptions that we consider reasonable. The
unaudited pro forma consolidated statement of operations data do
not purport to represent what our results of operations would
have been if the Voyageur acquisition, the Minnesota OSB
facilities acquisition or this offering, as the case may be, had
occurred as of the date indicated or what the results would be
for future periods. In the opinion of our management, our
unaudited consolidated financial statements include all
adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial information for such
periods. Interim results are not necessarily indicative of
results for any other interim period or for a full year. We
prepare our consolidated financial statements in accordance with
Canadian GAAP, which differs in certain respects from
U.S. GAAP. For a discussion of the principal differences
between Canadian GAAP and U.S. GAAP as they pertain to us,
see note 22 to our audited consolidated financial
statements included elsewhere in this prospectus and note 7
to our unaudited interim consolidated financial statements
included elsewhere in this prospectus.

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|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|------------------------------------------------------------- |  | ------------------------------------------------ | ----- | ---------------- |  | ------------ | ----- | ---------- |  | ---------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  | - | ------- | - |  | - | ----- | -
|                                                              |  |                                                  |       |                 
|                                                              |  | Historical                                       |       | Pro Forma       
|                                                              |  |                                                  |       |                 
|                                                              |  |                                                  |       |                  |  | Twelve       |       |           
|                                                              |  |                                                  |       | Six months ended |  | months       |       | Six months
|                                                              |  | Fiscal year ended December 31,                   |       | June 30,         |  | ended        |       | ended     
|                                                              |  |                                                  |       |                  |  | December 31, |       | June 30,  
|                                                              |  | 2001(1)(2)                                       |       | 2002(1)          |  | 2003(1)      |       | 2003(1)    |  | 2004(1)(3) |       | 2003 |  | 2004
|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |     
|                                                              |  |                                                 
|                                                              |  | (in millions, except ratios and production data)
|Statement of Operations Data                                  |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Canadian GAAP                                                 |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Sales                                                         |  | $                                                | 388.7 |                  |  | $            | 421.7 |            |  | $          | 542.0 |      |  | $    | 213.6 |   |  | $ | 431.7 |   |  | $ | 1,126.3 |   |  | $ | 814.1 |  
|Cost of products sold                                         |  |                                                  | 306.0 |                  |  |              | 329.6 |            |  |            | 321.8 |      |  |      | 160.9 |   |  |   | 191.4 |   |  |   | 687.5   |   |  |   | 362.4 |  
|Selling and administration                                    |  |                                                  | 22.7  |                  |  |              | 21.9  |            |  |            | 18.2  |      |  |      | 8.5   |   |  |   | 10.0  |   |  |   | 25.2    |   |  |   | 13.9  |  
|Amortization of capital assets                                |  |                                                  | 30.4  |                  |  |              | 32.0  |            |  |            | 33.0  |      |  |      | 15.2  |   |  |   | 19.1  |   |  |   | 89.0    |   |  |   | 44.4  |  
|Write-down of capital assets                                  |  |                                                  | 3.3   |                  |  |              | 1.0   |            |  |            | 13.7  | (4)  |  |      |      |   |  |   |      |   |  |   | 13.7    |   |  |   |      |  
|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Operating earnings                                            |  |                                                  | 26.3  |                  |  |              | 37.2  |            |  |            | 155.3 |      |  |      | 29.0  |   |  |   | 211.2 |   |  |   | 311.0   |   |  |   | 393.4 |  
|Interest charges(5)(6)                                        |  |                                                  | 51.7  |                  |  |              | 57.2  |            |  |            | 51.2  |      |  |      | 26.6  |   |  |   | 16.9  |   |  |   | 85.4    |   |  |   | 36.4  |  
|Amortization of finance charges                               |  |                                                  | 8.3   |                  |  |              | 5.3   |            |  |            | 4.9   |      |  |      | 2.4   |   |  |   | 1.3   |   |  |   | 9.1     |   |  |   | 2.9   |  
|Loss on repurchase of debt                                    |  |                                                  |      |                  |  |              |      |            |  |            | 0.1   |      |  |      |      |   |  |   | 106.2 |   |  |   | 0.1     |   |  |   | 106.2 |  
|Other (income) expense                                        |  |                                                  | (2.8  | )                |  |              | (2.9  | )          |  |            | 0.5   |      |  |      | (0.8  | ) |  |   | (7.1  | ) |  |   | 2.4     |   |  |   | (7.2  | )
|Unrealized foreign exchange (gain) loss on
    long term debt |  |                                                  | 17.4  |                  |  |              | (4.3  | )          |  |            | (76.9 | )    |  |      | (64.7 | ) |  |   | 5.8   |   |  |   | (76.9   | ) |  |   | 5.8   |  
|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Income (loss) before income taxes                             |  |                                                  | (48.4 | )                |  |              | (18.1 | )          |  |            | 175.6 |      |  |      | 65.5  |   |  |   | 88.1  |   |  |   | 291.0   |   |  |   | 249.4 |  
|Income tax expense (recovery)                                 |  |                                                  | (18.7 | )                |  |              | (0.3  | )          |  |            | 51.9  |      |  |      | 11.7  |   |  |   | 36.5  |   |  |   | 98.5    |   |  |   | 98.0  |  
|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Income (loss) from continuing operations                      |  |                                                  | (29.7 | )                |  |              | (17.9 | )          |  |            | 123.7 |      |  |      | 53.8  |   |  |   | 51.6  |   |  |   | 192.6   |   |  |   | 151.4 |  
|Gain (loss) from discontinued operations                      |  |                                                  | 4.2   |                  |  |              |      |            |  |            |      |      |  |      |      |   |  |   |      |   |  |   |        |   |  |   |      |  
|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Net income (loss)                                             |  | $                                                | (25.4 | )                |  | $            | (17.9 | )          |  | $          | 123.7 |      |  | $    | 53.8  |   |  | $ | 51.6  |   |  | $ | 192.6   |   |  | $ | 151.4 |  
|                                                              |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|U.S. GAAP                                                     |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Net income (loss)                                             |  | $                                                | (25.8 | )                |  | $            | (17.0 | )          |  | $          | 125.0 |      |  | $    | 54.2  |   |  | $ | 52.2  |   |  |   |         |   |  |   |       |  
|Other Financial Data                                          |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|Canadian GAAP                                                 |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|EBITDA(7)                                                     |  | $                                                | 62.8  |                  |  | $            | 73.0  |            |  | $          | 201.6 |      |  | $    | 45.0  |   |  | $ | 237.4 |   |  | $ | 411.3   |   |  | $ | 445.1 |  
|Capital Expenditures(8)                                       |  |                                                  | 20.1  |                  |  |              | 14.1  |            |  |            | 8.2   |      |  |      | 3.8   |   |  |   | 5.6   |   |  |   |         |   |  |   |       |  
|Ratio of earnings to fixed charges(9)                         |  |                                                  |      |                  |  |              |      |            |  |            | 4.1x  |      |  |      | 2.8x  |   |  |   | 3.8x  |   |  |   | 3.0x    |   |  |   | 4.8x  |  
|U.S. GAAP                                                     |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|EBITDA(7)                                                     |  |                                                  | 62.8  |                  |  |              | 73.0  |            |  |            | 201.6 |      |  |      | 45.0  |   |  |   | 237.4 |   |  | $ | 411.3   |   |  | $ | 445.1 |  
|Other Selected Operating Data                                 |  |                                                  |       |                  |  |              |       |            |  |            |       |      |  |      |       |   |  |   |       |   |  |   |         |   |  |   |       |  
|OSB production volume (mmsf)                                  |  |                                                  | 1,197 |                  |  |              | 1,284 |            |  |            | 1,351 |      |  |      | 656   |   |  |   | 754   |   |  |   |         |   |  |   |       |  
|Specialty plywood production volume (mmsf)                    |  |                                                  | 86    |                  |  |              | 98    |            |  |            | 119   |      |  |      | 58    |   |  |   | 74    |   |  |   |         |   |  |   |       |  
|Average OSB price realized
    ($ per msf)(10)                |  | $                                                | 205   |                  |  | $            | 202   |            |  | $          | 294   |      |  | $    | 256   |   |  | $ | 492   |   |  |   |         |   |  |   |       |  
|Average specialty plywood price realized
    ($ per msf)(10)  |  | $                                                | 683   |                  |  | $            | 663   |            |  | $          | 601   |      |  | $    | 655   |   |  | $ | 696   |   |  |   |         |   |  |   |       |  

|                                             |  |                     |       |           |  |   |         | 
|-------------------------------------------- |  | ------------------- | ----- | --------- |  | - | ------- | 
|                                             |  |                    
|                                             |  | As at June 30, 2004
|                                             |  |                    
|                                             |  | Actual              |       | Pro forma
|                                             |  |                     |       |          
|                                             |  |                    
|                                             |  | (in millions)      
|Balance Sheet Data                           |  |                     |       |           |  |   |         | 
|Canadian GAAP                                |  |                     |       |           |  |   |         | 
|Cash and cash equivalents                    |  | $                   | 100.0 |           |  | $ | 75.1    | 
|Total assets                                 |  |                     | 776.1 |           |  |   | 1,379.6 | 
|Total debt, including current maturities(11) |  |                     | 418.1 |           |  |   | 1,021.4 | 
|Shareholders equity                         |  |                     | 225.8 |           |  |   | 225.8   | 
|U.S. GAAP                                    |  |                     |       |           |  |   |         | 
|Total assets                                 |  | $                   | 768.5 |           |  | $ | 1,372.0 | 
|Total debt, including current maturities(11) |  |                     | 418.1 |           |  |   | 1,021.4 | 
|Shareholders equity                         |  |                     | 213.8 |           |  |   | 213.8   | 



---



|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales and costs of products sold figures reported
    in this table have been reclassified to include freight revenue
    and freight and other distribution costs. Previously, these
    items were netted from sales consistent with industry practice
    at the time.

15



---



##### 



The effect of the change in presentation is
summarized below:

|                                                                           |  |                   |       |                |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|-------------------------------------------------------------------------- |  | ----------------- | ----- | -------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                                                           |  |                   |       |               
|                                                                           |  | Fiscal year ended |       | Six months    
|                                                                           |  | December 31,      |       | ended June 30,
|                                                                           |  |                   |       |               
|                                                                           |  | 2001              |       | 2002           |  | 2003 |       | 2003 |  | 2004
|                                                                           |  |                   |       |                |  |      |       |      |  |     
|                                                                           |  |                  
|                                                                           |  | (in millions)    
|Net sales                                                                  |  | $                 | 326.7 |                |  | $    | 356.1 |      |  | $    | 481.1 |  |  | $ | 182.6 |  |  | $ | 396.4 | 
|Freight and other distribution costs                                       |  |                   | 62.0  |                |  |      | 65.6  |      |  |      | 60.9  |  |  |   | 31.0  |  |  |   | 35.3  | 
|                                                                           |  |                   |       |                |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Gross sales                                                                |  | $                 | 388.7 |                |  | $    | 421.7 |      |  | $    | 542.0 |  |  | $ | 213.6 |  |  | $ | 431.7 | 
|                                                                           |  |                   |       |                |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Costs of products sold, excluding freight and
    other distribution costs |  | $                 | 244.0 |                |  | $    | 264.0 |      |  | $    | 260.9 |  |  | $ | 129.9 |  |  | $ | 156.1 | 
|Freight and other distribution costs                                       |  |                   | 62.0  |                |  |      | 65.6  |      |  |      | 60.9  |  |  |   | 31.0  |  |  |   | 35.3  | 
|                                                                           |  |                   |       |                |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Cost of products sold, including freight and
    other distribution costs  |  | $                 | 306.0 |                |  | $    | 329.6 |      |  | $    | 321.8 |  |  | $ | 160.9 |  |  | $ | 191.4 | 
|                                                                           |  |                   |       |                |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 



|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Operations at the High Level OSB facility
    commenced in October 2000 with income contributions being
    realized commencing in April 2001.                                                                                                                                                                                                         
|   
|(3) | Includes the results of operations of Voyageur
    Panel Limited, predecessor to Ainsworth Engineered Corp., our
    wholly-owned subsidiary, for the period May 19, 2004 to
    June 30, 2004.                                                                                                                                                        
|   
|(4) | Includes a $13.3 million write-down of
    capital assets related to the previously planned expansion of
    the Grande Prairie OSB facility.                                                                                                                                                                                                          
|   
|(5) | Interest charges includes interest expense for
    the period, excluding amortization of deferred financing costs,
    amortization of deferred debt discounts, amortization of consent
    and commitment fees, unrealized foreign exchange (gains) losses
    on long-term debt and realized foreign exchange losses upon
    repayment of principal.
|   
|(6) | Excludes $1.5 million of interest charges
    capitalized to the High Level project during fiscal 2000.                                                                                                                                                                                                                                                
|   
|(7) | EBITDA represents operating earnings before
    amortization and write-down of capital assets, plus interest and
    other income. For more information regarding EBITDA, see
    Presentation of Financial Information. The following
    table shows a reconciliation of EBITDA to net income (loss).                                              

|                                              |                                                |                        |       |                  |   |              |       |          |   |      |       |       |   |      |      |       |   |   |       |       |  |   |       |       |   |   |       |       | 
|--------------------------------------------- | ---------------------------------------------- | ---------------------- | ----- | ---------------- | - | ------------ | ----- | -------- | - | ---- | ----- | ----- | - | ---- | ---- | ----- | - | - | ----- | ----- |  | - | ----- | ----- | - | - | ----- | ----- | 
|                                              |                                                |                        |       |                 
|                                              |                                                | Historical             |       | Pro Forma       
|                                              |                                                |                        |       |                 
|                                              |                                                |                        |       |                  |   | Twelve       |       | Six     
|                                              |                                                |                        |       | Six months ended |   | months       |       | months  
|                                              |                                                | Year ended December 31 |       | June 30,         |   | ended        |       | ended   
|                                              |                                                |                        |       |                  |   | December 31, |       | June 30,
|                                              |                                                | 2001                   |       | 2002             |   | 2003         |       | 2003     |   | 2004 |       | 2003  |   | 2004
|                                              |                                                |                        |       |                  |   |              |       |          |   |      |       |       |   |     
|                                              |                                                |                       
|                                              |                                                | (in millions)         
|Net income (loss)                             |                                                | $                      | (25.4 | )                |   | $            | (17.9 | )        |   | $    | 123.7 |       |   | $    | 53.8 |       |   | $ | 51.6  |       |  | $ | 192.6 |       |   | $ | 151.4 |      
|Add: Loss (gain) from discontinued operations |                                                |                        | (4.2  | )                |   |              |      |          |   |      |      |       |   |      |     |       |   |   |      |       |  |   |      |       |   |   |      |      
|                                              | Income tax (recovery) expense                  |                        |       | (18.7            | ) |              |       | (0.3     | ) |      |       | 51.9  |   |      |      | 11.7  |   |   |       | 36.5  |  |   |       | 98.5  |   |   |       | 98.0  | 
|                                              | Foreign exchange (gain) loss on long-term debt |                        |       | 17.4             |   |              |       | (4.3     | ) |      |       | (76.9 | ) |      |      | (64.7 | ) |   |       | 5.8   |  |   |       | (76.9 | ) |   |       | 5.8   | 
|                                              | Amortization of finance charges                |                        |       | 8.3              |   |              |       | 5.3      |   |      |       | 4.9   |   |      |      | 2.4   |   |   |       | 1.3   |  |   |       | 9.1   |   |   |       | 2.9   | 
|                                              | Interest charges                               |                        |       | 51.7             |   |              |       | 57.2     |   |      |       | 51.2  |   |      |      | 26.6  |   |   |       | 16.9  |  |   |       | 85.4  |   |   |       | 36.4  | 
|                                              | Loss on repurchase of debt                     |                        |       |                 |   |              |       |         |   |      |       | 0.1   |   |      |      |      |   |   |       | 106.2 |  |   |       | 0.1   |   |   |       | 106.2 | 
|                                              | Write-down of capital assets                   |                        |       | 3.3              |   |              |       | 1.0      |   |      |       | 13.7  |   |      |      |      |   |   |       |      |  |   |       | 13.7  |   |   |       |      | 
|                                              | Amortization of capital assets                 |                        |       | 30.4             |   |              |       | 32.0     |   |      |       | 33.0  |   |      |      | 15.2  |   |   |       | 19.1  |  |   |       | 89.0  |   |   |       | 44.4  | 
|                                              |                                                |                        |       |                  |   |              |       |          |   |      |       |       |   |      |      |       |   |   |       |       |  |   |       |       |   |   |       |      
|EBITDA                                        |                                                | $                      | 62.8  |                  |   | $            | 73.0  |          |   | $    | 201.6 |       |   | $    | 45.0 |       |   | $ | 237.4 |       |  | $ | 411.3 |       |   | $ | 445.1 |      
|                                              |                                                |                        |       |                  |   |              |       |          |   |      |       |       |   |      |      |       |   |   |       |       |  |   |       |       |   |   |       |      



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | Includes capital expenditures of
    $144.7 million related to the construction of the High
    Level OSB facility during the years ended December 31,
    1999, 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(9) | For purposes of calculating the ratio of earnings
    to fixed charges (i) earnings consist of earnings (loss)
    from continuing operations before income taxes plus fixed
    charges during the period and (ii) fixed charges consist of
    interest expense on all debt, plus the portion of operating
    lease rental expense that is representative of the interest
    factor and amortization of finance charges. For the fiscal years
    ended December 31, 2002 and 2001, pre-tax earnings from
    continuing operations before fixed charges were insufficient to
    cover fixed charges under Canadian GAAP by $18.1 and
    $48.4 million respectively and under U.S. GAAP by
    $17.2 and $48.8 million respectively.



|     |                  
|---- | -----------------
|(10) | $ per msf (3/8).



|     |                                      
|---- | -------------------------------------
|(11) | Net of unamortized deferred discount.

16



---



##### 



RISK FACTORS

An investment in the notes involves risk. You
should carefully consider the following risk factors, as well as
the other information contained in this prospectus, before
tendering your original notes for exchange notes. Any of the
following risks could materially adversely affect our business,
financial condition, results of operations and cash flows.
Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial may also materially
adversely affect our business, financial condition, results of
operations and cash flows. Certain statements under this caption
constitute forward-looking statements. See Special Note
Regarding Forward-Looking Statements.

Risks Related to the Exchange Notes

If you do not properly tender your original
notes, you will not receive exchange notes in the exchange
offer, and you may not be able to sell your original
notes.

We will issue exchange notes only in exchange for
original notes that are timely received by the exchange agent,
together with all required documents, including a properly
completed and duly signed letter of transmittal. Therefore, you
should allow sufficient time to ensure timely delivery of the
original notes, and you should carefully follow the instructions
on how to tender your original notes. Neither we nor the
exchange agent is required to tell you of any defects or
irregularities with respect to your tender of the original
notes. If you do not tender your original notes or if we do not
accept your original notes because you did not tender your
original notes properly, then, after we consummate the exchange
offer, you will continue to hold original notes that are subject
to the existing transfer restrictions. In general, you may not
offer or sell the original notes unless they are registered
under the Securities Act or offered or sold in a transaction
exempt from, or not subject to, the registration requirements of
the Securities Act and applicable state securities laws.
Although we may in the future seek to acquire unexchanged
original notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise,
we have no present plans and are not required to acquire any
unexchanged original notes or to file with the SEC a shelf
registration statement to permit resales of any unexchanged
original notes. In addition, holders of original notes other
than the initial purchasers or holders who are prohibited by
applicable law or SEC policy from participating in the exchange
offer or who may not resell the exchange notes acquired in the
exchange offer without delivering a prospectus, will not have
any further registration rights and will not have the right to
receive special interest on their original notes.

The market for the original notes may be
significantly more limited after the exchange
offer.

Because we anticipate that most holders of
original notes will elect to exchange their original notes, we
expect that the liquidity of the market for any original notes
remaining after the completion of the exchange offer may be
substantially limited. Any original notes tendered and exchanged
in the exchange offer will reduce the aggregate principal amount
of the original notes outstanding. Accordingly, the liquidity of
the market for any original notes could be adversely affected
and you may be unable to sell them. The extent of the market for
the original notes and the availability of price quotations
would depend on a number of factors, including the number of
holders of original notes remaining outstanding and the interest
of securities firms in maintaining a market in the original
notes. An issue of securities with a smaller number of units
available for trading may command a lower, and more volatile,
price than would a comparable issue of securities with a larger
number of units available for trading. Therefore, the market
price for the original notes that are not exchanged may be lower
and more volatile as a result of the reduction in the aggregate
principal amount of the original notes outstanding.

17



---



##### 



Non-U.S. holders of the exchange notes are
subject to restrictions on the resale of the exchange
notes.

We sold the original notes in reliance on
exemptions from the laws of other jurisdictions where the
exchange notes were offered and sold, and therefore the original
notes may be transferred and resold, including pursuant to the
exchange offer, only in compliance with the laws of those
jurisdictions to the extent applicable to the transaction, the
transferor and/or the transferee. Although we registered the
exchange notes under the Securities Act, we did not, and do not
intend to, qualify the exchange notes for distribution in Canada
by prospectus and, accordingly, the exchange notes will remain
subject to restrictions on resale in Canada. In addition,
non-U.S. holders will remain subject to restrictions
imposed by the jurisdiction in which the holder is resident.

We have significant indebtedness, which
could adversely affect our financial condition and limit our
ability to fulfill our obligations related to the
notes.

We currently have and after this exchange offer
will continue to have a significant amount of indebtedness and
significant debt service obligations. As of June 30, 2004,
including the original notes, we would have had
$1.0 billion of indebtedness. In addition, as of
June 30, 2004, we had outstanding letters of credit of
approximately $5.5 million. Despite our current level of
indebtedness, our credit facility permits us to borrow up to
$50.0 million, subject to a borrowing base, and the
indenture governing the notes and our credit facility will
permit us and our subsidiaries to incur additional debt in the
future, subject to limitations, which would increase the risks
described below.

This high degree of leverage could have important
consequences to you. For example, it could:



| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | make it more difficult for us to satisfy our
    obligations with respect to the exchange notes and other
    indebtedness;                                                                                                                
|
| |  | increase our vulnerability to adverse economic
    and industry conditions;                                                                                                                                                                
|
| |  | require us to dedicate a substantial portion of
    cash from operations to service our indebtedness, thereby
    reducing the availability of cash to fund working capital,
    capital expenditures and other general corporate purposes;
|
| |  | limit our ability to obtain financing for working
    capital, capital expenditures, general corporate purposes or
    acquisitions;                                                                                                       
|
| |  | place us at a disadvantage compared to our
    competitors that have a lower degree of leverage; and                                                                                                                                       
|
| |  | limit our flexibility in planning for, or
    reacting to, changes in our business and in the forest products
    industry.                                                                                                                

We may not generate cash flow sufficient to
service all of our obligations, including our obligations
related to the exchange notes.

Our ability to make payments on and to refinance
our indebtedness, including the exchange notes, and to fund our
operations, working capital and capital expenditures, depends on
our ability to generate cash in the future. Our cash flow is
subject to general economic, industry, financial, competitive,
operating, regulatory and other factors that are beyond our
control. Our business may not generate cash flow in an amount
sufficient to enable us to repay our indebtedness, including the
exchange notes, or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. Our

18



---



##### 



ability to refinance our indebtedness or obtain
additional financing will depend on, among other things:




| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | our financial condition at the time;                                                                                                 
|
| |  | restrictions in our indentures and the agreement
    governing our credit facility; and                                              
|
| |  | other factors, including the condition of the
    financial markets or the forest products industry, particularly
    the OSB market.

As a result, we may not be able to refinance any
of our indebtedness, including the exchange notes, on
commercially reasonable terms, or at all. If we do not generate
sufficient cash flow from operations, and additional borrowings
or refinancings or proceeds of asset sales are not available to
us, we may not have sufficient cash to enable us to meet all of
our obligations, including payments on the exchange notes.

The exchange notes will be structurally
subordinated to the indebtedness of our subsidiaries that are
not guarantors of the notes.

You will not have any claim as a creditor against
any of our future subsidiaries that are not subsidiary
guarantors of the exchange notes. As a result, all indebtedness
and other liabilities, including trade payables, of
non-guarantor subsidiaries, whether secured or unsecured, will
have to be satisfied before any of the assets of non-guarantor
subsidiaries would be available for distribution, upon a
liquidation or otherwise, to us to meet our obligations with
respect to the exchange notes.

The exchange notes will be unsecured and
effectively subordinated to our future secured
indebtedness.

The exchange notes will be senior unsecured
obligations, ranking effectively junior in right of payment to
all our future secured debt, including obligations under our
credit facility, to the extent of the collateral securing the
debt. In addition, the indenture governing the exchange notes
permits the incurrence of additional debt, some of which may be
secured debt.

If we are declared bankrupt, become insolvent or
are liquidated or reorganized, any secured indebtedness will be
entitled to be paid in full from our assets securing such
indebtedness before any payment may be made with respect to the
exchange notes. Holders of the exchange notes will participate
ratably in our remaining unencumbered assets with all holders of
our unsecured indebtedness that is deemed to rank equally with
the exchange notes, and potentially with secured creditors (to
the extent that the collateral securing our indebtedness to them
is of insufficient value to satisfy that indebtedness), and with
all of the other general creditors (including trade creditors),
based upon the respective amounts owed to each holder or
creditor. If any of the foregoing events occur, there may be
insufficient assets to pay the full amounts due on the exchange
notes.

The agreements governing our indebtedness
contain significant restrictions that limit our operating and
financial flexibility.

The indenture governing the exchange notes
offered hereby, and the indentures and agreement governing our
existing senior notes and credit facility, respectively, contain
covenants that, among other things, limit our ability to:



| |   |                                      
| | - | -------------------------------------
| |  | incur additional indebtedness;       
|
| |  | pay dividends and make distributions;
|
| |  | repurchase stock;                    
|
| |  | make certain investments;            

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| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | transfer or sell assets;                                                                            
|
| |  | create liens;                                                                                       
|
| |  | enter into transactions with affiliates;                                                            
|
| |  | issue or sell stock of subsidiaries;                                                                
|
| |  | create dividend or other payment restrictions
    affecting restricted subsidiaries; and            
|
| |  | merge, consolidate, amalgamate or sell all or
    substantially all of our assets to another person.

All of these restrictions may limit our ability
to execute our business strategy. Moreover, if our operating
results fall below current levels, we may be unable to comply
with these covenants. If that occurs, our lenders, including
you, could accelerate our indebtedness. If our indebtedness is
accelerated, we may not be able to repay all of our
indebtedness, in which case your exchange notes may not be fully
repaid, if at all.

We may be unable to purchase exchange notes
in the event of a change of control.

Upon the occurrence of a change of control, as
defined in the indenture, we will be required to make an offer
to purchase exchange notes at a price equal to 101% of their
principal amount, plus accrued and unpaid interest, if any, to
the date of purchase. We may not have available funds to pay the
purchase price at the time of such an event. In addition, the
terms of our credit facility may prevent us from purchasing the
exchange notes. Under our credit facility, a change of control
would constitute an event of default that would require us to
repay all amounts outstanding under the credit facility. We may
not have sufficient funds to repay our credit facility and make
the required offer to purchase at the time of such event. Any
future debt that we incur may also contain restrictions on the
purchase of the exchange notes.

Certain bankruptcy and insolvency laws may
impair the trustees ability to enforce remedies under the
notes.

We are organized under the laws of the Province
of British Columbia and, currently, substantially all of our
assets are located in Canada. Under bankruptcy laws in the
United States, courts typically have jurisdiction over a
debtors property, wherever located, including property
situated in other countries. There can be no assurance, however,
that courts outside of the United States would recognize the
U.S. bankruptcy courts jurisdiction. Accordingly,
difficulties may arise in administering a U.S. bankruptcy
case involving a Canadian debtor like us with property located
outside of the United States, and any orders or judgments of a
bankruptcy court in the United States may not be enforceable in
Canada against us.

The rights of the trustee to enforce remedies may
be significantly impaired by the restructuring provisions of
applicable Canadian federal bankruptcy, insolvency and other
restructuring legislation if the benefit of such legislation is
sought with respect to us. For example, both the Bankruptcy and
Insolvency Act (Canada) and the Companies Creditors
Arrangement Act (Canada) contain provisions enabling an
insolvent person to obtain a stay of proceedings
against its creditors and others and to prepare and file a
proposal for consideration by all or some of its creditors to be
voted on by the various classes of its creditors. Such a
restructuring proposal, if accepted by the requisite majorities
of creditors and approved by the court, may be binding on
persons, such as holders of the exchange notes, who may not
otherwise be willing to accept it. Moreover, this provision of
the legislation permits, in certain circumstances, an insolvent
debtor to retain possession and administration of its property,
even though it may be in default under the applicable debt
instrument.

The powers of the court under the Bankruptcy and
Insolvency Act (Canada) and particularly under the
Companies Creditors Arrangement Act (Canada) have been
exercised broadly to

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protect a restructuring entity from actions taken
by creditors and other parties. Accordingly, if we were to seek
protection under such Canadian bankruptcy legislation following
commencement of or during such a proceeding, payments under the
exchange notes may be discontinued, the trustee may be unable to
exercise its rights under the indenture and holders of the
exchange notes may not be compensated for any delays in
payments, if any, of principal and interest. Further, the
holders of the exchange notes may receive in exchange for their
claims a recovery that could be substantially less than the
amounts of their claims (potentially even nothing) and any such
recovery could be in the form of cash, new debt instruments or
some other security.


Your ability to enforce civil liabilities
in Canada under U.S. securities laws may be
limited.

We are organized under the laws of the Province
of British Columbia. All of our directors, controlling persons,
officers and the representatives of the experts named in this
prospectus, are residents of Canada, and a substantial portion
of their assets and, currently, substantially all of our assets
are located outside the United States. It may not be possible,
therefore, for you to effect service of process within the
United States upon us, our directors and officers or such
experts. There is uncertainty as to the enforceability in
Canadian courts of (1) an original action predicated solely
upon United States federal securities laws and (2) of
judgments of United States courts obtained in actions predicated
upon the civil liability provisions of United States federal
securities laws. Therefore, you may not be able to secure
judgment against us, our directors and officers or such experts
in a Canadian court or, if successful in securing a judgment
against us or them in a U.S. court, you may not be able to
enforce such judgment in Canada.

There is currently no active trading market
for the exchange notes. If an active trading market does not
develop for the exchange notes, you may not be able to resell
them.

No active trading market currently exists for the
exchange notes and an active trading market may not develop in
the future. The exchange notes will not be listed on any
securities exchange, although we expect that each series of
exchange notes will be eligible for trading in the PORTAL
Market. If an active trading market does not develop, it could
have an adverse effect on the market price of, and your ability
to sell, the exchange notes. Historically, the market for
non-investment grade debt has been subject to disruptions that
have caused substantial volatility in the prices of securities
similar to the notes. The market for the exchange notes, if any,
may be subject to similar disruptions. The trading price may
depend upon prevailing interest rates, the market for similar
securities, and other factors, including general economic
conditions and our financial condition, performance and
prospects. These factors could adversely affect you as a holder
of exchange notes.

Federal and state statutes in the United
States and federal and provincial statutes in Canada allow
courts, under specific circumstances, to void the guarantees and
require the holders of the exchange notes to return payments
received from the guarantors.

Under U.S. federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, the guarantees
could be voided, or claims in respect of the guarantees could be
subordinated to all of a guarantors other debts if, among
other things,



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | such guarantor, at the time the debt evidenced by
    the guarantee was incurred, received less than reasonably
    equivalent value or fair consideration for the incurrence of
    such debt, or
|
| |  | the guarantee (as the case may be) was incurred
    with the intent to hinder or delay any of such guarantors
    present or future creditors, and such guarantor:                               
|
| |  | was insolvent or rendered insolvent by reason of
    such incurrence;                                                                                                                             

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| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | was engaged in a business or transaction for
    which such guarantors remaining assets constituted
    unreasonably small capital; or
|
| |  | intended to incur, or believed that it would
    incur, debts beyond its ability to pay such debts as they mature.                     

In addition, any payment by a guarantor pursuant
to its guarantee could be voided and required to be returned to
us or such guarantor, or to a fund for the benefit of creditors
of such guarantor.

Under Canadian federal bankruptcy law and
provincial fraudulent conveyance and preference laws, the
guarantees could be voided or voidable if, among other things:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the guarantee (as the case may be) was incurred
    at a time when the guarantor was in insolvent circumstances,
    unable to pay its debts in full or knew itself to be on the eve
    of insolvency and with intent to defeat, hinder, delay, defraud
    or prejudice one or more creditors, with intent to prefer one
    creditor over other creditors or which has the effect of
    preferring one creditor over other creditors;
|
| |  | the guarantee (as the case may be) has the effect
    of preferring one creditor over other creditors and a proceeding
    is brought to set aside the guarantee, or the guarantor makes an
    assignment for the benefit of its creditors, within 60 days
    of the issuance of the guarantee;                                                                                                                                        
|
| |  | the guarantee (as the case may be) was incurred
    with intent to defeat, hinder, delay or defraud creditors or
    others of their just and lawful actions, suits, debts, accounts,
    damages, penalties or forfeitures; or                                                                                                                                                                                                          
|
| |  | the guarantee (as the case may be) was incurred
    with intent to prefer one creditor over other creditors, and
    within three months of the happening of an initial bankruptcy
    event (the filing of an assignment, a proposal or a notice of
    proposal by the guarantor, or the filing of a petition for a
    receiving order against the guarantor).                                                                        

If the guarantee is voided, any payment by a
guarantor pursuant to its guarantee could be required to be
returned to us or a creditor or creditors of such guarantor, or
to a fund for the benefit of creditors of such guarantor.

The measures of insolvency for purposes of these
fraudulent transfer or preference laws will vary depending upon
the law applied in any proceeding to determine whether a
fraudulent transfer or preference has occurred. Generally,
however, a person would be considered insolvent if:



| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the sum of its debts, including contingent
    liabilities, were greater than the fair saleable value of all of
    its assets;                                                                                                         
|
| |  | the present fair saleable value of its assets
    were less than the amount that would be required to pay its
    probable liability on its existing debts, including contingent
    liabilities, as they become absolute and mature; or
|
| |  | it could not pay its debts as they become due.                                                                                                                                                                                          

On the basis of historical financial information,
recent operating history and other factors, we believe that,
after giving effect to this offering, the guarantor will not be
insolvent, will not have unreasonably small capital for the
business in which it is engaged and will not have incurred debts
beyond its ability to pay such debts as they mature. There can
be no assurance, however, as to what standard a court would
apply in making such determinations or that a court would agree
with our conclusions in this regard.

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Risks Related to Our Business and the Forest
Products Industry

Our business is of a cyclical nature and
prices of, and demand for, our products and our results of
operations may fluctuate significantly based on market
factors.

The largest markets for OSB are commodity markets
in which manufacturers compete primarily on the basis of price.
Our financial performance is dependent on the selling prices of
our OSB products, which have fluctuated significantly in the
past. The markets for these products are highly cyclical and
characterized by (1) periods of excess product supply due
to industry capacity additions, increased production and other
factors, and (2) periods of insufficient demand due to weak
general economic conditions. Demand for our OSB products is
primarily driven by the residential and commercial construction
and repair and remodeling industries. These industries in turn
are affected by real estate prices, interest rates, credit
availability, tax policy, energy costs, weather conditions,
natural disasters and general economic conditions, all of which
are beyond our control. The prices of commodity sheathing OSB
and plywood have historically been unpredictable. For example,
during the past five years, monthly average prices for commodity
sheathing OSB have ranged from a low of US$131 per msf North
Central ( 7/16) to a high of US$508 per msf North
Central ( 7/16). We are unable to predict market
conditions and selling prices for our OSB products, which may
decline from current levels. Weakness in the market,
particularly in North America, could reduce our revenues and
profitability and could affect our ability to satisfy our
obligations under our indebtedness, including the exchange
notes. We cannot predict with certainty what market conditions,
demand and selling prices for our products will be in the future
and prices or demand for our products may decline from current
levels. Any prolonged or severe weakness in the market for any
of our principal products would adversely affect our business,
financial condition, results of operations and cash flows.

Intense competition could reduce our market
share and harm our financial performance.

We compete in North America and in overseas
export markets with numerous forest products companies, ranging
from very large integrated firms, most of which are larger than
we are, to smaller firms that manufacture only a few products.
We also compete indirectly with firms that manufacture
substitutes for wood building materials. Our competitive
position is influenced by the availability, quality and cost of
raw materials, energy and labor costs, plant efficiencies and
productivity in relation to our competitors. Some of our
competitors may have lower fiber and labor costs and fewer
environmental and governmental regulations to comply with than
we do. Other competitors are less leveraged than we are and
therefore have greater financial resources than we do.

We currently face substantial competition in the
OSB industry and may face increased competition in the years to
come if new manufacturing facilities are built in North America
and elsewhere. In addition, OSB capacity is constantly
increasing as a result of improvements to existing mills. In
periods of reduced demand, which lead to lower OSB prices, we
may not be able to compete with competitors who have greater
financial resources and who are better able to weather a
prolonged decline in prices.

Because of our product concentration,
declines in demand or prices for OSB could have a significant
impact on our revenues and profitability.

We are primarily a manufacturer of OSB and, to a
lesser extent, a producer of specialty overlaid plywood. For the
year ended December 31, 2003, we generated 82% of our
revenues from OSB sales and for the six months ended
June 30, 2004, we generated 86% of our revenues from
OSB sales. We expect that OSB will continue to account for
most of our sales in the foreseeable future. This product
concentration could increase our exposure to a decline in demand
or prices for OSB as a result of general economic conditions
affecting housing starts,

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renovations and remodeling or industrial
construction activity or the other factors described above.


We may incur unexpected costs or
liabilities as a result of our recent acquisition of Voyageur
and our acquisition of the Minnesota OSB
facilities.

Although we conducted what we believed to be a
prudent and thorough level of investigation in connection with
our recent acquisition of Voyageur and our acquisition of the
Minnesota OSB facilities, in each case, an unavoidable level of
risk remains regarding any undisclosed or unknown liabilities of
or issues concerning the Barwick facility and the Minnesota OSB
facilities. In the course of our operation of the Barwick
facility, or following our acquisition of the Minnesota OSB
facilities, we may discover that we have acquired substantial
undisclosed liabilities. In addition, we may be unable to retain
the Minnesota OSB facilities existing customers or
employees following our acquisition of the Minnesota OSB
facilities. The existence of undisclosed liabilities at the
Barwick facility or the Minnesota OSB facilities, or our
inability to retain existing customers or employees at the
Minnesota OSB facilities could have a material adverse effect on
our business, financial condition, results of operations and
cash flows.

We may be unable to successfully integrate
the Minnesota OSB facilities into our existing
operations.

To effectively integrate the Minnesota OSB
facilities into our current operations we must establish
appropriate operational, administrative, finance, management
systems and controls and marketing functions relating to the
facilities. These efforts will require substantial attention
from our management team. This diversion of management
attention, as well as any other difficulties which we may
encounter in completing the transition and integration process,
could have an adverse impact on our business, financial
condition, results of operations and cash flows. In addition, we
cannot assure you that we will be successful in integrating the
Minnesota OSB facilities, or that expected benefits, including
increased production, increased value-added product mix and
reduced costs, will be realized.

We are exposed to currency exchange risk
which could have a material adverse effect on us.

Our operating results are sensitive to
fluctuations in the exchange rate of the Canadian dollar to the
U.S. dollar, as prices for our products are denominated in
U.S. dollars or linked to prices quoted in
U.S. dollars. In 2003, over 75% of our sales and
substantially all of the sales generated by the Barwick and the
Minnesota OSB facilities were denominated in U.S. dollars.
Although we purchase certain quantities of raw materials in
U.S. dollars, most of our operating costs are incurred in
Canadian dollars. Therefore, an increase in the value of the
Canadian dollar relative to the U.S. dollar reduces the
amount of revenue in Canadian dollar terms realized by us from
sales made in U.S. dollars, which reduces our operating
margin and the cash flow available to fund our operations. From
January 1, 2003 to June 30, 2004, the value of the
Canadian dollar relative to the U.S. dollar increased by
approximately US$0.11, or 17.9%.

In addition, we are exposed to currency exchange
risk on our debt, including the exchange notes and interest
thereon, and assets denominated in U.S. dollars. Since we
present our financial statements in Canadian dollars, any change
in the value of the Canadian dollar relative to the
U.S. dollar during a given financial reporting period would
result in a foreign currency loss or gain on the translation of
our U.S. dollar-denominated debt and assets into Canadian
dollars. Consequently, our reported earnings could fluctuate
materially as a result of foreign exchange translation gains or
losses.

We are not currently a party to any forward
foreign currency exchange contract, or other contract that could
serve to hedge our exposure to fluctuations in the U.S./Canadian
dollar exchange rate.

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We depend on timber tenures for access to
fiber for our existing OSB and plywood operations. A reduction
in our fiber supply or an increase in the related costs could
have an adverse effect on us.

The allowable annual cut under our forest license
in British Columbia can supply approximately 80% of the current
timber requirements of our veneer and specialty overlaid plywood
operations either directly or through a long-term log trade
agreement with third parties. The forest license is renewable
and the current term extends until 2013.

Under the terms of forest licenses granted in
British Columbia, the amount of commercial forest land available
to the forest industry is periodically assessed. We cannot
predict whether the amount of timber that we are allowed to
harvest will be reduced in the future. In 2003, the British
Columbia government introduced the Forestry Revitalization Act
which will result in significant changes to the provincial
forest management structure. The plan includes a 20% reduction
in harvesting rights for holders of long-term tenures and the
introduction of an auction-based timber pricing system. The
province has indicated that licensees will be fairly compensated
for the return of tenure and related costs such as roads and
bridges. Although the legislation has been enacted, the
regulations and basis for compensation for the 20% timber
reduction have not been published. The effect of the timber
take-back will result in a reduction of approximately 29,600 m3
of our existing allowable annual cut for which we will be
compensated.

In Alberta, we obtain most of our fiber
requirements from our Forest Management Agreements, or FMAs, or
Deciduous Timber Allocations issued by the Alberta government,
each of which is issued for a period of 20 years. There is
no assurance that such quotas and allocations will be renewed or
extended on acceptable terms, if at all. In addition, the FMAs
and such quotas and allocations contain terms or conditions that
could, under certain circumstances, result in a reduction of the
amount of fiber available to us.

Our Barwick facility requires approximately
720,000 m3 of timber annually when operating at its current
capacity of 470 mmsf per year. We have a current annual
commitment of 551,000 m3 of timber from Crown land under
long-term agreements with the Province of Ontario. Additional
wood is obtained from private sources in Ontario and Manitoba.
There is no assurance that we will be able to obtain a future
supply of wood from either Crown or private sources on terms
that are adequate to support our planned operation of our
Barwick facility.

The costs of our fiber, including any fees
charged for fiber, logging and transportation, and market prices
for purchased fiber have historically fluctuated and could
increase in the future. Any significant increase in the cost of
fiber could have a material adverse effect on our business,
financial condition, results of operations and cash flows.

The Minnesota OSB facilities obtain
their wood fiber supply in open market transactions, which are
subject to price fluctuations.

The Minnesota OSB facilities obtain their
wood fiber supply in open market transactions from various
governmental entities and private landowners. The open market
price of wood fiber may fluctuate as a result of various factors
that are beyond our control, such as the level of demand from
other forest products manufacturers, natural disasters,
industrial disputes and government legislation. A material
increase in the open market price for wood fiber could have a
material adverse effect on our business, financial condition,
results of operations and cash flows.

Our ability to harvest timber is subject to
natural events that are beyond our control.

Our ability to harvest timber is subject to
natural events such as forest fires, adverse weather conditions,
insect infestation, disease and prolonged drought. The
occurrence of any of these events could adversely affect our
ability to harvest or source timber. We may need to curtail
production or purchase fiber from third parties, which could
increase our costs and reduce

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cash from operations, which could, in turn, have
a material adverse effect on our business, financial condition,
results of operations and cash flows.


Government regulations relating to forest
management practices may adversely affect us and could increase
our costs of doing business.

Legislation in British Columbia, Alberta, and
Ontario empower provincial regulatory agencies to develop
regulations, set policies and establish and maintain all aspects
of sustainable forest management. Changes to these regulations
and policies could have an effect on our access to fiber for our
OSB operations or could increase the cost of our fiber. Changes
to these laws or regulations, or the implementation of new laws
or regulations, could result in additional expenses, capital
expenditures and restrictions and delays in our activities,
which could impair our competitive position and have a material
adverse impact on our operations. In addition, if we fail to
comply with applicable legislation and regulations, our
operations could be interrupted and we could be subject to
significant liabilities, including fines and other penalties or
take remedial actions, any of which could entail significant
expenditure.

Environmental, health and safety laws and
regulations could increase the cost of doing business or
restrict our ability to conduct our business.

We are subject to a wide range of general and
industry-specific environmental, health and safety and other
laws and regulations imposed by federal, provincial and local
authorities in Canada, including those governing the use,
storage, handling, generation, treatment, emission, release,
discharge and disposal of certain hazardous materials and
wastes, the remediation of contaminated soil and groundwater,
and the health and safety of employees. The successful
completion of our acquisition of the Minnesota OSB facilities
will also subject us to a wide range of general and
industry-specific environmental, health and safety laws
applicable in the United States and the State of Minnesota. If
we are unable to extend or renew a material approval, license or
permit required by such laws, or if there is a delay in renewing
any material approval, license or permit, our business,
financial condition, results of operations and cash flows could
be materially adversely affected. The process of obtaining
certain required approvals, including the completion of any
necessary environmental impact assessments, can be lengthy,
subject to public input, controversial and expensive. Our
failure to comply with applicable environmental, health and
safety requirements, including permits related thereto, could
result in civil or criminal fines or penalties or enforcement
actions, including regulatory or judicial orders enjoining or
curtailing operations or requiring corrective measures,
installation of equipment or remedial actions, any of which
could result in significant expenditures or reduced results of
operations. We believe that we are in substantial compliance
with all applicable environmental, health and safety laws and
regulations and we regularly incur capital and operating
expenditures to maintain such compliance. However, future events
such as any changes in these laws and regulations, including any
new legislation that might arise as a result of the Government
of Canadas ratification of the United Nations Kyoto
Protocol, or any change in their interpretation or enforcement,
or discovery of currently unknown conditions, may give rise to
additional expenditures or liabilities. These could have a
material adverse effect on our business, financial condition,
results of operations and cash flows.

Work stoppages or other labor disruptions
at our facilities could have an adverse effect on our
operations.

Any labor disruptions and any costs associated
with labor disruptions at our union or non-union facilities
could have a material adverse effect on our production levels
and results of operations. In 2003, we renewed our collective
bargaining agreements with the Industrial, Wood and Allied
Workers of Canada, or IWA, which had expired on June 30,
2003. The renewed agreements have six year terms expiring on
June 30, 2009, and cover approximately 500

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employees at our Lillooet, Savona and 100 Mile
House operations. In 2000, Voyageur entered into a collective
bargaining agreement with the Communications, Energy and
Paperworkers Union of Canada, or CEP. This contract
currently covers approximately 120 workers employed at the
Barwick facility and expires on August 31, 2005. In October
2002, Potlatch entered into a collective bargaining agreement
with The Paper, Allied-Industrial, Chemical and Energy Workers
Union, or PACE. This contract currently covers approximately 130
employed at the Grand Rapids facility and expires on
October 14, 2004. Our inability to negotiate acceptable
contracts, following the expiration of the present collective
bargaining agreements with the CEP and PACE could result in a
strike or work stoppage by the affected workers and increased
operating costs as a result of higher wages or benefits paid to
unionized workers.


Native land claims could have an adverse
effect on our timber supply in the future.

Canadian courts have recognized that aboriginal
people may have unextinguished claims of aboriginal rights and
title to lands used or occupied by their ancestors in those
areas of British Columbia, constituting about 80% of the
province, where treaties have not yet been concluded. Aboriginal
rights may vary from limited rights of use for traditional
purposes to a right of aboriginal title, depending, among other
things, on the nature and extent of the prior aboriginal use and
occupation. Some of our timber supply areas are located within
areas where there are claims of aboriginal rights and title.

The courts have said that the Crown has an
obligation to consult First Nations, and accommodate their
concerns, when there is a reasonable possibility that a Crown
authorized activity  such as a forest tenure  may
infringe asserted Aboriginal rights and title, even if those
claims have not yet been proven. If the Crown has not consulted
as required, the obligation to consult and accommodate may pass
to the corporation receiving the interest in Crown land.

The courts have encouraged the federal and
provincial governments, together with aboriginal people, to
resolve claims of aboriginal rights and title through the
negotiation of treaties. A treaty process has been established
to settle native claims in British Columbia. Many First Nations
and tribal groups are participating in this process, which will
be ongoing for many years to come. The pace of the treaty-making
process will depend on the commitment of the parties, the
success of individual treaties, and whether First Nations
consider litigation to be a viable alternative to negotiations.
We cannot predict whether native land claims in British Columbia
will affect our existing forest licenses and timber tenures, or
our right to harvest timber to the full extent of those tenures,
or our ability to renew or secure other forest tenures in the
future.

Even in provinces such as Alberta and Ontario,
which are entirely subject to treaties between Indian bands and
the federal Crown, natives may have a right to exercise treaty
rights on unoccupied Crown land, and have claimed a right to be
consulted in respect of activities on Crown land that may
interfere with their treaty rights. Our operations in Alberta
and Ontario are unencumbered by native land claims, but we
cannot predict whether claims, or what kind of claims, will be
made in the future.

We face risks related to our international
sales.

We have customers located outside Canada and the
United States. In 2003, sales outside of Canada and the United
States represented approximately 7% of our sales. In 2004, after
adjusting for our acquisitions of Voyageur and the Minnesota OSB
facilities, we expect that our sales outside of Canada and the
United States will represent less than 5% of our sales. Our
international operations present us with a number of risks and
challenges, including the effective marketing of our products in
other countries, tariffs and other trade barriers, and
recessionary environments in foreign economies.

27



---



##### 



The co-ownership arrangement for High Level
could force us to either sell our 50% ownership interest or to
buy-out the co-owners 50% interest.

The memorandum of agreement that governs the
co-ownership of the High Level OSB facility contains a buy-sell
provision, which provides that if one co-owner offers to buy the
other partys interest, the party must either accept the
offer or purchase the interest owned by the offering co-owner at
the same price and conditions. See Co-ownership
Arrangements for High Level. As a result, we could be
forced to sell our interest or purchase our co-owners
interests, which could affect our day-to-day operations and
growth strategy.

If the co-owner of the High Level OSB
facility were to default on its obligations we may be forced to
fund the entire High Level operation.

If the co-owner of the High Level OSB facility
fails to meet its funding obligations for the High Level OSB
facility, we may be required to fund the entire High Level
operation. We may not be able to make such additional cash
contributions if the co-owner were to default. If High Level
fails to operate at its design capacity, results of operations
may suffer. Such circumstances would lessen our ability to meet
our debt obligations.

Members of the Ainsworth family control our
business and their interests may conflict with the interests of
our debtholders.

Members of the Ainsworth family beneficially own
approximately 58% of our common shares, and consequently have
the ability to exercise control over our business and affairs
through their ability to elect all of our directors. These
family members also have the ability to control most matters
requiring shareholder approval. As with other shareholders, the
Ainsworth familys interests in our business, operations
and financial condition may not be aligned or may conflict, from
time to time, with your interests.

28



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##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This prospectus contains forward-looking
statements. These forward-looking statements are based on our
current expectations and our projections about future events,
including our current expectations regarding:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the future demand for, and sales volumes of, our
    products;                                                                                                                       
|
| |  | future production volumes, efficiencies and
    operating costs, including our plans to increase the production
    volumes at the Barwick facility and the Minnesota OSB facilities;
|
| |  | increases or decreases in the prices of our
    products;                                                                                                                            
|
| |  | our future stability and growth prospects;                                                                                                                                           
|
| |  | our business strategies, the measures to
    implement those strategies and the benefits to be derived
    therefrom;                                                                
|
| |  | our future profitability and capital needs,
    including capital expenditures;                                                                                                      
|
| |  | the outlook for and other future developments in
    our affairs or in the industries in which we participate; and                                                                   
|
| |  | the effect on us of new accounting releases.                                                                                                                                         

These forward-looking statements generally can be
identified by the use of statements that include words such as
believe, expect, anticipate,
intend, plan, likely,
will, predicts, estimates,
forecasts or other similar words or phrases.
Similarly, statements that describe our objectives, plans or
goals are or may be forward-looking statements. These
forward-looking statements are subject to risks, uncertainties
and other factors that could cause our actual results to differ
materially from the future results expressed or implied by the
forward-looking statements. Some of these risks, uncertainties
and other factors include:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cyclical nature of our business and our
    vulnerability to market factors;                                                                             
|
| |  | the effects of intense competition;                                                                                                                          
|
| |  | declines in demand for or pricing of OSB, our
    most significant product;                                                                                  
|
| |  | unexpected costs or liabilities incurred by us as
    a result of our recent acquisition of Voyageur and our
    acquisition of the Minnesota OSB facilities;
|
| |  | our ability to successfully integrate the
    Minnesota OSB facilities into our existing operations;                                                         
|
| |  | our exposure to currency exchange risk;                                                                                                                      
|
| |  | the availability of adequate fiber supply or an
    increase in the costs of fiber;                                                                          
|
| |  | increases in the open market price for wood fiber;                                                                                                           
|
| |  | the effects of natural events that are beyond our
    control;                                                                                               
|
| |  | the impact of regulations relating to forest
    management practices;                                                                                       
|
| |  | the impact of environmental, safety and other
    regulations;                                                                                               
|
| |  | the effect of work stoppages or other labor
    disruptions at our operations;                                                                               
|
| |  | the impact of native land claims on our ability
    to ensure availability of adequate fiber supply;                                                         
|
| |  | the risks associated with international sales;                                                                                                               

29



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##### 





| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | risks related to our co-ownership arrangement for
    High Level; and
|
| |  | the interests of our controlling shareholders.                       

Any written or oral forward-looking statements
made by us or on our behalf are subject to these factors. In
light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not
occur. These factors and the other risk factors described in
this prospectus are not necessarily all of the important factors
that could cause actual results to differ materially from those
expressed in any of our forward-looking statements. Other
unknown or unpredictable factors also could harm our future
results. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements included in this
prospectus are made only as at the date of this prospectus. We
do not intend, and do not assume any obligation, to update these
forward-looking statements, except as required by law.

MARKET AND INDUSTRY DATA AND
FORECASTS

This prospectus includes market share and
industry data and other statistical information and forecasts
that we have obtained from independent industry publications,
government publications, market research reports and other
published independent sources. Some data are also based on our
good faith estimates, which are derived from our internal
surveys, as well as independent sources. RISI is the source for
a considerable amount of the third party industry data and
forecasts contained herein.

Industry publications and surveys and forecasts
generally state that the information contained therein has been
obtained from sources believed to be reliable. However, we
cannot and do not provide any assurance as to the accuracy or
completeness of included information and do not guarantee the
accuracy or completeness of such information. Forecasts are
particularly likely to be inaccurate, especially over long
periods of time. Although we believe these sources to be
reliable, we have not independently verified any of the data nor
have we ascertained the underlying economic assumptions relied
upon therein.

30



---



##### 



USE OF PROCEEDS

We will not receive any cash proceeds from the
issuance of the exchange notes, the terms of which are
substantially identical to those of the original notes. The
original notes surrendered in exchange for the exchange notes
will be cancelled and cannot be reissued. The issuance of the
exchange notes will not result in any change in our aggregate
indebtedness. On September 22, 2004, we sold the original
notes for net proceeds of approximately US$439.1 million
($588.7 million based on the noon buying rate of
US$0.7459 = $1.00 on June 30, 2004). After
deducting the initial purchasers commission and our
expenses, we used the net proceeds, together with a portion of
our cash balances, to purchase the Minnesota OSB facilities. See
Our Business  The Minnesota OSB
Facilities.

31



---



##### 



CAPITALIZATION

The following table sets forth our capitalization
as of June 30, 2004. Our capitalization is presented
(1) on an actual basis and (2) as adjusted to reflect
the issuance of the original notes. This table should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations,
Description of Other Indebtedness, our consolidated
financial statements and related notes and the pro forma
financial information and related notes appearing elsewhere in
this prospectus.

|                                            |                                                                               |                      |         |             |         |   |        |           |           | 
|------------------------------------------- | ----------------------------------------------------------------------------- | -------------------- | ------- | ----------- | ------- | - | ------ | --------- | --------- | 
|                                            |                                                                               |                     
|                                            |                                                                               | As at June 30, 2004 
|                                            |                                                                               |                     
|                                            |                                                                               | Actual               |         | As Adjusted
|                                            |                                                                               |                      |         |            
|                                            |                                                                               |                     
|                                            |                                                                               | (in thousands)      
|Cash and cash equivalents                   |                                                                               | $                    | 100,042 |             |         | $ | 75,128 |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|Short-term debt:                            |                                                                               |                      |         |             |         |   |        |          
|                                            | Current portion of capital lease obligations                                  |                      | $       | 388         |         |   | $      | 388       |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|                                            | Total short-term debt                                                         |                      |         | 388         |         |   |        | 388       |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|Long-term debt (excluding current portion): |                                                                               |                      |         |             |         |   |        |          
|                                            | Revolving credit facility(1)                                                  |                      |         |            |         |   |        |          |          
|                                            | 12 1/2% senior notes due July 15,
    2007(2)                                 |                      |         | 3,136       |         |   |        | 3,136     |          
|                                            | 13.875% senior notes due July 15, 2007(3)                                     |                      |         | 2,668       |         |   |        | 2,668     |          
|                                            | 6.750% senior notes due March 15, 2014(4)                                     |                      |         | 426,816     |         |   |        | 426,816   |          
|                                            | 7 1/4% senior notes due October 1,
    2012, issued September 22, 2004        |                      |         |            |         |   |        | 368,693   | (5)      
|                                            | Floating rate senior notes due October 1,
    2010, issued September 22, 2004 |                      |         |            |         |   |        | 234,622   | (6)      
|                                            | Unamortized deferred debt discount                                            |                      |         | (14,930     | )       |   |        | (14,930   | )        
|                                            |                                                                               |                      |         |             |         |   |        |          
|                                            | Total long-term debt                                                          |                      |         | 417,690     |         |   |        | 1,021,005 |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|                                            | Total debt                                                                    |                      |         | 418,078     |         |   |        | 1,021,393 |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|Shareholders equity:                       |                                                                               |                      |         |             |         |   |        |          
|                                            | Capital stock                                                                 |                      |         | 55,827      |         |   |        | 55,827    |          
|                                            | Retained earnings                                                             |                      |         | 169,926     |         |   |        | 169,926   |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|                                            | Total shareholders equity                                                    |                      |         | 225,753     |         |   |        | 225,753   |          
|                                            |                                                                               |                      |         |             |         |   |        |          
|                                            |                                                                               | Total capitalization |         | $           | 643,831 |   |        | $         | 1,247,146 | 
|                                            |                                                                               |                      |         |             |         |   |        |          






|    |                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our credit facility allows us to borrow up to
    $50.0 million, subject to a borrowing base determined by
    the amount of our eligible accounts receivable and inventory,
    which may reduce the total borrowings available to us under the
    credit facility. See Description of Other
    Indebtedness  Credit Facility.
|   
|(2) | The outstanding principal amount of the
    12 1/2% Notes is US$2.4 million ($3.1 million),
    and is reflected on our balance sheet net of unamortized
    deferred discount and converted to Canadian dollars at the
    June 30, 2004 exchange rate posted by the Bank of Canada of
    US$0.7497 = $1.00.                      
|   
|(3) | The outstanding principal amount of the 13.875%
    Notes is US$2.0 million ($2.7 million), and is
    reflected on our balance sheet net of unamortized deferred
    discount and converted to Canadian dollars at the June 30,
    2004 exchange rate posted by the Bank of Canada of
    US$0.7497 = $1.00.                      
|   
|(4) | The outstanding principal amount of the 6.750%
    senior notes due March 15, 2014 is US$320 million
    ($426.8 million), and is reflected on our balance sheet net
    of unamortized deferred discount and converted at the
    June 30, 2004 exchange rate posted by the Bank of Canada of
    US$0.7497 = $1.00.               
|   
|(5) | The principal amount of the original fixed rate
    notes is US$275 million, converted to Canadian dollars at
    the June 30, 2004 exchange rate posted by the Federal
    Reserve Bank of New York of US$0.7459 = $1.00.                                                                                                          
|   
|(6) | The principal amount of the original floating
    rate notes is US$175 million, converted to Canadian dollars
    at the June 30, 2004 exchange rate posted by the Federal
    Reserve Bank of New York of US$0.7459 = $1.00.                                                                                                       

32



---



##### 



SELECTED CONSOLIDATED FINANCIAL AND OTHER
DATA

You should read the selected consolidated
financial and other data set forth below in conjunction with our
financial statements and the related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus. Our statement of operations data for the fiscal
years ended December 31, 2003, 2002 and 2001 and the
balance sheet data as at December 31, 2003 and 2002 have
been derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. Our statement
of operations data for the fiscal years ended December 31,
2000 and 1999 and the balance sheet data as at December 31,
2001, 2000 and 1999 have been derived from our audited
consolidated financial statements, which are not included in
this prospectus. Our statement of operations data for the six
months ended June 30, 2004 and 2003 and our balance sheet
data as at June 30, 2004 have been derived from our
unaudited consolidated financial statements, which are included
elsewhere in this prospectus. In the opinion of our management,
our unaudited consolidated financial statements include all
adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial information for such
periods. Interim results are not necessarily indicative of
results for any other interim period or for a full year. We
prepare our financial statements in accordance with Canadian
GAAP, which differs in certain respects from U.S. GAAP. For
a discussion of the principal differences between Canadian GAAP
and U.S. GAAP as they pertain to us, see note 22 to
our audited consolidated financial statements included elsewhere
in this prospectus and note 7 to our unaudited interim
consolidated financial statements included elsewhere in this
prospectus.

|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|------------------------------------------------------------- |  | ----------------------------------------------- | ----- | ---------------- |  | ---------- | ----- | ------- |  | ------- | ----- | ------- |  | ---------- | ----- | - |  | - | ----- | --- |  | - | ----- | - |  | - | ----- | -
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |        
|                                                              |  |                                                 |       | Six months ended
|                                                              |  | Fiscal year ended December 31,                  |       | June 30,        
|                                                              |  |                                                 |       |                 
|                                                              |  | 1999(1)                                         |       | 2000(1)          |  | 2001(1)(2) |       | 2002(1) |  | 2003(1) |       | 2003(1) |  | 2004(1)(3)
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |           
|                                                              |  |                                                
|                                                              |  | (in millions except ratios and production data)
|Statement of Operational Data                                 |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Canadian GAAP                                                 |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Sales                                                         |  | $                                               | 413.7 |                  |  | $          | 401.1 |         |  | $       | 388.7 |         |  | $          | 421.7 |   |  | $ | 542.0 |     |  | $ | 213.6 |   |  | $ | 431.7 |  
|Cost of products sold                                         |  |                                                 | 270.0 |                  |  |            | 280.5 |         |  |         | 306.0 |         |  |            | 329.6 |   |  |   | 321.8 |     |  |   | 160.9 |   |  |   | 191.4 |  
|Selling and administration                                    |  |                                                 | 20.5  |                  |  |            | 26.3  |         |  |         | 22.7  |         |  |            | 21.9  |   |  |   | 18.2  |     |  |   | 8.5   |   |  |   | 10.0  |  
|Amortization of capital assets                                |  |                                                 | 28.2  |                  |  |            | 27.4  |         |  |         | 30.4  |         |  |            | 32.0  |   |  |   | 33.0  |     |  |   | 15.2  |   |  |   | 19.1  |  
|Write-down of capital assets                                  |  |                                                 |      |                  |  |            | 1.0   |         |  |         | 3.3   |         |  |            | 1.0   |   |  |   | 13.7  | (4) |  |   |      |   |  |   |      |  
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Operating Earnings                                            |  |                                                 | 95.0  |                  |  |            | 65.9  |         |  |         | 26.3  |         |  |            | 37.2  |   |  |   | 155.3 |     |  |   | 29.0  |   |  |   | 211.2 |  
|Interest charges(5)(6)                                        |  |                                                 | 44.8  |                  |  |            | 35.6  |         |  |         | 51.7  |         |  |            | 57.2  |   |  |   | 51.2  |     |  |   | 26.6  |   |  |   | 16.9  |  
|Amortization of finance charges                               |  |                                                 | 5.2   |                  |  |            | 2.1   |         |  |         | 8.3   |         |  |            | 5.3   |   |  |   | 4.9   |     |  |   | 2.4   |   |  |   | 1.3   |  
|Loss on repurchase of debt                                    |  |                                                 |      |                  |  |            |      |         |  |         |      |         |  |            |      |   |  |   | 0.1   |     |  |   |      |   |  |   | 106.2 |  
|Other (income) expense                                        |  |                                                 | (4.4  | )                |  |            | (4.3  | )       |  |         | (2.8  | )       |  |            | (2.9  | ) |  |   | 0.5   |     |  |   | (0.8  | ) |  |   | (7.1  | )
|Unrealized foreign exchange (gain) loss on long
    term debt |  |                                                 | (19.3 | )                |  |            | 10.2  |         |  |         | 17.4  |         |  |            | (4.3  | ) |  |   | (76.9 | )   |  |   | (64.7 | ) |  |   | 5.8   |  
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Income (loss) before income taxes                             |  |                                                 | 68.7  |                  |  |            | 22.3  |         |  |         | (48.4 | )       |  |            | (18.1 | ) |  |   | 175.6 |     |  |   | 65.5  |   |  |   | 88.1  |  
|Income tax expense (recovery)                                 |  |                                                 | 29.0  |                  |  |            | 12.5  |         |  |         | (18.7 | )       |  |            | (0.3  | ) |  |   | 51.9  |     |  |   | 11.7  |   |  |   | 36.5  |  
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations                      |  |                                                 | 39.7  |                  |  |            | 9.8   |         |  |         | (29.7 | )       |  |            | (17.9 | ) |  |   | 123.7 |     |  |   | 53.8  |   |  |   | 51.6  |  
|Gain (loss) from discontinued operations                      |  |                                                 | (0.7  | )                |  |            | (14.4 | )       |  |         | 4.2   |         |  |            |      |   |  |   |      |     |  |   |      |   |  |   |      |  
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Net income (loss)                                             |  | $                                               | 39.0  |                  |  | $          | (4.6  | )       |  | $       | (25.4 | )       |  | $          | (17.9 | ) |  | $ | 123.7 |     |  | $ | 53.8  |   |  | $ | 51.6  |  
|                                                              |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|U.S. GAAP                                                     |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Net income (loss)                                             |  | $                                               | 39.2  |                  |  | $          | (8.0  | )       |  | $       | (25.8 | )       |  | $          | (17.0 | ) |  | $ | 125.0 |     |  | $ | 54.2  |   |  | $ | 52.2  |  
|Other Financial Data                                          |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|Canadian GAAP                                                 |  |                                                 |       |                  |  |            |       |         |  |         |       |         |  |            |       |   |  |   |       |     |  |   |       |   |  |   |       |  
|EBITDA(7)                                                     |  | $                                               | 127.6 |                  |  | $          | 98.6  |         |  | $       | 62.8  |         |  | $          | 73.0  |   |  | $ | 201.6 |     |  | $ | 45.0  |   |  | $ | 237.4 |  
|Capital expenditures(8)                                       |  |                                                 | 36.1  |                  |  |            | 133.8 |         |  |         | 20.1  |         |  |            | 14.1  |   |  |   | 8.2   |     |  |   | 5.6   |   |  |   | 3.8   |  
|Ratio of earnings to fixed charges(9)                         |  |                                                 | 2.4x  |                  |  |            | 1.6x  |         |  |         |      |         |  |            |      |   |  |   | 4.1x  |     |  |   | 2.8x  |   |  |   | 3.8x  |  

33



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##### 



|          |  |                                                 |       |                  |  |            |      |         |  |         |      |         |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|--------- |  | ----------------------------------------------- | ----- | ---------------- |  | ---------- | ---- | ------- |  | ------- | ---- | ------- |  | ---------- | ---- |  |  | - | ----- |  |  | - | ---- |  |  | - | ----- | 
|          |  |                                                 |       |                  |  |            |      |         |  |         |      |        
|          |  |                                                 |       | Six months ended
|          |  | Fiscal year ended December 31,                  |       | June 30,        
|          |  |                                                 |       |                 
|          |  | 1999(1)                                         |       | 2000(1)          |  | 2001(1)(2) |      | 2002(1) |  | 2003(1) |      | 2003(1) |  | 2004(1)(3)
|          |  |                                                 |       |                  |  |            |      |         |  |         |      |         |  |           
|          |  |                                                
|          |  | (in millions except ratios and production data)
|U.S. GAAP |  |                                                 |       |                  |  |            |      |         |  |         |      |         |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|EBITDA(7) |  | $                                               | 127.6 |                  |  | $          | 98.6 |         |  | $       | 62.8 |         |  | $          | 73.0 |  |  | $ | 201.6 |  |  | $ | 45.0 |  |  | $ | 237.4 | 

|                                                             |  |                                |     |                  |  |         |     |      |  |      |       |      |  |         |       |  |  |   |       |  |  |   |     |  |  |   |     | 
|------------------------------------------------------------ |  | ------------------------------ | --- | ---------------- |  | ------- | --- | ---- |  | ---- | ----- | ---- |  | ------- | ----- |  |  | - | ----- |  |  | - | --- |  |  | - | --- | 
|                                                             |  |                                |     |                  |  |         |     |      |  |      |       |     
|                                                             |  |                                |     | Six months ended
|                                                             |  | Fiscal year ended December 31, |     | June 30,        
|                                                             |  |                                |     |                 
|                                                             |  | 1999                           |     | 2000             |  | 2001(1) |     | 2002 |  | 2003 |       | 2003 |  | 2004(2)
|                                                             |  |                                |     |                  |  |         |     |      |  |      |       |      |  |        
|Other Selected Operating Data                                |  |                                |     |                  |  |         |     |      |  |      |       |      |  |         |       |  |  |   |       |  |  |   |     |  |  |   |     | 
|OSB production volume (mmsf)                                 |  |                                | 924 |                  |  |         | 972 |      |  |      | 1,197 |      |  |         | 1,284 |  |  |   | 1,351 |  |  |   | 656 |  |  |   | 754 | 
|Specialty plywood production volume (mmsf)                   |  |                                | 115 |                  |  |         | 94  |      |  |      | 86    |      |  |         | 98    |  |  |   | 119   |  |  |   | 58  |  |  |   | 74  | 
|Average OSB price realized
    ($ per msf)(10)               |  | $                              | 296 |                  |  | $       | 263 |      |  | $    | 205   |      |  | $       | 202   |  |  | $ | 294   |  |  | $ | 256 |  |  | $ | 492 | 
|Average specialty plywood price realized
    ($ per msf)(10) |  | $                              | 647 |                  |  | $       | 651 |      |  | $    | 683   |      |  | $       | 663   |  |  | $ | 601   |  |  | $ | 655 |  |  | $ | 696 | 

|                                             |  |                    |       |          |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|-------------------------------------------- |  | ------------------ | ----- | -------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                             |  |                    |       |         
|                                             |  | As at December 31, |       | As at   
|                                             |  |                    |       | June 30,
|                                             |  | 1999               |       | 2000     |  | 2001 |       | 2002 |  | 2003 |       | 2004
|                                             |  |                    |       |          |  |      |       |      |  |      |       |     
|                                             |  |                   
|                                             |  | (in millions)     
|Balance Sheet Data                           |  |                    |       |          |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|Canadian GAAP                                |  |                    |       |          |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|Cash and cash equivalents                    |  | $                  |      |          |  | $    |      |      |  | $    | 87.0  |      |  | $ | 80.2  |  |  | $ | 194.1 |  |  | $ | 100.0 | 
|Total assets                                 |  |                    | 460.0 |          |  |      | 540.4 |      |  |      | 578.0 |      |  |   | 555.1 |  |  |   | 627.7 |  |  |   | 776.1 | 
|Total debt, including current maturities(11) |  |                    | 271.5 |          |  |      | 303.7 |      |  |      | 443.7 |      |  |   | 440.4 |  |  |   | 352.5 |  |  |   | 418.1 | 
|Shareholders equity                         |  |                    | 96.1  |          |  |      | 91.6  |      |  |      | 66.2  |      |  |   | 48.4  |  |  |   | 171.8 |  |  |   | 225.8 | 
|U.S. GAAP                                    |  |                    |       |          |  |      |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |       | 
|Total assets                                 |  | $                  | 453.8 |          |  | $    | 528.9 |      |  | $    | 566.2 |      |  | $ | 544.7 |  |  | $ | 619.3 |  |  | $ | 768.5 | 
|Total debt, including current maturities(11) |  |                    | 271.5 |          |  |      | 303.7 |      |  |      | 443.7 |      |  |   | 440.4 |  |  |   | 352.5 |  |  |   | 418.1 | 
|Shareholders equity                         |  |                    | 92.3  |          |  |      | 84.4  |      |  |      | 58.7  |      |  |   | 35.2  |  |  |   | 159.3 |  |  |   | 213.8 | 






|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales and costs of products sold figures reported
    in this table have been reclassified to include freight revenue
    and freight and other distribution costs. Previously, these
    items were netted from sales consistent with industry practice
    at the time.

The effect of the change in presentation is
summarized below:

|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|-------------------------------------------------------------------------- |  | ------------------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |     
|                                                                           |  |                                |       | Six months ended
|                                                                           |  | Fiscal year ended December 31, |       | June 30,        
|                                                                           |  |                                |       |                 
|                                                                           |  | 1999                           |       | 2000             |  | 2001 |       | 2002 |  | 2003 |       | 2003 |  | 2004
|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |      |  |     
|                                                                           |  |                               
|                                                                           |  | (in millions)                 
|Net sales                                                                  |  | $                              | 368.6 |                  |  | $    | 350.2 |      |  | $    | 326.7 |      |  | $    | 356.1 |  |  | $ | 481.1 |  |  | $ | 182.6 |  |  | $ | 396.4 | 
|Freight and other distribution costs                                       |  |                                | 45.1  |                  |  |      | 50.9  |      |  |      | 62.0  |      |  |      | 65.6  |  |  |   | 60.9  |  |  |   | 31.0  |  |  |   | 35.3  | 
|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|Gross sales                                                                |  | $                              | 413.7 |                  |  | $    | 401.1 |      |  | $    | 388.7 |      |  | $    | 421.7 |  |  | $ | 542.0 |  |  | $ | 213.6 |  |  | $ | 431.7 | 
|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|Costs of products sold, excluding freight and
    other distribution costs |  | $                              | 224.9 |                  |  | $    | 229.6 |      |  | $    | 244.0 |      |  | $    | 264.0 |  |  | $ | 260.9 |  |  | $ | 129.9 |  |  | $ | 156.1 | 
|Freight and other distribution costs                                       |  |                                | 45.1  |                  |  |      | 50.9  |      |  |      | 62.0  |      |  |      | 65.6  |  |  |   | 60.9  |  |  |   | 31.0  |  |  |   | 35.3  | 
|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|Cost of products sold, including freight and
    other distribution costs  |  | $                              | 270.0 |                  |  | $    | 280.5 |      |  | $    | 306.0 |      |  | $    | 329.6 |  |  | $ | 321.8 |  |  | $ | 160.9 |  |  | $ | 191.4 | 
|                                                                           |  |                                |       |                  |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       |  |  |   |       | 



|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Operations at the High Level OSB facility
    commenced in October 2000 with income contributions being
    realized commencing in April 2001.                                                 
|   
|(3) | Includes the results of operations of Voyageur
    Panel Limited, predecessor to Ainsworth Engineered Corp., our
    wholly owned subsidiary, for the period May 19, 2004 to
    June 30, 2004.
|   
|(4) | Includes a $13.3 million write-down of
    capital assets related to the previously planned expansion of
    the Grande Prairie OSB facility.                                                  

34



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Interest charges includes interest expense for
    the period, excluding amortization of deferred financing costs,
    amortization of deferred debt discounts, amortization of consent
    and commitment fees, unrealized foreign exchange gains (losses)
    on long-term debt and realized foreign exchange losses upon
    repayment of principal.
|   
|(6) | Excludes $1.5 million of interest charges
    capitalized to the High Level project during fiscal 2000.                                                                                                                                                                                                                                                
|   
|(7) | EBITDA represents operating earnings before
    amortization and write-down of capital assets, plus interest and
    other income. For more information regarding EBITDA, see
    Presentation of Financial Information. The following
    table shows a reconciliation of EBITDA to net income (loss).                                              

|                                              |                                         |                         |       |                  |   |         |      |      |  |      |       |       |   |         |       |      |   |   |       |       |   |   |      |       |   |   |       |       | 
|--------------------------------------------- | --------------------------------------- | ----------------------- | ----- | ---------------- | - | ------- | ---- | ---- |  | ---- | ----- | ----- | - | ------- | ----- | ---- | - | - | ----- | ----- | - | - | ---- | ----- | - | - | ----- | ----- | 
|                                              |                                         |                         |       |                  |   |         |      |      |  |      |       |      
|                                              |                                         |                         |       | Six months ended
|                                              |                                         | Year ended December 31, |       | June 30,        
|                                              |                                         |                         |       |                 
|                                              |                                         | 1999                    |       | 2000             |   | 2001(1) |      | 2002 |  | 2003 |       | 2003  |   | 2004(2)
|                                              |                                         |                         |       |                  |   |         |      |      |  |      |       |       |   |        
|                                              |                                         |                        
|                                              |                                         | (in millions)          
|Net income (loss)                             |                                         | $                       | 39.0  |                  |   | $       | (4.6 | )    |  | $    | (25.4 | )     |   | $       | (17.9 | )    |   | $ | 123.7 |       |   | $ | 53.8 |       |   | $ | 51.6  |      
|Add: Loss (gain) from discontinued operations |                                         |                         | 0.7   |                  |   |         | 14.4 |      |  |      | (4.2  | )     |   |         |      |      |   |   |      |       |   |   |     |       |   |   |      |      
|                                              | Income tax (recovery) expense           |                         |       | 29.0             |   |         |      | 12.5 |  |      |       | (18.7 | ) |         |       | (0.3 | ) |   |       | 51.9  |   |   |      | 11.7  |   |   |       | 36.5  | 
|                                              | Unrealized foreign exchange (gain) loss |                         |       | (19.3            | ) |         |      | 10.2 |  |      |       | 17.4  |   |         |       | (4.3 | ) |   |       | (76.9 | ) |   |      | (64.7 | ) |   |       | 5.8   | 
|                                              | Amortization of finance charges         |                         |       | 5.2              |   |         |      | 2.1  |  |      |       | 8.3   |   |         |       | 5.3  |   |   |       | 4.9   |   |   |      | 2.4   |   |   |       | 1.3   | 
|                                              | Interest charges                        |                         |       | 44.8             |   |         |      | 35.6 |  |      |       | 51.7  |   |         |       | 57.2 |   |   |       | 51.2  |   |   |      | 26.6  |   |   |       | 16.9  | 
|                                              | Loss on repurchase of debt              |                         |       |                 |   |         |      |     |  |      |       |      |   |         |       |     |   |   |       | 0.1   |   |   |      |      |   |   |       | 106.2 | 
|                                              | Write-down of capital assets            |                         |       |                 |   |         |      | 1.0  |  |      |       | 3.3   |   |         |       | 1.0  |   |   |       | 13.7  |   |   |      |      |   |   |       |      | 
|                                              | Amortization of capital assets          |                         |       | 28.2             |   |         |      | 27.4 |  |      |       | 30.3  |   |         |       | 32.0 |   |   |       | 33.0  |   |   |      | 15.2  |   |   |       | 19.1  | 
|                                              |                                         |                         |       |                  |   |         |      |      |  |      |       |       |   |         |       |      |   |   |       |       |   |   |      |       |   |   |       |      
|EBITDA                                        |                                         | $                       | 127.6 |                  |   | $       | 98.6 |      |  | $    | 62.8  |       |   | $       | 73.0  |      |   | $ | 201.6 |       |   | $ | 45.0 |       |   | $ | 237.4 |      
|                                              |                                         |                         |       |                  |   |         |      |      |  |      |       |       |   |         |       |      |   |   |       |       |   |   |      |       |   |   |       |      



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8)  | Includes capital expenditures of
    $144.7 million related to the construction of the High
    Level OSB facility during the years ended December 31,
    1999, 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(9)  | For purposes of calculating the ratio of earnings
    to fixed charges (i) earnings consist of earnings (loss)
    from continuing operations before income taxes plus fixed
    charges during the period and (ii) fixed charges consist of
    interest expense on all debt, plus the portion of operating
    lease rental expense that is representative of the interest
    factor and amortization of finance charges. For the fiscal years
    ended December 31, 2002 and 2001, pre-tax earnings from
    continuing operations before fixed charges were insufficient to
    cover fixed charges under Canadian GAAP by $18.1 and
    $48.4 million respectively and under U.S. GAAP by
    $17.2 and $48.8 million respectively.
|    
|(10) | $ per msf ( 3/8).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(11) | Net of unamortized deferred discount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

35



---



##### 



MANAGEMENTS DISCUSSION AND
ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


The following discussion of our financial
condition and results of operations is based upon and should be
read in conjunction with our consolidated financial statements
and the accompanying notes included elsewhere in this
prospectus. Our consolidated financial statements have been
prepared in accordance with Canadian GAAP. For a discussion of
the principal differences between Canadian GAAP and
U.S. GAAP as they pertain to us, see note 22 to our
audited consolidated financial statements.



Overview


We are principally engaged in the production of
OSB and specialty plywood for sale to markets in the United
States, Canada, Asia and Europe. Our operating results are
affected by prevailing market prices for our principal products,
as well as our production volumes and costs of production. Sales
of our products are affected by residential and commercial
construction and repair and remodeling industries in North
America and Japan and, to a lesser extent, the commercial
construction industry in Europe. These industries are highly
cyclical and are affected by numerous factors, including real
estate prices, interest rates, credit availability, tax policy,
energy costs, weather conditions, natural disasters and general
economic conditions.

During 2003, we achieved higher production
volumes of both OSB and specialty plywood compared to 2002. OSB
production volume was 1,351 mmsf in 2003 compared to
1,284 mmsf in 2002, representing an increase of 5.2%.
Production volume at the High Level OSB facility and the Grande
Prairie OSB facility increased by 16.7% and 4.5%, respectively,
compared to 2002. Meanwhile, production at the 100 Mile
House OSB facility was consistent with 2002. Specialty plywood
production volume increased by 21.4% during the year from
98 mmsf to 119 mmsf. This increase was primarily due
to increased demand for a new concrete forming plywood product
and commodity plywood sheathing. Veneer production sold to third
parties decreased 12.8% due to the increased demand for veneer
at our Savona plywood facility. There was no production of
lumber in 2003 because the Abbotsford facility was temporarily
closed due to market conditions.

For the six months ended June 30, 2004, OSB
production volume increased from 656 mmsf in 2003 to 754 mmsf in
2004. The 14.8% increase in production volume compared to the
first six months of 2003, is attributable to the addition of the
Barwick OSB facility, together with increases in production at
the Grande Prairie and High Level OSB facilities of 7.0% and
19.4%, respectively. Specialty plywood production volume
increased by 27.9% compared to the first six months of 2003, due
to strong demand for sheathing plywood and concrete forming
plywood products. Our only lumber operation, located at
Abbotsford, B.C., remained closed throughout the first six
months of 2004 due to market conditions.

Our operating results are sensitive to
fluctuations in the exchange rate of the Canadian dollar to the
U.S. dollar, as prices for our products are denominated in
U.S. dollars or linked to prices quoted in
U.S. dollars and we have incurred substantially all of our
debt in U.S. dollars. In 2003, over 75% of our revenue was
denominated in U.S. dollars, while most of our operating
costs were incurred in Canadian dollars. We have not hedged our
exposure to fluctuations in U.S. dollar revenue by entering
into foreign exchange forward contracts.

Our value-added OSB products, including our
export-standard OSB products, typically carry higher prices and
generate greater margins than our commodity sheathing OSB
products and tend to be less affected by fluctuations in the
economy. As a result, prices and margins for these products tend
to be higher and more stable through the economic cycle.

The Lillooet veneer plant supplies the Savona
specialty overlaid plywood mill with veneer for making specialty
overlaid plywood. The remaining veneer production is sold to
third party plywood producers. When our own plywood production
is high due to market conditions, sales of veneer to third
parties is generally reduced, and prices for such third party
sales are generally

36



---



##### 



higher. Similarly, when our own plywood
production is lower due to market conditions, sales of veneer to
third parties is correspondingly higher, and prices are
generally lower.


Cost of products sold consists primarily of wood
fiber, resins, waxes, labor costs and energy. Wood fiber from
timber is the primary raw material used in our operations and is
the most significant cost of our manufacturing process. Fiber
supply self-sufficiency is a key competitive element, because
the direct control and management of fiber supplies partially
insulates an operator from fluctuations in the market price of
fiber. We supply our manufacturing operations primarily from
fiber resources held under long-term agreements with the
governments of British Columbia, Alberta and Ontario, providing
a secure supply of fiber on a sustainable basis. Approximately
86% of the fiber requirements for our OSB mills are supplied by
the provincial government quotas and allocations, and multi-year
fiber agreements with other forest products companies and
aboriginal groups. We purchase the balance of our fiber
requirements in the open market.

The year ended December 31, 2003 and the six
months ended June 30, 2004 have seen a significant increase
in the pricing of OSB products, which has increased our sales
and improved our operating earnings.

The following table summarizes certain of our
results of operations:

|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |       |       | 
|------------------------------------------------------------- | ------------------------------------- | ------------- | ----- | -------------- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                              |                                       |               |       |               
|                                                              |                                       | Year ended    |       | Six months    
|                                                              |                                       | December 31,  |       | ended June 30,
|                                                              |                                       |               |       |               
|                                                              |                                       | 2001          |       | 2002           |       | 2003 |       | 2003  |       | 2004
|                                                              |                                       |               |       |                |       |      |       |       |       |     
|                                                              |                                       |              
|                                                              |                                       | (in millions)
|Sales:(1)                                                     |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|                                                              | OSB                                   |               | $     | 298.1          |       |      | $     | 321.1 |       |      | $     | 449.0 |       |   | $     | 167.4 |       |   | $     | 371.6 |      
|                                                              | Specialty plywood, and other products |               |       | 90.6           |       |      |       | 100.6 |       |      |       | 93.0  |       |   |       | 46.2  |       |   |       | 60.1  |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|                                                              |                                       | Total         |       |                | 388.7 |      |       |       | 421.7 |      |       |       | 542.0 |   |       |       | 213.6 |   |       |       | 431.7 | 
|Cost of products sold:(1)                                     |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|                                                              | OSB                                   |               |       | 226.9          |       |      |       | 243.1 |       |      |       | 241.6 |       |   |       | 120.7 |       |   |       | 140.8 |      
|                                                              | Specialty plywood, and other products |               |       | 79.1           |       |      |       | 86.5  |       |      |       | 80.2  |       |   |       | 40.2  |       |   |       | 50.6  |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|                                                              |                                       | Total         |       |                | 306.0 |      |       |       | 329.6 |      |       |       | 321.8 |   |       |       | 160.9 |   |       |       | 191.4 | 
|Selling and administration                                    |                                       |               | 22.7  |                |       |      | 21.9  |       |       |      | 18.2  |       |       |   | 8.5   |       |       |   | 10.0  |      
|Amortization of capital assets                                |                                       |               | 30.4  |                |       |      | 32.0  |       |       |      | 33.0  |       |       |   | 15.2  |       |       |   | 19.1  |      
|Write-down of capital assets                                  |                                       |               | 3.3   |                |       |      | 1.0   |       |       |      | 13.7  |       |       |   |      |       |       |   |      |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|Operating earnings                                            |                                       |               | 26.3  |                |       |      | 37.2  |       |       |      | 155.3 |       |       |   | 29.0  |       |       |   | 211.2 |      
|Finance expense                                               |                                       |               | 60.0  |                |       |      | 62.5  |       |       |      | 56.1  |       |       |   | 29.0  |       |       |   | 124.4 |      
|Interest and other (income) expense                           |                                       |               | (2.8  | )              |       |      | (2.9  | )     |       |      | 0.5   |       |       |   | (0.8  | )     |       |   | (7.1  | )    
|Unrealized foreign exchange (gain) loss on
    long-term debt |                                       |               | 17.4  |                |       |      | (4.3  | )     |       |      | (76.9 | )     |       |   | (64.8 | )     |       |   | 5.8   |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|Income (loss) before income tax                               |                                       |               | (48.4 | )              |       |      | (18.1 | )     |       |      | 175.6 |       |       |   | 65.6  |       |       |   | 88.1  |      
|Income tax (recovery) expense                                 |                                       |               | (18.7 | )              |       |      | (0.3  | )     |       |      | 51.9  |       |       |   | 11.7  |       |       |   | 36.5  |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|Income (loss) from continuing operations                      |                                       |               | (29.7 | )              |       |      | (17.9 | )     |       |      | 123.7 |       |       |   | 53.7  |       |       |   | 51.6  |      
|Gain from discontinued operations                             |                                       |               | 4.2   |                |       |      |      |       |       |      |      |       |       |   |      |       |       |   |      |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      
|Net income (loss)                                             |                                       | $             | (25.4 | )              |       | $    | (17.9 | )     |       | $    | 123.7 |       |       | $ | 53.7  |       |       | $ | 51.6  |      
|                                                              |                                       |               |       |                |       |      |       |       |       |      |       |       |       |   |       |       |       |   |       |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales and costs of products sold figures reported
    in this table and elsewhere in the Managements Discussion
    and Analysis have been reclassified to include freight revenue
    and freight and other distribution costs. These items were
    netted from sales in our annual consolidated financial
    statements consistent with industry practice at the time.

37



---



##### 



Our geographic distribution of sales was as
follows:

|             |                 |              |       |                |   |      |       |      |   |      |       |      |   |  |       |      |   |  |       |      |  
|------------ | --------------- | ------------ | ----- | -------------- | - | ---- | ----- | ---- | - | ---- | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|             |                 |              |       |               
|             |                 | Year ended   |       | Six Months    
|             |                 | December 31, |       | ended June 31,
|             |                 |              |       |               
|             |                 | 2001         |       | 2002           |   | 2003 |       | 2003 |   | 2004
|             |                 |              |       |                |   |      |       |      |   |     
|All Products |                 |              |       |                |   |      |       |      |   |      |       |      |   |  |       |      |   |  |       |     
|             | United States   |              |       | 69.6           | % |      |       | 69.4 | % |      |       | 75.4 | % |  |       | 71.7 | % |  |       | 80.6 | %
|             | Canada          |              |       | 15.1           |   |      |       | 19.4 |   |      |       | 17.5 |   |  |       | 19.5 |   |  |       | 14.5 |  
|             | Japan and other |              |       | 11.8           |   |      |       | 9.3  |   |      |       | 5.5  |   |  |       | 6.7  |   |  |       | 3.8  |  
|             | Europe          |              |       | 3.5            |   |      |       | 1.9  |   |      |       | 1.6  |   |  |       | 2.1  |   |  |       | 1.1  |  
|             |                 |              |       |                |   |      |       |      |   |      |       |      |   |  |       |      |   |  |       |     
|             |                 |              | 100.0 | %              |   |      | 100.0 | %    |   |      | 100.0 | %    |   |  | 100.0 | %    |   |  | 100.0 | %   
|             |                 |              |       |                |   |      |       |      |   |      |       |      |   |  |       |      |   |  |       |     

Our Results of Operations



| |                                                                              
| | -----------------------------------------------------------------------------
| | Six months ended June 30, 2004
    Compared to Six months ended June 30, 2003

Net Income for the six months ended June 30,
2004 was $51.6 million, compared to net $53.7 million
in 2003. The decrease in net income was due primarily to a
$106.2 million cost associated with the repurchase of
long-term debt, a $182.2 million increase in operating
earnings and a $70.6 million change in the foreign exchange
translation on U.S. dollar denominated debt from a
$64.8 million gain in 2003 to a $5.8 million loss in
2004.

Sales

Sales in the six months ended June 30, 2004
were $431.7 million, compared to $213.6 million in
2003, representing an increase of $218.1 million or 102.1%.
The increase in sales resulted from an $204.3 million
increase in OSB sales and a $13.9 million increase in
specialty overlaid plywood and other product sales. OSB sales
amounted to approximately 86.1% of our total sales for the six
months ending June 2004 compared to approximately 78.4% in the
six months ending June 2003.

OSB.Sales of OSB in
the six months ended June 30, 2004 were
$371.6 million, compared to $167.4 million in the same
period of 2003, representing an increase of $204.2 million
or 122.0%. This increase was due to an average price increase of
92% and a 15.6% increase in shipment volumes. Benchmark North
Central (7/16) OSB market prices reached a new average
high for the first six months of 2004. The increased shipment
volume was due to the addition of the Barwick facility, together
with production capacity improvements at our High Level and
Grande Prairie facilities.

Specialty Overlaid Plywood and Other Products.Sales of specialty overlaid plywood
and other products in the six months ended June 30, 2004
were $60.1 million, compared to $46.2 million in the
same period of 2003. This increase was due primarily to improved
pricing for Specialty Overlaid Plywood and other products,
combined with a 27.9% increase in specialty overlaid plywood
shipment volume.

Cost
of Products Sold

Cost of products sold in the six months ended
June 30, 2004 was $191.4 million, compared to
$160.9 million in 2003, representing an increase of
$30.4 million, or 18.9%. This increase is due primarily to
the increased shipment volumes of OSB and specialty overlaid
plywood.

OSB.OSB cost of
products sold in the six months ended June 30, 2004 was
$140.8 million, compared to $120.7 million in the same
period 2003, representing an increase of $20.1 million, or
16.7%. This increase was due to a 15.6% increase in OSB
shipments and a 6.7% increase in per unit production costs.

38



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##### 



Specialty Overlaid Plywood and Other Products.Specialty overlaid plywood and other
products cost of products sold in the six months ended
June 30, 2004 were $50.6 million, compared to
$40.2 million in the same period of 2003, representing an
increase of $10.4 million, or 25.6%. This increase was due
primarily to the 27.9% increase in specialty overlaid plywood
shipment volumes.

Selling
and Administration Expense

Selling and administration expense in the six
months ended June 30, 2004 was $10.0 million, compared
to $8.5 million in the same period of 2003. This increase
was due to an overall increase in business activity.

Amortization
of Capital Assets

Amortization of capital assets in the six months
ended June 30, 2004 was $19.1 million, compared to
$15.2 million in 2003. The increase in amortization expense
is primarily due to the addition of the Barwick OSB facility.

Finance
Expense

Finance expense for the six months ended
June 30, 2004 was $124.4 million (including
$16.9 million of direct interest expense), compared to
$29.0 million (including $26.6 million of direct
interest expense) in the same period of 2003, representing an
increase of $107.5 million. This increase was due primarily
to a $106.2 million one-time charge incurred in connection
with the repurchase of our 13.875% Senior Secured Notes and
12.5% Senior Secured Notes in March 2004. The decrease in
interest expense for the six months ended June 30, 2004 was
due to the lower average amount of debt, reduced interest rates
and the year-over-year appreciation of the Canadian dollar
relative to the U.S. dollar.

We recorded a $5.8 million foreign exchange
loss on our U.S. dollar denominated long-term debt in the
six months ended June 30, 2004, compared to a gain of
$64.8 million in the same period of 2003, representing a
change of $70.6 million. The loss in 2004 reflects the
depreciation of the Canadian dollar relative to the
U.S. dollar during the six months ended June 30, 2004,
compared to the appreciation of the Canadian dollar relative to
the US dollar in the same period in 2003.

Other income for the six months ended
June 30, 2004 was $7.1 million, compared to other
income of $0.8 million in the same period of 2003. This
increase was due primarily to a $6.9 million foreign
exchange gain associated with the companys net working
capital, compared to a loss of $1.2 million in 2003.

Income
Taxes

We recorded an income tax expense of
$36.5 million in the six months ended June 30, 2004,
compared to an income tax expense of $11.7 million in the
same period of 2003. The significant increase in tax expense is
due to the increase in income before income taxes, together with
the impact of the repurchase of our 13.875% Senior Secured Notes
and 12.5% Senior Secured Notes.

Fiscal Year
ended December 31, 2003 Compared to Fiscal Year ended
December 31, 2002

Net income for the year ended December 31,
2003 was $123.7 million compared to a net loss of
$17.9 million in 2002. The increase in net income was
primarily attributable to a $118.1 million or 317.5%
increase in operating earnings and a $72.6 million increase
in the unrealized foreign exchange gain on U.S. dollar
denominated debt from $4.3 million in 2002 to
$76.9 million in 2003.

39



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Sales

Sales in fiscal 2003 were $542.0 million
compared to $421.7 million in fiscal 2002, representing an
increase of $120.3 million or 28.5%.

OSB.Sales of OSB in
2003 were $449.0 million compared to $321.1 million in
2002, representing an increase of $127.9 million or 39.9%.
This increase was due to an average price increase of 45.8% and
by a 3.3% increase in shipment volumes from 1,299 mmsf in fiscal
2002 to 1,341 mmsf in fiscal 2003. The increased unit
volume was due to capacity improvements at the 100 Mile House
and High Level facilities. Benchmark OSB prices increased
sharply beginning in mid-2003 and peaked at a record US$465 per
msf North Central ( 7/16) monthly average price in
October, well above the previous record of $351 per msf set in
July 1999.

Specialty Overlaid Plywood and Other Products.Sales of specialty overlaid plywood
and other products were $93.0 million compared to
$100.6 million in 2002, representing a decrease of
$7.6 million or 7.6%. This decrease was due primarily to a
decrease in lumber and veneer sales only partially offset by an
increase in specialty overlaid plywood sales. Lumber revenue was
$17.0 million or 94.8% lower than 2002 because the
Abbotsford facility has been temporarily closed since December
2002 due to market conditions. Sales of specialty overlaid
plywood in 2003 were $71.8 million compared to
$61.1 million in 2002, representing an increase of
$10.7 million or 17.5%. Specialty plywood volume increased
29.2% from 92 mmsf in fiscal 2002 to 119 mmsf in fiscal 2003.
The increase in sales resulted from a 29.2% increase in shipment
volumes driven by higher market demand and a 9.1% decrease in
average sales price. This lower average sales price is largely
attributable to a product mix comprised of an increased
proportion of relatively lower-priced commodity plywood
sheathing products.

Cost
of Products Sold

Cost of products sold in fiscal 2003 was
$321.8 million compared to $329.6 million in fiscal
2002, representing a decrease of $7.8 million or 2.4%. This
decrease is primarily due to the closure of the Abbotsford
lumber facility throughout 2003 and was partially offset by
increased OSB and specialty plywood shipment volumes.

OSB.OSB cost of
products sold in fiscal 2003 was $241.6 million compared to
$243.1 million in fiscal 2002, representing a decrease of
$1.5 million or 0.6%. This decrease was due primarily to
lower unit manufacturing costs resulting from higher production
levels.

Specialty Overlaid Plywood and Other Products.Specialty overlaid plywood and other
products cost of goods sold in fiscal 2003 was
$80.2 million compared to $86.5 million in fiscal
2002, representing a decrease of $6.3 million or 7.3%. This
decrease was due primarily to a decrease in lumber shipments
only partially offset by an increase in specialty overlaid
plywood shipments.

Selling
and Administration

Selling and administration expense in fiscal 2003
was $18.2 million compared to $21.9 million in fiscal
2002, representing a decrease of $3.7 million or 16.9%.
This decrease was due to a number of management initiatives to
reduce administration costs.

Amortization
of Capital Assets

Amortization of capital assets in fiscal 2003 was
$33.0 million compared to $32.0 million in fiscal
2002, representing an increase of $1.0 million or 3.1%.
Amortization expense increased primarily due to increased
production volume at the High Level OSB facility. Increased
production volume has an impact on amortization as OSB
facilities are amortized using the units of production method.

40



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Finance
Expense

Finance expense, excluding unrealized foreign
exchange gain on U.S. dollar denominated debt, for 2003 was
$56.1 million (including $51.2 million of direct
interest expense) compared to $62.5 million (including
$57.2 million of direct interest expense) in 2002,
representing a decrease of $6.4 million or 10.2%. This
decrease was primarily due to the year-over-year appreciation of
the Canadian dollar relative to the U.S. dollar and a
$0.1 million loss related to the redemption of some
outstanding 13.875% Notes and 12 1/2% Notes in December
2003.

We recorded a $76.9 million unrealized
foreign exchange gain on our U.S. dollar denominated
long-term debt for fiscal 2003 compared to an unrealized gain of
$4.3 million in 2002, representing an increase of
$72.6 million. The gain in 2003 reflects the year-over-year
appreciation of the Canadian dollar relative to the
U.S. dollar.

Interest and other expense for 2003 was
$0.5 million compared to income of $2.9 million in
2002. This decrease was related primarily to a foreign exchange
loss associated with our working capital.

Write-down of capital assets for 2003 was
$13.7 million compared to $1.0 million in 2002. This
increase was primarily due to a $13.3 million write-down of
capital assets related to a planned 400 mmsf per year
expansion of the Grande Prairie OSB plant. The company has been
unsuccessful in its attempt to secure additional long-term
timber tenures. Without confirmation of a secured timber supply,
the company has decided not to pursue the expansion of the
Grande Prairie facility at this time.

Income
Taxes

Income tax expense in fiscal 2003 was
$51.9 million compared to an income tax recovery of
$0.3 million in fiscal 2002. This increase was due to the
substantial increase in pre-tax income.

Fiscal Year
ended December 31, 2002 Compared to Fiscal Year ended
December 31, 2001

The net loss for the year ended December 31,
2002 was $17.9 million compared to $25.4 million in
2001. The decrease in the net loss was attributable to several
factors, including an $10.9 million or 41.4% increase in
operating earnings and a significant reduction in the unrealized
foreign exchange loss on U.S. dollar denominated debt from
$17.4 million in 2001 to a gain of $4.3 million in
2002. We recorded an income tax recovery of $0.3 million
compared to $18.7 million in 2001, reflecting underlying
business results and the impact of non-deductible amounts.

Sales

Sales in fiscal 2002 were $421.7 million
compared to $388.7 million in fiscal 2001, representing an
increase of $33.0 million or 8.5%.

OSB.Sales of OSB in
fiscal 2002 were $321.1 million compared to
$298.1 million in fiscal 2001, representing an increase of
$23.0 million or 7.7%. This increase was due primarily to
an 10.1% increase in shipment volumes from 1,179 mmsf in fiscal
2001 to 1,299 mmsf in fiscal 2002. The increase in shipment
volumes was partially offset by a decline in average OSB prices
of 1.7%. The High Level OSB facility generated a significant
portion of the increase in total OSB shipment volume as its
results were capitalized until March 31, 2001. Shipment
volumes from High Level increased by 56.8% compared to 2001.

Specialty Overlaid Plywood and Other Products.Sales of specialty overlaid plywood
and other products in fiscal 2002 were $94.0 million
compared to $84.5 million in fiscal 2001, representing an
increase of $9.5 million or 11.2%. This increase was due to
increased shipment volume of specialty overlaid plywood and
veneer. Specialty plywood volume increased 4.8% from

41



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##### 



88 mmsf in fiscal 2001 to 92 mmsf in fiscal 2002.
Veneer sales increased by 45.9% to $12.7 million primarily
because of a 41.3% increase in shipments.


Cost
of Products Sold

Cost of products sold in fiscal 2002 was
$329.6 million compared to $306.0 million in fiscal
2001, representing an increase of $23.6 million or 7.7%.
This increase was due to increased shipment volumes of OSB,
specialty overlaid plywood, veneer and lumber.

OSB.OSB cost of
products sold in fiscal 2002 was $243.1 million compared to
$226.9 million in fiscal 2001, representing an increase of
$16.2 million or 7.1%. The increase in OSB cost of products
sold in 2002 was attributable to a 10.1% increase in shipment
volume and a 2.1% decrease in per unit production costs.

Specialty Overlaid Plywood and Other Products.Specialty overlaid plywood and other
products cost of goods sold in fiscal 2002 was
$100.6 million compared to $90.6 million in fiscal
2001, representing an increase of $10 million or 11%. This
increase was primarily due to a 41.3% increase in veneer
shipments, a 35.9% increase in lumber shipments, and a 4.81%
increase in specialty overlaid plywood shipments.

Selling
and Administration

Selling and administration expense in fiscal 2002
was $21.9 million compared to $22.7 million in fiscal
2001 despite our incurring $2.4 million in costs related to
the restructuring of our senior management team and the
termination of our aircraft lease.

Amortization
of Capital Assets

Amortization of capital assets in fiscal 2002 was
$32.0 million compared to $30.4 million in fiscal
2001, representing an increase of $1.6 million or 5.3%.
Amortization expense increased primarily due to the High Level
facility results being included for the entire year. Increased
production at each of our OSB facilities also had an impact on
amortization as OSB facilities are amortized using the units of
production method.

Finance
Expense

Finance expense in fiscal 2002 was
$62.5 million (including $57.2 million of direct
interest expense) compared to $60.0 million in fiscal 2001,
(including $51.7 million of direct interest expense)
representing an increase of $2.5 million or 4.2%. Finance
expense increased by $2.5 million as a result of the
increase in total borrowings upon issuance of the 13.875% Notes
December 20, 2001.

Income
Taxes

We recorded an income tax recovery of
$0.3 million in 2002 compared to $18.7 million in 2001
reflecting underlying business results and the impact of
non-deductible amounts.

Outlook

North American homebuilding and home renovation
markets continued their strong performance throughout the first
six months of 2004. Structural panel market supply and demand
factors have supported favorable pricing for both OSB and
plywood. Assuming favorable housing starts, we expect that OSB
demand and pricing will remain strong in the near term.

42



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##### 



Liquidity and Capital Resources

Our continuing operations generated
$194.6 million of cash after changes in non-cash working
capital in the six month period ended June 30, 2004, due to
higher operating earnings arising from the record OSB prices
realized during the period. Non-cash working capital increased
by $42.7 million in this period due to a $21.2 million
increase in accounts receivable, a $4.2 million increase in
inventories, a $14.7 million decrease in accrued
liabilities, partially offset by a $8.6 million increase in
accounts payable and a $29.5 million increase in income
taxes payable. On May 19, 2004, we acquired net working
capital of US$47.7 million upon the closing of our
acquisition of Voyageur. In the six months ended June 30,
2003, our operations generated $9.2 million in cash after
changes in non-cash working capital. Non-cash working capital
decreased by $9.1 million in the six months ended
June 30, 2003 due to a $0.4 million increase in
accounts receivable, a $0.1 million decrease in
inventories, a $9.7 million decrease in accrued
liabilities, partially offset by a $1.7 million increase in
accounts payable.

Net cash used for investing activities in the six
months ended June 30, 2004 was $243.9 million,
compared to $3.3 million in the same period of 2003. In the
first six months of 2004, the company invested
$243.9 million in capital assets. On May 19, 2004 the
company completed the acquisition of Voyageur, which included
$51.1 million in cash for a purchase price of
$284.6 million (US$206.7 million). The company also
made capital expenditures of $5.6 million in the first half
of 2004, compared to $3.8 million in the same period of
2003.

Cash flows used in financing activities for the
six months ended June 30, 2004 were $44.7 million,
compared to cash flows from financing activities of
$0.6 million in 2003. On March 3, 2004, we
successfully completed a refinancing of our Senior Secured
Notes. We issued US$210.0 million of 6.750% Senior Notes.
Together with a portion of our existing cash balance we utilized
the proceeds from the notes to repurchase US$87.1 million
of our 13.875% Senior Secured Notes and US$182.2 million of
our 12.5% Senior Secured Notes, realizing a one-time charge of
$106.2 million. This refinancing significantly reduced our
annual debt service costs and provided us with much greater
financial flexibility.

At June 30, 2004, we had $100.0 million
in cash and cash equivalents compared to $194.1 million at
December 31, 2003 and $86.6 million at June 30,
2003.

On March 3, 2004, we (1) completed an
offering of US$210.0 million principal amount of 6.750%
Senior Notes due March 15, 2014 and (2) amended the
indentures governing our 13.875% Notes and our 12 1/2%
Notes to eliminate substantially all of the covenants and
certain events of default relating to the Secured Notes, and to
discharge and release the related security documents. In
addition, on March 18, 2004, we concluded separate tender
offers for US$184.6 million outstanding principal amount of
the 12 1/2% Notes and US$89.1 million outstanding
principal amount of the 13.875% Notes, in which we purchased
US$182.2 million principal amount of the 12 1/2% Notes
and US$87.1 million principal amount of the 13.875% Notes.
Prior to this refinancing, our annual debt servicing obligation
was approximately US$35 million. As a result of this
refinancing, our annual debt servicing obligation was reduced to
approximately US$15 million. We believe our annual debt
servicing obligation will be approximately US$56 million
following this offering of notes.

On March 15, 2004, we arranged a new
five-year revolving credit facility with a commercial lender.
Our credit facility allows us to borrow up to
$50.0 million, subject to a borrowing base determined by
the amount of our eligible accounts receivable and inventory,
which may reduce the total borrowings available. The credit
facility has been secured by a first priority interest on
eligible accounts receivable and inventory. See
Description of Other Indebtedness  Credit
Facility. As of the date of this prospectus, we have no
borrowings under the facility.

43



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On August 13, 2004, the Company announced
that its Board of Directors declared a cash dividend of $1.00
per common share, payable on September 7, 2004 to holders
of record of its common shares as of the close of business on
August 24, 2004.

On September 22, 2004, we sold the original
notes for net proceeds of approximately US$439.1 million
($588.7 million based on the noon buying rate of US$0.7459
= $1.00 on June 30, 2004). After deducting the initial
purchasers commission and our expenses, we used the net
proceeds, together with a portion of our cash balances, to
purchase the Minnesota OSB facilities.

Our cash flow is subject to general economic,
industry, financial, competitive, legislative, regulatory and
other factors, including economic conditions in North America,
that are beyond our control. Our business may not generate cash
flow in an amount sufficient to fund our liquidity needs, which
would severely curtail our ability to continue operations. If
our cash and operating cash flow is insufficient to meet our
operational expenses and debt service obligations we will have
to consider several options available to us including, raising
additional equity, sales of assets or seeking consent to incur
additional indebtedness. These options may not be available to
us at all or on satisfactory terms.

Contractual Obligations

The following table summarizes the timing of
payments for which we have contractual obligations as of
June 30, 2004:

|                               |  |                       |         |           |  |           |        |           |  |         |        |  |  |   |        |  |  |   |         |    
|------------------------------ |  | --------------------- | ------- | --------- |  | --------- | ------ | --------- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------- | ---
|                               |  |                      
|                               |  | Payment due by Period
|                               |  |                      
|Contractual                    |  |                       |         | Less than |  |           |        | After    
|Obligation                     |  | Total                 |         | 1 year    |  | 2-3 years |        | 4-5 years |  | 5 years
|                               |  |                       |         |           |  |           |        |           |  |        
|                               |  |                      
|                               |  | (in thousands of US$)
|7 1/4% Senior Notes(1)         |  | $                     | 439,444 |           |  | $         | 9,969  |           |  | $       | 39,875 |  |  | $ | 39,875 |  |  | $ | 349,725 |    
|Floating Rate Senior Notes(2)  |  | $                     | 236,776 |           |  | $         | 4,944  |           |  | $       | 19,775 |  |  | $ | 19,775 |  |  | $ | 192,282 |    
|6.750% Senior Notes(1)         |  | $                     | 525,591 |           |  | $         | 10,800 |           |  | $       | 43,200 |  |  | $ | 43,200 |  |  | $ | 428,391 |    
|Other Senior Notes(2)          |  |                       | 6,073   |           |  |           | 286    |           |  |         | 865    |  |  |   | 4,922  |  |  |   |        |    
|Capital Lease Obligations(3)   |  |                       | 328     |           |  |           | 101    |           |  |         | 227    |  |  |   |       |  |  |   |        |    
|Operating Lease Obligations(3) |  |                       | 3,094   |           |  |           | 1,057  |           |  |         | 1,919  |  |  |   | 118    |  |  |   |        | (4)



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under the indenture governing our outstanding
    7 1/4% senior notes, we are required to make interest
    payments in the amount of US$10.0 million each June 30
    and December 30. Our 7 1/4% senior notes mature on
    October 1, 2012. The new fixed rate notes will represent
    the same indebtedness as the original fixed rate notes tendered
    in the exchange offer.                                                                                                                                                         
|   
|(2) | Under the indenture governing our outstanding
    floating rate senior notes, we are required to pay interest at a
    rate per annum, reset quarterly, equal to LIBOR plus 3.75%.
    Interest on our floating rate senior notes as payable each
    March 30, June 30, September 30 and
    December 30. For the purpose of the above table we have
    assumed a LIBOR of 1.9% in each period. The new floating rate
    notes will represent the same indebtedness as the original
    floating rate notes tendered in the exchange offer.
|   
|(3) | Under the indentures governing our outstanding
    6.750% senior notes, we are required to make interest payments
    in the amount of US$10.8 million each June 30 and
    December 30. Our 6.750% senior notes mature on
    March 15, 2014.                                                                                                                                                                                                                                                                                                
|   
|(4) | Under the indentures governing our other
    outstanding senior notes, we are required to make interest
    payments in the amount of US$0.2 million each
    January 15 and July 15 and in the amount of
    US$0.1 million each April 15 and October 15. All
    of our other senior notes, in the aggregate principal amount of
    US$4.4 million, mature on July 15, 2007.                                                                                                                                                               
|   
|(5) | The following are U.S. dollar equivalents
    using an exchange rate of US$0.7459 = $1.00, the exchange
    rate posted by the Federal Reserve Bank of New York on
    June 30, 2004.                                                                                                                                                                                                                                                                                                                                                         
|   
|(6) | We do not include operating lease obligations
    beyond five years in our financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                              

44



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Market Risk

Market risk is the risk of loss arising from
adverse changes in market rates and prices, such as interest
rates and foreign currency exchange rates. Our existing senior
notes are not, and the new fixed rate notes will not be, subject
to interest rate fluctuations because the interest rate is fixed
for the term of the debt. The new floating rate notes will be
subject to interest rate fluctuation because the interest rate
is reset quarterly for the term of such notes.

A significant portion of our products are sold in
U.S. dollars. Most of our costs, other than interest
payable on the Notes and our existing senior secured notes,
which are payable in U.S. dollars, will be payable in
Canadian dollars and, therefore, our financial results are
subject to foreign currency exchange rate fluctuations. A
significant appreciation in the value of the Canadian dollar in
terms of the U.S. dollar, while other factors remain
constant, will cause a relative decline in our revenues and our
cash flow will be diminished.

We have not used derivative financial instruments
to mitigate the influence of market risk but we may do so in the
future.

U.S. GAAP Reconciliation

Our consolidated financial statements have been
prepared in accordance with Canadian GAAP. To the extent
applicable to our consolidated financial statements, Canadian
GAAP conforms in all material respects with U.S. GAAP,
except as described in note 22 to our consolidated
financial statements included elsewhere in this prospectus and
note 7 to our unaudited interim consolidated financial
statements included elsewhere in this prospectus.

Critical Accounting Policies

Management has made certain judgments and
estimates that affect the reported amounts and other disclosures
in our financial statements.

Valuation of Inventory.We closely monitor conditions that
could impact valuation of inventories or otherwise risk
impairment of our assets. Inventories of logs, OSB, specialty
plywood, veneer and lumber products are valued at the lower of
average cost and net realizable value. We base our estimate of
market value on sales orders that exist at balance sheet
reporting dates. Prices fluctuate over time and it is probable
that market values at the time of eventual sale will differ from
our estimates.

Loss contingencies.Our estimates of our loss
contingencies for legal proceedings and product warranty claims
are based on various judgments and assumptions regarding the
potential resolution or disposition of the underlying claims and
associated costs.

Valuation of Long-Lived Assets.On a quarterly basis, we review the
long-lived assets held and used by us (primarily property,
plant, and equipment, construction in progress and timber and
logging roads) for impairment. Assessing the appropriate
valuation of the affected assets requires us to make judgments,
assumptions and estimates. In general, write-downs for
impairment are recognized when the book values exceed our
estimate of the undiscounted future net cash flows associated
with the affected assets. During 2003, we recorded a
$13.3 million write-down of capital assets related to a
planned expansion of the Grande Prairie OSB plant. The planned
expansion involves the addition of a second manufacturing line
alongside the existing OSB plant to produce a further
400 mmsf per year of OSB and specialty products, and the
construction of a hardwood sawmill. The company has been
unsuccessful in its attempt to secure additional long-term
timber tenures. Without confirmation of a secured timber supply,
the company has decided not to pursue the expansion of the
Grande Prairie facility at this time. We reviewed the carrying
value of our other capital assets, including construction in
progress, at June 30, 2004, and believe that our reported
values are reasonable based on the current circumstances.

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Amortization.Amortization of property, plant and
equipment is principally based on the units of production method
where the cost of equipment is amortized over the estimated
units that will be produced during a conservative estimate of
its useful life.

Future Income Tax Assets.We record future income tax assets
including the potential tax benefit of operating loss
carry-forwards and future income tax liabilities. The amounts
that we record for these assets and liabilities are based upon
various judgments, assumptions and estimates, including
judgments regarding the tax rates that will be applicable to the
future income tax amounts, the likelihood that we will generate
sufficient taxable income or gain to utilize future income tax
assets. Due to the numerous variables associated with our
judgments, assumptions and estimates relating to the valuation
of our future income tax assets and liabilities, and the effects
of changes in circumstances affecting these valuations, both the
precision and reliability of the resulting estimates are subject
to uncertainties and, as additional information becomes known,
we may change our estimates.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet
arrangements other than letters of credit pledged for collateral
in the amount of $5.5 million at June 30, 2004.

Reconciliation of Certain Non-GAAP Financial
Measures

Voyageur Adjusted EBITDA

In this offering circular we present
Voyageurs adjusted EBITDA, which we define as earnings
from operations plus depreciation and amortization, plus related
party management fees and commissions. Below is a table that
provides a reconciliation of adjusted EBITDA for Voyageur to net
earnings for Voyageur.

|             |                                |                                                                                  |     |      |      | 
|------------ | ------------------------------ | -------------------------------------------------------------------------------- | --- | ---- | ---- | 
|             |                                | Fiscal                                                                          
|             |                                | Year Ended                                                                      
|             |                                | December 31,                                                                    
|             |                                | 2003                                                                            
|             |                                |                                                                                 
|             |                                | (in millions)                                                                   
|Net earnings |                                | $                                                                                | 7.0 |     
|             | Add: Income Taxes              |                                                                                  |     | 14.0 |     
|             |                                | Interest expense                                                                 |     |      | 0.2  | 
|             |                                | Unrealized (decrease) increase in the fair value
    of preferred Class A shares |     |      | 16.2 | 
|             |                                | Depreciation and amortization                                                    |     |      | 12.2 | 
|             |                                |                                                                                  |     |     
|             | EBITDA                         |                                                                                  |     | 49.6 |     
|             | Add: Management fee removal(1) |                                                                                  |     | 2.1  |     
|             |                                | Sales commission removal(2)                                                      |     |      | 5.2  | 
|             |                                |                                                                                  |     |     
|             | Adjusted EBITDA                |                                                                                  | $   | 56.9 |     
|             |                                |                                                                                  |     |     






|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Management fees for services previously provided
    under contracted terms by significant shareholders have been
    removed.                                                                            
|   
|(2) | Selling and administration expenses have been
    reduced to reflect removal of sales commissions paid by Voyageur
    for sales made via brokerage services. Ainsworth does not sell
    through brokers.

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Minnesota OSB Facilities
EBITDA

In this prospectus we present the EBITDA for the
Minnesota OSB facilities, which we define as net earnings
(loss), plus provision (benefit) for taxes, plus depreciation.
Below is a table that provides a reconciliation of EBITDA for
the Minnesota OSB facilities to net earnings for the Minnesota
OSB facilities.

|             |                                    |            |       |              |  |            |        |               |  |   |        |         |  |   |         |         | 
|------------ | ---------------------------------- | ---------- | ----- | ------------ |  | ---------- | ------ | ------------- |  | - | ------ | ------- |  | - | ------- | ------- | 
|             |                                    | Six Months |       | Fiscal Year  |  | Six Months |        | Twelve Months
|             |                                    | Ended      |       | Ended        |  | Ended      |        | Ended        
|             |                                    | June 30,   |       | December 31, |  | June 30,   |        | June 30,     
|             |                                    | 2003       |       | 2003         |  | 2004       |        | 2004         
|             |                                    |            |       |              |  |            |        |              
|Net earnings |                                    | $          | 3,043 |              |  | $          | 56,881 |               |  | $ | 70,100 |         |  | $ | 123,938 |        
|             | Add: Provision for taxes on income |            |       | 1,946        |  |            |        | 36,366        |  |   |        | 45,767  |  |   |         | 80,187  | 
|             | Depreciation                       |            |       | 7,963        |  |            |        | 15,872        |  |   |        | 7,793   |  |   |         | 15,702  | 
|             |                                    |            |       |              |  |            |        |               |  |   |        |         |  |   |         |        
|             | EBITDA                             |            | $     | 12,952       |  |            | $      | 109,119       |  |   | $      | 123,660 |  |   | $       | 219,827 | 
|             |                                    |            |       |              |  |            |        |               |  |   |        |         |  |   |         |        

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MARKETS IN WHICH WE OPERATE

Oriented Strand Board Market

OSB is a structural panel used in building
applications, primarily as a substitute for plywood. Growth in
the structural panel industry, which includes plywood and OSB,
is primarily driven by residential and commercial construction
activity. The relative abundance of fast growing deciduous and
under-utilized coniferous trees, combined with an automated
manufacturing process, results in a significant cost advantage
for OSB over plywood. RISI estimates that in 2003 the average
variable cost production of OSB was $140 per msf in western
Canada, $161 per msf in the U.S. North Central region and
$142 per msf in Ontario and Quebec, compared to a 2003 average
variable cost of production of plywood of $265 per msf in
British Columbia and $263 in the southern United States.
Declining plywood-quality timber supplies are expected to
continue to limit the efficient production of plywood. We
believe OSBs lower cost and comparable performance
characteristics versus plywood will continue to drive the market
shift from plywood to OSB and support the growth of our
business. According to RISI, OSBs share of the North
American structural panel market has increased from 33% in 1994
to 57% in 2003 and is projected to grow to 68% of the market by
2008. Furthermore, RISI estimates that between 1994 and 2003,
annual consumption of OSB in North America grew at a 9%
compounded annual rate over the period. In addition to the
growing commodity sheathing market, OSB continues to penetrate
new markets through the use of new manufacturing techniques that
incorporate OSB into higher valued specialty industrial products
such as webstock, rimboard, radiant barrier sheathing and stair
systems. The following table shows a representative production
cost comparison between plywood and OSB:

Plywood and OSB Production Cost
Comparison

|               |  |         |     |     |  |   |     | 
|-------------- |  | ------- | --- | --- |  | - | --- | 
|               |  | Plywood |     | OSB
|               |  |         |     |    
|Wood           |  | $       | 170 |     |  | $ | 50  | 
|Labor          |  |         | 70  |     |  |   | 28  | 
|Energy         |  |         | 14  |     |  |   | 9   | 
|Glue & Wax     |  |         | 18  |     |  |   | 32  | 
|Supplies       |  |         | 21  |     |  |   | 21  | 
|               |  |         |     |     |  |   |     | 
|Gross Variable |  |         | 293 |     |  |   | 140 | 
|Residuals      |  |         | (33 | )   |  |   |    | 
|               |  |         |     |     |  |   |     | 
|Total Variable |  | $       | 260 |     |  | $ | 140 | 
|               |  |         |     |     |  |   |     | 




Source: RISI, August 2004: 2003 Average Variable
Costs for Western Canadian OSB and Southern Yellow Pine Plywood
($ per msf  3/8 basis)


Demand for structural panels has historically
been correlated to residential and commercial construction and
repair and remodeling industries in North America, Asia and
Europe. According to RISI, from 1991 through 2003,
U.S. housing starts grew at a 5% compounded annual growth
rate while residential improvements and repairs expenditures
grew at a 9% compounded annual growth rate. RISI has forecast
U.S. housing starts of 1.88 million in 2004, in line
with the 1.85 million started in 2003 and a 9.9% increase
over 2002. Low interest rates, rising consumer confidence and
strong household formation growth have bolstered
U.S. housing starts to a level not experienced since 1986.
We believe that housing starts will continue to be primarily
single-family construction, as opposed to multi-family homes,
which has accounted for nearly 80% of all homes built in the
last five years. In addition, according to RISI, the average
home size in 2003 was 2,340 square feet, over 10% larger than
the average home size in 1994.

The demand for OSB is driven by structural panel
demand and the substitution of OSB for higher cost plywood
panels. OSB consumption and market share in the structural panel
market has increased over the last decade as a result of the
lower cost of OSB relative to plywood, increasing production
capacity to meet rising demand, a strong North American economy
and growth in OSB end-use applications. OSB is accepted by all
of the major North American building codes.

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OSB benchmark prices increased significantly in
2003, averaging US$293 per msf North Central ( 7/16),
an 84% increase over 2002 average OSB prices. This increase
resulted from tight supply and demand conditions in the
structural panels market, brought on by a robust new home
construction market. Structural panel market prices have
remained relatively high in 2004. In April 2004, OSB benchmark
prices reached a record high US$520 per msf North Central
( 7/16). The average monthly OSB benchmark price for
the first six months of 2004 was US$433 per msf North Central
( 7/16). RISI is forecasting benchmark prices in 2004
to average a record high US$376 per msf North Central
( 7/16), an increase of approximately 28% over 2003
average prices. According to RISI, North American housing
starts, a major driver of structural panel demand, are expected
to average 2.0 million per year between 2004 and 2008, and
OSB demand is expected to grow at a 5.4% compounded annual
growth rate over the same period.

The industry is consolidated with the top eight
suppliers controlling more than 88% of North American capacity.
Due to long lead times associated with the construction and ramp
up of new OSB mills, major capacity additions have traditionally
taken 18 months to come on line and several
additional months to reach full production levels. Given
these dynamics, RISI expects the demand capacity ratio for OSB
to average 87% from 2004 through 2008.

North American structural panel prices fluctuated
considerably during the 1990s. Starting at recession lows in
1991, prices increased to record levels by 1994. The increase
was particularly pronounced for OSB, but plywood prices also
increased significantly. Due to large increases in OSB
production capacity, OSB prices declined from 1995 to 1997,
reaching a record low price of US$122 per msf North Central
( 7/16) in April 1997. In 1998, OSB prices started to
recover and reached historically high levels in July 1999 before
again declining to a cyclical low in 2001 and 2002. By mid-2003,
OSB benchmark prices had rebounded, peaking at a monthly average
record of US$465 per msf North Central ( 7/16) set in
October 2003, well above the previous monthly average record of
US$351 per msf North Central ( 7/16) set in July
1999. In 2004, new record monthly average prices were set in
each of February, March, April and May. The highest monthly
average price was reached in April 2004, at US$508 per msf North
Central ( 7/16).

Export-Standard OSB Market

Japan is the worlds second largest market
for wood construction materials, surpassed only by the United
States. New building regulations, such as the Housing Quality
Assurance Law, should encourage more builders to adopt
structural panels such as OSB for wall sheathing, a previously
atypical practice, to mitigate the adverse effects of
earthquakes. Although OSB currently represents only a very small
percentage of the Japanese panel market, we expect OSB demand to
grow considerably over the next decade. Other Pacific Rim
countries, including China and Korea, also show export growth
potential.

Value-Added Industrial OSB Market

Since its market introduction, OSB has gained
acceptance as a low cost alternative to softwood plywood for use
in residential construction as roof, wall and floor sheathing.
Further development of process technology and advancements, such
as greater flexibility in press sizes, has allowed OSB to
penetrate new markets. In addition, higher demand and growing
environmental concerns have increased pressure on North American
timber supplies. More than ever, forest products manufacturers
are developing methods to utilize timber resources as
efficiently as possible. This is particularly evident in the
engineered wood products industry, where producers are employing
relatively new technologies to manufacture higher-valued
products as replacements for traditional wood products.
Engineered wood products are manufactured with lumber and panel
products in a manner that maximizes physical strength and
dimensional stability while minimizing the amount and cost of
wood used as raw material. OSB is now gaining market share in
these applications, which were previously restricted to materials

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such as lumber, plywood, medium density
fiberboard, particleboard, lumber and non-wood products. For
instance, wood I-beams or I-joists are a replacement product for
lumber joists used in residential and non-residential
construction. Value-added OSB products are generally sold at a
premium to commodity OSB sheathing and tend to exhibit more
stable demand characteristics.


Specialty Overlaid Plywood Market

Specialty overlaid plywood is manufactured with
resin impregnated paper sheets bonded onto one or both surfaces
of the specialty engineered plywood panels under heat and
pressure. The resulting product combines the strength of a
heavy-duty wood product with the superior wear characteristics
of an overlaid surface. These features effectively meet the
demanding requirements of concrete forming, equipment decking
and paint-grade signs. The principal application is in the
manufacture of concrete forms where the overlaid feature offers
a number of key benefits including a smooth concrete finish
without defects or wood grain patterns, ease of removal from the
cured concrete and durability. We believe that specialty
overlaid plywood forms currently account for an estimated 15% of
the total concrete forming market with the bulk of demand met
with commodity non-overlaid wood panels. Specialty overlaid
plywood is specified by contractors and architects in
applications requiring smooth visible concrete surfaces
including high rise and sports complex construction, water
treatment facilities, airports and highway infrastructure
projects.

Our Savona mill has one of the two largest
overlaid plywood production output levels in North America. A
limited availability of high quality timber to produce specialty
overlaid plywood products is a barrier to entry for potential
new competitors in these markets. The value-added nature of
overlaid plywood results in premium pricing and more stable
demand characteristics versus standard plywood. Competition is
based on structural performance and reuse cycles that permit
multiple applications from a single form, effectively lowering
the end users cost.

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OUR BUSINESS

Overview

We are a leading manufacturer of engineered wood
products including oriented strand board, or OSB, and specialty
overlaid plywood. We are currently the fifth largest
manufacturer of OSB in North America and we believe one of the
lowest-cost suppliers of OSB to the markets we serve. Following
our acquisition of the Minnesota OSB facilities we expect to
become the fourth largest manufacturer of OSB in North America.
Based in Vancouver, British Columbia, we own and operate three
modern, strategically located OSB manufacturing facilities, and
we maintain a 50% ownership interest in a fourth facility, the
High Level OSB facility. High Level has the largest design
capacity of any OSB facility in the world and we believe that
when production reaches design capacity it will be one of the
worlds lowest cost OSB facilities. In addition to our OSB
operations, we are one of the two largest manufacturers of
specialty overlaid plywood in North America.

We have long-term timber tenure agreements with
the provincial governments of British Columbia, Alberta and
Ontario, and other long-term supply agreements that currently
provide approximately 85% of the wood fiber requirements for our
operations.

We sell our products to North American and
offshore export markets, primarily Japan. We have a
well-established sales presence and long-standing customer
relationships in our largest markets. For the year ended
December 31, 2003, over 30% of our revenue was generated
from our AinsworthEngineered® value-added products,
including export-standard OSB and specialty industrial OSB and
plywood products. These products generally exhibit more stable
pricing and command a premium price over commodity OSB sheathing
and commodity plywood sheathing products.

On May 19, 2004 we acquired all of the
shares of Voyageur, a private Canadian company that owned and
operated an OSB facility located in Barwick, Ontario, with an
annual production capacity of approximately 470 mmsf. Since
acquiring the Barwick facility, we have increased its annual
production capacity by approximately 7%, from 440 mmsf to
the current annual capacity of 470 mmsf. We have also
implemented key management changes and renegotiated several
commercial contracts on more favorable terms.

Our common shares are traded on the Toronto Stock
Exchange and for the year ended December 31, 2003, we
generated revenues of $542.0 million, EBITDA of
$201.6 million and net income of $123.7 million. For
the six months ended June 30, 2004, we generated
revenues of $431.7 million, EBITDA of $237.4 million
and net income of $51.6 million. For the year ended
December 31, 2003, we generated 82% of our revenues from
OSB sales. For the fiscal year ended December 31, 2003,
Voyageur generated revenues of $143.7 million, adjusted
EBITDA of $56.9 million and net earnings of
$7.0 million.

The Minnesota OSB Facilities

General

On September 22, 2004, we acquired all of
the assets and certain related net working capital used by
Potlatch in the operation of three OSB facilities that are
located in the northern Minnesota towns of Bemidji, Cook and
Grand Rapids. The assets were acquired by Ainsworth
Engineered (USA), LLC, our wholly owned subsidiary. In
connection with the acquisition, we paid Potlatch a purchase
price of approximately US$457.5 million (including certain
adjustments upon closing). In connection with the terms of our
asset purchase agreement with Potlatch, Potlatch has agreed to
provide us with certain transitional services for a limited
period of time.

The Minnesota OSB facilities consist of three
mills that are located near our existing OSB facility in
Barwick, Ontario. The combined annual production capacity of the
Minnesota OSB facilities was 1,350 mmsf, as of
December 31, 2003; for the year ended on that date combined

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production for the three mills was
1,337 mmsf. The Minnesota OSB facilities produce both
commodity and value-added OSB products, and primarily serve the
Central and Western regions of the United States.


We believe that our acquisition of the Minnesota
OSB facilities has significantly enhanced our geographic
balance, flexibility and product diversity. We also believe that
the proximity of the Minnesota OSB facilities to each other and
to our existing Barwick facility will enable us to optimize our
overall efficiency and provide excellent service and flexibility
to our customers in the Central and Western regions of the
United States. Our acquisition of the Minnesota OSB facilities
has resulted in us obtaining additional intellectual property
that will enable us to access new specialty product markets
across our entire operations.

For the fiscal year ended December 31, 2003,
the Minnesota OSB facilities generated combined net sales of
$314.5 million and EBITDA of $109.1 million. For the
six months ended June 30, 2004, the Minnesota OSB
facilities generated combined net sales of $233.5 million
and EBITDA of $123.7 million.

Manufacturing
Facility and Product Overview

The Bemidji facility was completed and commenced
production in 1981. A second OSB line was added in 1989, an
upgrade which approximately doubled the manufacturing capacity
of the facility, while also lowering per unit manufacturing
costs. The Bemidji facilitys two production lines had a
combined annual production capacity of 535 mmsf, as of
December 31, 2003. Production in the fiscal year ended
December 31, 2003 totaled 529 mmsf, of which approximately
80% was commodity products and approximately 20% was value-added
and over-sized products. Adjacent to the Bemidji facility is a
12 megawatt cogeneration facility, which we are also acquiring
as part of our acquisition of the Minnesota OSB facilities.

The Cook facility, a sister facility to the
Bemidji facility, was completed in 1983, and commenced
production in 1983. In January 2001, Potlatch completed a
modernization and expansion of the Cook facility, which resulted
in an increase in the annual production capacity of its single
production line from 250 mmsf to its December 31, 2003
production capacity of 440 mmsf, while also lowering per
unit manufacturing costs. Production in the fiscal year ended
December 31, 2003 totaled 436 mmsf, nearly all of
which was commodity OSB.

The Grand Rapids facility commenced OSB
production in 1985. It was acquired by Potlatch from Blandin
Paper in 1990. The Grand Rapids facility operates a single
forming line that had an annual production capacity of
375 mmsf, as of December 31, 2003. Production in the
fiscal year ended December 31, 2003 totaled 372 mmsf,
comprised of approximately 40% of commodity products and
approximately 60% of value-added and over-sized products.

The Minnesota OSB facilities have been well
maintained and are relatively modern facilities that we expect
we can operate with low ongoing maintenance expenditure
requirements. In addition, we have identified certain
improvements that we believe will result in enhancements to
existing production capacity at each of the facilities. We
expect to increase total annual production capacity at the
Minnesota OSB facilities from 1,350 mmsf as of
December 31, 2003, to 1,500 mmsf by the end of 2007.

The majority of production at the Minnesota OSB
facilities consists of commodity grade structural and
underlayment OSB panel products. However, Potlatch has spent the
past several years developing and marketing a series of
specialty OSB products that are designed to meet specific
construction applications, such as providing a radiant heat
barrier, moisture resistance, insect resistance and fungal
resistance. These products can command a premium price relative

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to commodity panels. The value-added product
portfolio of the Minnesota OSB facilities includes the following
premium products:




| |   |                                                  
| | - | -------------------------------------------------
| |  | OxTreme (a specialty flooring product);          
|
| |  | Luminox (a heat resistant product);              
|
| |  | OxTerminator (a termite resistant product);      
|
| |  | Stairtread (a specialty stairway product); and   
|
| |  | OxRimboard (a specialty flooring system product).

We acquired certain intellectual property rights
to the OSB-related technology owned by Potlatch in connection
with our purchase of the Minnesota OSB facilities. We expect to
increase the production of value-added OSB products manufactured
at the Minnesota OSB facilities from 24% of sales volume in 2003
to 40% by 2007.

Raw
Materials

The Minnesota OSB facilities use a mix of
hardwood tree species, predominantly aspen and birch, as well as
balsam, balm, basswood and pine, as the primary raw materials
for their products. The location of the mills in the forested
northern portion of Minnesota has enabled them to obtain an
adequate supply of wood fiber from within reasonable distances
of the mill sites. Minnesota has a very diverse and fragmented
land ownership demographic, and as a result Potlatch has
historically purchased wood fiber for the Minnesota OSB
facilities in open market transactions from various governmental
entities (federal, state and county) and private landowners. The
mills generally do not enter into long-term wood fiber supply
contracts with third parties.

Marketing and
Sales

Each of the Minnesota OSB facilities has direct
access to rail and highway transportation. Historically, the
Minnesota OSB facilities have sold their OSB products primarily
to wholesalers, who in turn distribute the products throughout
the United States. The Minnesota OSB facilities eight
largest customers accounted for approximately 58% of combined
net sales in 2003, although no single customer accounted for
more than 14% of combined net sales.

Environmental
Record

Based on information provided to us by Potlatch,
we believe that the Minnesota OSB facilities are currently in
substantial compliance with applicable environmental laws and
regulations. In January 2004, Potlatch reported to the Minnesota
Pollution Control Agency a prior non-compliance relating to the
operation of certain pollution control equipment for its
co-generation facility at the Bemidji mill. The matter is under
discussion and it is not possible at this time to estimate what,
if any, fine will be imposed or corrective action will be
required. Any liability related to this matter will remain with
Potlatch pursuant to the asset purchase agreement. The
U.S. Environmental Protection Agency is currently
developing additional Maximum Achievable Control Technology
(MACT) standards, which will affect wood products panel
facilities, including the Minnesota OSB facilities. Compliance
with the final standards is expected to be required by early
2007. Based on information provided to us by Potlatch, we
believe that capital expenditures of approximately
US$11 million will be necessary to bring the Minnesota OSB
facilities into compliance with the currently proposed MACT
standards.

Employees and
Labor Relations

The Minnesota OSB facilities employed
approximately 600 salaried and hourly workers, as of
August 25, 2004. Hourly employees at the Grand Rapids
facility (approximately 130 individuals)

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are covered under a collective bargaining
agreement with the Paper, Allied-Industrial, Chemical and Energy
Workers International Union. The current bargaining agreement is
scheduled to expire on October 14, 2005.


Legal
Proceedings

From time to time, Potlatch has been involved in
legal proceedings relating to claims arising out of its
operation of the Minnesota OSB facilities in the ordinary course
of business. Based on information provided to us by Potlatch, we
do not believe that there are any material proceedings pending
or threatened that affect the Minnesota OSB facilities.

Competitive Strengths and
Opportunities

We believe that our business has the following
competitive strengths and opportunities:

Established
Modern OSB Facilities.

Our existing four established Canadian OSB
facilities, 100 Mile House (British Columbia), Grande
Prairie (Alberta), High Level (Alberta) and Barwick (Ontario)
utilize modern automated equipment and have economies of scale
that increase efficiency and provide us with competitive
advantages. The High Level facility, which we jointly own with
another OSB producer, is the worlds largest OSB facility
at 860 mmsf per year design capacity, twice that of the
average North American single-line OSB facility. When High Level
reaches its design capacity, we expect it to be one of the
worlds lowest-cost OSB facilities, benefiting from
economies of scale, a low-cost wood supply and state-of-the-art
manufacturing equipment. High Level utilizes a continuous press
that results in greater production capacity, faster press times
and higher productivity. Our wholly-owned Grande Prairie
facility, the second largest capacity single-line facility in
the world after High Level, was recently benchmarked by an
independent forest products research firm against 18 other North
American OSB facilities and scored in the top quartile in a
number of key operational measures, including total production
costs, employee productivity and wood recovery. Production at
our wholly-owned 100 Mile House facility is focused on
value-added products that command premium pricing and generally
yield higher margins than commodity OSB sheathing. For the year
ended December 31, 2003, 100 Mile Houses value-added
OSB products represented 63% of this facilitys total
output. The Barwick facility, which was completed in 1997, uses
modern automated equipment that allows us to obtain operating
cost efficiencies in a flexible manufacturing environment, which
means that we can adjust our relative production of commodity
and value-added OSB products to changes in market price and
customer demand. At current rates of production, the High Level,
Grande Prairie and 100 Mile House facilities will provide annual
OSB volumes of approximately 690 mmsf (of which 50% is
ours), 670 mmsf and 425 mmsf, respectively. Our
acquisition of Voyageur added the Barwick facility, another
modern, high quality OSB facility, to our system. This has
allowed us to achieve improved economies of scale throughout our
operations and provided us with the opportunity to increase our
production, including our production of premium priced
value-added products. Additionally, we believe that the Barwick
facility provides us with the opportunity to achieve significant
additional production capacity without incurring significant
capital expenditures. The Barwick facility produced
approximately 432 mmsf in 2003. Our acquisition of the
Minnesota OSB facilities has also resulted in us obtaining
additional intellectual property that will enable us to access
new specialty product markets across our entire operations.

Proven OSB
Operators.

Our senior managers average over 20 years of
experience in the forest products industry and most of them have
played key roles in the design and implementation of the 100
Mile House, Grande Prairie and High Level OSB facilities. All
three of the OSB facilities that we constructed

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were completed on-time and on-budget. We
completed construction of 100 Mile House in 1994 with a design
capacity of 360 mmsf per year and currently operate the
mill at approximately 425 mmsf per year, or 18% above
original design capacity. Similarly, we completed construction
of the Grande Prairie facility in 1995 with a design capacity of
540 mmsf per year and currently operate the mill at
approximately 670 mmsf per year, or 24% above original
design capacity. We also have improved our OSB profitability by
reducing production costs while manufacturing a greater
percentage of value-added products. Since acquiring the Barwick
facility on May 19, 2004, we have increased its production
capacity by approximately 7%. The Barwick facility currently has
an annual production capacity of 470 mmsf, which we believe
we can further increase to 500 mmsf by 2006. According to
an independent benchmarking study of 19 North American OSB
mills, we have one of the best asset utilization rates in the
industry, expressed in terms of OSB production per square foot
of press. The Minnesota OSB facilities had an aggregate
annual production capacity of 1,350 mmsf, which we believe
we can increase to 1,500 mmsf by the end of 2007.


Leading
Market Positions.

We are a leader in the value-added markets we
serve, including export-standard OSB and specialty industrial
products. We have the largest installed capacity designed to
serve the growing Japanese OSB market. Both our 100 Mile House
and Grande Prairie facilities were specifically designed to
economically produce three-foot wide panels used in Japanese
construction, as compared with four-foot wide panels used in
North America. We are also a principal supplier of specialty
overlaid plywood used to manufacture long-lasting concrete
forming panels for the Canadian, United States and United
Kingdom construction markets.

Growing
Value-Added Product Mix.

Our business strategy is to continue to increase
our revenues generated from value-added products including OSB
webstock and rimboard, export-standard OSB and specialty
overlaid plywood. These products command premium pricing,
particularly during cyclical lows for commodity products, which
enhances our profitability. Value-added products also exhibit
more stable pricing than commodity OSB. We plan to continue to
use our versatile manufacturing equipment to enhance our
offerings of high-quality AinsworthEngineered®
value-added products across our OSB and specialty plywood
businesses. We believe that our value-added product strategy
improves our financial results and helps us maintain
profitability through industry cycles. We also believe that our
acquisition of Voyageur provides us with a significant
opportunity to expand our value-added product mix. Approximately
17% of Voyageurs 2003 sales volume was value-added
products. We believe we will be able to increase output of
value-added products to approximately 40% of sales volume for
the Barwick facility by 2006. For the first six months of 2004,
approximately 24% of the Minnesota OSB facilities sales
volume was value-added products, which typically command premium
prices. We believe that we will be able to increase output of
value-added products to approximately 40% of sales volume for
the Minnesota OSB facilities by 2007.

Strategically
Located OSB Facilities

The 100 Mile House, Grande Prairie and High Level
facilities are within close proximity to western ports providing
us with a transportation cost and logistical advantage for
supplying the Japanese and western United States markets. For
example, the proximity of our 100 Mile House facility to the
port of Vancouver allows us to supply our Japanese customers
with less lead-time and at a lower cost than our competitors. In
addition, all three of our western OSB facilities have rail
access, which facilitates the cost-effective shipping of our
products into the western United States. The U.S. Census
Bureau has predicted the population in the western states we
serve will grow at nearly double the rate of the total
U.S. population over the next decade, which we

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believe will further increase the demand for OSB
to meet housing requirements in some of the markets we serve.
The Barwick facility, located immediately adjacent to the U.S.
border in Western Ontario, also has rail access, which provides
us with competitive access to the Central region of the United
States and a more diversified customer base. We believe that the
Minnesota OSB facilities, which are located in northern
Minnesota, near our Barwick facility, will allow us achieve
economies of scale, thereby optimizing our overall efficiency
and allowing us to provide excellent service and flexibility to
customers in the Central and Western regions of the United
States.


Facilities

Within the last 10 years we have been
involved in the construction of three OSB facilities in western
Canada, including 100 Mile House in British Columbia (completed
in 1994), Grande Prairie in Alberta (completed in 1995) and High
Level in Alberta (completed in 2000). We also operate a
specialty overlaid plywood mill in Savona, British Columbia, an
associated veneer plant in Lillooet, British Columbia, and own a
temporarily-closed finger-joined lumber mill in Abbotsford,
British Columbia. Our facilities represent total annual capacity
of approximately 1,995 mmsf of OSB (3,345 mmsf
including the Minnesota OSB facilities) and 155 mmsf of
specialty overlaid plywood. We have some of the most modern,
productive manufacturing facilities in North America. We believe
our modern facilities will require only modest maintenance
capital expenditures for the foreseeable future. In fiscal 2004,
we expect to have capital expenditures of approximately
$13 million to maintain current operations (approximately
$17 million including expected maintenance capital
expenditures relating to the Minnesota OSB facilities).

|                                  |                                          |            |  |       | 
|--------------------------------- | ---------------------------------------- | ---------- |  | ----- | 
|                                  |                                          | Annual    
|                                  |                                          | Production
|                                  |                                          | Capacity  
|                                  |                                          |           
|Oriented Strand Board (mmsf)      |                                          |            |  |      
|                                  | 100 Mile House, British Columbia         |            |  | 425   | 
|                                  | Grande Prairie, Alberta                  |            |  | 670   | 
|                                  | Barwick, Ontario                         |            |  | 470   | 
|                                  | High Level, Alberta (50%-owned by us)(1) |            |  | 430   | 
|                                  |                                          |            |  |      
|                                  | Total OSB production capacity(2)         |            |  | 1,995 | 
|Specialty Overlaid Plywood (mmsf) |                                          |            |  |      
|                                  | Savona, British Columbia (Plywood)       |            |  | 155   | 






|    |                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This facility is in its ramp-up phase. Its design
    capacity is 860 mmsf per year and 50% of the production is ours.
    The mill is currently running at approximately 80% of design
    capacity.
|   
|(2) | This total does not include the aggregate annual
    production capacity of our recently acquired Minnesota OSB
    facilities, which are described more fully above.                                

Oriented
Strand Board

We jointly own the OSB facility at High Level,
Alberta. This facility, which is designed to be the largest OSB
facility in the world at 860 mmsf per year design capacity,
is owned by the co-owners in equal one-half shares. The plant
site and log yard occupy approximately 643 acres of lands owned
by the co-owners and is directly serviced by rail. The High
Level OSB facility is operated for the co-owners by Footner
Forest Products Ltd. Footner is also jointly-owned in equal
shares by us and the co-owner. Footner is a service company that
operates the plant as the agent for the co-owners and not for
its own account. All of the costs incurred by Footner in so
doing are reimbursed by the co-owners and the co-owners take
away their respective one-half shares of production from the
plant for sale for their own account. We and the co-owner

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have each invested approximately
$145 million in the capital assets to construct the
facility. We believe the High Level OSB facility will be one of
the worlds lowest-cost producers of commodity sheathing
OSB once full production is achieved. At full capacity the plant
will consume about 1.3 million m3 of fiber annually. By
agreement between the co-owners, the plant primarily produces
commodity sheathing OSB for the North American market. High
Level utilizes modern technology with a 12-foot wide forming
line and continuous press. High Level has low-cost timber
allocations granted by the government of Alberta and long-term
volume supply agreements that together provide approximately 92%
of its timber needs at full capacity. This timber is secured
through 2016 at very competitive stumpage rates. The facility,
which commenced operations in October 2000, is now operating at
approximately 80% of full design capacity and continues to
ramp-up to design capacity. High Level contributed approximately
158 mmsf to our total OSB sales volume for the six months ended
June 30, 2004, and we expect our share of production will
be increased to 430 mmsf per year once the facility is
operating at design capacity. For more details regarding the
co-ownership arrangements for the High Level plant, see
Co-Ownership Arrangements for High Level.


In 2002, Footner, on behalf of the owners of High
Level, entered into a Forest Management Agreement with the
Province of Alberta and Tolko Industries Ltd. which provides
High Level with a long-term agreement to establish, grow,
harvest and remove all deciduous timber on a sustained yield
basis within the area covered by the FMA.

Our OSB facility at Grande Prairie, Alberta,
which was completed in December 1995, is the second-largest
capacity single-line OSB facility (after the High Level OSB
facility) in the world. We originally built the Grande Prairie
facility with a design capacity of 540 mmsf per year and
currently operate the facility at approximately 670 mmsf per
year, or 24% above original design capacity. The operation
occupies approximately 160 acres of land owned by us and is
serviced by rail. The facility uses a 12-foot wide forming line
and press that provides the flexibility to produce, on a
cost-efficient basis, a variety of panel dimensions and grades
to suit both North American and Japanese markets. At full
capacity, the facility will consume approximately
1,000,000 m3 of fiber annually. Grande Prairies
low-cost position is supported by an abundant low-cost fiber
supply, economies of scale and superior up-time and on-grade
performance. In 2002, we invested approximately $9 million
in Grande Prairie to increase this facilitys productive
capacity and reduce production costs.

Our OSB facility at 100 Mile House, British
Columbia was completed in August 1994. We originally built
100 Mile House with a design capacity of 360 mmsf per
year and currently operate the facility at approximately
425 mmsf per year, or 18% above original design capacity.
At full capacity, the facility consumes approximately
638,000 m3 of fiber annually. The operation occupies
approximately 57 acres of land owned by us and is directly
serviced by rail. This facility is our principal source of
value-added OSB products for both our North American and
Japanese customers. For the year ended December 31, 2003,
63% of production was value-added OSB products. The
facilitys proximity to the port of Vancouver provides a
significant competitive advantage on shipping costs and delivery
time to the growing Japanese market, where we are the market
leader. This facility has the same product quality
certifications as our Grande Prairie facility. The 100 Mile
House facility was the first OSB facility to use a nine-foot
wide forming line and press that provides significant efficiency
advantages over the more traditional eight-foot wide press and
allows us to profitably serve the Japanese market where
three-foot board is the standard. In 2000, we were the first OSB
producer to install an inline panel stress rating machine to
meet quality assurance specifications for Japans premium
market. The 100 Mile House facility is certified by the
APA, the Engineered Wood Association, and its products meet all
applicable North American and Japanese Agricultural Standards
and building code specifications.

Our 100 Mile House and Grande Prairie
facilities were designed to economically produce three-foot wide
panels used in Japanese construction. For example, Grande
Prairie is one of the few plants in the world that utilizes a
12-foot wide forming line and press, giving it the flexibility

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to efficiently produce either three-foot wide
panels for the Japanese market or four-foot wide panels for the
North American market. We have the largest installed capacity
designed to serve the growing Japanese OSB market and are
currently the Japanese OSB market leader with an estimated 54%
market share for the year ended December 31, 2003. We
believe that our ability to effectively compete in Japan is a
result of:




| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | our press sizes, which can economically produce
    three-foot wide panels;
|
| |  | our proximity to western export terminals;                                 
|
| |  | the high quality of our products; and                                      
|
| |  | our experienced Japanese sales force.                                      

The construction of the Barwick facility was
completed in the second quarter of 1997 for a cost of
approximately US$123 million. It occupies approximately 238
acres of land owned by us. The facility has an 8-foot x 24-foot
x 14-opening Seimpelkamp press and forming line. It was built
with a design capacity of 375 mmsf per year and currently
operates at approximately 470 mmsf per year, or
approximately 25% above original design capacity. The facility
produced approximately 432 mmsf and 416 mmsf in 2003 and
2002, respectively. We believe that we will be able to improve
the facilitys efficiency and production to increase its
capacity to 500 mmsf per year by the end of 2006.
Approximately US$9 million in capital has been invested in
the Barwick facility since construction was completed, including
costs associated with the addition of a third strander in April
2002. Maintenance and environmental capital expenditures
relating to the Barwick facility have averaged less than
US$0.6 million per year over the past five years, with
total capital expenditures averaging approximately
US$1.5 million per year.

The Barwick facility has demonstrated a strong
ability to produce high-quality, value-added OSB products. The
Barwick facility produces four types of OSB: commodity
sheathing, rimboard, premium floor and roof underlayment, and
webstock. The Barwick facility commenced production of commodity
sheathing in 1997, rimboard in 2000, premium underlayment in
2001 and webstock in 2003. Commodity sheathing and the three
categories of value-added products accounted for approximately
83% and 17% of the Barwick facilitys 2003 sales volume,
respectively. Value-added products typically achieve sales price
premiums and exhibit a more stable price pattern, as compared to
commodity sheathing panels. We expect to increase the production
of value-added OSB manufactured at the Barwick facility from 17%
of sales volume in 2003 to 40% by 2006.

The Barwick facility has a reputation in its
existing markets for producing high quality products. According
to an independent benchmarking study of 19 North American
OSB mills 2002 performance, the Barwick
facilitys level of on-grade product quality exceeded or
equaled all but four OSB facilities. All of the products
produced at the Barwick facility are certified by the APA-The
Engineered Wood Association and meet all applicable North
American building code specifications.

Specialty
Overlaid Plywood

We own and operate a specialty overlaid plywood
mill in Savona, British Columbia, and an associated veneer plant
in Lillooet, British Columbia.

Our Savona mill is the second largest producer of
specialty overlaid plywood panels in North America. Specialty
overlaid plywood is a high performance wood product used in
concrete forms, trailer decking and paint-grade signs and earns
premium prices over commodity plywood. The plant is located on a
64 acre site owned by us and is serviced by rail. Specialty
overlaid plywood products command premium prices that are less
volatile than conventional plywood sheathing and we have
typically been able to realize premium margins from our
specialty overlaid plywood product line. In addition, we have
continued to focus our efforts on developing new products in

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order to diversify our specialty overlaid plywood
product lines and to access broader international markets.


Our Pourform® brands of concrete
forming products are recognized for their superior performance
characteristics and longevity. The primary
AinsworthEngineered® specialty overlaid plywood
product produced at Savona is a medium density overlay concrete
forming panel called Pourform-107®, which is used for
industrial concrete forming work, including high rise
construction, dams and highway infrastructure projects.
Pourform-107® is manufactured using a resin-impregnated
paper overlay that leaves an architectural finish on the
concrete, and enables the panel to be re-used multiple times.
The balance of Savonas production consists of high-density
overlaid panels used for concrete forming, decking material for
flat deck trailers, general purpose overlaid panels used for
paint grade sign material, panels designed specifically for use
in flat deck trailers, dry freight vans and intermodal container
systems, and commodity sheathing plywood. Savonas annual
capacity is 155 mmsf. Production of plywood at the Savona
mill for the fiscal year ended December 31, 2003 was
119 mmsf and production for the six months ended
June 30, 2004 was 75 msf. All of the Savona
mills veneer requirements come from our veneer plant in
Lillooet.

Our Lillooet veneer plant produces primarily high
quality veneer, principally for use in our Savona specialty
overlaid plywood mill. The Lillooet plant has the ability to
supply all of our Savona veneer needs; however we also sell
spruce, pine and fir veneer products to other plywood producers
and industrial veneer users depending on prevailing market
conditions. The Lillooet plant site occupies 89 acres and is
serviced directly by rail. The mill site is located on land
forming part of Lillooet Indian Reserve No. 1 and Cayoose
Creek Indian Reserve No. 1. The land is leased under a
long-term tenancy agreement with the Federal Department of
Indian Affairs and Northern Development. Under the terms of our
forest license for the Lillooet timber supply area, we are
obliged to operate the Lillooet veneer plant to process an
equivalent volume to the volume harvested under that license per
year.

We invested approximately $21 million in our
Savona mill and Lillooet plant in the late 1990s to enhance our
product offerings and lower our operating costs.

Finger-joined
Lumber

We own a finger-joined lumber facility in
Abbotsford, British Columbia. This facility converts low-value,
off-grade and shorter-length lumber purchased on the open market
into finger-joined stud lumber products. This is accomplished by
removing defects in the purchased lumber and then machining and
gluing the remaining pieces together. Finger-joined lumber
typically sells at premium prices over natural lumber products.
On December 20, 2002, we temporarily shut-down the facility
due to market conditions related to the
Canada-U.S. softwood lumber dispute.

Raw Materials

Wood fiber from timber is the primary raw
material used in our operations. Timber supply self-sufficiency
is a key competitive element within the forest products industry
as the direct control and management of timber resources
insulates an operator from fluctuations in the market price of
purchased logs. A significant portion of our timber supply needs
are met by allocations of timber under our forest licenses and
pulpwood agreement in British Columbia, deciduous timber
allocations and our joint Forest Management Agreement in Alberta
and long-term timber supply agreements with the Province of
Ontario. Our timber supply needs are supplemented by long-term
supply agreements with other sources.

In addition to wood fiber, we use a significant
quantity of various resins and wax in the manufacturing
processes of our OSB and specialty overlaid plywood products.
Resin costs are influenced by changes in the prices of raw
materials used to produce resins, primarily petroleum

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products, as well as demand for resin products.
We purchase electrical power and natural gas from third parties
and utilize energy from our own wood-waste fired energy systems.


Timber Tenure Agreements

The following table presents information about
the long-term wood fiber supply agreements at each of our
Canadian OSB facilities:

|               |  |                  |           |                  |  |             |           |     |  |  |    |     
|-------------- |  | ---------------- | --------- | ---------------- |  | ----------- | --------- | --- |  |  | -- | ----
|               |  | Annual           |           | Long-term Supply |  | Percent of 
|               |  | Requirement (m3) |           | Agreements (m3)  |  | Requirement
|               |  |                  |           |                  |  |            
|100 Mile House |  |                  | 638,000   |                  |  |             | 585,000   |     |  |  | 92 | %(1)
|Grande Prairie |  |                  | 1,000,000 |                  |  |             | 791,000   | (2) |  |  | 79 | (3) 
|Barwick        |  |                  | 723,000   |                  |  |             | 551,000   |     |  |  | 76 |     
|High Level(4)  |  |                  | 1,323,000 |                  |  |             | 1,271,000 |     |  |  | 92 |     
|               |  |                  |           |                  |  |             |           |     |  |  |    |     
|Total          |  |                  | 3,684,000 |                  |  |             | 3,198,000 |     |  |  | 87 | %   
|               |  |                  |           |                  |  |             |           |     |  |  |    |     






|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 100% beginning in 2007 due to increased supply of
    timber.                                                                                                                                                           
|   
|(2) | 984,000 m3 until 2007.                                                                                                                                                                                                  
|   
|(3) | 98% until 2007.                                                                                                                                                                                                         
|   
|(4) | Assumes the High Level OSB facility is operated
    at or near design capacity of 860 mmsf per year. At the
    current rate of production, the facilitys available fiber
    supply is well over 100% of requirements.

British
Columbia

Forest
License

We hold Forest License A18700 in British
Columbia. Our forest license covers the timber supply area of
Lillooet, British Columbia. The Lillooet timber supply area
consists of approximately 1.1 million hectares
(2.7 million acres) in the Kamloops, British Columbia
forest region and serves as the primary timber source for our
Lillooet veneer plant. The forest license is renewable and the
current term extends until 2013. We are currently entitled to
harvest an allowable annual cut, or AAC, of approximately
350,000 m3 under our forest license. The AAC of our forest
license can supply approximately 80% of the current timber
requirements of our veneer and specialty overlaid plywood
operations either directly or through a long-term log trade
agreement with third parties. The remaining percentage,
primarily fir peeler logs, can be met through purchases of
timber harvested from government-owned lands by other license
holders and through purchases of logs from private landowners,
farmers and woodlot owners.

In 2003, the British Columbia government
introduced the Forestry Revitalization Act which will result in
significant changes to the provincial forest management
structure. The changes include a 20% reduction in harvesting
rights for holders of long-term tenures and the introduction of
an auction-based timber pricing system. The province has
indicated that licensees will be fairly compensated for the
return of tenure and related costs such as roads and bridges.
Although the legislation has been enacted, the regulations and
basis for compensation for the 20% timber reduction have not
been published. The effect of the timber take-back will result
in a reduction of approximately 29,600 m3 of our existing
allowable annual cut for which we will be compensated.

Pulpwood
Agreement

We hold Pulpwood Agreement No. 16 to support
our OSB operations at 100 Mile House, British Columbia. The
pulpwood agreement stipulates that before we can harvest any
pulpwood under the agreement, every reasonable effort must be
made to obtain the total suitable raw material requirements for
the OSB mill from (1) logging residues produced by us,
including the

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fiber produced by West Fraser Mills Ltd. in the
100 Mile House area pursuant to the terms of our fiber
supply agreements with West Fraser, and (2) logging
residues and pulpwood timber purchased from other sources within
the timber supply areas covered by the pulpwood agreement. If we
are unable to meet our requirements from these sources, then we
are entitled to harvest up to 330,000 m3 per year of the
pulpwood stands within the timber supply area covered by the
pulpwood agreement.


We estimate that in the long run, we will use all
of our 330,000 m3 of harvesting rights within the timber
supply area covered by the pulpwood agreement. Our agreements
with West Fraser ensure a long-term supply of 100,000 m3
per year through 2006 and 150,000 m3 starting 2006 through
2011. Our agreements with West Fraser may be subject to a
reduction as a result of West Frasers 20% take back as a
result of the Forestry Revitalization Act. In late 2003, we
secured long-term access to an additional 155,000 m3 per
year of pulpwood in the form of government tenures. The balance
of our annual requirement will be derived from market purchases
and shorter term agreements.

Alberta

Grande
Prairie Deciduous Timber Allocation

In 1994, we were granted a deciduous timber
allocation, or DTA, in connection with our Grande Prairie OSB
facility. The Grande Prairie DTA is a renewable 20-year
certificate allowing for an annual harvest of approximately
791,000 m3 of deciduous timber, which expires in 2015. The
Alberta Ministry of Sustainable Resources issues timber licenses
that operate in conjunction with the DTA and specify where
timber harvesting will take place within a five-year period. As
the holder of the DTA, we were required to construct and operate
the Grande Prairie OSB facility and must process all timber
harvested under the DTA at these facilities. We are also
obligated to initiate a program of private log purchases and to
conduct our operations and forest management program in
accordance with provincial legislation and the requirements of
the Alberta Ministry of Sustainable Resource Development. In
addition, as a result of undercutting of the DTA allowable
harvest during the 1995 to 2000 period, we have rights under our
DTA certificate to harvest an additional 200,000 m3 per
year through 2006.

Our Grande Prairie DTA is the primary source of
fiber for our Grande Prairie OSB facility, capable of supplying
approximately 100% of the plants fiber requirements at
full capacity during the period 2004 to 2006 and 82% in
subsequent years. The mills fiber requirement is expected
to be 968,000 m3 in the year ending December 31, 2004.
The balance of the Grande Prairie OSB plants requirements
can be purchased from other low-cost sources, including private
land and government purchases, industrial timber salvage,
incidental deciduous volumes generated by non-DTA harvesting
operations of other operators, and volume gained through
modified harvesting practices to increase utilization.

High
Level Deciduous Timber Allocation and Forest Management
Agreement

In 1996, the Alberta Lands and Forest Service
issued a call for proposals for a DTA located in the Footner
Timber Development Area. We made a joint proposal with another
OSB producer, through Footner Forest Products Ltd., to construct
and operate an OSB plant at High Level, Alberta. For more
information regarding the co-ownership of Footner, see the
section titled Co-Ownership Arrangements for High
Level. Footner was successful in its proposal. The timber
allocation is approx. 880,000 m3 of deciduous timber
annually for a period of 20 years and is supplied through a
joint Forest Management Agreement which supplies
701,000 m3, and three DTAs which supply 170,000 m3. In
2002, Footner, on behalf of us and the other co-owner entered
into a FMA with the Province of Alberta and Tolko Industries
Ltd. which provides us with a long-term agreement to establish,
grow, harvest and remove all deciduous timber on a sustained
yield basis within the area covered by the FMA. The FMA was
formally approved by

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the government of Alberta in July, 2002. We
received government approval in April 2004 to increase our
annual allowable cut on the FMA from the existing
677,000 m3 to 701,000 m3. Footner has also negotiated
20-year volume supply agreements of approximately
390,000 m3 annually with aboriginal groups who hold DTAs or
own their land.


The High Level FMA the DTA and the long-term
supply agreements with aboriginal groups are the primary fiber
source for the High Level OSB plant, supplying approximately 92%
of the plants anticipated fiber requirements once it
achieves design capacity. Other sources of fiber available to us
include purchases from private landowners and government,
industrial timber salvage and incidental deciduous volumes
generated by non-DTA harvesting operations of other operators.

Ontario

We have long-term timber supply agreements with
the Province of Ontario, that are administered through related
agreements with two major pulp and paper companies who hold
Sustainable Forest Licences, or SFLs, with the Province of
Ontario. These agreements ensure that defined timber volume will
be harvested solely for use by the Barwick facility. This timber
volume commitment from the Province of Ontario represents
551,000 m3 per year or approximately 76% of current fiber
requirements of the Barwick facility.

Timber
Supply Agreement

We have an existing timber supply agreement with
the Province of Ontario that provides for a direct license to
us, or to entities with related contracts to deliver timber to
us, to harvest from public land up to 310,000 m3 of timber
annually from the Crossroute Forest Crown Management Unit, or
CMU, located adjacent to the Barwick facility. This timber
supply agreement is renewable and the current term expires in
September 2015. The annual allowable cut, or AAC, of this
agreement can supply approximately 43% of the current fiber
requirements of the Barwick facility. We currently have a wood
supply services agreement with Abitibi Consolidated Inc., or
ACI, pursuant to which ACI manages the 310,000 m3 commitment
relating to our Barwick facility through ACIs SFL.

Sustainable
Forest Licenses

ACI, and Bowater, both major pulp and paper
producers with operations near the Barwick facility, are
directed by the terms of their respective SFLs with the Province
of Ontario to supply the Barwick facility with an annual harvest
of 165,000 m3 and 76,000 m3 of timber, respectively. The current
term of the SFLs held by both ACI and Bowater expire
March 31, 2017 and March 31, 2018, respectively. The
fiber that the Barwick facility is entitled to receive under the
SFLs held by ACI and Bowater represents a total of 241,000 m3
per year, or approximately 33% of the current fiber requirements
of the Barwick facility.

Private
Wood

Timber requirements for the Barwick facility
beyond the 551,000 m3 per year available from public lands
are currently satisfied through purchases of timber from private
lands in Ontario and Manitoba at open market prices. At an
annual OSB production rate of 470 mmsf, approximately 24%
of the current fiber requirements of the Barwick facility is
purchased on the open market.

Timber Harvesting and Forest
Management

We are committed to responsible harvesting,
reforestation and sustainable forest management practices that
are sensitive to environmental and social considerations as well
as the need to preserve a varied forest species mix. Forest
management techniques are in

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accordance with governmental laws, regulations
and policies and promote the long-term viability of the forest
resource.


British
Columbia

Timber
Harvesting

We have adopted a strategic timber harvesting
plan approved by the Ministry of Forests that integrates
harvesting from our forest license and pulpwood agreement with
timber volume supply agreements with West Fraser Mills Ltd. to
ensure that logs are directed to specific mills and end uses
that maximize the return on the timber resource. We manage these
resources on a sustained yield basis. Rationalization of the
flow of logs to our mills reduces our dependence on purchased
logs. Timber harvesting is planned and supervised by our
woodlands staff, while harvesting and log hauling are performed
by independent contractors. Most of these independent
contractors have long-standing relationships with us. At
100 Mile House, the temperate climate allows for year-round
logging, subject to periodic limitations resulting from adverse
weather conditions and other factors.

Forest
Management

Since early 2000 we have worked with other forest
tenure holders in our British Columbia timber supply area to
develop a sustainable forest management (SFM) plan based on the
Canadian Standards Association (CSA) certification system. We
are making the necessary preparations designed to achieve CSA
certification on the Lillooet license by the end of 2004.
Effective June 18, 2004, we achieved ISO 14001
Environmental Management System registrations, an environmental
management certification system for forestry related activities,
on both the Lillooet license and Pulpwood Agreement No. 16.

Alberta

Timber
Harvesting

Our DTA at Grande Prairie and our FMA at High
Level are managed on a sustained yield basis.

Harvesting under the DTAs is authorized under:



| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | timber licenses, which create a five-year program
    of operations under the DTA; and                                                                                                                    
|
| |  | annual operating plans, which authorize the
    harvesting of specific blocks of timber and impose operational
    requirements regarding such matters as riparian set-backs and
    cut-block boundaries.

Timber licenses under the DTA and FMA are issued
as a right upon compliance with cut control and other regulatory
requirements.

Logging operations at both the Grande Prairie and
the High Level facilities employ tree-length and cut-to-length
roadside logging methods. Year-round log deliveries are limited
by wet ground conditions and a lack of gravel for road ballast
and construction. Grande Prairie ground conditions and
infrastructure allow an approximate eight-month logging season.
At the High Level OSB facility, the logging season is compressed
into a 100-day period in the winter, with very limited options
for non-frozen ground operating conditions. Terrain in the
harvesting areas is flat to gently rolling, with the main road
systems previously put in place for oil and gas exploration and
past coniferous timber logging operations.

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Forest
Management

We have developed a detailed forest management
plan for the Grande Prairie DTA and have committed to a
proactive public involvement program in the development of the
plan. The detailed forest management plan has received
governmental approval. We have also completed an independent
audit of our operations at Grande Prairie, the results of which
were submitted to the government and summaries made available to
the public. The audit established that we met or exceeded
government requirements. Our woodlands program in Grande Prairie
also received AFPA ForestCare certification in February 1999. In
November 2003, our Grande Prairie woodlands achieved
ISO 14001 registration, an environmental management system
that applies to forestry, logging, and related activities under
the DTA.

At the High Level OSB facility, Footner, on
behalf of the co-owners, has in place a detailed integrated
forest management plan in the form of the Footner-Tolko joint
FMA. Footner is making the necessary preparations to achieve
ISO 14001 registrations for forestry, logging and related
activities under the FMA. Footner expects to achieve this ISO
registration by August 2004.

Ontario

We have a wood supply services agreement with ACI
under which ACI oversees timber harvesting on behalf of us on
public lands covered under certain of the timber supply
agreements relating to the Barwick facility. Under the wood
supply services agreement, wood fiber is allocated to ACI and us
on a basis that minimizes the aggregate average delivered cost
to both parties. Since the Barwick facility draws wood from the
same general region as ACIs Fort Frances pulp and paper
mill, we also benefit from accessing an established road network
and experienced timber harvesting and forest management
operations. Our current agreement with ACI is renewable at the
option of both parties beyond its current expiry date of
December 31, 2005. ACI also currently manages the private
wood supply required by the Barwick facility.

Environmental Regulation

In addition to the laws and regulations governing
the management and stewardship of the forests where we harvest
timber, we are subject to numerous environmental laws and
regulations of general application, including those relating to
air emissions, effluent discharges, waste management, and
remediation of contaminated soil and ground water. Environmental
laws and regulations may impose liability and responsibility on
present and former owners, operators or users of facilities and
sites for contamination at such facilities and sites without
regard to causation or knowledge of contamination. Compliance
with environmental laws and regulations can significantly
increase the costs of our operations and otherwise result in
significant costs and expenses. Violations of environmental laws
and regulations can subject us to additional costs and expenses,
including defense costs and expenses and civil and criminal
penalties. We have obtained, or are applying for amendments to,
the necessary environmental operating permits required to
conduct our business. These include, for example, permits for
emissions, land fills for disposal of boiler ash and beneficial
use of certain solid waste. We believe that all of our
operations are in substantial compliance with all operating
permits. Any future change in requirements or in the enforcement
of existing regulations could result in incremental cost and
potentially restrict our operations.

Transportation and Distribution

Our finished products are generally marketed on a
delivered-price basis and transported by common carriers. Timely
and economical delivery of finished goods to customers are
important factors in our ability to compete effectively.
Virtually all sales are shipped directly to customers.

A significant portion of the delivered cost of
our products is transportation costs. We have entered into
various rail, truck and ocean transportation agreements to
provide reliable and

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competitive transportation services. Our
operations have the flexibility to load their products onto
various types of rail and road equipment, enabling them to take
advantage of the most competitive rates. We also reduce freight
costs by shipping products from the most logistically
cost-effective mill. Our current North American transportation
strategy involves shipping approximately 75% of our total
production by rail, with the remainder shipped by truck. We
continually test alternative transportation options to minimize
overall freight costs. Our significantly large volume of annual
shipments provides considerable leverage for negotiating lower
rates and more cost-effective transport equipment.


Inventory adjustments are regularly required to
manage short-term demand imbalances and to consistently meet
delivery schedules. Our practice is to ship production
immediately against an order file, however, our facility
warehouses can accommodate approximately five to seven
days production if there is an interruption in the
transportation links.

Marketing and Sales

The principal markets for our products are the
United States, Canada, Asia and the United Kingdom. In North
American markets, products are sold through our Vancouver sales
office to a large network of wholesale distributors, building
materials professionals and other integrated forest products
companies such as Louisiana-Pacific, Boise, Roseburg Forest
Products and Georgia-Pacific. Sales to Japan and other overseas
markets are handled by Interior Export Lumber Sales Ltd., or
Interex, a cooperative sales company owned by six western
Canadian forest product companies, including ourselves. Within
Interex, we are the sole wood panel producer, providing both OSB
and specialty overlaid plywood products. The combined volume and
mix of products provided by Interex enables the members to more
effectively compete against other large-scale, integrated forest
product companies than would be the case if each member
independently employed an export marketing program. Interex
maintains sales offices in Vancouver and Tokyo, Japan, and has
local representatives in other major markets. Interex receives a
commission on the sales that it consummates. Any commission
amounts exceeding Interexs operating costs are refunded to
its members on a yearly basis based on volumes shipped. We also
have sales agents in a number of overseas markets that service
key OSB and specialty overlaid plywood customers.

The following table sets out our net sales by
region for the fiscal years 2001, 2002 and 2003.

|                                |                 |                |   |         |  |      |   |         |  |  |   |         | 
|------------------------------- | --------------- | -------------- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                |                 | 2001           |   | 2002    |  | 2003
|                                |                 |                |   |         |  |     
|                                |                 |               
|                                |                 | (in thousands)
|Geographic sales information(1) |                 |                |   |         |  |      |   |         |  |  |   |        
|                                | Canada          |                | $ | 58,623  |  |      | $ | 81,810  |  |  | $ | 94,939  | 
|                                | United States   |                |   | 270,634 |  |      |   | 292,440 |  |  |   | 408,623 | 
|                                | Japan and other |                |   | 46,013  |  |      |   | 39,312  |  |  |   | 30,037  | 
|                                | Europe          |                |   | 13,394  |  |      |   | 8,118   |  |  |   | 8,329   | 
|                                |                 |                |   |         |  |      |   |         |  |  |   |        
|                                | Total           |                | $ | 388,664 |  |      | $ | 421,680 |  |  | $ | 541,928 | 
|                                |                 |                |   |         |  |      |   |         |  |  |   |        



---



|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales figures reported in this table have been
    reclassified to include freight revenue and freight and other
    distribution costs. Previously, these items were netted from
    sales consistent with industry practice at the time.

A key component of our business strategy is to
target higher-end niche markets where products successfully
compete on the basis of superior quality and performance while
maintaining a low-cost position on commodity sheathing OSB
products. To this end, we have been active in understanding
customer needs as they relate to the growing acceptance of
engineered wood systems for housing construction. Additionally,
we continue to identify new

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market opportunities in non-construction sectors
and are responding by developing products with the required
performance attributes. See Research and Development.


Competition

We compete in North America and in Japan with
numerous wood products companies, ranging from very large
integrated firms, several of which are larger than we are, to
smaller firms that manufacture only a few items. We also compete
indirectly with many firms that manufacture substitutes for wood
building materials.

In the North American market for commodity
sheathing OSB, we compete principally with numerous plywood
sheathing producers and other North American OSB producers such
as Weyerhaeuser, Tolko, Canfor, Louisiana-Pacific and Grant
Forest Products, depending on market destination and producing
mill location. Factors including production costs, freight
charges and market dynamics between producing and consuming
regions have an impact on the competitive position of all
potential structural panel suppliers in a given market.
OSBs significant cost advantage over plywood continues to
support OSB market growth.

In the value-added OSB product lines,
differentiation based on product quality, technical know-how and
customer service  along with our strategic brand
positioning  has sheltered us from intense competition
from other, mostly commodity-driven OSB producers. We sell
value-added AinsworthEngineered® webstock and
rimboard OSB to most engineered floor systems manufacturers
including Boise, Louisiana-Pacific, Roseburg Forest Products and
Pacific Wood Tech, enabling them to more effectively compete
with Trus Joist (a Weyerhaeuser business), currently the world
leader in engineered wood production and marketing.

The introduction of OSB to the Japanese market is
relatively new. Although OSB currently represents only a small
proportion of the Japanese panel market, we expect OSB to
capture an increasing share of the structural panel market. We
had a leading position with an estimated 54% market share for
OSB in the year ended December 31, 2003. Other North
American OSB producers have generally played only a peripheral
and opportunistic role in this market. Our principal competition
in Japan remains Indonesian and Malaysian plywood and domestic
softwood plywood.

For the past several decades, two companies have
been the predominant suppliers of specialty overlaid plywood to
the North American market for Ainsworth and Olympic Panel
(formerly Simpson Timber). Olympic Panel is our primary
competitor and has a similar manufacturing and marketing
approach to their business. Over the years, opportunistic,
smaller-size producers have attempted to make inroads into this
market but have succeeded only to a very limited extent. We
believe that the current competition encountered from cheaper,
non-overlaid concrete-forming plywood will gradually erode as
end-users become educated about the benefits and the installed
cost-effectiveness of an initially more costly product line.

Research and Development; Intellectual
Property

We focus our research and development efforts on
improving manufacturing efficiencies and developing new or
improved products designed to expand the offering of our
AinsworthEngineered® OSB and specialty plywood
products including our Pourform® brands of concrete
forming products. We also actively work with our customers to
develop customized engineered wood products using the modern,
versatile manufacturing equipment in place at our 100 Mile
House, Grande Prairie and Savona facilities. For instance, we
often test engineered strand wood products with enhanced
structural properties for certain North American customers that
may lead to new market opportunities by providing cost effective
alternatives to products offered by our competitors. Beyond our
immediate focus on our current customers needs, we are also
working to enhance strategic alliances with industry and
educational facilities to foster the

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development of longer-term opportunities. We own
several trademarks, trade names and patents in connection with
our OSB and specialty plywood products.


In connection with our acquisition of the
Minnesota OSB facilities, we acquired certain intellectual
property rights to the OSB-related technology owned by Potlatch.
We intend to apply this technology, together with our existing
intellectual property, to the production of value-added OSB
products across all of our facilities. We also intend to
continue research and development efforts commenced by Potlatch
prior to our acquisition of the Minnesota OSB facilities, to the
extent that we feel that such efforts will improve our
production process or expand our offering of meaningful
value-added products.

Employees and Labor Relations

We currently employ approximately
1,700 people (including those employed at the Minnesota OSB
facilities). Our hourly employees in British Columbia are
covered under collective bargaining agreements with the
Industrial, Wood and Allied Workers of Canada, or IWA. In 2003,
we renewed our collective bargaining agreements with the IWA,
which had expired on June 30, 2003. The renewed agreements
have six year terms and expire on June 30, 2009, and cover
approximately 500 employees at our Lillooet, Savona and 100
Mile operations. Our hourly employees at the Barwick facility in
Ontario are covered under a collective bargaining agreement with
the Communications, Energy and Paper Workers Union of
Canada. This five year agreement covers approximately
120 employees and expires August 31, 2005. We also
have approximately 150 salaried employees in British
Columbia, engaged in sales, woodlands, manufacturing,
supervisory and administrative activities. We employ
approximately 200 people in our non-union Grande Prairie,
Alberta operations. In addition, Footner employs approximately
150 people at the jointly-owned non-union High Level OSB
facility. We also engage independent contractors in British
Columbia and Alberta, who provide logging, trucking and road
building services on a year-round basis.

Hourly employees at the Grand Rapids facility
(approximately 130 individuals) are covered under a
collective bargaining agreement with the Paper,
Allied-Industrial, Chemical and Energy Workers International
Union. The current bargaining agreement is scheduled to expire
on October 14, 2005.

Legal Proceedings

From time to time, we are involved in legal
proceedings relating to claims arising out of our operations in
the ordinary course of business. We do not believe there are any
material proceedings pending or threatened against us or any of
our properties.

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CO-OWNERSHIP ARRANGEMENTS FOR HIGH
LEVEL

In January 1997, we partnered with Grant Forest
Products Corp., or Grant Corp., to pursue an OSB business
opportunity in Alberta. We and Grant Corp. incorporated Footner
Forest Products Ltd., each as 50% shareholders, to act as each
parties nominee in pursuing this opportunity. Footner
filed a proposal with the government of Alberta on behalf of
Grant Corp. and ourselves to acquire a deciduous timber tenure.
The timber tenure was granted to Footner on the condition that
it construct and operate an OSB plant at High Level, Alberta.
Following the grant of the timber tenure, we entered into a
memorandum of agreement dated December 9, 1999, with Grant
Corp. to establish the basis on which we would own, build and
operate the High Level OSB facility as co-owners. Construction
of the High Level facility was substantially completed by
October 2000 and it is now operating at approximately 75% of
capacity. Grant Corp. has transferred its interest and assigned
its rights and obligations under the memorandum of agreement to
Grant Forest Products Inc., or Grant. In February 2001, we
transferred our interest in the High Level OSB project and
assigned our rights and obligations under the memorandum of
agreement to our wholly-owned subsidiary, Steen River. In
connection with our offering of senior notes in March 2004, we
wound-up Steen River and transferred all of Steen Rivers
assets and liabilities to us in order to simplify our corporate
organizational structure and provide access to the previously
unavailable capital cost allowance on the High Level
assets.

The memorandum of agreement sets out the
structure of the relationship between us and Grant, as
co-owners, and governs their respective rights and obligations
with respect to the High Level OSB project. Among other things,
the memorandum of agreement establishes the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Footner acts as a bare trustee and nominee of the
    co-owners, holding title to the High Level property, plant and
    equipment as well as the timber tenure on behalf of the
    co-owners;                                                                                                                                                                                                                                                                                                         
|
| |  | a service company operates the facility (this
    role is currently assumed by Footner) under the direction of a
    general manager;                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | the co-owners share the costs of construction,
    operations and on-going capital requirements equally;                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | each co-owner may, with the consent of the other
    party, obtain debt financing to finance its share of the project
    costs and may grant its lender a security interest in its share
    of the fixed assets;                                                                                                                                                                                                                                                                                      
|
| |  | each co-owner receives a one-half share of
    production and is required to pay Footner on a monthly basis for
    the cost of production associated with the OSB it receives;                                                                                                                                                                                                                                                                                                                         
|
| |  | each co-owner accepts delivery of the OSB at the
    plant and disposes of the OSB for its own account;                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | if either party fails to make any payments owing
    to Footner, or fails to take its share of OSB, it will not be
    entitled to receive any OSB until it cures such default;                                                                                                                                                                                                                                                                                                                         
|
| |  | a non-defaulting party is entitled to sell the
    defaulting partys share of OSB with the proceeds to be
    applied against the defaulting partys account; it may also
    provide a loan at market rates to Footner to cover the
    defaulting partys deficiency or require Footner to obtain
    such a loan from a third-party lender; such loan will be secured
    by a lien on the interest of the defaulting party in favor of
    the non-defaulting party or Footner, as the case may be;
|
| |  | neither party may sell its interest in the
    facility to a third-party purchaser without first offering the
    other co-owner a right-of-first refusal;                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a buy-sell provision exercisable by either party
    once performance targets are reached at the facility, with a
    minimum offer price equal to the undepreciated book value of the
    other partys investment; and  
|
| |  | at any time one party is in default, the
    non-defaulting party may exercise the buy-sell provision, with
    no set minimum offer price and without the requirement that the
    performance targets have been reached.

The memorandum of agreement also contemplates
that the parties will endeavor to enter into definitive
agreements, which would incorporate the basic concepts and
fundamentals agreed to by the parties in the memorandum of
agreement. Similarly, the parties also agreed that they would
enter into a shareholders agreement with respect to
Footner to establish the parameters of the corporate and
day-to-day management of the High Level OSB facility. We have
had discussions with Grant Corp. regarding drafts of the
agreements contemplated by the memorandum of agreement, but have
yet to settle and execute any of them.

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CORPORATE INFORMATION

Ainsworth was formed under the laws of British
Columbia on March 31, 1993, by the amalgamation of
Ainsworth Lumber Co. Ltd. and its parent company, Ainsworth
Enterprises Ltd. Ainsworth Lumber Co. Ltd., the amalgamating
company, was previously the result of the amalgamation on
December 3, 1970, of Ainsworth Lumber Co. Ltd., which was
incorporated in 1956, and Little Bridge Creek Logging Ltd.,
which was incorporated in 1963. Ainsworth was founded in 1950 by
David Ainsworth and originally consisted of a portable sawmill
operation that employed six people. In 1952, the initial sawmill
operation was relocated to 100 Mile House, British Columbia. We
built a permanent sawmill at 100 Mile House in 1957 and steadily
expanded its operations over a period of 12 years to
include lumber planing and drying facilities. This original
sawmill operation was consolidated into a larger, modernized
operation at Clinton, British Columbia in mid-1998.

In 1975, we began construction of a second
sawmill near Clinton, British Columbia, and in 1979, added a
finger-joined facility at the 100 Mile House site to add value
to its off-grade and shorter-length lumber products. In 1986,
the finger-joined facility was relocated to Abbotsford, British
Columbia, where a milder climate extended the operating season.

In 1987, we purchased from Evans Products Limited
a sawmill and veneer mill at Lillooet, British Columbia, a
sawmill and specialty overlaid plywood plant at Savona, British
Columbia, and two forest licenses. This acquisition
substantially diversified our product line and initiated our
entry into the specialty overlaid plywood business. The
additional timber supply from the forest licenses acquired from
Evans also enabled us to manage our overall timber supply more
effectively through the implementation of a comprehensive system
of log transfers among the facilities to achieve optimal use of
the available timber.

In 1990, following a public call for tenders by
the British Columbia Ministry of Forests, we were granted
pulpwood harvesting rights for a 25-year term for the purpose of
operating an OSB facility at 100 Mile House. We subsequently
entered into a pulpwood agreement with the Ministry of Forests
on April 26, 1990. In May 1993, we completed an initial
public offering of 5.55 million common shares at $10 per
share. The $51.4 million net proceeds were used as partial
funding for the construction of the OSB plant at 100 Mile House.
The 100 Mile House OSB plant has been operating since August
1994.

In 1994, the Alberta government submitted a
request for proposals for a deciduous timber allocation, or DTA,
near Grande Prairie, Alberta. Our proposal was accepted, and on
August 9, 1994, we were granted a DTA for a renewable
20-year term. Construction of our second OSB facility near
Grande Prairie began in October 1994, and production of the
first OSB panels commenced in December 1995. In addition,
equipment was installed in 1997 for further processing the OSB
and adding further value to the product lines.

In 1996, the Alberta Lands and Forest Service
requested proposals for a DTA in the Footner Timber Development
Area in Northern Alberta. In January 1997, we made a joint
proposal with Grant Forest Products Corp., through Footner
Forest Products Ltd. to construct and operate an OSB plant near
High Level, Alberta upon receipt of a 20-year DTA. In September
1997, the Alberta government announced that the Footner proposal
had been selected. Construction of the High Level OSB facility
began in August 1999 and was completed in the fall of 2000.

In February 2001, we transferred our interest in
Footner and the High Level OSB project to our wholly-owned
subsidiary, Steen River, in consideration for an assumption of
debt incurred in relation to the High Level OSB project and
common shares in Steen River. In connection with our offering of
senior notes in March 2004, we wound-up Steen River and
transferred all of Steen Rivers assets and liabilities to
us in order to simplify our corporate organizational structure
and provide access to the previously unavailable capital cost
allowance on the High Level assets.

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On April 24, 2001, we completed the sale of
our Clinton, British Columbia lumber operations to West Fraser
Mills Ltd. Following the sale of our Clinton lumber operations,
we classified our Abbotsford finger-joined operations as
discontinued operations. In February, 2002 a decision was made
to cease efforts to dispose of the Abbotsford operation,
reflecting our improved financial position and other changes in
circumstances. On December 20, 2002 we temporarily
shut-down the mill due to market conditions related to the
Canada-U.S. softwood lumber dispute.

On May 19, 2004, we acquired all of the
outstanding shares of Voyageur Panel Limited, a private Canadian
company owned by Boise Cascade Corporation (47% owner), Abitibi
Consolidated Company of Canada (21% owner), the Northwestern
Mutual Life Insurance Company (17% owner) and Allstate Insurance
Company (15% owner) for an aggregate purchase price of
US$206.7 million (which includes US$47.6 million of
net working capital). In addition, we may be required to pay up
to US$10 million in additional consideration on
March 31, 2005 in the event that OSB produced by the
Barwick facility is sold at an average price that exceeds
Cdn$275 per msf ( 3/8 basis) between the closing of
the acquisition and December 31, 2004. Voyageur owned and
operated an OSB facility located in Barwick, Ontario with a
current annual production capacity of 470 mmsf. Immediately
following our acquisition of Voyageur, Voyageur was amalgamated
with another one of our wholly-owned subsidiaries to form
Ainsworth Engineered Corp., a Nova Scotia unlimited liability
company.

In August 2004 we (1) completed an exchange
offer pursuant to which all of the US$210 million in aggregate
principal amount of 6.750% Senior Notes due March 15, 2014
that we issued on March 3, 2004 were exchanged for an
identical aggregate principal amount of 6.750% Senior Notes
representing the same indebtedness due March 15, 2014,
which were registered under the Securities Act of 1933; and
(2) completed an exchange offer pursuant to which all of
the US$110 million in aggregate principal amount of 6.750%
Senior Notes representing the same indebtedness due
March 15, 2014 that we issued on May 19, 2004 were
exchanged for an identical aggregate principal amount of 6.750%
Senior Notes due March 15, 2014, which were registered
under the Securities Act of 1933.

On September 22, 2004, we acquired all of
the assets and certain related net working capital used by
Potlatch in the operation of three OSB facilities that are
located in the northern Minnesota towns of Bemidji, Cook and
Grand Rapids. The assets were acquired by Ainsworth
Engineered (USA), LLC, our wholly owned subsidiary. In
connection with the acquisition, we paid Potlatch a purchase
price of approximately US$457.5 million (including certain
adjustments upon closing).

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MANAGEMENT

Directors and Executive Officers

The following table sets forth information about
our directors and executive officers, and their respective
positions as of the date of this prospectus.

|                          |  |                                                                  
|------------------------- |  | -----------------------------------------------------------------
|Name                      |  | Title                                                            
|                          |  |                                                                  
|Brian E. Ainsworth        |  | Chairman, Chief Executive Officer and Director                   
|D. Allen Ainsworth        |  | President and Director                                           
|Catherine E. Ainsworth    |  | Chief Operating Officer, Secretary and Director                  
|Robert Allen              |  | Chief Financial Officer                                          
|David Ainsworth           |  | Director and co-founder of Ainsworth                             
|Susan Ainsworth           |  | Director and co-founder of Ainsworth                             
|D. Michael Ainsworth      |  | Executive Vice-President                                         
|Kevin Ainsworth           |  | Senior Vice-President, B.C. Timberlands and
    Specialty Plywood
|Douglas I. Ainsworth      |  | Senior Vice-President, Marketing                                 
|Ron B. Anderson(1)(2)     |  | Director                                                         
|K. Gordon Green(1)(2)     |  | Director                                                         
|Morley Koffman(2)         |  | Director                                                         
|W. Gordon Lancaster(1)(2) |  | Director                                                         






|    |                                                                  
|--- | -----------------------------------------------------------------
|(1) | Member of the Audit Committee and the
    Compensation Committee.
|   
|(2) | Member of the Corporate Governance Committee.                    

Brian E.
Ainsworthhas served as Chairman
of our Board of Directors and Chief Executive Officer since May
1993. Mr. Ainsworth previously managed the woodlands
operations of Ainsworth Lumber Company, Ainsworths
predecessor corporation, for more than 30 years.

D. Allen
Ainsworthhas served as our
President since May 1993. He has also been a Director since May
1993. Mr. Ainsworth served as our Chief Operating Officer
until November 2001. Mr. Ainsworth previously managed the
manufacturing and sales operations of Ainsworth Lumber Company
for more than 30 years.

Catherine E.
Ainsworthhas served as our Chief
Operating Officer since November 2001, and has served as a
Director and our Secretary since May 1993. Previously,
Ms. Ainsworth served as our Chief Financial Officer from
May 1993 to November 2001.

Robert Allenhas served as our Chief Financial Officer since November 2003.
Prior to joining us, Mr. Allen served as Chief Financial
Officer and Vice President of a startup, high technology
advertising company located in Vancouver. Previously,
Mr. Allen spent eight years working for Skeena Cellulose
Inc., a large integrated forest products company in British
Columbia, including his last position as Chief Financial Officer
and Vice President of finance from 2000 to 2002. Before joining
Skeena in 1994, Mr. Allen held a senior financial position
at Western Forest Products Ltd. for a three year period.
Mr. Allen also worked for the accounting firm of
Coopers & Lybrand from 1986 to 1991. Mr. Allen is
a graduate of the University of British Columbia and is a
Chartered Accountant.

David
Ainsworthco-founded Ainsworth
Lumber Company in 1950. He has been a Director since May 1993.
Previously, Mr. Ainsworth served as our President.

72



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##### 



Susan
Ainsworthco-founded Ainsworth
Lumber Company in 1950. She has been a Director since May 1993.

D. Michael
Ainsworthhas served as our
Executive Vice-President since May 2002. Previously, he served
as Vice-President, Marketing and Business Development since
November 1996. Mr. Ainsworth holds a Master of Science
degree in forest products marketing and a Bachelor of Science
degree in forestry, both of which he earned at the University of
British Columbia.

Kevin
Ainsworthhas served as Senior
Vice-President, B.C. Timberlands and Specialty Plywood
since November 2002. He has held a number of investor relations
and woodlands management positions with Ainsworth since 1992.
Mr. Ainsworth holds a Master of Business Administration
degree and a Bachelor of Science degree in forestry, both of
which he earned at the University of British Columbia.

Douglas I.
Ainsworthhas served as Senior
Vice-President, Marketing since November 2002. Previously, he
served as the General Manager, Business Development where he
managed the construction and operational start-up of the Grande
Prairie OSB facility. Mr. Ainsworth has held a number
of management positions with Ainsworth since 1989.

Ron B.
Andersonhas been a director since
May 12, 2003. Currently he serves as President of North
Point Capital Corp., a Vancouver-based private merchant bank.
Previously, Mr. Anderson served as Senior Vice-President
Corporate Development of Parkside Developments LP, an affiliated
company involved in real estate development. Mr. Anderson
has over 20 years of experience in banking and corporate
acquisitions. He has a Bachelor of Commerce degree which he
earned at the University of British Columbia, and is a Certified
General Accountant.

K. Gordon
Greenhas been a director since
May 1993. Mr. Green is a corporate director and an
independent financial consultant. Until October 1993 he was a
Vice-President and Director of RBC Dominion Securities
Inc., a Canadian financial services company. Mr. Green has
a Master of Business Administration degree, which he earned at
Harvard University, and a Bachelor of Science degree in
forestry, which he earned at the University of British Columbia.

Morley
Koffmanhas been a director since
May 1993. Mr. Koffman is a lawyer with the Vancouver law
firm Koffman Kalef. He has been appointed Queens Counsel.
Mr. Koffman holds a Bachelor of Laws degree and a Bachelor
of Arts degree, both of which he earned at the University of
British Columbia.

W. Gordon
Lancasterhas been a director
since May 1993. Mr. Lancaster, a Chartered Accountant,
currently serves as Chief Financial Officer of Ivanhoe Energy
Inc., a Vancouver-based international natural gas, oil and
energy company. Mr. Lancaster was with Deloitte &
Touche LLP for 20 years, including five years as
partner. He also has more than 20 years of experience in
senior financial positions serving as Chief Financial Officer of
First City Group, Vancouver International Airport Authority,
Lions Gate Entertainment Corp., Power Measurement Inc. and
Xantrex Technology Inc.

Brian E. Ainsworth, D. Allen Ainsworth
and Catherine E. Ainsworth are the children of David
Ainsworth and Susan Ainsworth. D. Michael Ainsworth and
Douglas I. Ainsworth are the children of D. Allen
Ainsworth and Kevin Ainsworth is the son of Brian E.
Ainsworth.

73



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##### 



Compensation

The following table provides a summary of
compensation for the fiscal year ended December 31, 2003
paid by us to our Chief Executive Officer and each of our four
other most highly compensated executive officers who were
serving as executive officers as at December 31, 2003, who
we refer to in this prospectus as our Named Executive Officers.

Summary Compensation Table

|                                      |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |              |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|------------------------------------- |  | ---- | ---- | ------------------- |  | ------------ | ------- | ------------ |  | ---------------------- | ------- | ----------- |  | ------------ | ------- | ------------ |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - | 
|                                      |  |      |      |                     |  |              |         |              |  |                        |         |            
|                                      |  |      |      |                     |  |              |         |              |  | Long-term Compensation |         |            
|                                      |  |      |      |                     |  |              |         |              |  |                        |         |            
|                                      |  |      |      |                     |  |              |         |              |  |                        |         |             |  |             
|                                      |  |      |      |                     |  |              |         |              |  | Awards                 |         |             |  |             
|                                      |  |      |      |                     |  |              |         |              |  |                       
|                                      |  |      |      | Annual Compensation |  | Securities   |         | Restricted   |  | Payouts                |         |            
|                                      |  |      |      |                     |  | Under        |         | Shares or    |  | Long-term              |         |            
|                                      |  |      |      |                     |  | Other Annual |         | Options/SARs |  | Restricted             |         | Incentive   |  |             
|                                      |  |      |      | Salary              |  |              |         | Compensation |  | Granted                |         | Share Units |  | Plan Payouts |         | All Other   
|Name and Principal Position           |  | Year |      | ($)                 |  | Bonus ($)    |         | ($)          |  | (#)                    |         | ($)         |  | ($)          |         | Compensation
|                                      |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |             
|Brian E. Ainsworth                    |  |      | 2003 |                     |  |              |        |              |  |                        |        |             |  | $            | 816,000 | (2)          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Chairman and Chief Executive Officer  |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |              |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|                                     
|D. Allen Ainsworth                    |  |      | 2003 |                     |  | $            | 412,500 |              |  | $                      | 385,500 |             |  |              | (1)     |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|President                             |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |              |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|                                     
|Catherine E. Ainsworth                |  |      | 2003 |                     |  | $            | 362,500 |              |  | $                      | 435,500 |             |  |              | (1)     |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Chief Operating Officer and Secretary |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |              |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|                                     
|D. Michael Ainsworth                  |  |      | 2003 |                     |  | $            | 200,000 |              |  | $                      | 150,000 |             |  |              | (1)     |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Executive Vice-President              |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |              |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 
|Douglas I. Ainsworth                  |  |      | 2003 |                     |  | $            | 200,000 |              |  | $                      | 150,000 |             |  |              | (1)     |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|Senior Vice-President, Marketing      |  |      |      |                     |  |              |         |              |  |                        |         |             |  |              |         |              |  |  |   |  |  |  |   |  |  |  |   |  |  |  |   | 






|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The aggregate amount of all perquisites or other
    personal benefits paid to each of the executive officers named
    in the table in 2003 did not exceed 10% of his or her total base
    salary or compensation and bonus for the year.
|   
|(2) | Represents management fees in the amount of
    $468,750 plus a bonus of $329,250, and an automobile allowance
    of $18,000. See Employment Agreements.                                                                                

Compensation of Directors

During the year ended December 31, 2003, our
non-employee, non-related directors were paid a retainer fee of
$10,000 per year and a meeting attendance fee of $1,000 per
directors meeting attended. In connection with
participation on committees of our board of directors,
non-employee directors were paid a meeting attendance fee of
$1,000 per committee meeting attended and non-employee directors
acting as chair of committees also earned $2,000 per year for
each committee chaired. A total of $90,667 was earned by our
non-employee directors as a group for this period. Our
non-employee directors are reimbursed for transportation and
other out-of-pocket expenses incurred for attendance at meetings
of the board of directors and committee meetings.

Pension Benefits

Retirement benefits for our executive officers
are provided under our pension plan for all salaried employees.
The pension plan benefits are based on career average earnings,
accrued at 1.5% of yearly maximum pensionable earnings, or YMPE,
plus 2% of gross earnings over YMPE. Benefits for all service
accrued to December 31, 1994 are based on this same
formula, but using average compensation over the previous
five-year period and the YMPE over the previous three-

74



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##### 



year period. Compensation covered by the plan is
the gross earnings as disclosed in the Summary Compensation
Table. The benefits are computed on a guaranteed five-year life
annuity, with no deduction for any other pension benefits or
other offset amount.


We did not pay any pension benefits in the
financial year ended December 31, 2003 to the Named
Executive Officers. The actual credited years of service and
estimated annual benefits payable upon retirement at normal
retirement age (65 years) for the Named Executive Officers
are as follows:

|                       |  |                |    |                |  |                  |        |                |  |  |    |  |  |   |        | 
|---------------------- |  | -------------- | -- | -------------- |  | ---------------- | ------ | -------------- |  |  | -- |  |  | - | ------ | 
|                       |  | Credited Years |    | Estimated      |  | Years of         |        | Estimated     
|                       |  | of Service to  |    | Annual Benefit |  | Credited Service |        | Annual Benefit
|Name                   |  | 12/31/2003     |    | at 12/31/2003  |  | to age 65        |        | at age 65     
|                       |  |                |    |                |  |                  |        |               
|Brian E. Ainsworth     |  |                | 44 |                |  | $                | 75,800 |                |  |  | 48 |  |  | $ | 88,200 | 
|D. Allen Ainsworth     |  |                | 44 |                |  | $                | 75,800 |                |  |  | 47 |  |  | $ | 85,300 | 
|Catherine E. Ainsworth |  |                | 24 |                |  | $                | 40,600 |                |  |  | 43 |  |  | $ | 79,300 | 
|D. Michael Ainsworth   |  |                | 15 |                |  | $                | 25,900 |                |  |  | 39 |  |  | $ | 72,300 | 
|Douglas I. Ainsworth   |  |                | 15 |                |  | $                | 25,900 |                |  |  | 41 |  |  | $ | 74,900 | 

Board of Directors

Our board of directors is currently composed of
nine members. Each director holds office until the next annual
general meeting of our shareholders or until his or her
successor is elected or appointed, or unless his or her office
is earlier vacated under any of the relevant provisions of our
articles of amalgamation or the Business Corporations Act
(British Columbia).

Committees of the Board of Directors

Our board of directors has an audit committee,
compensation committee and a corporate governance committee.



| |                
| | ---------------
| | Audit Committee

The members of the audit committee are
Ron B. Anderson, K. Gordon Green and W. Gordon
Lancaster. The Audit Committee is responsible for reviewing our
financial reporting obligations, approving our external audit
plan and meeting with our external auditors to review
performances. This committee reviews applicable accounting
procedures and appropriate internal controls and procedures. The
audit committee meets with our external auditors at least once
each fiscal quarter, and reviews interim results and the annual
financial statements prior to their approval by the Board of
Directors. It also meets with the external auditors
independently of management and is ultimately responsible for
retaining and remunerating the external auditors.



| |                       
| | ----------------------
| | Compensation Committee

The members of the compensation committee are
Ron B. Anderson, K. Gordon Green and W. Gordon
Lancaster. The compensation committee meets and makes
recommendations to the board of directors relating to the
compensation for senior executives and for directors fees.

75



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##### 





| |                                   
| | ----------------------------------
| | Corporate Governance
    Committee

The members of the corporate governance committee
are Morley Koffman, Ron B. Anderson, K. Gordon Green
and W. Gordon Lancaster. The corporate governance committee
is responsible for making representations to the Board of
Directors with respect to developments in the area of corporate
governance and the practices of the Board of Directors. It is
the responsibility of the Corporate Governance Committee to
review, interview and recommend new potential Board members as
well as review, interview and recommend new potential Board
members as well as reviewing on an annual basis the credentials
of all nominees for re-election to the Board. This Committee
assesses the effectiveness of the Board as a whole, the
committees of the Board and the contributions of individual
directors. Orientation and education of new Board members is
conducted by meetings by any new Board member with the Chief
Executive Officer, the Chief Financial Officer and other
long-standing Board members to assist any new director in
learning about our key assets and about the industry in which we
are involved.

Stock Options

We have separate stock option plans for employees
and non-employee directors. The plans provide that the board of
directors may grant options to purchase common shares on terms
that the directors may determine, within the limitations of the
plans and subject to the rules of applicable regulatory
authorities. The aggregate number of common shares reserved for
issuance under each plan is fixed at 500,000 common shares for
the employees plan and 75,000 common shares for the
directors plan. The exercise price for an option granted
under the plans will be determined by the board of directors but
may not be less than the closing price of our common shares on
the stock exchange on which our common shares principally traded
on the day immediately preceding the date of grant. Options
granted under the plans are not assignable, except by will or
the laws of descent and distribution. The options are
exercisable as to 20% of the optioned shares on the date of
grant and as to a further 20% of the optioned shares on each of
the first, second, third and fourth anniversaries following the
date of grant. The term of each option is five years, subject to
earlier termination in the event the optionee ceases to be a
director or employee by reason of death or termination of
directorship or employment. We do not provide any financial
assistance to optionees in order to facilitate the purchase of
common shares pursuant to the exercise of options granted under
the plans. There are currently no outstanding stock options
granted under the plans.

Employee Participation Share Plan

An aggregate of 1.5 million Class B
Common Shares are authorized for issuance of which 717,500 have
been designated for our employee participation share plan. The
plan is a significant element in compensation for our senior
executives and non-employee directors. It provides that the
board of directors may permit designated directors and senior
employees to acquire Class B Common Shares on the terms set
forth in the plan. The Class B Common Shares may be issued
in series under the plan and 1.5 million common shares have
been reserved for issuance to provide for the conversion of the
Class B Common Shares into common shares.

The plan provides that each series of
Class B Common Shares will be exchanged automatically on a
date fixed by the board of directors for that number of common
shares that has value on the date of exchange equal to the
amount of any increase in the value from the date fixed by
resolution of the board of directors when authorizing the
issuance of the Class B Common Shares of an equal number of
common shares. In the event of termination of the employment and
offices of a holder of Class B Common Shares, the date of
exchange will be accelerated and the number of vested shares
held is subject to reduction. We can redeem

76



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##### 



Class B Common Shares issued pursuant to the
plan at any time upon payment of the amount paid up and any
declared but unpaid dividends.


In 2001, the holders of the Class B Common
Shares issued on December 18, 1996 became entitled under
the plan to exchange their Class B Common Shares for common
shares. On January 16, 2003 we issued 3,162 common shares
at a deemed issue price of $4.99 per common share, in exchange
for the Class B common shares issued on December 18,
1996. In 2003, the holders of the Class B Common Shares
issued on August 11, 1998 became entitled under the plan to
exchange their Class B Common Shares for common shares. On
April 28, 2003 we issued 15,586 common shares at a deemed
issue price of $3.50 per common share, in exchange for
Class B common shares issued on August 11, 1998. We
then cancelled the Class B common shares issued pursuant to
the plan. On July 21st, we issued 600 common shares at a
deemed issue price of $3.80 per common share followed by the
issuance of 800 common shares on November 30th at a deemed
issue price of $6.47 per common share, in exchange for
Class B common shares issued on June 25, 1999.

On March 29, 2004, we issued
95,116 common shares to the holders of 107,500 Class B
common shares issued on June 25, 1999 who became entitled,
under our Employee Participation Share Plan, to receive common
shares in exchange for those Class B common shares. As at
March 31, 2004, there were no issued and outstanding
Class B common shares.

On June 29, 2004, the Company repurchased
10,924 common shares at a purchase price of $26.03 per share.
The excess of $0.2 million between the purchase price and
the weighted average cost was charged to retained earnings.

Employment Agreements

We do not have any employment or management
contracts or termination arrangements with any of the Named
Executive Officers, other members of our administrative,
supervisory or management bodies, or our directors, except as
described below.

On April 25, 1999, we entered into a
management and consulting agreement with 2468 Holdings
Ltd., a company controlled by Brian Ainsworth, our Chairman and
Chief Executive Officer. The management and administrative
services under the agreement are to be performed by Brian
Ainsworth or such other individual as we and 2468 Holdings
determine from time to time. In consideration for the services,
we must pay 2468 Holdings an annual fee, currently
$468,750, plus such annual bonus as may be determined by the
compensation committee of our board of directors. The agreement
is for an indefinite term, subject to the right of either party
to terminate it in accordance with its provisions.
2468 Holdings may terminate the agreement on
30 days written notice to us. We may terminate the
agreement at any time for cause. We may also terminate the
agreement at any time without cause by payment of a cancellation
payment equal to two times the annual fee for the year in which
the termination occurs plus two times the last bonus payable
prior to the termination. In any event, the agreement is to
terminate upon the death of Brian Ainsworth, unless
2468 Holdings is able to provide a replacement
representative acceptable to us.

77



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##### 



RELATED PARTY TRANSACTIONS

Employment Agreements

On April 25, 1999, we entered into a
management and consulting agreement with 2468 Holdings Ltd., a
company controlled by Brian Ainsworth, our Chairman and Chief
Executive Officer. The management and administrative services
under the agreement are to be performed by Brian Ainsworth or
such other individual as we and 2468 Holdings determine
from time to time.

See Management  Employment
Agreements for a discussion of the terms of the agreements.

Loans to Officers

The following table set outs information on
indebtedness since January 1, 2003 to us of any person who
served as an officer or director during the year ended
December 31, 2003, including their associates and companies
controlled by them. As at December 31, 2003, the aggregate
indebtedness owed to us by this person was $479,591. As at
June 30, 2004, the aggregate indebtedness owed to us by
this person was $484,955.

|                            |  |              |        |                |  |              |         |             |  |   |         |  |  |   |         | 
|--------------------------- |  | ------------ | ------ | -------------- |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                            |  |              |        |                |  | Amount       |         | Amount     
|                            |  |              |        |                |  | Outstanding  |         | Outstanding
|                            |  | Involvement  |        | Largest Amount |  | as at        |         | as at      
|                            |  | of Issuer or |        | Outstanding    |  | December 31, |         | June 30,   
|Name and Principal Position |  | Subsidiary   |        | During 2003    |  | 2003         |         | 2004       
|                            |  |              |        |                |  |              |         |            
|D. Allen Ainsworth(1)       |  |              | Lender |                |  | $            | 479,591 |             |  | $ | 479,591 |  |  | $ | 484,955 | 






|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The indebtedness is of Snow Mountain Contracting
    Ltd., a company owned by D. Allen Ainsworth. The advances
    bear interest at the same rate that we receive on our
    bankers acceptances and are unsecured and repayable on
    demand.

During the year ended December 31, 2003, we
paid $120,000 in rental charges for mobile forestry and
transportation equipment to a company owned by persons related
to one of our directors.

SHARE CAPITAL STRUCTURE

We have an authorized capital consisting of
201,500,000 shares divided as follows:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 100,000,000 common shares without par value;                                                                                                                                                                                                                         
|
| |  | 1,500,000 Class B Common Shares without par
    value, of which 350,000 are designated as Series 1
    Class B Common Shares, 180,000 are designated Series 2
    Class B Common Shares and 187,500 are designated
    Series 3 Class B Common Shares; and           
|
| |  | 100,000,000 preferred shares without par value,
    of which 300,000 are designated as Series 1 Preferred
    Shares (all issued but subsequently redeemed) and 4,000,000 are
    designated as Series 2 Preferred Shares (all issued but
    subsequently redeemed).

Only the common shares carry voting rights, with
each common share carrying the right to one vote. As of
June 30, 2004, 14,660,064 common shares were issued and
outstanding.

78



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##### 



The following table sets out information as at
June 30, 2004 on ownership of our common shares by our
Named Executive Officers, directors and any person known by us
to beneficially own 5% or more of either class. No stock options
to purchase shares are outstanding.

|                                                |  |                    |           |            |  |  |       |  
|----------------------------------------------- |  | ------------------ | --------- | ---------- |  |  | ----- | -
|                                                |  | Common Shares      |           |           
|                                                |  | beneficially owned |           |           
|Name and positions                              |  | or controlled      |           | % of Class
|                                                |  |                    |           |           
|BRIAN E. AINSWORTH                              |  |                    | 2,507,186 | (1)        |  |  | 17.10 | %
|Chairman, Chief Executive Officer and Director  |  |                    |           |            |  |  |       |  
|D. ALLEN AINSWORTH                              |  |                    | 2,757,186 | (2)        |  |  | 18.81 | %
|President and Director                          |  |                    |           |            |  |  |       |  
|CATHERINE E. AINSWORTH                          |  |                    | 61,013    | (3)        |  |  | 0.42  | %
|Chief Operating Officer, Secretary and Director |  |                    |           |            |  |  |       |  
|D. MICHAEL AINSWORTH                            |  |                    |          |            |  |  |      |  
|Executive Vice President                        |  |                    |           |            |  |  |       |  
|DOUGLAS I. AINSWORTH                            |  |                    | 150       |            |  |  | 0.01  | %
|Senior Vice President, Marketing                |  |                    |           |            |  |  |       |  
|DAVID AINSWORTH                                 |  |                    | 3,129,188 | (4)        |  |  | 21.34 | %
|Director                                        |  |                    |           |            |  |  |       |  
|SUSAN AINSWORTH                                 |  |                    | 13,636    |            |  |  | 0.09  | %
|Director                                        |  |                    |           |            |  |  |       |  
|RON B. ANDERSON                                 |  |                    |          |            |  |  |      |  
|Director                                        |  |                    |           |            |  |  |       |  
|K. GORDON GREEN                                 |  |                    | 8,888     |            |  |  | 0.06  | %
|Director                                        |  |                    |           |            |  |  |       |  
|MORLEY KOFFMAN                                  |  |                    | 7,888     |            |  |  | 0.05  | %
|Director                                        |  |                    |           |            |  |  |       |  
|W. GORDON LANCASTER                             |  |                    | 2,000     |            |  |  | 0.01  | %
|Director                                        |  |                    |           |            |  |  |       |  
|GRANT FOREST PRODUCTS CORP.(5)                  |  |                    | 4,849,600 |            |  |  | 33.08 | %






|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These shares are controlled through 2468 Holdings
    Ltd.                                                                                                                                                                                                         
|   
|(2) | These shares are controlled through 5678
    Enterprises Ltd.                                                                                                                                                                                                      
|   
|(3) | Catherine Ainsworth also owns 4% of the
    outstanding voting shares of 1234 Holdings Ltd., which owns
    3,108,188 common shares. The common shares owned by 1234
    Holdings Ltd. are to be voted by Catherine Ainsworth as that
    companys representative.
|   
|(4) | 3,108,188 of these shares are beneficially owned
    through 1234 Holdings Ltd. and are to be voted by Catherine
    Ainsworth as that companys representative to proceedings
    of our shareholders.                                                            
|   
|(5) | Based on a report dated July 8, 2004
    generated using the Canadian Depository for Securities
    Ltd.s System for Electronic Disclosure by Insiders (SEDI).                                                                                                    

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DESCRIPTION OF OTHER INDEBTEDNESS

Credit Facility

On March 15, 2004 we executed a credit
agreement for a senior secured revolving credit facility with a
commercial lender. The credit facility is a five-year revolving
credit facility permitting maximum aggregate borrowings of
$50.0 million, subject to a borrowing base consisting of up
to 85% of eligible accounts receivable plus up to 65% of
eligible raw material and finished goods inventory with advances
not to exceed 85% of the net orderly liquidation value of the
inventory.

We do not have any borrowings under the credit
facility. Up to $50.0 million is available to us under the
credit facility, subject to the borrowing base, which may reduce
the total borrowings available to us. The credit facility is
guaranteed by all of our wholly-owned subsidiaries. The credit
facility is secured by all of our and any guarantors
presently owned and hereafter acquired accounts receivable and
inventory. Liens and/or security interests on our and any
guarantors accounts receivable and inventory are
prohibited.

The credit facility requires us to maintain at
least $10.0 million of excess availability of the borrowing
base over actual borrowings under the facility or a fixed charge
coverage ratio of 1:1. In addition, a borrowing base surplus of
$5 million must be maintained at all times.

Letters of Credit

As at June 30, 2004, we had outstanding
letters of credit of approximately $5.5 million to support
our ongoing business operations.

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THE EXCHANGE OFFER

Purpose and Effect of the Exchange
Offer

When we sold the original notes in September
2004, we entered into an exchange and registration rights
agreement, dated September 22, 2004, with the initial
purchasers of the original notes. The following contains a
summary of the provisions of the exchange and registration
rights agreement. It does not contain all of the information
that may be important to you. We refer you to the registration
rights agreement, which has been filed as an exhibit to the
registration statement of which this prospectus is a part.

Under the exchange and registration rights
agreement, we agreed to file a registration statement regarding
the exchange of the original notes for exchange notes which are
registered under the Securities Act. We also agreed to use our
reasonable best efforts to cause the registration statement to
become effective under the Securities Act, and to conduct this
exchange offer after the registration statement is declared
effective by the SEC.

The exchange and registration rights agreement
provides that we will: (1) file the registration statement by
November 22, 2004; (2) use our reasonable best efforts
to have the registration statement declared effective by
February 21, 2005; and (3) complete the exchange offer
within 45 business days after the registration statement is
declared effective by the SEC.

The exchange offer will give holders of the
original notes the opportunity to exchange the original notes
for exchange notes that have been registered under the
Securities Act. The exchange notes will evidence the same
indebtedness as the original notes, and their terms will be
substantially identical to the terms of the original notes,
except that the exchange notes will have been registered under
the Securities Act, will not contain restrictions on transfer or
provisions relating to special interest under circumstances
related to the timing of the exchange offer, will bear a
different CUSIP number from the original notes and will not
entitle their holders to registration rights.

The exchange offer is not being made to, nor will
we accept tenders for exchange from, holders of original notes
in any jurisdiction in which the exchange offer or the
acceptance of it would not be in compliance with the securities
or blue sky laws of the jurisdiction.

Resale of Exchange Notes

Based on the position of the staff of the SEC in
no-action letters issued to third parties, we believe that
exchange notes issued in connection with the exchange offer may
be offered for resale, resold and otherwise transferred by any
holder of exchange notes without further registration under the
Securities Act and without delivery of a prospectus that
satisfies the requirements of section 10 of the Securities Act
if:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | the holder is not a broker-dealer or our
    affiliate within the meaning of Rule 405 under
    the Securities Act;
|
| |  | the exchange notes are acquired in the ordinary
    course of the holders business; and                             
|
| |  | the holder does not intend to participate in a
    distribution of the exchange notes.                               

Any holder who exchanges original notes in the
exchange offer with the intention of participating in any manner
in a distribution of the exchange notes must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with secondary resale transactions.

This prospectus may be used for an offer to
resell, resale or other retransfer of exchange notes. With
regard to broker-dealers, only broker-dealers that acquired the
original notes as a result of market-making activities or other
trading activities may participate in the exchange offer.

81



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##### 



Each broker-dealer that receives exchange notes
for its own account in exchange for original notes, where the
original notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of the exchange notes. See Plan of
Distribution for more details regarding the transfer of
exchange notes.


Terms of the Exchange Offer

Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we
will accept for exchange any original notes that are properly
tendered and not withdrawn before expiration of the exchange
offer. The date of acceptance for exchange of the original notes
and completion of the exchange offer is the exchange date, which
will be the first business day following the expiration date
unless we extend the date as described in this prospectus. We
will issue US$1,000 principal amount of exchange notes in
exchange for each US$1,000 principal amount of original notes
surrendered under the exchange offer. Original notes may be
tendered only in integral multiples of US$1,000. The exchange
notes will be delivered on the earliest practicable date
following the expiration date of the exchange offer.

The exchange notes will evidence the same debt as
the original notes. The exchange notes will be issued under and
entitled to the benefits of the same indenture that authorized
the issuance of the original notes. Consequently, the original
fixed rate notes and the new fixed rate notes, and the original
floating rate notes and the new floating rate notes will, in
each case, be treated as a single series of debt securities
under the indenture. For a description of the indenture, see
Description of Notes.

As of the date of this prospectus, US$275,000,000
aggregate principal amount of the original fixed rate notes and
US$175,000,000 aggregate principal amount of the original
floating rate notes are outstanding. This prospectus and the
letter of transmittal are being sent to all registered holders
of original notes. There will be no fixed record date for
determining registered holders of original notes entitled to
participate in the exchange offer. The exchange offer is not
conditioned upon any minimum aggregate principal amount of
original notes being tendered for exchange.

We intend to conduct the exchange offer in
accordance with the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the SEC.
Original notes that are not exchanged in the exchange offer will
remain outstanding and continue to accrue interest and will be
entitled to the rights and benefits their holders have under the
indenture relating to the original notes and the exchange notes.

We will be deemed to have accepted for exchange
properly tendered original notes when we have given oral or
written notice of the acceptance to the exchange agent. The
exchange agent will act as agent for the holders of original
notes who surrender them in the exchange offer for the purposes
of receiving the exchange notes from us and delivering the
exchange notes to their holders. The exchange agent will make
the exchange promptly on the date of acceptance for exchange of
the original notes. This exchange date will be the first
business day following the expiration date unless it is extended
as described in this prospectus. We expressly reserve the right
to amend or terminate the exchange offer, and not to accept for
exchange any original notes not previously accepted for
exchange, upon the occurrence of any of the conditions specified
below under  Conditions.

Holders who tender original notes in the exchange
offer will not be required to pay brokerage commissions or fees
or, subject to the instructions in the letter of transmittal and
as described below, transfer taxes with respect to the exchange
of original notes. We will pay all charges and expenses, other
than applicable taxes described below, in connection with the
exchange offer. It is important that you read the subsection
entitled  Fees and Expenses for more details
regarding fees and expenses incurred in the exchange offer.

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Expiration of the Exchange Offer; Extensions;
Amendments

The exchange offer will expire at 5:00 p.m., New
York City time,
on                     ,                     .
The exchange offer can be extended by us in our sole discretion,
in which case the term expiration date will mean the
latest date and time to which the exchange offer is extended.

In order to extend the exchange offer, we will
notify the exchange agent orally, confirmed in writing, or in
writing of any extension. We will notify the registered holders
of original notes by public announcement of the extension no
later than 9:00 a.m., New York City time, on the business day
after the previously scheduled expiration of the exchange offer.

Without limiting the manner in which we may
choose to make public announcements of any delay in acceptance,
extension, termination or amendment of the exchange offer, we
will have no obligation to publish, advertise, or otherwise
communicate any public announcement, other than by making a
timely release to a financial news service.

Conditions

We will not be obligated to accept for exchange
the original notes of any holder that has not made to us:



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the representations described under
     Purpose and Effect of the Exchange Offer
    and  Procedures for Tendering; and
|
| |  | any other representations that we may reasonably
    request in order to comply with applicable laws.                         

The exchange offer is subject to the following
additional conditions: (1) neither the exchange offer, nor
the making of any exchange by a holder of original notes,
violates applicable law or any applicable interpretation of the
staff of the SEC, (2) no action or proceeding shall have
been instituted or threatened in any court or by or before any
governmental agency with respect to the exchange offer which, in
our judgment, would reasonably be expected to impair our ability
to proceed with the exchange offer, (3) there shall not
have been adopted or enacted any law, statute, rule or
regulation which, our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer,
(4) there shall not have been declared by U.S. federal, New
York State or Canadian federal authorities a banking moratorium
which in our judgment, would reasonably be expected to impair
our ability to proceed with the exchange offer, and
(5) trading generally in the United States or Canadian
over-the-counter market shall not have been suspended by order
of the Commission, any securities commission or securities
regulatory authority in Canada or any other governmental
authority, which, in our judgment, would reasonably be expected
to impair our ability to proceed with the exchange offer.

We expressly reserve the right, at any time or at
various times, to extend the period of time during which the
exchange offer is open. Consequently, we may delay acceptance of
any original notes by giving oral or written notice of an
extension to the holders. During an extension, all original
notes previously tendered will remain subject to the exchange
offer, and we may accept them for exchange. We will return any
original notes that we do not accept for exchange for any reason
without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange
offer.

We expressly reserve the right to amend or
terminate the exchange offer and to reject for exchange any
original notes not previously accepted for exchange. By public
announcement, we will give oral or written notice of any
extension, amendment, non-acceptance or termination to the
holders of the original notes as promptly as practicable. If we
amend the exchange offer in a manner that we consider material,
we will disclose the amendment by means of a prospectus
supplement.

83



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##### 



These conditions are solely for our benefit and
we may assert them regardless of the circumstances that may give
rise to them or waive them in whole or in part at any time or at
various times in our sole discretion. If we fail at any time to
exercise any of the foregoing rights, this failure will not
constitute a waiver of that right. Each of these rights will be
deemed an ongoing right that we may assert at any time or at
various times.

We will not accept for exchange any original
notes tendered, and will not issue exchange notes in exchange
for any original notes, if at that time a stop order is
threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the
qualification of the indenture governing the notes under the
Trust Indenture Act.

If the exchange offer is being registered for the
purpose of secondary resales, any security holder using the
exchange offer to participate in a distribution of the exchange
notes (1) cannot rely on the staff position enunciated in
Exxon Capital or similar letters and (2) must comply with
the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.

Procedures for Tendering

Only a holder of record of original notes may
tender original notes in the exchange offer. To tender in the
exchange offer, a holder must:



| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | complete, sign and date the letter of
    transmittal, or a facsimile of the letter of transmittal; have
    the signature on the letter of transmittal guaranteed if the
    letter of transmittal so requires; and deliver the letter of
    transmittal or facsimile to the exchange agent prior to the
    expiration date; or
|
| |  | comply with DTCs Automated Tender Offer
    Program procedures described below;                                                                                                                                                                                                                                                  

In addition, either:



| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the exchange agent must receive old notes along
    with the letter of transmittal; and                                                                                                                                                                                                                           
|
| |  | the exchange agent must receive, before
    expiration of the exchange offer, a properly transmitted
    agents message and a timely confirmation of book-entry
    transfer of old notes into the exchange agents account at
    DTC according to the procedure for book-entry transfer described
    below; or
|
| |  | the holder must comply with the guaranteed
    delivery procedures described below.                                                                                                                                                                                                                               

To be tendered effectively, the exchange agent
must receive any physical delivery of the letter of transmittal
and other required documents at the address set forth below
under  Exchange Agent before expiration
of the exchange offer. To receive confirmation of a valid tender
of original notes, a holder should contact the exchange agent at
the telephone number listed under  Exchange
Agent.

The tender by a holder that is not withdrawn
before expiration of the exchange offer will constitute an
agreement between that holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal. If a holder tenders less than
all of the original notes held by the holder, that tendering
holder should fill in the applicable box of the letter of
transmittal. The amount of original notes delivered to the
exchange agent will be deemed to have been tendered unless
otherwise indicated.

The method of delivery of original notes, the
letter of transmittal and all other required documents to the
exchange agent is at the holders election and risk. Rather
than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should
allow sufficient time to assure delivery to the exchange agent
before expiration of the exchange offer. Holders should not send
the letter of transmittal or original notes to us.

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Holders may request their respective brokers,
dealers, commercial banks, trust companies or other nominees to
effect the above transactions for them.


Any beneficial owner whose original notes are
registered in the name of a broker, dealer, commercial bank
trust company or other nominee and who wishes to tender should
contact the registered holder promptly and instruct it to tender
on the owners behalf. If the beneficial owner wishes to
tender on its own behalf, it must, prior to completing and
executing the letter of transmittal and delivering its old
notes, either:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | make appropriate arrangements to register
    ownership of the original notes in the owners name; or
|
| |  | obtain a properly completed bond power from the
    registered holder of original notes.             

The transfer of registered ownership may take
considerable time and may not be completed prior to the
expiration date.

If the letter of transmittal is signed by the
record holder(s) of the original notes tendered, the signature
must correspond with the name(s) written on the face of the
original note without alteration, enlargement or any change
whatsoever. If the letter of transmittal is signed by a
participant in DTC, the signature must correspond with the name
as it appears on the security position listing as the holder of
the original notes.

A signature on a letter of transmittal or a
notice of withdrawal must be guaranteed by an eligible guarantor
institution. Rule 17Ad-15 under the Exchange Act describes
eligible guarantor institutions as banks, brokers, dealers,
municipal securities dealers, municipal securities brokers,
government securities dealers, government securities brokers,
credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings
associations. The signature need not be guaranteed by an
eligible guarantor institution if the original notes are
tendered:



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | by a registered holder who has not completed the
    box entitled Special Registration Instructions or
    Special Delivery Instructions on the letter of
    transmittal; or
|
| |  | for the account of an eligible institution.                                                                                                                                      

If the letter of transmittal is signed by a
person other than the registered holder of any original notes,
the original notes must be endorsed or accompanied by a properly
completed bond power. The bond power must be signed by the
registered holder as the registered holders name appears
on the original notes and an eligible institution must guarantee
the signature on the bond power.

If the letter of transmittal or any original
notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless
we waive this requirement, they should also submit evidence
satisfactory to us of their authority to deliver the letter of
transmittal.

The exchange agent and DTC have confirmed that
any financial institution that is a participant in DTCs
system may use DTCs Automated Tender Offer Program to
tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering
it to the exchange agent, transmit their acceptance of the
exchange offer electronically. They may do so by causing DTC to
transfer the original notes to the exchange agent in accordance
with its procedures for transfer. DTC will then send an
agents message to the exchange agent. The term
agents message means a message transmitted by

85



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DTC, received by the exchange agent and forming
part of the book-entry confirmation, to the effect that:




| |   |                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | DTC has received an express acknowledgment from a
    participant in its Automated Tender Offer Program that is
    tendering original notes that are the subject of the book-entry
    confirmation;                                                                                             
|
| |  | the participant has received and agrees to be
    bound by the terms of the letter of transmittal or, in the case
    of an agents message relating to guaranteed delivery, that
    the participant has received and agrees to be bound by the
    applicable notice of guaranteed delivery; and
|
| |  | the agreement may be enforced against the
    participant.                                                                                                                                                                                                                                        

We will determine in our sole discretion all
questions as to the validity, form, eligibility, including time
of receipt, acceptance and withdrawal of tendered original
notes. Our determination will be final and binding. We reserve
the absolute right to reject any original notes not properly
tendered or any original notes the acceptance of which would, in
the opinion of our counsel, be unlawful.

We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular original
notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties.

Unless waived, any defects or irregularities in
connection with tenders of original notes must be cured within
the time that we determine. Although we intend to notify holders
of defects or irregularities with respect to tenders of original
notes, neither we, the exchange agent nor any other person will
incur any liability for failure to give notification. Tenders of
original notes will not be deemed made until those defects or
irregularities have been cured or waived. Any original notes
received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent without
cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the
expiration date.

In all cases, we will issue exchange notes for
original notes that we have accepted for exchange under the
exchange offer only after the exchange agent timely receives:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | original notes or a timely book-entry
    confirmation that original notes have been transferred into the
    exchange agents account at DTC; and
|
| |  | a properly completed and duly executed letter of
    transmittal and all other required documents or a properly
    transmitted agents message.  

Holders should receive a copy of the letter of
transmittal with this prospectus. A holder may obtain additional
copies of the letter of transmittal from the exchange
agents offices listed under  Exchange
Agent. By signing the letter of transmittal, each
tendering holder of original notes will represent to us that,
among other things:



| |   |                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any exchange notes that the holder receives will
    be acquired in the ordinary course of its business;                                                                                                                                                                                                                                                                       
|
| |  | the holder has no arrangement or understanding
    with any person or entity to participate in the distribution of
    the exchange notes;                                                                                                                                                                                                                                     
|
| |  | if the holder is a broker-dealer that will
    receive exchange notes for its own account in exchange for
    original notes that were acquired as a result of market-making
    activities or other trading activities, that it will deliver a
    prospectus, as required by law, in connection with any resale of
    those exchange notes (see Plan of Distribution); and
|
| |  | the holder is not an affiliate, as
    defined in Rule 405 of the Securities Act, of us.                                                                                                                                                                                                                                                                                     

86



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Book-Entry Transfer

The exchange agent will make a request to
establish an account with respect to the original notes at DTC
for purposes of the exchange offer promptly after the date of
this prospectus. Any financial institution participating in
DTCs system may make book-entry delivery of original notes
by causing DTC to transfer original notes into the exchange
agents account at DTC in accordance with DTCs
procedures for transfer. Holders of original notes who are
unable to deliver confirmation of the book-entry transfer of
their original notes into the exchange agents account at
DTC or all other documents required by the letter of transmittal
to the exchange agent on or prior to the expiration date must
tender their original notes according to the guaranteed delivery
procedures described below.

Guaranteed Delivery Procedures

Holders wishing to tender their original notes
but whose original notes are not immediately available or who
cannot deliver their original notes, the letter of transmittal
or any other required documents to the exchange agent or cannot
comply with the applicable procedures under DTCs Automated
Tender Offer Program before expiration of the exchange offer may
tender if:



| |   |                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the tender is made through an eligible guarantor
    institution;                                                                                                                                                                                                                                                                           
|
| |  | before expiration of the exchange offer, the
    exchange agent receives from the eligible guarantor institution
    either a properly completed and duly executed notice of
    guaranteed delivery, by facsimile transmission, mail or hand
    delivery, or a properly transmitted agents message and
    notice of guaranteed delivery:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | setting forth the name and address of the holder
    and the registered number(s) and the principal amount of
    original notes tendered;                                                                                                                                                                                                                                                             
|
| |  | stating that the tender is being made by
    guaranteed delivery; and                                                                                                                                                                                                                                                                                                                                  
|
| |  | guaranteeing that, within three New York Stock
    Exchange trading days after expiration of the exchange offer,
    the letter of transmittal, or facsimile thereof, together with
    the original notes or a book-entry confirmation, and any other
    documents required by the letter of transmittal will be
    deposited by the eligible guarantor institution with the
    exchange agent; and



| |   |                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the exchange agent receives the properly
    completed and executed letter of transmittal or facsimile
    thereof, as well as all tendered original notes in proper form
    for transfer or a book-entry confirmation, and all other
    documents required by the letter of transmittal, within three
    New York Stock Exchange trading days after expiration of the
    exchange offer.

Upon request to the exchange agent, a notice of
guaranteed delivery will be sent to holders who wish to tender
their original notes according to the guaranteed delivery
procedures set forth above.

Withdrawal of Tenders

Except as otherwise provided in this prospectus,
holders of original notes may withdraw their tenders at any time
before expiration of the exchange offer. For a withdrawal to be
effective:



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The exchange agent must receive a written notice
    of withdrawal, which may be by telegram, telex, facsimile
    transmission or letter, at one of the addresses set forth below
    under  Exchange Agent; or
|
| |  | holders must comply with the appropriate
    procedures of DTCs Automated Tender Offer Program system.                                                                                                            

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Any notice of withdrawal must:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | specify the name of the person who tendered the
    original notes to be withdrawn;                                                                                                 
|
| |  | identify the original notes to be withdrawn,
    including the principal amount of the original notes to be
    withdrawn; and                                                      
|
| |  | where certificates for original notes have been
    transmitted, specify the name in which the original notes were
    registered, if different from that of the withdrawing holder.

If certificates for original notes have been
delivered or otherwise identified to the exchange agent, then,
prior to the release of those certificates, the withdrawing
holder must also submit:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the serial numbers of the particular certificates
    to be withdrawn; and                                                                            
|
| |  | a signed notice of withdrawal with signatures
    guaranteed by an eligible institution, unless the withdrawing
    holder is an eligible institution.

If original notes have been tendered pursuant to
the procedure for book-entry transfer described above, any
notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn original notes
and otherwise comply with the applicable DTC procedures.

We will determine all questions as to the
validity, form and eligibility, including time of receipt, of
notices of withdrawal, and our determination shall be final and
binding on all parties. We will deem any original notes so
withdrawn not to have been validly tendered for exchange for
purposes of the exchange offer. We will return any original
notes that have been tendered for exchange but that are not
exchanged for any reason to their holder without cost to the
holder. In the case of original notes tendered by book-entry
transfer into the exchange agents account at DTC according
to the procedures described above, those original notes will be
credited to an account maintained with DTC for original notes,
as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. You may retender properly
withdrawn original notes by following one of the procedures
described under the subsection entitled
 Procedures for Tendering above at any
time on or before expiration of the exchange offer.

A holder may obtain a form of the notice of
withdrawal from the exchange agent at its offices listed under
 Exchange Agent.

Exchange Agent

The Bank of New York has been appointed as the
exchange agent for the exchange offer. All executed letters of
transmittal should be directed to the exchange agent at the
address set forth in the letter of transmittal. Questions and
requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for
notices of guaranteed delivery should be directed to the
exchange agent addressed as follows:



| |                                     
| | ------------------------------------
| | By Mail, Hand or Overnight Delivery:

The Bank of New York

101 Barclay Street  7E


New York, NY 10286


Attention: William Buckley

Facsimile: (212) 298-1915

Confirm by Telephone: (212) 815-5788

88



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##### 



Delivery of the letter of transmittal to an
address other than as set forth above or transmission or
instructions via facsimile other than as set forth above or
pursuant to DTCs Automated Tender Offer Program System as
described in this prospectus does not constitute a valid
delivery.

Fees and Expenses

We will bear the expenses of soliciting tenders.
The principal solicitation is being made by mail; however, we
may make additional solicitations by telegraph, facsimile,
telephone or in person by our officers and regular employees and
those of our affiliates.

We have not retained any dealer-manager in
connection with the exchange offer and will not make any
payments to broker-dealers or others soliciting acceptances of
the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it
for its related reasonable out-of-pocket expenses.

We will pay the expenses to be incurred in
connection with the exchange offer, including the following:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | SEC registration fees;                                  
|
| |  | fees and expenses of the exchange agent and
    trustee;
|
| |  | accounting and legal fees; and                          
|
| |  | printing and mailing costs.                             

Transfer Taxes

We will pay all transfer taxes, if any,
applicable to the exchange of original notes under the exchange
offer. The tendering holder, however, will be required to pay
any transfer taxes, whether imposed on the registered holder or
any other person, if:



| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | certificates representing original notes for
    principal amounts not tendered or accepted for exchange are to
    be delivered to, or are to be issued in the name of, any person
    other than the registered holder of original notes tendered;
|
| |  | exchange notes are to be delivered to, or issued
    in the name of, any person other than the registered holder of
    the original notes;                                                                                                         
|
| |  | tendered original notes are registered in the
    name of any person other than the person signing the letter of
    transmittal; or                                                                                                                
|
| |  | a transfer tax is imposed for any reason other
    than the exchange of original notes under the exchange offer.                                                                                                                                    

Accounting Treatment

We will record the exchange notes in our
accounting records at the same carrying value as the original
notes, which is the aggregate principal amount, as reflected in
our accounting records on the date of exchange. Accordingly, we
will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. We will record the expenses
of the exchange offer as deferred financing costs, which will be
amortized over the term of the exchange notes.

Other

Participation in the exchange offer is voluntary,
and you should carefully consider whether to accept. We urge you
to consult your financial and tax advisors in making your own
decision on what action to take.

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We may in the future seek to acquire original
notes in open-market or privately negotiated transactions,
through subsequent exchange offers or otherwise. However, we
have no present plans to acquire any original notes that are not
tendered in the exchange offer or to file a registration
statement to permit resales of any untendered original notes.

Consequences of Failure to Exchange Original
Notes

Holders of original notes who do not exchange
their original notes for exchange notes pursuant to the exchange
offer will continue to be subject to the provisions in the
indenture regarding transfer and exchange of the original notes
and the restrictions on transfer of such original notes as set
forth in the legend thereon as a consequence of the issuance of
the original notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of
the Securities Act and applicable state securities laws. In
general, the original notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws.

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DESCRIPTION OF NOTES

You can find the definitions of certain terms
used in this description under the subheading Certain
Definitions. In this description, Ainsworth,
we, our and us refer only to
Ainsworth Lumber Co. Ltd. and not to any of its subsidiaries.

The original notes were, and the exchange notes
will be, issued under an indenture, dated as of
September 22, 2004, between Ainsworth Lumber Co. Ltd., as
issuer, Ainsworth Engineered Corp. and Ainsworth Engineered
(USA), LLC, as guarantors, and The Bank of New York, as trustee.
In this section of the prospectus, the original fixed rate notes
and the new fixed rate notes are collectively referred to as the
fixed rate notes, the original floating rate notes and the new
floating rate notes are collectively referred to as the floating
rate notes and the original notes and the exchange notes are
collectively referred to as the notes. The exchange notes
evidence the same indebtedness, in each case, as the original
notes, and their terms are substantially identical, in each
case, to the terms of the original notes, except that the
exchange notes will be registered under the Securities Act, will
not contain restrictions on transfer or provisions relating to
special interest under circumstances related to the timing of
the exchange offer, will bear a different CUSIP number from the
original notes and will not entitle their holders to
registration rights. The statements in this section of the
prospectus relating to the notes and the indenture are summaries
of the material terms of the indenture and do not purport to be
complete, and are subject to, and are qualified in their
entirety by reference to, all the provisions of the indenture,
including the definitions of certain terms. The indenture is by
its terms subject to and governed by the Trust Indenture Act of
1939. The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to
the Trust Indenture Act. Copies of the indenture will be
available at the corporate trust office of the Trustee.

We urge you to read the indenture because it, and
not this description, defines your rights as holders of the
notes. The indenture has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
Certain defined terms used in this description but not defined
below under  Certain Definitions have the
meanings assigned to them in the indenture.

The registered holder of a note (the
Holder) will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the
indenture.

Brief Description of the Notes

The notes:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | will be general unsecured obligations of
    Ainsworth;                                                                                                      
|
| |  | will rank equally in right of payment with any
    existing and future senior Indebtedness of Ainsworth; and                                                 
|
| |  | will be effectively subordinated to any existing
    and future secured Indebtedness of Ainsworth to the extent of
    the assets securing such Indebtedness.

The notes will be guaranteed by each existing and
future North American Restricted Subsidiary, other than
Non-Guarantor Restricted Subsidiaries. As of the date of this
prospectus, Ainsworth has two subsidiaries, Ainsworth Engineered
Corp., successor to Voyageur Panel Limited and Ainsworth
Engineered (USA), LLC, that are North American Restricted
Subsidiaries, each of which has guaranteed the notes. Under the
circumstances described below under the subheading
 Certain Covenants  Designation of
Restricted and Unrestricted Subsidiaries, we are permitted
to designate certain of our future subsidiaries as
Unrestricted Subsidiaries. Our Unrestricted
Subsidiaries will not be subject to many of the restrictive
covenants in the indenture. Our Unrestricted Subsidiaries will
not guarantee the notes.

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Principal, Maturity and Interest

The notes were issued in an aggregate principal
amount of US$450 million (US$275 million of which are
fixed rate notes and US$175 million of which are floating
rate notes). Ainsworth may issue unlimited additional fixed rate
notes or floating rate notes, which we refer to as
Additional Notes, under the indenture from time to
time after this offering. Any offering of Additional Notes is
subject to the covenant described below under the caption
 Certain Covenants  Incurrence of
Indebtedness and  Issuance of Preferred Stock.
The fixed rate notes and the floating rate notes are each a
separate series of notes but will be treated as a single class
of securities under the indenture, except as otherwise stated
herein. As a result, Holders of each series of notes will not
have separate rights to, among other things, give notice of
defaults or to direct the trustee to exercise remedies in the
event of a default or otherwise. Ainsworth will issue notes in
denominations of US$1,000 and integral multiples of US$1,000.



| |                  
| | -----------------
| | Fixed Rate Notes.

The fixed rate notes will mature on
October 1, 2012 at their principal amount, plus accrued and
unpaid interest to, but not including, the maturity date.
Interest on the fixed rate notes will accrue at the rate of
7 1/4% per annum and will be payable semi-annually in
arrears on June 30 and December 30, commencing on
December 30, 2004. Ainsworth will make each interest
payment to the Holders of record of the fixed rate notes on the
immediately preceding June 15 and December 15.
Interest on the fixed rate notes will accrue from the most
recent date to which interest has been paid or, if no interest
has been paid, from and including the Issue Date, and will be
computed on the basis of a 360-day year comprised of twelve
30-day months. For the purpose of the Interest Act(Canada), the yearly rate of interest which is equivalent to
the rate payable hereunder is the rate payable hereunder
multiplied by the actual number of days in the year and divided
by 360.



| |                     
| | --------------------
| | Floating Rate Notes.

The floating rate notes will mature on
October 1, 2010 at their principal amount, plus accrued and
unpaid interest to, but not including, the maturity date. The
floating rate notes will bear interest at a rate per annum,
reset quarterly, equal to LIBOR plus 3.75%, as determined by the
calculation agent (the Calculation Agent), which
shall initially be the trustee under the indenture. Interest on
the floating rate notes will be payable in arrears on
March 30, June 30, September 30 and
December 30, commencing on December 30, 2004.
Ainsworth will make each interest payment to the Holders of
record of the floating rate notes on the immediately preceding
March 15, June 15, September 15 and
December 15. Interest on the floating rate notes will
accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from and including the Issue
Date.

Set forth below is a summary of certain of the
defined terms used in the indenture relating solely to the
floating rate notes.

LIBOR,
with respect to an Interest Period, will be the rate (expressed
as a percentage per annum) for deposits in United States dollars
for a three-month period beginning on the second London Banking
Day after the Determination Date that appears on Telerate
Page 3750 as of 11:00 a.m., London time, on the
Determination Date. If Telerate Page 3750 does not include
such a rate or is unavailable on a Determination Date, the
Calculation Agent will request the principal London office of
each of four major banks in the London interbank market, as
selected by the Calculation Agent, to provide such banks
offered quotation (expressed as a percentage per annum), as of
approximately 11:00 a.m., London time, on such
Determination Date, to prime banks in the London interbank
market for deposits in a Representative Amount in United States
dollars for a three-month period beginning on the second London
Banking Day after the Determination Date. If at least two such
offered quotations are so provided, LIBOR for the

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Interest Period will be the arithmetic mean of
such quotations. If fewer than two such quotations are so
provided, the Calculation Agent will request each of three major
banks in New York City, as selected by the Calculation Agent, to
provide such banks rate (expressed as a percentage per
annum), as of approximately 11:00 a.m., New York City time,
on such Determination Date, for loans in a Representative Amount
in United States dollars to leading European banks for a
three-month period beginning on the second London Banking Day
after the Determination Date. If at least two such rates are so
provided, LIBOR for the Interest Period will be the arithmetic
mean of such rates. If fewer than two such rates are so
provided, then LIBOR for the Interest Period will be LIBOR in
effect with respect to the immediately preceding Interest Period.


Interest
Periodmeans the period
commencing on and including an interest payment date and ending
on and including the day immediately preceding the next
succeeding interest payment date, with the exception that the
first Interest Period shall commence on and include the Issue
Date and end on and include December 29, 2004.

Determination
Date, with respect to an
Interest Period, will be the second London Banking Day preceding
the first day of the Interest Period.

London Banking
Dayis any day in which dealings
in United States dollars are transacted or, with respect to any
future date, are expected to be transacted in the London
interbank market.

Representative
Amountmeans a principal amount
of not less than US$1,000,000 for a single transaction in the
relevant market at the relevant time.

Telerate
Page 3750 means the display
designated as Page 3750 on the Moneyline
Telerate service (or such other page as may replace
Page 3750 on that service).

The amount of interest for each day that the
floating rate notes are outstanding (the Daily Interest
Amount) will be calculated by dividing the interest rate
in effect for such day by 360 and multiplying the result by the
principal amount of the floating rate notes. The amount of
interest to be paid on the floating rate notes for each Interest
Period will be calculated by adding the Daily Interest Amounts
for each day in the Interest Period. For the purpose of the
Interest Act(Canada), the yearly rate of interest which
is equivalent to the rate payable hereunder is the rate payable
hereunder multiplied by the actual number of days in the year
and divided by 360.

All percentages resulting from any of the above
calculations will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, with five
one-millionths of a percentage point being rounded upwards
(e.g., 9.876545% (or .09876545) being rounded to 9.87655%
(or .0987655)) and all dollar amounts used in or resulting from
such calculations will be rounded to the nearest cent (with
one-half cent being rounded upwards).

The interest rate on the floating rate notes will
in no event be higher than the maximum rate permitted by New
York law as the same may be modified by United States law of
general application.

Methods of Receiving Payments on the
Notes

If a Holder has given wire transfer instructions
to Ainsworth, Ainsworth will pay all principal, interest and
premium , if any, on that Holders notes in accordance with
those instructions. All other payments on notes will be made at
the office or agency of the paying agent and registrar within
the City and State of New York unless Ainsworth elects to make
interest payments by check mailed to the Holders at their
address set forth in the register of Holders.

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Paying Agent and Registrar for the
Notes

The trustee is acting as paying agent and
registrar. Ainsworth may change the paying agent or registrar
without prior notice to the Holders of the notes, and Ainsworth
or any Guarantor may act as paying agent or registrar.

Transfer and Exchange

A Holder may transfer or exchange notes in
accordance with the indenture. The registrar and the trustee may
require a Holder to furnish appropriate endorsements and
transfer or exchange documents in connection with a transfer or
exchange of notes. Holders are required to pay all taxes due on
transfer and exchange. Ainsworth is not required to transfer or
exchange any note selected for redemption. Also, Ainsworth is
not required to transfer or exchange any note for a period of
15 days before a selection of notes to be redeemed.

Subsidiary Guarantees

The notes will be guaranteed by each existing and
future North American Restricted Subsidiary, other than
Non-Guarantor Restricted Subsidiaries. As of the date of this
prospectus, Ainsworth has two subsidiaries, Ainsworth Engineered
Corp., successor to Voyager Panel Limited and Ainsworth
Engineered (USA), LLC, that are North American Restricted
Subsidiaries, each of which has guaranteed the notes. Each
Guarantor will, jointly and severally, fully and unconditionally
guarantee the payment of principal of and interest, and premium,
if any, on the notes. The obligations of each Guarantor under
its Subsidiary Guarantee will be limited as necessary to prevent
that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law.

Each guarantee of the notes:



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | will be a general unsecured obligation of the
    Guarantor;                                                                                                      
|
| |  | will rank equally in right of payment with any
    existing and future senior Indebtedness of that
    Guarantor; and                                             
|
| |  | will be effectively subordinated to any existing
    and future secured Indebtedness of that Guarantor to the extent
    of the assets securing that Indebtedness.

A Guarantor may not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate,
amalgamate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than
Ainsworth or another Guarantor, unless:

(1) immediately after giving effect to that
transaction, no Default or Event of Default exists; and

(2) either:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) the Guarantor is the surviving Person,
    or the Person acquiring the property in any such sale or
    disposition or the Person formed by or surviving any such
    consolidation, amalgamation or merger assumes all the
    obligations of that Guarantor under the indenture, its
    Subsidiary Guarantee and the registration rights agreement
    pursuant to a supplemental indenture satisfactory to the trustee
    and completes all other required documentation; or
|
| | (b) the Net Proceeds of such sale or other
    disposition are applied in accordance with the applicable
    provisions of the indenture.                                                                                                                                                                                                                                                                                                                                            

The Subsidiary Guarantee of a Guarantor will be
released:

(1) in connection with any sale (including
by way of merger, amalgamation or consolidation) of all of the
Capital Stock of that Guarantor to a Person that is not (either
before

94



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or after giving effect to such transaction)
Ainsworth or a Restricted Subsidiary of Ainsworth, if the sale
complies with the Asset Sale provisions of the
indenture; or


(2) if Ainsworth designates any Restricted
Subsidiary that is a Guarantor as an Unrestricted Subsidiary in
accordance with the applicable provisions of the indenture.

See  Offers to Purchase by
Ainsworth  Asset Sales.

Additional Amounts

All amounts paid or credited by Ainsworth under
or with respect to the notes, or by any Guarantor pursuant to
the Subsidiary Guarantees, will be made free and clear of and
without withholding or deduction for or on account of any
present or future tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and other
liabilities or expenses related thereto) imposed or levied by or
on behalf of the Government of Canada or of any province or
territory thereof or by any authority or agency therein or
thereof having power to tax (hereinafter, the
Taxes), unless Ainsworth or such Guarantor, as the
case may be, is required to withhold or deduct any amount for or
an account of Taxes by law or by the interpretation or
administration thereof. If Ainsworth or any Guarantor is
required to withhold or deduct any amount for or on account of
Taxes from any amount paid or credited under or with respect to
the notes or the Subsidiary Guarantees, Ainsworth or such
Guarantor will pay such additional amounts (the Additional
Amounts) as may be necessary so that the net amount
received by each owner of a beneficial interest in the notes (an
owner for the purposes of this Additional
Amounts section) (including Additional Amounts) after such
withholding or deduction (including any withholding or deduction
in respect of Additional Amounts) will not be less than the
amount such owner would have received if such Taxes had not been
withheld or deducted; provided, however, that no
Additional Amounts will be payable with respect to a payment or
credit made to an owner (an Excluded Holder) (or to
a Holder on behalf of an Excluded Holder) (i) with which
Ainsworth or such Guarantor does not deal at arms length
(within the meaning of the Income Tax Act(Canada)) at
the time of making such payment, (ii) which is subject to
such Taxes by reason of such owner being connected with Canada
or any province or territory thereof otherwise than solely by
reason of the owners activity in connection with
purchasing the notes, by the mere holding of notes or by reason
of the receipt of payments thereunder or the enforcement of the
Holders or owners rights thereunder,
(iii) which failed to duly and timely comply with a timely
request of Ainsworth to provide information, documents,
certification or other evidence concerning such owners
nationality, residence, entitlement to treaty benefits, identity
or connection with Canada or any political subdivision or
authority thereof, if and to the extent that due and timely
compliance with such request would have resulted in the
reduction or elimination of any Taxes as to which Additional
Amounts would have otherwise been payable to such owner or
Holder on behalf of such owner of notes but for this
clause (iii), (iv) which is a fiduciary, a partnership
or not the beneficial owner of any payment or credit on a note,
if and to the extent that any beneficiary or settlor of such
fiduciary, any partner in such partnership or the beneficial
owner of such payment (as the case may be) would not have been
entitled to receive Additional Amounts with respect to such
payment if such beneficiary, settlor, partner or beneficial
owner had been the Holder of such note or (v) any
combination of the foregoing numbered clauses of this proviso.
Ainsworth or such Guarantor will also (a) make such
withholding or deduction and (b) remit the full amount
deducted or withheld to the relevant authority in accordance
with and in the time required under applicable law.

Ainsworth or the Guarantor will furnish the
Holders of the notes, within 30 days after the date the
payment of any Taxes is due pursuant to applicable law, evidence
of such payment by Ainsworth or such Guarantor. In the event
that Ainsworth or the Guarantor fails to remit any Taxes in
respect of which Additional Amounts are payable, Ainsworth or
the Guarantor will indemnify and hold harmless each owner of a
beneficial interest in the notes (other than an

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Excluded Holder or owner to the extent that such
owner has already received Additional Amounts in respect of the
relevant payment or credit) and will, upon written request of a
Holder on behalf of an owner (other than an Excluded Holder),
reimburse each such Holder or owner for the amount of
(x) any Taxes so levied or imposed and paid by such Holder
or owner as a result of payments or credits made under or with
respect to the notes or the Subsidiary Guarantees, and
(y) any Taxes so levied or imposed with respect to any
reimbursement under the foregoing clause (x) but excluding
any such Taxes on the net income of such Holder or owner so that
the net amount received by such Holder or owner (net of payments
made under or with respect to the notes or Subsidiary
Guarantees) after such reimbursement will not be less than the
net amount the Holder or owner would have received if Taxes on
such reimbursement had not been imposed.


At least 30 days prior to each date on which
any payment under or with respect to the notes is due and
payable, if Ainsworth or any Guarantor will be obligated to pay
Additional Amounts with respect to such payment, Ainsworth or
such Guarantor will deliver to the trustee an officers
certificate stating the fact that such Additional Amounts will
be payable and the amounts so payable and will set forth such
other information necessary to enable the trustee to pay such
Additional Amounts to Holders or owners on the payment date.
Whenever in the indenture or in this Description of
Notes there is mentioned, in any context, the payment of
principal, premium, if any, redemption price, Change of Control
Payment, purchase price, interest or any other amount payable
under or with respect to any note, such mention shall be deemed
to include mention of the payment of Additional Amounts to the
extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof.

Ainsworth or a Guarantor will pay any present or
future stamp, court, documentary or other similar Taxes, charges
or levies that arise in any taxing jurisdiction from the
execution, delivery or registration of, or enforcement of rights
under, the Notes, the indenture, any Subsidiary Guarantee or any
related document (Documentary Taxes).

The obligation to pay any Additional Amounts (and
any associated reimbursement) and Documentary Taxes under the
terms and conditions described above will survive any
termination, defeasance or discharge of the indenture.

Redemption



| |                                           
| | ------------------------------------------
| | Optional Redemption  Fixed Rate
    Notes

Except as described below under
 Optional Redemption Upon Equity
Offerings and  Redemption for Changes in
Canadian Withholding Taxes, the fixed rate notes are not
redeemable prior to October 1, 2008. Thereafter, Ainsworth
may redeem the fixed rate notes at its option, in whole or in
part, upon not less than 30 nor more than 60 days
notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on October 1 of the year
set forth below:

|                    |  |            |          | 
|------------------- |  | ---------- | -------- | 
|                    |  | Optional  
|                    |  | Redemption
|Year                |  | Price     
|                    |  |           
|2008                |  |            | 103.625% | 
|2009                |  |            | 101.813% | 
|2010 and thereafter |  |            | 100.000% | 

In addition, Ainsworth must pay accrued and
unpaid interest on the notes redeemed to, but not including, the
date of redemption.

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| |                                              
| | ---------------------------------------------
| | Optional Redemption  Floating
    Rate Notes

Except as described below under
 Optional Redemption Upon Equity
Offerings and  Redemption for Changes in
Canadian Withholding Taxes, the floating rate notes are
not redeemable prior to October 1, 2006. Thereafter,
Ainsworth may redeem the floating rate notes at its option, in
whole or in part, upon not less than 30 nor more than
60 days notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on
October 1 of the year set forth below:

|                    |  |            |          | 
|------------------- |  | ---------- | -------- | 
|                    |  | Optional  
|                    |  | Redemption
|Year                |  | Price     
|                    |  |           
|2006                |  |            | 102.000% | 
|2007                |  |            | 101.000% | 
|2008 and thereafter |  |            | 100.000% | 

In addition, Ainsworth must pay accrued and
unpaid interest on the notes redeemed to, but not including, the
date of redemption.

Optional Redemption Upon Equity
Offerings.Notwithstanding the
foregoing, (i) at any time prior to October 1, 2007,
Ainsworth may on any one or more occasions redeem up to 35% of
the aggregate principal amount of the fixed rate notes
(including any Additional Notes that are fixed rate notes)
outstanding at a redemption price equal to 107.25% of the
principal amount thereof, and (ii) at any time prior to
October 1, 2006, Ainsworth may on any one or more occasions
redeem up to 35% of the aggregate principal amount of the
floating rate notes (including any Additional Notes that are
floating rate notes) outstanding at a redemption price equal to
100% of the principal amount thereof plus a premium equal to the
rate per annum on the floating rate notes applicable on the date
on which notice of redemption is given, in each case on the
redemption date, together with accrued and unpaid interest, if
any, to, but not including, such redemption date, with the net
cash proceeds of one or more Equity Offerings (as defined
below); provided that:

(1) at least 65% of the aggregate principal
amount of notes (including any Additional Notes) of the series
being redeemed remains outstanding immediately after the
occurrence of any such redemption (excluding notes held by
Ainsworth and its Subsidiaries); and

(2) the redemption occurs within
60 days of the date of the closing of such Equity Offering.

Equity
Offeringmeans any public or
private issuance or sale of Common Stock of Ainsworth.



| |                                                         
| | --------------------------------------------------------
| | Redemption for Changes in Canadian
    Withholding Taxes

Ainsworth may redeem all, but not less than all,
of the Notes at any time at 100% of the aggregate principal
amount of the notes, together with accrued and unpaid interest,
if any, on the notes redeemed to the applicable redemption date,
if Ainsworth has become or would become obligated to pay, on the
next date on which any amount would be payable with respect to
the notes, any Additional Amounts as a result of a change in the
laws (including any regulations promulgated thereunder) of
Canada (or any political subdivision or taxing authority thereof
or therein), or any change in any official position of any
governmental agency, taxing authority or regulatory authority
regarding the application or interpretation of such laws or
regulations, which change is announced or becomes effective on
or after the date of this prospectus.



| |                     
| | --------------------
| | Mandatory Redemption

Ainsworth is not required to make mandatory
redemption or sinking fund payments with respect to the notes.

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| |                     
| | --------------------
| | Selection and Notice

If less than all of the notes are to be redeemed
at any time, the trustee will select notes for redemption as
follows:

(1) if the notes are listed on any national
securities exchange, in compliance with the requirements of the
principal national securities exchange on which the notes are
listed; or

(2) if the notes are not listed on any
national securities exchange, on a pro rata basis, by lot or by
such method as the trustee deems fair and appropriate.

No notes of US$1,000 or less can be redeemed in
part. Notices of redemption will be mailed by first class mail
at least 30 but not more than 60 days before the redemption
date to each Holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than
60 days prior to a redemption date if the notice is issued
in connection with a defeasance of the notes or a satisfaction
and discharge of the indenture. Notices of redemption may not be
conditional.

If any note is to be redeemed in part only, the
notice of redemption that relates to that note will state the
portion of the principal amount of that note that is to be
redeemed. A new note in principal amount equal to the unredeemed
portion of the original note representing the same indebtedness
to the extent not redeemed will be issued in the name of the
Holder of notes upon cancellation of the original note. Notes
called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.

Offers to Repurchase by Ainsworth



| |                  
| | -----------------
| | Change of Control

If a Change of Control occurs, Ainsworth will
make an offer to repurchase all outstanding notes pursuant to a
Change of Control Offer on the terms set forth in the indenture.
In the Change of Control Offer, Ainsworth will offer a Change of
Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest, if
any, on the notes repurchased, to the date of repurchase. Within
10 days following any Change of Control, Ainsworth will
mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date
specified in the notice, which date will be no earlier than
30 days and no later than 60 days from the date the
notice is mailed, pursuant to the procedures required by the
indenture and described in the notice. Ainsworth will comply
with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection
with the repurchase of the notes as a result of a Change of
Control. To the extent that the provisions of any securities
laws or regulations conflict with the Change of Control
provisions of the indenture, Ainsworth will comply with the
applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Change of
Control provisions of the indenture by virtue of such conflict.

On the Change of Control Payment Date, Ainsworth
will, to the extent lawful:

(1) accept for payment all notes or portions
of notes properly tendered pursuant to the Change of Control
Offer;

(2) deposit with the paying agent an amount
equal to the Change of Control Payment in respect of all notes
or portions of notes properly tendered; and

(3) deliver or cause to be delivered to the
trustee the notes properly accepted together with an
officers certificate stating the aggregate principal
amount of notes or portions of notes being purchased by
Ainsworth.

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The paying agent will promptly mail to each
Holder of notes properly tendered the Change of Control Payment
for such notes, and the trustee will promptly authenticate and
mail (or cause to be transferred by book-entry) to each Holder a
new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; providedthat each new
note will be in a principal amount of US$1,000 or an integral
multiple of US$1,000.

Ainsworth will publicly announce the results of
the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.

The provisions described above that require
Ainsworth to make a Change of Control Offer following a Change
of Control will be applicable whether or not any other
provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does
not contain provisions that require Ainsworth to repurchase or
redeem the notes in the event of a takeover, recapitalization or
similar transaction.

Ainsworth will not be required to make a Change
of Control Offer upon a Change of Control if a third party makes
the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by
Ainsworth and purchases all notes properly tendered and not
withdrawn under the Change of Control Offer.

The definition of Change of Control includes a
phrase relating to the direct or indirect sale, lease, transfer,
conveyance or other disposition of all or substantially
all of the properties or assets of Ainsworth and its
Restricted Subsidiaries taken as a whole. Although there is a
limited body of case law interpreting the phrase
substantially all, there is no precise established
definition of the phrase under applicable law. Accordingly, the
obligation of Ainsworth to repurchase its notes as a result of a
sale, lease, transfer, conveyance or other disposition of less
than all of the assets of Ainsworth and its Subsidiaries taken
as a whole to another Person or group may be uncertain.



| |            
| | -----------
| | Asset Sales

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale in any
single transaction or series of related transactions unless:

(1) Ainsworth (or the Restricted Subsidiary,
as the case may be) receives consideration at the time of the
Asset Sale at least equal to the fair market value of the assets
or Equity Interests issued or sold or otherwise disposed of;

(2) the fair market value is determined by
Ainsworths Board of Directors and evidenced by a
resolution of the Board of Directors set forth in an
officers certificate delivered to the trustee; and

(3) at least 75% of the consideration
received in the Asset Sale by Ainsworth or such Restricted
Subsidiary is in the form of (i) cash, (ii) Cash
Equivalents, (iii) the majority of the Voting Stock of a
Person engaged in a Permitted Business that will become on the
date of acquisition thereof a Restricted Subsidiary, or
(iv) long-term property or assets that are used or useful
in a Permitted Business. For purposes of this provision, each of
the following will be deemed to be cash:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) any liabilities, as shown on
    Ainsworths or such Restricted Subsidiarys most
    recent balance sheet, of Ainsworth or any Restricted Subsidiary
    (other than contingent liabilities and liabilities that are by
    their terms subordinated to the notes or any Subsidiary
    Guarantee) that are assumed by the transferee of any such assets
    pursuant to a customary novation agreement or other agreement
    that releases Ainsworth or such Restricted Subsidiary from
    further liability; and

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| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) any securities, notes or other
    obligations received by Ainsworth or any such Restricted
    Subsidiary from such transferee that are contemporaneously,
    subject to ordinary settlement periods, converted by Ainsworth
    or such Restricted Subsidiary into cash or Cash Equivalents, to
    the extent of the cash or Cash Equivalents received in that
    conversion.

In the case of consideration received in an Asset
Sale in a form specified in clause (3) (iii) or (3)
(iv), the Board of Directors determination must be based
upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of national standing if the fair
market value exceeds US$10.0 million.

Within 360 days after the receipt of any Net
Proceeds from an Asset Sale, Ainsworth or such Restricted
Subsidiary may apply those Net Proceeds at its option:

(1) to repay term or revolving credit
Indebtedness under or cash collateralize letters of credit under
a Credit Facility (other than any such Indebtedness that is
subordinate in right of payment to the Notes or any Subsidiary
Guarantee) and, if the Indebtedness repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect
thereto;

(2) if the Asset Sale is by a Restricted
Subsidiary that is not a Guarantor, to repay, redeem or
repurchase any Indebtedness of that Restricted Subsidiary;

(3) to acquire all or substantially all of
the assets of, or a majority of the Voting Stock of, a Person
engaged in a Permitted Business;

(4) to make a capital expenditure; or

(5) to acquire other long-term assets that
are used or useful in a Permitted Business.

Pending the final application of any Net
Proceeds, Ainsworth or such Restricted Subsidiary may
temporarily reduce revolving credit borrowings or otherwise
invest the Net Proceeds in any manner that is not prohibited by
the indenture.

Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the preceding paragraph and
any Net Proceeds used to cash collateralize letters of credit
which no longer cash collateralize a letter of credit and which
have not otherwise been applied or invested as provided in the
preceding paragraph will constitute Excess Proceeds.
Ainsworth may use Excess Proceeds to make at any time, and when
the aggregate amount of Excess Proceeds exceeds
US$10.0 million Ainsworth will make, an offer to purchase
(Asset Sale Offer) to all Holders of notes and all
holders of other Indebtedness that is pari passu with the notes
containing provisions similar to those set forth in the
indenture with respect to offers to purchase or redeem such
indebtedness with the proceeds of sales of assets, to purchase
the maximum principal amount of notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds.
The offer price in any Asset Sale Offer will be equal to 100% of
the principal amount plus accrued and unpaid interest, if any,
to the date of purchase, and will be payable in cash. If any
Excess Proceeds remain after consummation of an Asset Sale
Offer, Ainsworth or such Restricted Subsidiary may use those
Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of notes and other
pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee will select
the notes and such other pari passu Indebtedness to be purchased
on a pro rata basis based on the principal amount of notes and
other pari passu Indebtedness tendered. Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds will be reset at
zero.

Ainsworth will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent those laws and
regulations are applicable in connection with each repurchase of
notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the indenture, Ainsworth will
comply with the applicable securities laws and

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regulations and will not be deemed to have
breached its obligations under the Asset Sale provisions of the
indenture by virtue of such conflict.


Certain Covenants

During any period of time that (a) the notes
have Investment Grade Ratings from both Rating Agencies and
(b) no Default or Event of Default has occurred and is
continuing under the indenture, Ainsworth and its Restricted
Subsidiaries will not be subject to

(1) the provisions of the indenture
described under:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  |  Offers to Repurchase by
    Ainsworth  Change of Control;                                                                    
|
| |  |  Offers to Repurchase by
    Ainsworth  Asset Sales;                                                                          
|
| |  |  Restricted Payments
    (except to the extent applicable under Designation of
    Restricted and Unrestricted Subsidiaries);
|
| |  |  Incurrence of Indebtedness and
    Issuance of Preferred Stock;                                                               
|
| |  |  Dividend and Other Payment
    Restrictions Affecting Restricted Subsidiaries; and                                            
|
| |  |  Transactions with
    Affiliates; or                                                                                          

(2) clauses (3) and (4) under the
caption Events of Default and Remedies to the extent
that such clauses apply to the covenants described in
clause (1) above.

If Ainsworth and its Restricted Subsidiaries are
not subject to these covenants for any period of time as a
result of the previous sentence (a Fall-Away Period)
and, subsequently, one, or both, of the Rating Agencies
withdraws its ratings or downgrades the ratings assigned to the
notes below the required Investment Grade Ratings or a Default
or Event of Default occurs and is continuing, then Ainsworth and
its Restricted Subsidiaries will thereafter again be subject to
these covenants. The ability of Ainsworth and its Restricted
Subsidiaries to make Restricted Payments after the time of such
withdrawal, downgrade, Default or Event of Default will be
calculated as if the covenant governing Restricted Payments had
been in effect during the entire period of time from the Issue
Date. Notwithstanding the foregoing, the continued existence
after the end of the Fall-Away Period of facts and circumstances
or obligations arising from transactions which occurred during a
Fall-Away Period shall not constitute a breach of any covenant
set forth in the indenture or cause a Default or Event of
Default thereunder; providedthat (1) Ainsworth and
its Restricted Subsidiaries did not incur or otherwise cause
such facts and circumstances or obligations to exist in
anticipation of (i) a ratings withdrawal or downgrade below
an Investment Grade Rating or (ii) a Default or Event of
Default and (2) Ainsworth and its Restricted Subsidiaries
did not reasonably believe that such transactions would result
in such withdrawal or downgrade, Default or Event of Default.



| |                    
| | -------------------
| | Restricted Payments

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly:

(1) declare or pay any dividend or make any
other payment or distribution on account of Ainsworths or
any of its Restricted Subsidiaries Equity Interests
(including, without limitation, any payment in connection with
any merger, amalgamation or consolidation involving Ainsworth or
any of its Restricted Subsidiaries) or to the direct or indirect
holders of Ainsworths or any of its Restricted
Subsidiaries Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Ainsworth or to
Ainsworth or a Restricted Subsidiary);

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(2) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, in connection
with any merger, amalgamation or consolidation involving
Ainsworth) any Equity Interests of Ainsworth or any direct or
indirect parent of Ainsworth;

(3) make any payment on or with respect to,
or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the notes or the
Subsidiary Guarantees, except a payment of interest or principal
at the Stated Maturity thereof or any payment on Indebtedness
permitted under clause (6) of the covenant described below
under the caption  Incurrence of Indebtedness
and Issuance of Preferred Stock; or

(4) make any Restricted Investment (all such
payments and other actions set forth in these clauses (1)
through (4) above being collectively referred to as
Restricted Payments),

unless, at the time of and after giving effect to
such Restricted Payment:

(1) no Default or Event of Default has
occurred and is continuing or would occur as a consequence of
such Restricted Payment; and

(2) Ainsworth would, at the time of such
Restricted Payment and after giving pro forma effect thereto as
if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption
 Incurrence of Indebtedness and Issuance of
Preferred Stock; and

(3) such Restricted Payment, together with
the aggregate amount of all other Restricted Payments made by
Ainsworth and its Restricted Subsidiaries after March 3,
2004 (excluding Restricted Payments permitted by
clauses (2), (3), (5), (6) and (7) (b) of the
next succeeding paragraph), is less than the sum, without
duplication, of:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) 50% of the Consolidated Net Income of
    Ainsworth for the period (taken as one accounting period)
    beginning on January 1, 2004 to the end of Ainsworths
    most recently ended fiscal quarter for which internal financial
    statements are available at the time of such Restricted Payment
    (or, if such Consolidated Net Income for such period is a
    deficit, less 100% of such deficit), excluding any charges
    incurred in connection with Ainsworths purchase of its
    12 1/2% Senior Secured Notes due July 15, 2007
    and 13.875% Senior Secured Notes due July 15, 2007
    described under the caption Managements Discussion
    and Analysis of Financial Condition and Results of
    Operations  Liquidity and Capital Resources,
    plus
|
| | (b) 100% of the aggregate net cash proceeds
    received by Ainsworth since March 3, 2004 as a contribution
    to its common equity capital or from the issue or sale of Equity
    Interests of Ainsworth (other than Disqualified Stock) or from
    the issue or sale of convertible or exchangeable Disqualified
    Stock or convertible or exchangeable debt securities of
    Ainsworth that have been converted into or exchanged for such
    Equity Interests (other than Equity Interests (or Disqualified
    Stock or debt securities) sold to a Subsidiary of Ainsworth),
    plus                                                                                                                                                                                        
|
| | (c) to the extent that any Restricted
    Investment that was made after March 3, 2004 is sold for
    cash or otherwise liquidated or repaid for cash or, in the case
    of a Restricted Investment that is a Guarantee, released, the
    lesser of (i) the cash return of capital with respect to
    such Restricted Investment (less the cost of disposition, if
    any) and (ii) the initial amount of such Restricted
    Investment, less, in the case of a Guarantee, any amounts paid
    under such Guarantee, plus                                                                                                                                                                                                                                                         
|
| | (d) to the extent that any Unrestricted
    Subsidiary of Ainsworth is redesignated as a Restricted
    Subsidiary after March 3, 2004 the lesser of (i) the
    fair market value of Ainsworths Investment in such
    Subsidiary as of the date of such redesignation and
    (ii) such                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | fair market value as of the date on which such
    Subsidiary was originally designated as an Unrestricted
    Subsidiary,plus
|
| | (e) US$15.0 million.                                                                                                          

So long as no Default has occurred and is
continuing or would be caused thereby, the preceding provisions
will not prohibit:

(1) the payment of any dividend within
60 days after the date of declaration of the dividend, if
at the date of declaration the dividend payment would have
complied with the provisions of the indenture;

(2) the redemption, repurchase, retirement,
defeasance or other acquisition of any subordinated Indebtedness
of Ainsworth or any Restricted Subsidiary or of any Equity
Interests of Ainsworth in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of Ainsworth) of, Equity Interests of
Ainsworth (other than Disqualified Stock); providedthat
the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other
acquisition will be excluded from clause (3) (b) of
the preceding paragraph;

(3) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness of Ainsworth
or any Restricted Subsidiary with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;

(4) the payment of any dividend by a
Restricted Subsidiary of Ainsworth that is not a Wholly Owned
Restricted Subsidiary to the holders of its Equity Interests on
a pro rata basis;

(5) an Investment by Ainsworth that
increases the ownership interest of Ainsworth in the High Level
Project out of the net cash proceeds of the substantially
concurrent sale (other than from or to a Subsidiary or from or
to an employee stock ownership plan financed by loans from
Ainsworth or a Subsidiary of Ainsworth) of Equity Interests
(other than Disqualified Stock) of Ainsworth; providedthat the amount of any such net cash proceeds that are
utilized for any such Investment will be excluded from
clause (3) (b) of the preceding paragraph;

(6) repurchases of Equity Interests deemed
to occur upon the exercise of stock options; and

(7) payments of (a) dividends on, and
(b) the repurchase, redemption or acquisition at the
scheduled maturity, scheduled repayment or scheduled sinking
fund date of, Disqualified Stock, the incurrence of which was
permitted by the indenture.

The amount of all Restricted Payments (other than
cash) will be the fair market value on the date of the
Restricted Payment of the asset(s) or securities proposed to be
transferred or issued by Ainsworth or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted
Payment. The fair market value of any assets or securities that
are required to be valued by this covenant will be determined by
the Board of Directors of Ainsworth whose resolution with
respect thereto will be delivered to the trustee. The Board of
Directors determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment
banking firm of national standing if the fair market value
exceeds US$10.0 million. Not later than the date of making
any Restricted Payment, other than a Restricted Payment under
clauses (2), (3), (4) and (6) of the second
paragraph of this covenant, which, together with any Restricted
Payments not previously reported pursuant to this sentence,
exceeds US$2.0 million, Ainsworth will deliver to the
trustee an officers certificate stating that such
Restricted Payment is permitted and setting forth the basis upon
which the calculations required by this Restricted
Payments covenant were computed, together with a copy of
any fairness opinion or appraisal required by the indenture.

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| |                                                               
| | --------------------------------------------------------------
| | Incurrence of Indebtedness and Issuance of
    Preferred Stock

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to
(collectively, incur) any Indebtedness (including
Acquired Indebtedness), and Ainsworth will not issue any
Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock;
provided, however, that Ainsworth or any Guarantor may
incur Indebtedness (including Acquired Indebtedness) or
Ainsworth may issue Disqualified Stock and any Guarantor may
issue shares of preferred stock, if the Fixed Charge Coverage
Ratio for Ainsworths most recently ended four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the
beginning of such four-quarter period.

The first paragraph of this covenant will not
prohibit the incurrence of any of the following items of
Indebtedness (collectively, Permitted Indebtedness):

(1) the incurrence by Ainsworth or any of
the Guarantors of Indebtedness and letters of credit under
Credit Facilities, in an aggregate principal amount at any one
time outstanding under this clause (1) (with letters of
credit being deemed to have a principal amount equal to the
maximum potential liability of Ainsworth and the Guarantors
thereunder) not to exceed the greater of:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) $50.0 million less the aggregate
    amount of all Net Proceeds of Asset Sales applied by Ainsworth
    or any of its Restricted Subsidiaries since the Issue Date to
    repay term Indebtedness under a Credit Facility or to repay
    revolving credit Indebtedness and effect a corresponding
    commitment reduction under a Credit Facility, in each case,
    pursuant to the covenant described above under the caption
     Offers to Repurchase by Ainsworth  Asset
    Sales; or
|
| | (b) the amount of the Borrowing Base as of
    the date of such incurrence;                                                                                                                                                                                                                                                                                                                                                                                                                          

(2) the incurrence by Ainsworth and its
Restricted Subsidiaries of Existing Indebtedness;

(3) the notes and any related Subsidiary
Guarantees;

(4) the incurrence by Ainsworth or any
Restricted Subsidiary of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money
obligations, in each case, incurred for the purpose of financing
all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business
of Ainsworth or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to
exceed, at any time outstanding, the greater of
(i) US$10.0 million and (ii) 2% of the
Consolidated Net Tangible Assets of Ainsworth;

(5) the incurrence by Ainsworth or any of
its Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture
to be incurred under the first paragraph of this covenant or
clause (2), (3), (4) or (13) of this paragraph;

(6) the incurrence by Ainsworth of
Indebtedness to, or the issuance of Disqualified Stock to, any
Wholly Owned Restricted Subsidiary of Ainsworth or the
incurrence by any Restricted

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Subsidiary of Ainsworth of Indebtedness to, or
the issuance of preferred stock to, Ainsworth or any Wholly
Owned Restricted Subsidiary of Ainsworth; provided,
however, that:




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) such Indebtedness owing by Ainsworth or
    a Guarantor to a Wholly Owned Restricted Subsidiary of Ainsworth
    must be expressly subordinated to the prior payment in full in
    cash of all Obligations with respect to the notes, in the case
    of Ainsworth, or the Subsidiary Guarantee, in the case of a
    Guarantor; and                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (b) (i) any subsequent issuance or
    transfer of Equity Interests that results in any such
    Indebtedness, Disqualified Stock or preferred stock being held
    by a Person other than Ainsworth or a Wholly Owned Restricted
    Subsidiary of Ainsworth and (ii) any sale or other transfer
    of any such Indebtedness, Disqualified Stock or preferred stock
    to a Person that is not either Ainsworth or a Wholly Owned
    Restricted Subsidiary of Ainsworth; will be deemed, in each
    case, to constitute an incurrence of such Indebtedness or
    issuance of Disqualified Stock or preferred stock by Ainsworth
    or such Restricted Subsidiary, as the case may be, that was not
    permitted by this clause (6);

(7) the incurrence by Ainsworth or any of
its Restricted Subsidiaries of Hedging Obligations in the
ordinary course of business and not for speculative purposes;

(8) the guarantee by Ainsworth or any of the
Guarantors of Indebtedness of Ainsworth or a Guarantor of
Ainsworth that was permitted to be incurred by another provision
of this covenant;

(9) the accrual of interest, the accretion
or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock or preferred stock in the form of
additional shares of the same class of Disqualified Stock or
preferred stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock or preferred
stock for purposes of this covenant; provided, in each
such case, that the amount thereof is included in the Fixed
Charges of Ainsworth as accrued;

(10) the incurrence by Ainsworth or any of
its Restricted Subsidiaries of Indebtedness in respect of
statutory obligations, bid, performance, surety and appeal bonds
and trade and standby letters of credit, in each case entered
into in the ordinary course of business and consistent with past
practice;

(11) Indebtedness of Ainsworth or any
Restricted Subsidiary consisting of guarantees, indemnities or
obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets,
including, without limitation, Equity Interests, in accordance
with the provisions of the indenture;

(12) the incurrence by Ainsworth or any of
its Restricted Subsidiaries of Indebtedness to fund a purchase
by Ainsworth or a Restricted Subsidiary of Grants interest
in the High Level Project pursuant to a Right of First Refusal
initiated by Grant or the Buy/ Sell Option; provided,
that (i) (x) Ainsworth or such Restricted Subsidiary has
accepted an offer from any Person, other than Ainsworth or a
Restricted Subsidiary, to purchase the interest in the High
Level Project that is acquired from Grant at a concurrent
closing for an amount not less than the purchase price payable
to Grant; and (y) such Indebtedness is repaid in full at
such concurrent closing from the transfer of the interest in the
High Level Project purchased from Grant at such closing; or
(ii) there shall not have been a decrease in the rating of
the notes by any Rating Agency by one or more Rating Categories
that occurs within 90 days (which period shall be extended
so long as the rating of the notes is under publicly announced
consideration for a possible downgrade by any Rating Agency)
after the date of the later of (A) notice to the public or
the Rating Agencies of the intention of Ainsworth or any of its
Restricted Subsidiaries to incur Indebtedness to fund such a
purchase or (B) the incurrence by Ainsworth or any of its
Restricted Subsidiaries of Indebtedness to fund such a
purchase; and

105



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(13) the incurrence by Ainsworth or any of
its Restricted Subsidiaries of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at
any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (13), not to
exceed US$50.0 million.

Ainsworth will not, and will not permit any
Guarantor to, incur any Indebtedness (including Permitted
Indebtedness) that is contractually subordinated in right of
payment to any other Indebtedness of Ainsworth or such Guarantor
unless such Indebtedness is also contractually subordinated in
right of payment to the notes or the applicable Subsidiary
Guarantee on substantially identical terms; provided,
however, that Indebtedness of Ainsworth or a Guarantor will
not be deemed to be contractually subordinated in right of
payment to any other Indebtedness of Ainsworth or such Guarantor
solely by virtue of being unsecured.

For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Stock covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in
clauses (1 ) through (13) above, or is entitled to be
incurred pursuant to the first paragraph of this covenant,
Ainsworth will be permitted to classify such item of
Indebtedness or later reclassify all or a portion of such item
of Indebtedness in any manner that complies with this covenant.
Indebtedness under Credit Facilities outstanding on the date on
which notes are first issued and authenticated under the
indenture will be deemed to have been incurred pursuant to the
category of Permitted Indebtedness described in clause (1)
above.



| |      
| | -----
| | Liens

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien of any kind securing
Indebtedness or Attributable Debt on any asset now owned or
hereafter acquired except Permitted Liens, unless it has made or
will make effective provision whereby the notes or any
Subsidiary Guarantee will be secured by such Lien equally and
ratably with (or, if such other Indebtedness constitutes
subordinated Indebtedness, prior to) all other Indebtedness of
Ainsworth or any Restricted Subsidiary secured by such Lien for
so long as such other Indebtedness is secured by such Lien.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Dividend and Other Payment Restrictions
    Affecting Restricted Subsidiaries

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create
or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted
Subsidiary to:

(1) pay dividends or make any other
distributions on its Capital Stock to Ainsworth or any of its
Restricted Subsidiaries, or with respect to any other interest
or participation in, or measured by, its profits, or pay any
indebtedness owed to Ainsworth or any of its Restricted
Subsidiaries;

(2) make loans or advances to Ainsworth or
any of its Restricted Subsidiaries; or

(3) transfer any of its properties or assets
to Ainsworth or any of its Restricted Subsidiaries.

However, the preceding restrictions will not
apply to encumbrances or restrictions existing under or by
reason of:

(1) agreements governing Existing
Indebtedness and Credit Facilities (providedthat, with
respect to Credit Facilities, such encumbrances and restrictions
are not materially more restrictive, taken as a whole, than
customary provisions in comparable financings) and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of those
agreements, provided that the amendments, modifications,

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restatements, renewals, increases, supplements,
refundings, replacements or refinancings of such instrument are
no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in
such agreement on the Issue Date or in such Credit Facilities;


(2) the indenture, the notes and any
Subsidiary Guarantee or any other instrument governing debt
securities of Ainsworth incurred in compliance with the covenant
titled  Incurrence of Indebtedness and Issuance
of Preferred Stock that are no more restrictive, taken as
a whole, than those contained in the indenture, the notes and
any Subsidiary Guarantee;

(3) applicable law;

(4) any instrument governing Indebtedness or
Capital Stock of a Person acquired by Ainsworth or any of its
Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred
or such Capital Stock was issued in connection with or in
contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, providedthat, in
the case of Indebtedness, such Indebtedness was permitted by the
terms of the indenture to be incurred;

(5) customary non-assignment provisions in
leases entered into in the ordinary course of business;

(6) purchase money obligations and Capital
Lease Obligations for property acquired in the ordinary course
of business that impose restrictions on that property of the
nature described in clause (3) of the preceding paragraph;

(7) any agreement for the sale or other
disposition of Capital Stock or assets of a Restricted
Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;

(8) Permitted Refinancing Indebtedness,
providedthat the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are
no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;

(9) Liens securing Indebtedness otherwise
permitted to be incurred under the provisions of the covenant
described above under the caption  Liens
that limit the right of the debtor to dispose of the assets
subject to such Liens;

(10) restrictions on cash or other deposits
imposed by customers under contracts entered into in the
ordinary course of business;

(11) restrictions contained in agreements
between Grant and Ainsworth or a Restricted Subsidiary with
respect to the High Level Project, as extended, amended,
restated, modified or replaced from time to time on terms that
are no more restrictive, taken as a whole, than those contained
in such agreements as of the Issue Date; and

(12) provisions with respect to the
disposition or distribution of assets or property in Permitted
Joint Venture agreements.



| |                                                          
| | ---------------------------------------------------------
| | Merger, Amalgamation, Consolidation or Sale
    of Assets

Ainsworth may not, directly or indirectly:
(1) consolidate, amalgamate with or merge with or into
another Person (whether or not Ainsworth is the surviving
corporation); or (2) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties
or assets of

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Ainsworth and its Restricted Subsidiaries taken
as a whole, in one or more related transactions, to another
Person, unless:


(1) either: (a) Ainsworth is the
surviving corporation; or (b) the Person formed by or
surviving any such consolidation, amalgamation or merger (if
other than Ainsworth) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is a
corporation organized or existing under the laws of Canada or
any province or territory thereof, the United States, any state
of the United States or the District of Columbia;

(2) the Person formed by or surviving any
such consolidation, amalgamation or merger (if other than
Ainsworth) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes
all of the obligations of Ainsworth under the notes, the
indenture pursuant to agreements reasonably satisfactory to the
trustee;

(3) immediately after such transaction no
Default or Event of Default exists; and

(4) Ainsworth or the Person formed by or
surviving any such consolidation, amalgamation or merger (if
other than Ainsworth), or to which such sale, assignment,
transfer, conveyance or other disposition has been made, will,
on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same
had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above
under the caption  Incurrence of Indebtedness
and Issuance of Preferred Stock.

In addition, Ainsworth may not, directly or
indirectly, lease all or substantially all of its properties or
assets, in one or more related transactions, to any other
Person. This Merger, Amalgamation, Consolidation or Sale
of Assets covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or
among Ainsworth and any of its Wholly Owned Restricted
Subsidiaries, providedthat the surviving entity of any
transaction involving Ainsworth shall be a corporation or
partnership organized and existing under the laws of Canada or
any province or territory thereof, the United States, any state
of the United States or the District of Columbia.



| |                                                            
| | -----------------------------------------------------------
| | Designation of Restricted and Unrestricted
    Subsidiaries

The Board of Directors of Ainsworth may designate
any Restricted Subsidiary of Ainsworth to be an Unrestricted
Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate fair market value of all outstanding
Investments owned by Ainsworth and its Restricted Subsidiaries
in the Subsidiary properly designated will be deemed to be an
Investment made as of the time of the designation and will
reduce the amount available for Restricted Payments under the
first paragraph of the covenant described above under the
caption  Restricted Payments or Permitted
Investments. That designation will only be permitted if the
Investment would be permitted at that time and if the Restricted
Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. In addition, no such designation may be made unless
the proposed Unrestricted Subsidiary does not own any Capital
Stock in any Restricted Subsidiary that is not simultaneously
subject to designation as an Unrestricted Subsidiary. The Board
of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a
Default.



| |                             
| | ----------------------------
| | Transactions with Affiliates

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract,

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agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each, an
Affiliate Transaction), unless:


(1) the Affiliate Transaction is on terms
that are no less favorable to Ainsworth or the relevant
Restricted Subsidiary than those that could have been obtained
in a comparable transaction by Ainsworth or such Restricted
Subsidiary with an unrelated Person; and

(2) Ainsworth delivers to the trustee:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) with respect to any Affiliate
    Transaction or series of related Affiliate Transactions
    involving aggregate consideration in excess of
    US$5.0 million, a resolution of the Board of Directors set
    forth in an officers certificate certifying that such
    Affiliate Transaction complies with this covenant and that such
    Affiliate Transaction has been approved by a majority of the
    disinterested members of the Board of Directors; and                                                                                                                              
|
| | (b) with respect to any Affiliate
    Transaction or series of related Affiliate Transactions
    involving aggregate consideration in excess of
    US$15.0 million, an opinion issued by an accounting,
    appraisal or investment banking firm of national standing in
    Canada or the United States stating that such Affiliate
    Transaction is on terms that are no less favorable to Ainsworth
    or the relevant Restricted Subsidiary than those that could have
    been obtained in a comparable transaction by Ainsworth or such
    Restricted Subsidiary with an unrelated person.

The following items will not be deemed to be
Affiliate Transactions and, therefore, will not be subject to
the provisions of the prior paragraph:

(1) compensation, employment or
indemnification agreements or arrangements (including stock
options) entered into by Ainsworth or any of its Restricted
Subsidiaries in the ordinary course of business of Ainsworth or
such Restricted Subsidiary;

(2) transactions between or among Ainsworth
and/or its Restricted Subsidiaries; providedthat any
transaction with a Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary shall be in the ordinary course of
business and on terms that are no less favorable to Ainsworth or
the relevant Restricted Subsidiary than those that could have
been obtained in a comparable transaction by Ainsworth or such
Restricted Subsidiary with an unrelated Person;

(3) payment of reasonable directors fees to
Persons who are not otherwise Affiliates of Ainsworth;

(4) sales of Equity Interests (other than
Disqualified Stock) to Affiliates of Ainsworth;

(5) Permitted Investments or Restricted
Payments that are permitted by the provisions of the indenture
described above under the caption  Restricted
Payments;

(6) the pledge of Equity Interests of
Unrestricted Subsidiaries to support the Indebtedness thereof;

(7) transactions undertaken pursuant to
contractual obligations in existence on the Issue Date and
disclosed in this prospectus, as extended, renewed, amended,
restated, modified or replaced from time to time on terms no
less favorable, taken as a whole, to Ainsworth or the relevant
Restricted Subsidiary than such contractual obligations in
existence on such date;

(8) transactions between or among Ainsworth
and/or its Restricted Subsidiaries and Grant relating to the
High Level Project in the ordinary course of business of
Ainsworth or any such Restricted Subsidiary and on terms that
are no less favorable to Ainsworth or the relevant Restricted
Subsidiary than those that could have been obtained in a
comparable transaction by Ainsworth or such Restricted
Subsidiary with an unrelated Person;

(9) any purchase or sale by Ainsworth made
pursuant to the Buy/ Sell Option or the Right of First
Refusal; and

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(10) transactions between or among Ainsworth
and/or its Restricted Subsidiaries and a Permitted Joint Venture
on terms that are no less favorable to Ainsworth or the relevant
Restricted Subsidiary than those that could have been obtained
in a comparable transaction by Ainsworth or such Restricted
Subsidiary with an unrelated Person.



| |                                     
| | ------------------------------------
| | Additional Subsidiary
    Guarantees

If (i) Ainsworth or any of its Restricted
Subsidiaries acquires or creates another North American
Restricted Subsidiary, other than a Non-Guarantor Restricted
Subsidiary, after the Issue Date or (ii) the aggregate
amount of assets held by all Non-Guarantor Restricted
Subsidiaries exceeds US$3.0 million, then that newly
acquired or created Subsidiary, in the case of clause (i),
will become a Guarantor, and in the case of clause (ii),
such of the Non-Guarantor Restricted Subsidiaries will become a
Guarantor as is necessary so that after giving effect to the
issuance of such guarantees, the remaining Non-Guarantor
Restricted Subsidiaries will have aggregate assets of less than
US$3.0 million. In each case, such Restricted Subsidiary
shall execute a supplemental indenture and deliver an opinion of
counsel satisfactory to the trustee within 10 Business Days of
the date on which it was acquired or created, or required to
become a Guarantor, as the case may be, provided,
however, that all Subsidiaries that have properly been
designated as Unrestricted Subsidiaries in accordance with the
indenture for so long as they continue to constitute
Unrestricted Subsidiaries will not have to comply with the
requirements of this covenant.



| |                                                        
| | -------------------------------------------------------
| | Limitation on Guarantees by Restricted
    Subsidiaries

If any Restricted Subsidiary of Ainsworth that is
not a Guarantor directly or indirectly Guarantees the payment of
any Indebtedness of Ainsworth or a Subsidiary of Ainsworth that
is a Guarantor, that Restricted Subsidiary will become a
Guarantor and execute a supplemental indenture and deliver an
opinion of counsel satisfactory to the trustee within 10
Business Days of the date on which it entered into such
Guarantee. If the Restricted Subsidiary is released from its
Guarantee of such other Indebtedness of Ainsworth, it will
automatically be released from its obligations as a Guarantor.



| |                     
| | --------------------
| | Payments for Consent

Ainsworth will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, pay or
cause to be paid any consideration to or for the benefit of any
Holder of notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the indenture
or the notes unless such consideration is offered to be paid to
all Holders of the notes and is paid to all Holders of the notes
that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent,
waiver or agreement.

Reports to Holders

Whether or not required by the SEC, so long as
any notes are outstanding, Ainsworth will furnish to the Holders
of notes, within the time periods specified in the SECs
rules and regulations:

(1) all quarterly and annual financial
information that Ainsworth would have been required to file with
the SEC on (a) Forms 10-Q and 10-K if Ainsworth were
required to file on such Forms, or (b) Form 6-K and
Form 20-F or Form 40-F (if eligible) if Ainsworth were
required to file such form and was a reporting issuer under the
securities laws of the Province of Ontario, including in each
case a Managements Discussion and Analysis of
Financial Condition and Results of Operations and, with
respect to the annual information only, a report on the annual
financial statements by Ainsworths independent registered
chartered accountants; and

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(2) all current reports that Ainsworth would
have been required to (a) file with the SEC on
Form 8-K if Ainsworth were required to file such reports,
or (b) furnish to the SEC on Form 6-K if Ainsworth
were required to furnish such reports and were a reporting
issuer under the securities laws of the Province of Ontario.

If, at any time after consummation of the
exchange offer contemplated by the registration rights
agreement, Ainsworth is no longer subject to the periodic
reporting requirements of the Exchange Act for any reason,
Ainsworth will nevertheless continue filing the reports
specified in the preceding paragraph with the SEC within the
time periods specified above unless the SEC will not accept such
a filing. Ainsworth has agreed that it will not take any action
for the purpose of causing the SEC not to accept any such
filings. If, notwithstanding the foregoing, the SEC will not
accept Ainsworths filings for any reason, Ainsworth will
post the reports referred to in the preceding paragraph on its
website within the time periods that would apply if Ainsworth
were required to file those reports with the SEC. In addition,
Ainsworth has agreed that, for so long as any notes remain
outstanding, it will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the
information required to be delivered pursuant to
Rule 144A(d) (4) under the Securities Act and
including any information that would be required by
clause (2) of the preceding paragraph.

Events of Default and Remedies

Each of the following is an Event of
Default:

(1) default for 30 days in the payment
when due of interest on, the notes;

(2) default in payment when due of the
principal of, or premium, if any, on the notes;

(3) failure by Ainsworth or any of its
Restricted Subsidiaries to comply with the provisions described
under the captions  Offers to Repurchase by
Ainsworth  Change of Control,
 Offers to Repurchase by Ainsworth 
Asset Sales, or  Certain
Covenants  Merger, Amalgamation, Consolidation or
Sale of Assets;

(4) failure by Ainsworth or any of its
Restricted Subsidiaries for 30 days after notice to comply
with any of the other agreements in the indenture;

(5) default under any mortgage, indenture or
instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by
Ainsworth or any of its Restricted Subsidiaries (or the payment
of which is guaranteed by Ainsworth or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the Issue Date, if that default:



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) is caused by a failure to pay principal
    of, or interest or premium, if any, on such Indebtedness prior
    to the expiration of the grace period provided in such
    Indebtedness on the date of such default (a Payment
    Default); or
|
| | (b) results in the acceleration of such
    Indebtedness prior to its expressed maturity,                                                                                                                                                           

and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates US$10.0 million or more;

(6) failure by Ainsworth or any of its
Restricted Subsidiaries to pay final judgments aggregating in
excess of US$10.0 million, net of applicable insurance
coverage, providedthat Ainsworth or such Restricted
Subsidiary has submitted a claim for such judgment and the
provider of such insurance has not disputed such coverage, which
judgments are not paid, discharged or stayed for a period of
60 days;

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(7) except as permitted by the indenture,
any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary
Guarantee; and

(8) certain events of bankruptcy or
insolvency described in the indenture with respect to Ainsworth
or any of its Restricted Subsidiaries that are Significant
Subsidiaries or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary.

In the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to
Ainsworth, any Restricted Subsidiary that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all
outstanding notes will become due and payable immediately
without further action or notice. If any other Event of Default
occurs and is continuing, the trustee or the Holders of at least
25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately.

Holders of the notes may not enforce the
indenture or the notes except as provided in the indenture.
Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may
withhold from Holders of the notes notice of any continuing
Default or Event of Default if it determines that withholding
notice is in their interest, except a Default or Event of
Default relating to the payment of principal or interest.

The Holders of a majority in aggregate principal
amount of the notes then outstanding by notice to the trustee
may on behalf of the Holders of all of the notes waive any
existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in
the payment of interest on, or the principal of, the notes.

In the case of any Event of Default occurring by
reason of any willful action or inaction taken or not taken by
or on behalf of Ainsworth with the intention of avoiding payment
of the premium that Ainsworth would have had to pay if Ainsworth
then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium
will also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the notes.

Ainsworth is required to deliver to the trustee
annually a statement regarding compliance with the indenture.
Upon becoming aware of any Default or Event of Default,
Ainsworth is required to deliver to the trustee a statement
specifying such Default or Event of Default.

No Personal Liability of Directors, Officers,
Employees and Stockholders

No director, officer, employee, incorporator or
stockholder of Ainsworth or any Guarantor, as such, will have
any liability for any obligations of Ainsworth or the Guarantors
under the notes, the indenture, the Subsidiary Guarantees, or
for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of notes by accepting
a note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes.
The waiver may not be effective to waive liabilities under the
federal securities laws.

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Legal Defeasance and Covenant
Defeasance

Ainsworth may, at its option and at any time,
elect to have all of its obligations discharged with respect to
the outstanding notes and all obligations of the Guarantors
discharged with respect to their Subsidiary Guarantees
(Legal Defeasance) except for:

(1) the rights of Holders of outstanding
notes to receive payments in respect of the principal of, or
interest or premium, if any, on such notes when such payments
are due from the trust referred to below;

(2) Ainsworths obligations with
respect to the notes concerning issuing temporary notes,
registration of notes, mutilated, destroyed, lost or stolen
notes and the maintenance of an office or agency for payment and
money for security payments held in trust;

(3) the rights, powers, trusts, duties and
immunities of the trustee, and Ainsworths and the
Guarantors obligations in connection therewith; and

(4) the Legal Defeasance provisions of the
indenture.

In addition, Ainsworth may, at its option and at
any time, elect to have the obligations of Ainsworth and the
Guarantors released with respect to certain covenants that are
described in the indenture (Covenant Defeasance) and
thereafter any omission to comply with those covenants will not
constitute a Default or Event of Default with respect to the
notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under
 Events of Default and Remedies will no
longer constitute an Event of Default with respect to the notes.

In order to exercise either Legal Defeasance or
Covenant Defeasance:

(1) Ainsworth must irrevocably deposit with
the trustee, in trust, for the benefit of the Holders of the
notes, cash in U.S. dollars, non-callable Government
Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or
interest and premium, if any, on the outstanding notes on the
stated maturity or on the applicable redemption date, as the
case may be, and Ainsworth must specify whether the notes are
being defeased to maturity or to a particular redemption date;

(2) in the case of Legal Defeasance,
Ainsworth must deliver to the trustee an opinion of counsel
reasonably acceptable to the trustee confirming that
(a) Ainsworth has received from, or there has been
published by, the Internal Revenue Service a ruling or
(b) since the Issue Date there has been a change in the
applicable U.S. federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel will
confirm that, the Holders of the outstanding notes will not
recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Legal Defeasance and will be
subject to U.S. federal income tax on the same amounts, in
the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance,
Ainsworth must deliver to the trustee an opinion of counsel
reasonably acceptable to the trustee confirming that the Holders
of the outstanding notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant
Defeasance had not occurred;

(4) in the case of Legal Defeasance or
Covenant Defeasance, Ainsworth must deliver to the trustee an
opinion of counsel in Canada reasonably acceptable to the
Trustee to the effect that Holders and beneficial owners of the
outstanding notes will not recognize income, gain or loss for
Canadian federal, provincial or territorial income tax or other
tax purposes as a result of such

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Legal Defeasance or Covenant Defeasance, as
applicable, and will be subject to Canadian federal, provincial
or territorial income tax and other tax on the same amounts, in
the same manner and at the same times as would have been the
case if such Legal Defeasance or Covenant Defeasance, as
applicable, had not occurred (which condition may not be waived
by any Holder or the trustee);


(5) no Default or Event of Default may have
occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit);

(6) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument
(other than the indenture) to which Ainsworth or any of its
Subsidiaries is a party or by which Ainsworth or any of its
Subsidiaries is bound;

(7) Ainsworth must deliver to the trustee an
officers certificate stating that the deposit was not made
by Ainsworth with the intent of preferring the Holders of the
notes over the other creditors of Ainsworth with the intent of
defeating, hindering, delaying or defrauding creditors of
Ainsworth or others; and

(8) Ainsworth must deliver to the trustee an
officers certificate and an opinion of counsel, each
stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding
paragraphs, the indenture or the notes may be amended or
supplemented with the consent of the Holders of at least a
majority in principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for,
notes), and any existing default or compliance with any
provision of the indenture or the notes may be waived with the
consent of the Holders of a majority in principal amount of the
then outstanding notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or
exchange offer for, notes).

Without the consent of each Holder affected, an
amendment or waiver may not (with respect to any notes held by a
non-consenting Holder):

(1) reduce the principal amount of notes
whose Holders must consent to an amendment, supplement or waiver;

(2) reduce the principal of or change the
fixed maturity of any note or alter the provisions with respect
to the redemption of the notes (other than provisions relating
to the covenants described above under the caption
 Offers to Repurchase by Ainsworth);

(3) reduce the rate of or change the time
for payment of interest on any note, including Additional
Amounts;

(4) waive a Default or Event of Default in
the payment of principal of, or interest or premium, if any, on
the notes (except a rescission of acceleration of the notes by
the Holders of at least a majority in aggregate principal amount
of the notes and a waiver of the payment default that resulted
from such acceleration);

(5) make any note payable in money other
than that stated in the notes;

(6) make any change in the provisions of the
indenture relating to waivers of past Defaults or the rights of
Holders of the notes to receive payments of principal of, or
interest or premium, if any, on the notes;

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(7) waive a redemption payment with respect
to any note (other than a payment required by one of the
covenants described above under the caption
 Offers to Repurchase by Ainsworth);

(8) release any Guarantor from any of its
obligations under its Subsidiary Guarantee or the indenture,
except in accordance with the terms of the indenture; or

(9) make any change in the preceding
amendment and waiver provisions.

Notwithstanding the preceding, without the
consent of any Holder of notes, Ainsworth, the Guarantors and
the trustee may amend or supplement the indenture or the notes:

(1) to cure any ambiguity, defect or
inconsistency;

(2) to provide for uncertificated notes in
addition to or in place of certificated notes;

(3) to provide for the assumption of
Ainsworths obligations to Holders of notes in the case of
a merger, amalgamation or consolidation or sale of all or
substantially all of Ainsworths assets;

(4) to make any change that would provide
any additional rights or benefits to the Holders of notes or
that in the good faith opinion of the Board of Directors of
Ainsworth (evidenced by a resolution of the Board of Directors
set forth in an officers certificate delivered to the
trustee) does not adversely affect the legal rights under the
indenture of any such Holder;

(5) to add a Guarantor; or

(6) to comply with requirements of the SEC
in order to effect or maintain the qualification of the
indenture under the Trust Indenture Act.

Satisfaction and Discharge

The indenture will be discharged and will cease
to be of further effect as to all notes issued thereunder, when:

(1) either:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all notes that have been authenticated,
    except lost, stolen or destroyed notes that have been replaced
    or paid and notes for whose payment money has been deposited in
    trust and thereafter repaid to Ainsworth, have been delivered to
    the trustee for cancellation; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (b) all notes that have not been delivered
    to the trustee for cancellation have become due and payable by
    reason of the mailing of a notice of redemption or otherwise or
    will become due and payable within one year and Ainsworth or any
    Guarantor has irrevocably deposited or caused to be deposited
    with the trustee as trust funds in trust solely for the benefit
    of the Holders, cash in U.S. dollars, non-callable
    Government Securities, or a combination of cash in
    U.S. dollars and non-callable Government Securities, in
    amounts as will be sufficient without consideration of any
    reinvestment of interest, to pay and discharge the entire
    indebtedness on the notes not delivered to the trustee for
    cancellation for principal, and premium, if any, and accrued
    interest to the date of maturity or redemption;

(2) no Default or Event of Default has
occurred and is continuing on the date of the deposit or will
occur as a result of the deposit and the deposit will not result
in a breach or violation of, or constitute a default under, any
other instrument to which Ainsworth or any Guarantor is a party
or by which Ainsworth or any Guarantor is bound;

(3) Ainsworth or any Guarantor has paid or
caused to be paid all sums payable by it under the
indenture; and

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(4) Ainsworth has delivered irrevocable
instructions to the trustee under the indenture to apply the
deposited money toward the payment of the notes at maturity or
the redemption date, as the case may be.

In addition, Ainsworth must deliver an
officers certificate and an opinion of counsel to the
trustee stating that all conditions precedent to satisfaction
and discharge have been satisfied.

Concerning the Trustee

If the trustee becomes a creditor of Ainsworth or
any Guarantor, the indenture limits its right to obtain payment
of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise.
The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC
for permission to continue or resign.

The Holders of a majority in principal amount of
the then outstanding notes will have the right to direct the
time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event
of Default occurs and is continuing, the trustee will be
required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the
request of any Holder of notes, unless such Holder has offered
to the trustee security and indemnity satisfactory to it against
any loss, liability or expense.

Governing Law

The indenture, the notes and the Subsidiary
Guarantees are governed by the laws of the State of
New York.

Enforceability of Judgments

Since a substantial portion of Ainsworths
and Ainsworth Engineered Corp.s assets are outside
the United States, any judgment obtained in the United States
against Ainsworth or against Ainsworth Engineered Corp. in
respect of its Subsidiary Guarantee, including judgments with
respect to the payment of principal, premium, if any, or
interest on the notes may not be collectible within the United
States.

Ainsworth has been informed by its Canadian
counsel, Borden Ladner Gervais LLP, that the laws of the
Province of British Columbia and the federal laws of Canada
applicable therein permit an action to be brought against
Ainsworth or a Guarantor in a court of competent jurisdiction in
such Province on any final and conclusive judgment in personam
of any federal or state court located in the Borough of
Manhattan in The City of New York (New York Court)
with respect to the indenture, the notes or a Subsidiary
Guarantee, that has not been stayed and is not impeachable as
void or voidable under the internal laws of the State of New
York and that is for a sum certain if (1) the New York
Court rendering such judgment had jurisdiction over the judgment
debtor, as recognized by the courts of the Province of British
Columbia (and submission by Ainsworth in the indenture, or by a
Guarantor in a supplemental indenture, to the jurisdiction of
the New York Court will be sufficient for that purpose);
(2) such judgment was not obtained by fraud or in a manner
contrary to natural justice and the enforcement thereof would
not be inconsistent with public policy, as such term is
understood under the laws of the Province of British Columbia,
for example because that would be contrary to any order made by
the Attorney General of Canada under the Foreign
Extraterritorial Measures Act (Canada), or the enforcement of
such judgment would constitute, directly or indirectly, the
enforcement of foreign revenue, expropriatory or penal laws;
(3) there is no manifest error on the face of the judgment;

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and (4) the action to enforce such judgment
is commenced within the applicable limitation period. Ainsworth
has been advised by such counsel that they do not know of any
reason under present laws of the Province of British Columbia
and the federal laws of Canada applicable therein for avoiding
enforcement of such judgments of New York Courts under the
indenture, the notes or a Subsidiary Guarantee, based upon
public policy.


Consent to Jurisdictions and Service

Ainsworth and Ainsworth Engineered Corp. have
each appointed, and any other non-U.S. Guarantors will each
appoint, CT Corporation System as its agent for service of
process in any suit, action or proceeding with respect to the
indenture, the notes or the Subsidiary Guarantees and for
actions brought under federal or state securities laws brought
in any federal or state court located in the Borough of
Manhattan in the City of New York and each of Ainsworth,
Ainsworth Engineered Corp., Ainsworth Engineered (USA), LLC
and any other Guarantors will submit to such jurisdiction.

Book-Entry, Delivery and Form



| |               
| | --------------
| | Exchange Notes

The exchange notes will be represented by two or
more global notes in definitive, fully registered form without
coupons (collectively, the Global Notes) and will be
deposited with the trustee as custodian for DTC and registered
in the name of a nominee of DTC. Except as set forth below, the
Global Notes may be transferred, in whole and not in part, only
to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be
exchanged for exchange notes in certificated form except in the
limited circumstances described below. See
 Exchange of Book-Entry Notes for Certificated
Notes.



| |                                                         
| | --------------------------------------------------------
| | Exchanges of Book-Entry Notes for
    Certificated Notes

A beneficial interest in a Global Note may not be
exchanged for an exchange note in certificated form unless
(i) DTC (x) notifies Ainsworth that it is unwilling or
unable to continue as Depository for such Global Note or
(y) has ceased to be a clearing agency registered under the
Exchange Act, (ii) in the case of a Global Note held for an
account of Euroclear or Clearstream, Euroclear or Clearstream,
as the case may be, (A) is closed for business for a
continuous period of 14 days (other than by reason of
statutory or other holidays) or (B) announces an intention
permanently to cease business or does in fact do so,
(iii) there shall have occurred and be continuing an Event
of Default with respect to the notes or (iv) a request for
certificates has been made upon 60 days prior written
notice given to the trustee in accordance with DTCs
customary procedures and a copy of such notice has been received
by Ainsworth from the trustee. In all cases, certificated notes
delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in
approved denominations, requested by or on behalf of DTC (in
accordance with its customary procedures). Any certificated
notes issued in exchange for an interest in a Global Note will
bear the legend restricting transfers that is borne by such
Global Note. Any such exchange will be effected only through the
DWAC System and an appropriate adjustment will be made in the
records of the security register to reflect a decrease in the
principal amount of the relevant Global Note.



| |             
| | ------------
| | Global Notes

The following description of the operations
and procedures of DTC, Euroclear and Clearstream is provided
solely as a matter of convenience. These operations and
procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time
to

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time. Ainsworth and the Guarantors take no
responsibility for these operations and procedures and urge
investors to contact the system or their participants directly
to discuss these matters.


Upon the issuance of the Global Notes, DTC will
credit, on its internal system, the respective principal amount
of the individual beneficial interests represented by such
Global Notes to the accounts with DTC (participants)
or persons who hold interests through participants. Ownership or
beneficial interests in the Global Notes will be shown on, and
the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with
respect to interest of persons other than participants).

As long as DTC, or its nominee, is the registered
Holder of a Global Note, DTC or such nominee, as the case may
be, will be considered the sole owner and Holder of the exchange
notes represented by such Global Note for all purposes under the
indenture and the exchange notes. Except in the limited
circumstances described above under  Exchanges
of Book-Entry Notes for Certificated Notes, owners of
beneficial interests in a Global Note will not be entitled to
have portions of such Global Note registered in their names,
will not receive or be entitled to receive physical delivery of
exchange notes in definitive form and will not be considered the
owners or Holders of the Global Note (or any notes presented
thereby) under the indenture or the exchange notes. In addition,
no beneficial owner of an interest in a Global Note will be able
to transfer that interest except in accordance with DTCs
applicable procedures (in addition to those under the indenture
referred to herein and, if applicable, those of Euroclear and
Clearstream). In the event that owners of beneficial interests
in a Global Note become entitled to receive exchange notes in
definitive form, such exchange notes will be issued only in
registered form in denominations of US$1,000 and integral
multiples thereof.

Investors may hold their interests in the Global
Notes directly through DTC, if they are participants in the DTC
system, or indirectly through organizations (including Euroclear
and Clearstream) which are participants in the DTC system.
Euroclear and Clearstream will hold interests in the Global
Notes on behalf of their participants through customers
securities accounts in their respective accounts in their
respective names on the books of their respective depositaries,
which, in turn, will hold such interests in the Global Notes in
customers securities accounts in the depositaries
names on the books of DTC. All interests in a Global Note,
including those held through Euroclear or Clearstream, may be
subject to the procedures and requirements of DTC. Those
interests held through Euroclear and Clearstream may also be
subject to the procedures and requirements of such system.

The laws of some states require that certain
persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of participants,
which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a
Global Note to pledge such interests to persons or entities that
do not participate in the DTC system, or otherwise take action
in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.

Payments of the principal of and interest on
Global Notes will be made to DTC or its nominee as the
registered owner thereof. Neither Ainsworth, the trustee nor any
of their respective agents will have any responsibility or
liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.

Except for trades involving only Euroclear or
Clearstream, beneficial interests in the Global Notes will trade
in DTCs Same-Day Funds Settlement System, and secondary
market trading activity in such interests will therefore settle
in immediately available funds. Ainsworth expects that DTC or
its nominee, upon receipt of any payment of principal or
interest in respect of a Global Note representing any notes held
by it or its nominee, will immediately credit participants

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accounts with payment in amounts proportionate to
their respective beneficial interests in the principal amount of
such notes as shown on the records of DTC or its nominee.
Ainsworth also expects that payments by participants to owners
of beneficial interests in such Global Notes held through such
participants will be governed by standing instructions and
customary practices, as is now the case with securities held for
the accounts of customers registered in street name.
Such payments will be the responsibility of such participants.


Transfers between participants in DTC will be
effected in accordance with DTCs procedures, and will be
settled in same-day funds. Transfers between participants in
Euroclear and Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating
procedures.

Subject to compliance with the transfer
restrictions applicable to the notes described above,
cross-market transfers between DTC participants, on the one
hand, and Euroclear or Clearstream participants on the other
hand, will be effected by DTC in accordance with DTC rules on
behalf of Euroclear or Clearstream, as the case may be, by its
respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear
or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within
the established deadlines (Brussels time) of such system.
Euroclear or Clearstream, as the case may be, will if the
transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to
effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same
day funds settlement applicable to DTC. Euroclear participants
and Clearstream participants may not deliver instructions
directly to the depositaries for Euroclear or Clearstream.

Because of time zone differences, the securities
account of a Euroclear or Clearstream participant purchasing an
interest in a Global Note from a DTC participant will be
credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the
securities settlement processing day (which must be a business
day for Euroclear and Clearstream) immediately following the DTC
settlement date. Cash received on Euroclear or Clearstream as a
result of sales of interests in a Global Note by or through a
Euroclear or Clearstream participant to a DTC participant will
be received with value on the DTC settlement date but will be
available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream
following the DTC settlement date.

DTC has advised Ainsworth that it will take any
action permitted to be taken by a Holder of notes (including the
presentation of Notes for exchange as described below) only at
the direction of one or more participants to whose account with
DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the
notes as to which such participant or participants has or have
given such direction. However, if there is an Event of Default
(as defined below) under the notes, DTC reserves the right to
exchange the Global Notes for legended Notes in certificated
form, and to distribute such Notes to its participants.

DTC has advised Ainsworth as follows: DTC is



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a limited purpose trust company organized under
    the laws of the State of New York,                                                                                                            
|
| |  | a banking organization within the
    meaning of New York Banking law,                                                                                                                          
|
| |  | a member of the Federal Reserve System,                                                                                                                                                           
|
| |  | a clearing corporation within the
    meaning of the Uniform Commercial Code, as amended, and                                                                                                   
|
| |  | a Clearing Agency registered pursuant
    to the provisions of Section 17A of the Exchange Act. DTC
    was created to hold securities for its participants and
    facilitate the clearance and

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | settlement of securities transactions between
    participants through electronic book-entry changes in accounts
    of its participants, thereby eliminating the need for physical
    transfer and delivery of certificates. Participants include
    securities brokers and dealers, banks, trust companies and
    clearing corporations and may include certain other
    organizations. Indirect access to the DTC system is available to
    other entities such as banks, brokers, dealers and trust
    companies that clear through or maintain a custodial
    relationship with a participant, either directly or indirectly
    (indirect participants).

Although DTC, Euroclear and Clearstream have
agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Notes
among participants of DTC, Euroclear and Clearstream, they are
under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time.
None of Ainsworth, the Guarantors, the trustee nor any of their
respective agents will have any responsibility for the
performance by DTC, Euroclear and Clearstream, their
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial
ownership interests in Global Notes.

Same-Day Settlement and Payment

Ainsworth will make payments in respect of the
notes represented by the Global Notes (including principal,
premium, if any, and interest) by wire transfer of immediately
available funds to the accounts specified by the Global
Note Holder. Ainsworth will make all payments of principal,
interest and premium, if any, with respect to Certificated Notes
by wire transfer of immediately available funds to the accounts
specified by the Holders of the Certificated Notes or, if no
such account is specified, by mailing a check to each such
Holders registered address. The notes represented by the
Global Notes are expected to be eligible to trade in the PORTAL
market and to trade in DTCs Same-Day Funds Settlement
System, and any permitted secondary market trading activity in
such notes will, therefore, be required by DTC to be settled in
immediately available funds. Ainsworth expects that secondary
trading in any Certificated Notes will also be settled in
immediately available funds.

Certain Definitions

Set forth below are certain defined terms used in
the indenture. Reference is made to the indenture for a full
disclosure of all such terms, as well as any other capitalized
terms used herein for which no definition is provided.

Acquired
Indebtednessmeans, with respect
to any specified Person:

(1) Indebtedness of any other Person
existing at the time such other Person is merged with or into or
became a Subsidiary of such specified Person, whether or not
such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and

(2) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.

Affiliateof any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes
of this definition, control, as used with respect to
any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; providedthat
beneficial ownership of 10% or more of the Voting Stock of a
Person will

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be deemed to be control. For purposes of this
definition, the terms controlling, controlled
by and under common control with have
correlative meanings.


Asset
Salemeans:

(1) the sale, lease, conveyance or other
disposition of any assets or rights, other than sales of
inventory in the ordinary course of business consistent with
past practices, but excluding the Equity Interests or other
Investments in Unrestricted Subsidiaries; provided that
the sale, conveyance or other disposition of all or
substantially all of the assets of Ainsworth and its Restricted
Subsidiaries taken as a whole will be governed by the provisions
of the indenture described above under the caption
 Offers to Repurchase by Ainsworth 
Change of Control and/or the provisions described above
under the caption  Certain
Covenants  Merger, Amalgamation, Consolidation or
Sale of Assets and not by the provisions of the Asset Sale
covenant; and

(2) the issuance of Equity Interests in any
of Ainsworths Restricted Subsidiaries or the sale of
Equity Interests in any of its Restricted Subsidiaries other
than directors qualifying shares.

Notwithstanding the preceding, the following
items will not be deemed to be Asset Sales:

(1) any single transaction or series of
related transactions that involves assets having a fair market
value of less than US$1.0 million;

(2) a transfer of assets between or among
Ainsworth and its Wholly Owned Restricted Subsidiaries;

(3) an issuance of Equity Interests by a
Restricted Subsidiary to Ainsworth or to a Wholly Owned
Restricted Subsidiary;

(4) the sale or other disposition of cash or
Cash Equivalents, or the sale of accounts receivable in the
ordinary course of business or in connection with the
compromise, settlement or collection thereof;

(5) the disposition of surplus, obsolete,
discontinued or worn-out equipment or other immaterial assets no
longer used in the ongoing business of Ainsworth and its
Restricted Subsidiaries; and

(6) a sale or other disposition that
immediately results in a Permitted Investment or a Restricted
Payment that is permitted by the covenant described above under
the caption  Certain Covenants 
Restricted Payments.

Attributable
Debtin respect of a sale and
leaseback transaction means, at the time of determination, the
present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which
such lease has been extended or may, at the option of the
lessor, be extended. Such present value shall be calculated
using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP.

Beneficial
Ownerhas the meaning assigned
to such term in Rule 13d-3 and Rule 13d-5 under the
Exchange Act, except that in calculating the beneficial
ownership of any particular person (as that term is
used in Section 13(d)(3) of the Exchange Act), such
person will be deemed to have beneficial ownership
of all securities that such person has the right to
acquire by conversion or exercise of other securities, whether
such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition. The terms
Beneficially Owns and Beneficially Owned
have a corresponding meaning.

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Board of
Directorsmeans:

(1) with respect to a corporation, the board
of directors of the corporation;

(2) with respect to a partnership, the Board
of Directors of the general partner of the partnership; and

(3) with respect to any other Person, the
board or committee of such Person serving a similar function.

Borrowing
Basemeans, as of any date, an
amount equal to:

(1) 85% of the face amount of all accounts
receivable owned by Ainsworth and the Guarantors as of the end
of the most recent fiscal quarter preceding such date for which
internal financial statements are available that were not more
than 90 days past due; plus

(2) 65% of the book value of all inventory
owned by Ainsworth and the Guarantors as of the end of the most
recent fiscal quarter preceding such date for which internal
financial statements are available, all calculated on a
consolidated basis and in accordance with GAAP.

Buy/ Sell
Optionmeans a compulsory offer
to purchase or sell an interest in the High Level Project made
pursuant to the High Level Memorandum of Agreement or similar or
replacement documents relating to the High Level Project.

Capital Lease
Obligationmeans, at the time
any determination is to be made, the amount of the liability in
respect of a capital lease that would at that time be required
to be capitalized on a balance sheet in accordance with GAAP.

Capital
Stockmeans:

(1) in the case of a corporation, corporate
stock;

(2) in the case of an association or
business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate
stock;

(3) in the case of a partnership or limited
liability company, partnership or membership interests (whether
general or limited); and

(4) any other interest or participation that
confers on a Person the right to receive a share of the profits
and losses of, or distributions of assets of, the issuing Person.

Cash
Equivalentsmeans:

(1) United States dollars or Canadian
dollars;

(2) securities issued or directly and fully
guaranteed or insured by the United States government or the
Canadian government or any agency or instrumentality of the
United States government or the Canadian government (providedthat the full faith and credit of the United States or
Canada, as applicable, is pledged in support of those
securities) having maturities of not more than six months from
the date of acquisition;

(3) certificates of deposit and eurodollar
time deposits with maturities of six months or less from the
date of acquisition, bankers acceptances with maturities
not exceeding six months and overnight bank deposits, in each
case, with any lender party to a Credit Facility or U.S. or
Canadian commercial bank having capital and surplus in excess of
US$500.0 million and a Thomson Bank Watch Rating of
B or better;

(4) repurchase obligations with a term of
not more than seven days for underlying securities of the types
described in clauses (2) and (3) above entered into
with any financial institution meeting the qualifications
specified in clause (3) above;

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(5) commercial paper having the highest
rating obtainable from Moodys Investors Service, Inc. or
Standard & Poors Rating Services and in each case
maturing within six months after the date of acquisition; and

(6) money market funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds
described in clauses (1) through (5) of this
definition.

Change of
Controlmeans the occurrence of
any of the following:

(1) the direct or indirect sale, transfer,
conveyance or other disposition (other than by way of merger,
amalgamation or consolidation), in one or a series of related
transactions, of all or substantially all of the properties or
assets of Ainsworth and its Restricted Subsidiaries taken as a
whole to any person (as that term is used in
Section 13(d)(3) of the Exchange Act) other than the
Permitted Holders;

(2) the adoption of a plan relating to the
liquidation or dissolution of Ainsworth;

(3) the consummation of any transaction
(including, without limitation, any merger, amalgamation or
consolidation) the result of which is that any
person (as defined above), together with any
Affiliates or Related Persons thereof, other than the Permitted
Holders, becomes the Beneficial Owner, directly or indirectly,
of at least 50% of the total voting power of Voting Stock of
Ainsworth;

(4) any person (as defined
above), together with any Affiliates or Related Persons thereof,
other than the Permitted Holders, shall succeed in having a
sufficient number of its nominees elected to the Board of
Directors of Ainsworth such that such nominees, when added to
any existing director remaining on the Board of Directors of
Ainsworth after such election who was a nominee of or is an
Affiliate or Related Person of such person, will constitute a
majority of the Board of Directors of Ainsworth; or

(5) Ainsworth consolidates or amalgamates
with, or merges with or into, any Person, or any Person
consolidates or amalgamates with, or merges with or into,
Ainsworth, in any such event pursuant to a transaction in which
any of the outstanding Voting Stock of Ainsworth or such other
Person is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting
Stock of Ainsworth outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).

Common
Stockof any Person means
Capital Stock of such Person that does not rank prior, as to the
payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or
winding-up of such Person, to shares of Capital Stock of any
other class of such Person.

Consolidated Cash
Flowmeans, with respect to any
specified Person for any period, the Consolidated Net Income of
such Person for such period plus:

(1) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was deducted
in computing such Consolidated Net Income; plus

(2) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in
respect of letter of credit or

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bankers acceptance financings, and net of
the effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted
in computing such Consolidated Net Income; plus


(3) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated
Net Income; minus

(4) non-cash items increasing such
Consolidated Net Income for such period, other than the accrual
of revenue in the ordinary course of business,

in each case, on a consolidated basis and
determined in accordance with GAAP; providedthat, if the
consolidated financial statements of Ainsworth include a
minority interest, the amounts in the foregoing clauses (1)
to (5) shall be calculated net of any such amounts included in
determining the minority interest.

Notwithstanding the preceding, the provision for
taxes based on the income or profits of, and the depreciation
and amortization and other non-cash expenses of, a Restricted
Subsidiary of Ainsworth will be added to Consolidated Net Income
to compute Consolidated Cash Flow of Ainsworth only to the
extent that a corresponding amount would be permitted at the
date of determination to be dividended to Ainsworth by such
Restricted Subsidiary without prior governmental approval (that
has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.

Consolidated Net
Incomemeans, with respect to
any specified Person for any period, the aggregate of the Net
Income of such Person and its Restricted Subsidiaries for such
period, on a consolidated basis, determined in accordance with
GAAP; providedthat:

(1) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted
for by the equity method of accounting will be included only to
the extent of the amount of dividends or distributions paid in
cash to the specified Person or a Restricted Subsidiary of the
Person;

(2) the Net Income of any Restricted
Subsidiary will be excluded to the extent that the declaration
or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders;

(3) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the
date of such acquisition will be excluded; and

(4) the cumulative effect of a change in
accounting principles will be excluded.

Consolidated Net Tangible
Assetsmeans the total amount of
assets of any Person on a consolidated basis, including deferred
pension costs, after deducting therefrom (i) all current
liabilities (excluding any indebtedness classified as a current
liability), (ii) all goodwill, trade names, trademarks,
patents, unamortized debt discount and financing costs and all
other like intangible assets and (iii) appropriate
adjustments on account of minority interests of other Persons
holding shares of the Subsidiaries of such Person, all as set
forth in the most recent balance sheet of such Person and its
consolidated Subsidiaries (but, in any event, as of a date

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within 150 days of the date of
determination) and computed in accordance with generally
accepted accounting principles.


Credit
Facilitiesmeans one or more
debt facilities or commercial paper facilities, in each case
with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as
amended, extended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.

Defaultmeans any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

Disqualified
Stockmeans any Capital Stock of
Ainsworth that, by its terms (or by the terms of any security
into which it is convertible, or for which it is exchangeable,
in each case at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise,
or redeemable at the option of the holder of the Capital Stock,
in whole or in part, on or prior to the date that is
91 days after the date on which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that
would constitute Disqualified Stock solely because the holders
of the Capital Stock have the right to require Ainsworth to
repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock
if the terms of such Capital Stock provide that Ainsworth may
not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with
the covenant described above under the caption
 Certain Covenants  Restricted
Payments.

Equity
Interestsmeans Capital Stock
and all warrants, options or other rights to acquire Capital
Stock (but excluding any debt security that is convertible into,
or exchangeable for, Capital Stock).

Existing
Indebtednessmeans the
Indebtedness of Ainsworth and its Restricted Subsidiaries in
existence on the Issue Date, until such amounts are repaid.

Fixed
Chargesmeans, with respect to
any specified Person and its Restricted Subsidiaries for any
period, the sum, without duplication, of:

(1) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period,
whether paid or accrued, including, without limitation,
amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of
letter of credit or bankers acceptance financings, and net
of the effect of all payments made or received pursuant to
Hedging Obligations; plus

(2) the consolidated interest of such Person
and its Restricted Subsidiaries that was capitalized during such
period; plus

(3) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries, whether or not
such Guarantee or Lien is called upon; plus

(4) the amount of all payments charged to
shareholders equity on any compound financial
instrument (as described under GAAP) paid, accrued or
scheduled to be paid or accrued during such period; plus

(5) the product of (a) all dividends,
whether paid or accrued and whether or not in cash, on any
series of Disqualified Stock or preferred stock of such Person
or any of its Restricted

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Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of Ainsworth (other
than Disqualified Stock) or to Ainsworth or a Wholly Owned
Restricted Subsidiary of Ainsworth, times (b) a fraction,
the numerator of which is one and the denominator of which is
one minus the then current combined federal, provincial, state
and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance
with GAAP.


Fixed Charge Coverage
Ratiomeans with respect to any
specified Person for any period, the ratio of the Consolidated
Cash Flow of such Person and its Restricted Subsidiaries for
such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the
specified Person or any of its Restricted Subsidiaries incurs,
assumes, guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems Disqualified Stock or preferred
stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated and on or prior
to the date on which the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the Calculation
Date), then the Fixed Charge Coverage Ratio will be
calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of
Indebtedness, or such issuance, repurchase or redemption of
Disqualified Stock or preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning
of the applicable four-quarter reference period.

In addition, for purposes of calculating the
Fixed Charge Coverage Ratio:

(1) acquisitions that have been made by the
specified Person or any of its Restricted Subsidiaries,
including through mergers, amalgamation or consolidations and
including any related financing transactions, during the
four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date will be given pro
forma effect as if they had occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for
such reference period will be calculated on a pro forma basis in
accordance with Regulation S-X under the Securities Act,
but without giving effect to clause (3) of the proviso set
forth in the definition of Consolidated Net Income;

(2) the Consolidated Cash Flow attributable
to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the
Calculation Date, will be excluded;

(3) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the
Calculation Date, will be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date; and

(4) the consolidated interest expense of the
specified Person and its Restricted Subsidiaries attributable to
interest on any Indebtedness (whether existing or being
incurred) computed on a pro forma basis and bearing a floating
interest rate shall be computed as if the rate in effect on the
Calculation Date (taking into account Hedging Obligations
applicable to such Indebtedness if such agreement has a
remaining term in excess of 12 months or, if shorter, at
least equal to the remaining term of such Indebtedness) had been
the applicable rate for the entire period.

GAAPmeans, as of any date of determination, generally accepted
accounting principles in Canada and which are applicable as of
any date of determination.

Grantmeans Grant Forest Products Inc., an Ontario corporation, any
other Person or Persons who replace Grant and become co-owners
of the High Level Project, any successor entity thereto, and any
Affiliate thereof.

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Guaranteemeans a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business,
direct or indirect, in any manner including, without limitation,
by way of a pledge of assets or through letters of credit or
reimbursement agreements in respect thereof, of all or any part
of any Indebtedness.

Guarantorsmeans any Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture and its
respective successors and assigns.

Hedging
Obligationsmeans, with respect
to any specified Person, the obligations of such Person under:

(1) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements; and

(2) other agreements or arrangements
designed to protect such Person against fluctuations in currency
exchange rates, commodity prices or interest rates.

High Level Memorandum of
Agreementmeans the memorandum
of agreement, dated as of December 9, 1999, between
Ainsworth and Grant Forest Products Corp., relating to the High
Level Project.

High Level
Projectmeans the oriented
strand board facility, jointly owned by Ainsworth and Grant,
located near High Level, Alberta, together with all associated,
operating, shareholder and ownership agreements and rights held
by Footner Forest Products Ltd. to harvest logs processed
through such facility pursuant to a deciduous timber allocation
issued by the government of Alberta.

Indebtednessmeans, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent:

(1) in respect of borrowed money;

(2) evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement
agreements in respect thereof);

(3) in respect of bankers acceptances;

(4) representing Capital Lease Obligations;

(5) representing the balance deferred and
unpaid of the purchase price of any property, except any such
balance that constitutes an accrued expense or trade
payable; or

(6) representing any Hedging Obligations,

if and to the extent any of the preceding items
(other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP; provided,
however, that Indebtedness shall not include obligations of
any Person (i) arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary
course of business, providedthat such obligations are
extinguished within 15 days of their incurrence,
(ii) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business
and consistent with past business practices and (iii) under
stand-by letters of credit to the extent collateralized by cash
or cash equivalents. In addition, the term
Indebtedness includes all Indebtedness of others
secured by a Lien on any asset of the specified Person (whether
or not such Indebtedness is assumed by the specified Person)
and, to the extent not otherwise included, the Guarantee by the
specified Person of any indebtedness of any other Person.

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The amount of any Indebtedness outstanding as of
any date will be:

(1) the accreted value of the Indebtedness,
in the case of any Indebtedness issued with original issue
discount; and

(2) the principal amount of the
Indebtedness, together with any interest on the Indebtedness
that is more than 30 days past due, in the case of any
other Indebtedness.

Investment Grade
Ratingsmeans (i) BBB- or
above, in the case of S&P (or its equivalent under any
successor Rating Categories of S&P) and Baa3 or above, in
the case of Moodys (or its equivalent under any successor
Rating Categories of Moodys), or (ii) the equivalent
in respect of the Rating Categories of any Rating Agencies
substituted for S&P or Moodys.

Investmentsmeans, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including
Affiliates) in the forms of loans (including Guarantees or other
obligations), advances or capital contributions (excluding
commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are
or would be classified as investments on a balance sheet
prepared in accordance with GAAP, but shall not include trade
accounts receivable in the ordinary course of business on credit
terms made generally available to customers of such Person. If
Ainsworth or any Subsidiary of Ainsworth sells or otherwise
disposes of any Equity Interests of any direct or indirect
Subsidiary of Ainsworth such that, after giving effect to any
such sale or disposition, such Person is no longer a Subsidiary
of Ainsworth, Ainsworth will be deemed to have made an
Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary
not sold or disposed of in an amount determined as provided in
the final paragraph of the covenant described above under the
caption  Certain Covenants 
Restricted Payments. The acquisition by Ainsworth or any
Subsidiary of Ainsworth of a Person that holds an Investment in
a third Person will be deemed to be an Investment by Ainsworth
or such Subsidiary in such third Person in an amount equal to
the fair market value of the Investment held by the acquired
Person in such third Person in an amount determined as provided
in the final paragraph of the covenant described above under the
caption  Certain Covenants 
Restricted Payments.

Issue
Datemeans the date of original
issuance of the notes.

Lienmeans, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect
of such asset, whether or not filed, recorded or otherwise
perfected under applicable law, including any conditional sale
or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction.

Net
Incomemeans, with respect to
any specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:

(1) any gain or loss, together with any
related provision for taxes on such gain or loss, realized in
connection with: (a) any Asset Sale; or (b) the
disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted
Subsidiaries; and

(2) any extraordinary gain or loss, together
with any related provision for taxes on such extraordinary gain
or loss.

Net
Proceedsmeans the aggregate
cash proceeds received by Ainsworth or any of its Restricted
Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition
of any non-cash consideration received in any Asset

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Sale), net of the direct costs relating to such
Asset Sale, including, without limitation, legal, accounting and
investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale,
taxes paid or payable as a result of the Asset Sale, in each
case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, and amounts
required to be applied to the repayment of Indebtedness secured
by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with
GAAP.


Non-Guarantor Restricted
Subsidiariesmeans any North
American Restricted Subsidiaries that collectively do not have
total assets in excess of US$3.0 million, and which are
designated by the Board of Directors of Ainsworth as evidenced
by a resolution of the Board of Directors delivered to the
trustee.

Non-Recourse
Debtmeans Indebtedness:

(1) as to which neither Ainsworth nor any of
its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;

(2) no default with respect to which
(including any rights that the holders of the Indebtedness may
have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any
holder of any other Indebtedness of Ainsworth or any of its
Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be
accelerated or payable prior to its stated maturity; and

(3) as to which the lenders have been
notified in writing that they will not have any recourse to the
stock or assets of Ainsworth or any of its Restricted
Subsidiaries;

except for any limited recourse guarantee solely
for the purpose of supporting the pledge by Ainsworth or any of
its Restricted Subsidiaries of the Equity Interests of any
Unrestricted Subsidiaries.

North American Restricted
Subsidiarymeans any Restricted
Subsidiary of Ainsworth that was formed under the laws of the
United States or any state of the United States or the District
of Columbia or under the laws of Canada or any province or
territory thereof.

Obligationsmeans any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.

Permitted
Businessmeans any business that
derives a majority of its revenues from the businesses engaged
in by Ainsworth and its Restricted Subsidiaries on the Issue
Date and/or activities that are reasonably similar, ancillary or
related to, or a reasonable extension, development or expansion
of, the businesses in which Ainsworth and its Restricted
Subsidiaries are engaged on the Issue Date.

Permitted
Holdermeans (i) each of
David Ainsworth, D. Allen Ainsworth and Brian E. Ainsworth,
(ii) the members of the immediate family of each of the
persons referred to in clause (i) above, (iii) any
trust created for the benefit of any of the persons referred to
in clauses (i) and (ii) above or (iv) any Person
at least 85% of the outstanding Capital Stock of which is owned
by one or more of the persons described in clauses (i),
(ii) and (iii) above.

Permitted
Investmentsmeans:

(1) any Investment in Ainsworth or in a
Restricted Subsidiary;

(2) any Investment in Cash Equivalents;

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(3) any Investment by Ainsworth or any
Guarantor in a Person, if as a result of such Investment:



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) such Person becomes a Guarantor; or                                                                                                                                                      
|
| | (b) such Person is merged, consolidated or
    amalgamated with or into, or transfers or conveys substantially
    all of its assets to, or is liquidated into, Ainsworth or a
    Guarantor;

(4) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described
above under the caption  Offers to Repurchase
by Ainsworth  Asset Sales;

(5) any acquisition of assets, Capital Stock
or other securities solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Ainsworth;

(6) any Investments by Ainsworth or a
Restricted Subsidiary received in compromise of claims,
settlements of debts or disputes or satisfaction of judgments
relating to obligations payable to Ainsworth or such Restricted
Subsidiary, as the case may be, in its capacity as trade
creditor or from customers, which obligations were incurred in
the ordinary course of business, including pursuant to any plan
of reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer;

(7) Hedging Obligations in the ordinary
course of business and not for speculative purposes;

(8) an Investment by Ainsworth or any
Restricted Subsidiary in a Permitted Joint Venture; providedthat the aggregate amount of all Investments made pursuant
to this clause (8) does not exceed US$3.0 million at
any one time outstanding; and

(9) other Investments in any Person having
an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent
changes in value), when taken together with all other
Investments made pursuant to this clause (9) since
March 3, 2004, not to exceed 5% of the Consolidated Net
Tangible Assets of Ainsworth.

Permitted Joint
Venturemeans any joint venture
arrangement created by Ainsworth or one of its Restricted
Subsidiaries, the primary purpose of which is to obtain fiber to
supply the operations of Ainsworth or its Restricted
Subsidiaries, providedthat Ainsworth and its Restricted
Subsidiaries own an equity interest in such arrangement of at
least 40% of the Equity Interests in such arrangement.

Permitted
Liensmeans:

(1) Liens to secure Indebtedness permitted
by clause (1) of the second paragraph of the covenant
entitled  Certain Covenants 
Incurrence of Indebtedness and Issuance of Preferred Stock
on the accounts receivable and inventories (including spare
parts) of Ainsworth and its Restricted Subsidiaries, including
the proceeds thereof and all money, securities and property of
Ainsworth and its Restricted Subsidiaries and the proceeds
thereof held by any lender of such indebtedness, and all related
books and records and other intangibles evidencing such
collateral;

(2) Liens in favor of Ainsworth or the
Guarantors;

(3) Liens on property of a Person existing
at the time such Person is merged with or into or amalgamated or
consolidated with Ainsworth or any Restricted Subsidiary of
Ainsworth; providedthat such Liens were in existence
prior to the contemplation of such merger, amalgamation or
consolidation and do not extend to any assets other than those
of the Person merged into or consolidated or amalgamated with
Ainsworth or the Restricted Subsidiary;

(4) Liens on property existing at the time
of acquisition of the property by Ainsworth or any Restricted
Subsidiary of Ainsworth, provided that such Liens were in
existence prior to the contemplation of such acquisition;

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(5) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary
course of business;

(6) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (4) of the
second paragraph of the covenant entitled
 Certain Covenants  Incurrence of
Indebtedness and Issuance of Preferred Stock covering only
the assets acquired with such Indebtedness;

(7) Liens existing on the Issue Date;

(8) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded,
providedthat any reserve or other appropriate provision
as is required in conformity with GAAP has been made therefor;

(9) Liens securing Indebtedness under
Hedging Obligations in the ordinary course of business and not
for speculative purposes; provided that (a) such
Liens are only secured by property or assets that secure the
Indebtedness subject to the Hedging Obligation or (b) if
such Hedging Obligations are with one or more parties to Credit
Facilities, then secured by the same collateral as secures the
applicable Credit Facilities;

(10) Liens on the Equity Interests of
Unrestricted Subsidiaries or Permitted Joint Ventures securing
Indebtedness of such Unrestricted Subsidiaries or Permitted
Joint Ventures not otherwise prohibited by the indenture;

(11) Liens securing Permitted Refinancing
Indebtedness incurred to refinance any secured Indebtedness;
providedthat the Liens securing such Permitted
Refinancing Indebtedness are not extended to any additional
assets or property;

(12) Liens incurred in the ordinary course
of business of Ainsworth or any Restricted Subsidiary of
Ainsworth with respect to obligations that do not exceed at any
one time outstanding 5% of the Consolidated Net Tangible Assets
of Ainsworth;

(13) a general security agreement between
Ainsworth and Grant securing the obligations of Ainsworth or its
subsidiaries under the High Level Memorandum of Agreement or
similar documents relating to the High Level Project; and

(14) Liens securing Purchase Money
Indebtedness; provided, however, that
(a) such Purchase Money Indebtedness shall not exceed the
purchase price or other cost of such property or equipment and
shall not be secured by any property or equipment of Ainsworth
or any Restricted Subsidiary of Ainsworth other than the
property and equipment so acquired and (b) the Lien
securing such Purchase Money Indebtedness shall be created
within 90 days of such acquisition.

Permitted Refinancing
Indebtednessmeans any
Indebtedness of Ainsworth or any of its Restricted Subsidiaries
or Disqualified Stock of Ainsworth or preferred stock of
Restricted Subsidiaries of Ainsworth issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness of Ainsworth or
any of its Restricted Subsidiaries or Disqualified Stock of
Ainsworth or preferred stock of Restricted Subsidiaries of
Ainsworth (other than intercompany Indebtedness, Disqualified
Stock or preferred stock); providedthat:

(1) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness, Disqualified Stock or preferred
stock extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest or dividends on the
Indebtedness, Disqualified

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Stock or preferred stock and the amount of all
expenses and premiums incurred in connection therewith);


(2) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, replaced, defeased or
refunded;

(3) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the notes or a Subsidiary
Guarantee, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is
subordinated in right of payment to, the notes or such
Subsidiary Guarantee on terms at least as favorable to the
Holders of the notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and

(4) such Indebtedness is incurred either by
Ainsworth or by the Restricted Subsidiary that is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.

Personmeans any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization, limited liability company or government or other
entity.

Purchase Money
Indebtednessmeans Indebtedness
of Ainsworth and its Restricted Subsidiaries for the purpose of
financing all or any part of the purchase price, or the
installation, construction or improvement, of property
(including Capital Stock) or equipment.

Rating
Agenciesmeans
(i) Standard & Poors Ratings Services
(S&P) and Moodys Investors Service
(Moodys) or (ii) if S&P or
Moodys or both of them are not making ratings of the notes
publicly available, a nationally recognized U.S. rating
agency or agencies, as the case may be, selected by Ainsworth,
which will be substituted for S&P or Moodys or both,
as the case may be.

Rating
Categorymeans (i) with
respect to S&P, any of the following categories (and any
associated + or - designation): AAA, AA,
A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moodys, any of the
following categories (and any associated 1,
2 or 3 designation): Aaa, Aa, A, Baa,
Ba, B, Caa, Ca, C and D (or equivalent successor categories);
and (iii) the equivalent of any such categories of S&P
or Moodys used by another Rating Agency, if applicable.

Related
Personof any Person means any
other Person directly or indirectly owning (a) 5% or more
of the outstanding Common Stock of such Person (or, in the case
of a Person that is not a corporation, 5% or more of the equity
interest in such Person) or (b) 5% or more of the combined
voting power of the Voting Stock of such Person.

Restricted
Investmentmeans an Investment
other than a Permitted Investment.

Restricted
Subsidiaryof a Person means any
Subsidiary of that Person that is not an Unrestricted Subsidiary.

Right of First
Refusalmeans the exercise by
Ainsworth of the right to acquire the interest of Grant in the
High Level Project pursuant to the right of first refusal option
contained in the High Level Memorandum of Agreement or similar
or replacement documents related to the High Level Project.

Significant
Subsidiarymeans any Subsidiary
that would be a significant subsidiary as defined in
Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date hereof.

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Stated
Maturitymeans, with respect to
any installment of interest or principal on any series of
Indebtedness, the date on which the payment of interest or
principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment
thereof.

Subsidiarymeans, with respect to any specified Person:

(1) any corporation, association or other
business entity of which more than 50% of the total voting power
of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of
directors, managers or trustees of the corporation, association
or other business entity is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person (or a combination
thereof); and

(2) any partnership (a) the sole
general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only
general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).

Unrestricted
Subsidiarymeans any Subsidiary
of Ainsworth that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only
to the extent that such Subsidiary:

(1) has no Indebtedness other than
Non-Recourse Debt;

(2) is not party to any agreement, contract,
arrangement or understanding with Ainsworth or any Restricted
Subsidiary of Ainsworth unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to
Ainsworth or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of
Ainsworth;

(3) is a Person with respect to which
neither Ainsworth nor any of its Restricted Subsidiaries has any
direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve
such Persons financial condition or to cause such Person
to achieve any specified levels of operating results;

(4) has not Guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of
Ainsworth or any of its Restricted Subsidiaries; and

(5) has at least one director on its Board
of Directors that is not a director or executive officer of
Ainsworth or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive
officer of Ainsworth or any of its Restricted Subsidiaries.

Any designation of a Subsidiary of Ainsworth as
an Unrestricted Subsidiary will be evidenced to the trustee by
filing with the trustee a certified copy of the Board Resolution
giving effect to such designation and an officers
certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described
above under the caption  Certain
Covenants  Restricted Payments. If, at any
time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it will
thereafter cease to be an Unrestricted Subsidiary for purposes
of the indenture and any Indebtedness of such Subsidiary will be
deemed to be incurred by a Restricted Subsidiary of Ainsworth as
of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the
caption  Certain Covenants 
Incurrence of Indebtedness and Issuance of Preferred
Stock, Ainsworth will be in default of such covenant. The
Board of Directors of Ainsworth may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary;
providedthat such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of
Ainsworth of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if
(1) such Indebtedness is permitted under the covenant
described under the caption  Certain
Covenants  Incurrence of

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Indebtedness and Issuance of Preferred
Stock, calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default
would be in existence following such designation.


Voting
Stockof any Person as of any
date means the Capital Stock of such Person that is at the time
entitled to vote in the election of the Board of Directors of
such Person.

Weighted Average Life to
Maturitymeans, when applied to
any Indebtedness at any date, the number of years obtained by
dividing:

(1) the sum of the products obtained by
multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by

(2) the then outstanding principal amount of
such Indebtedness.

Wholly Owned Restricted
Subsidiaryof any Person means a
Restricted Subsidiary of such Person all of the outstanding
Capital Stock or other ownership interests of which (other than
directors qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.

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PLAN OF DISTRIBUTION

Each broker-dealer that receives exchange notes
for its own account pursuant to the exchange offer must
acknowledge that it will deliver a prospectus in connection with
any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes
received in exchange for original notes where the original notes
were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of
180 days after the completion of the exchange offer, we
will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.

We will not receive any proceeds from any sale of
exchange notes by broker-dealers. Exchange notes received by
broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a
combination of those methods of resale, at market prices
prevailing at the time of resale, at prices related to
prevailing market prices or negotiated prices. Any resale may be
made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any
of the exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in
a distribution of the exchange notes may be deemed to be an
underwriter within the meaning of the Securities Act
and any profit on any resale of exchange notes and any
commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.

For a period of 180 days after the
completion of the exchange offer, we will promptly send a
reasonable number of additional copies of this prospectus and
any amendment or supplement to this prospectus to any
broker-dealer that is entitled to use such documents and that
requests such documents in the letter of transmittal. We have
agreed to pay all expenses incident to the exchange offer other
than commissions or concessions of any brokers or dealers and
will indemnify the holders of the exchange notes (including any
broker-dealers) against certain liabilities, including
liabilities under the Securities Act. We note, however, that in
the opinion of the SEC, indemnification against liabilities
under federal securities laws is against public policy and may
be unenforceable.

The exchange notes have not been and will not be
qualified for distribution under the securities laws of any
province or territory of Canada and are being offered and sold
in Canada only in reliance on available prospectus exemptions.

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INCOME TAX CONSIDERATIONS

U.S. Federal Income Tax
Considerations

The following is a general discussion of the
material U.S. federal income tax consequences of the
exchange offer and the acquisition, ownership and disposition of
notes (as used in this section of the prospectus, the original
notes and exchange notes are collectively referred to as the
notes) by U.S. Holders and
non-U.S. Holders (as defined below). It applies only to
notes held as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as
amended, (the Code) and to holders who purchased
their notes at the issue price within the meaning of
Section 1272 of the Code. This summary is intended for
general information only, and does not discuss all of the tax
consequences that may be relevant to a holder and does not
discuss the tax consequences applicable to particular classes of
holders that may be subject to special tax rules, such as
dealers in securities or currencies, traders in securities that
elect mark to market, banks, tax-exempt organizations,
partnerships, S corporations, life insurance companies,
persons that hold notes as part of a hedge, or as part of a
straddle or conversion transaction, U.S. expatriates,
corporations subject to the accumulated earnings tax, controlled
foreign corporations, passive foreign investment companies,
foreign personal holding companies, or taxpayers subject to the
alternative minimum tax or whose functional currency is not the
U.S. dollar. This summary also does not address the tax
consequences to shareholders, partners or beneficiaries in any
entity that holds notes. In addition, this summary does not
describe any foreign, state or local tax considerations. This
summary is based on the Code, its legislative history, existing
and proposed Treasury regulations thereunder, published rulings
and court decisions, all as currently in effect and all subject
to change at any time, possibly with retroactive effect.

U.S. Holders of notes should consult
their own tax advisors concerning the consequences, in their
particular circumstances, under the Code and the laws of any
other taxing jurisdiction, of the exchange offer and the
ownership and disposition of notes.

For the purposes of this summary, a
U.S. Holder is a beneficial owner that is:



| |   |                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an individual citizen or resident of the United
    States for U.S. federal income tax purposes;                                                                                                                                                                                                                                                      
|
| |  | a corporation, or other entity taxable as a
    corporation, created or organized in or under the laws of the
    United States or of any political subdivision of the United
    States;                                                                                                                                                             
|
| |  | an estate that is subject to U.S. federal
    income tax without regard to the source of its income; or                                                                                                                                                                                                                                               
|
| |  | a trust if (i) a United States court is able
    to exercise primary supervision over administration of the trust
    and one or more United States persons have authority to control
    all substantial decisions of the trust, or (ii) the trust
    has elected to be treated as a United States person under
    applicable Treasury regulations.

The exchange of an original note for an exchange
note in the exchange offer is not a taxable exchange. As a
result, a U.S. Holder will not recognize any gain or loss
upon exchanging an original note for an exchange note in the
exchange offer. The holding period of an exchange note will
include the holding period of an original note exchanged
therefor, and the adjusted tax basis of the exchange note
received by a U.S. Holder in the exchange offer will be the
same as the adjusted tax basis of the original note exchanged
therefor immediately before the exchange.

Additionally, for purposes of this summary, a
non-U.S. Holder is a holder that is not a
U.S. Holder.

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| |                                 
| | --------------------------------
| | Consequences to
    U.S. Holders

For U.S. federal income tax purposes, the
stated interest paid on a note generally will be taxable to a
U.S. Holder as U.S. source ordinary income at the time
received or accrued, in accordance with such
U.S. Holders method of accounting for tax purposes.

Upon the sale or exchange of a note, a
U.S. Holder will recognize gain or loss, if any, for
U.S. federal income tax purposes equal to the difference
between the amount realized on such sale or exchange (other than
amounts received that are attributable to accrued but unpaid
interest and taxed as interest) and such U.S. Holders
adjusted tax basis in the note. Such gain or loss generally will
constitute U.S. source capital gain or loss, and will be
long-term capital gain or loss if the note was held by such
U.S. Holder for more than one year. A
U.S. Holders ability to deduct capital losses against
ordinary income is subject to limitations.

Information reporting of payments of principal
and interest, and proceeds of the sale of a note effected within
the U.S. or conducted through a U.S. related Financial
institution or broker, to non-corporate U.S. Holders
generally will be made on Internal Revenue Service
Form 1099.

A U.S. Holder may be subject to backup
withholding tax with respect to interest paid on the notes and
to proceeds from the taxable sale, exchange, redemption or
retirement of the note, unless the holder (a) is a
corporation or comes within certain other exempt categories and,
when required, demonstrates that fact or (b) provides a
correct taxpayer identification number, certifies that it has
not lost its exemption from backup withholding, and has not been
notified by the U.S. Internal Revenue Service (the
IRS) that it has failed to report any interest or
dividends and otherwise complies with applicable requirements of
the backup withholding or rules. A holder of a note who does not
provide us with the holders correct taxpayer
identification number may be subject to penalties imposed by the
U.S. Internal Revenue Service.

Backup withholding is not an additional tax. Any
amount paid as backup withholding will be creditable against the
holders U.S. federal income tax liability.



| |                                     
| | ------------------------------------
| | Consequences to
    non-U.S. Holders

Subject to the discussion below concerning backup
withholding, no withholding of U.S. federal tax should be
required with respect to the payment of principal or interest on
a note owned by a non-U.S. Holder under the portfolio
interest exemption, provided that such holder:

(i) does not actually or constructively own
10% or more of the total combined voting power of all classes of
our stock entitled to vote within the meaning of
Section 871(h)(3) of the Code;

(ii) is not a controlled foreign corporation
that is related to us through stock ownership;

(iii) is not a bank whose receipt of
interest on a note is described in Section 881(c)(3)(A); and

(iv) either (a) provides a properly
executed IRS Form W-8BEN (or a suitable substitute or
successor form) certifying under penalties of perjury that the
holder is not a United States person, or (b) holds its
notes through various foreign intermediaries and satisfies the
certification requirements of applicable Treasury regulations.

Note, special certification and other rules apply
to certain non-U.S. Holders that are entities rather than
individuals, particularly entities treated as partnerships for
U.S. federal income tax purposes and certain other
flowthrough entities, and to non-U.S. Holders acting as (or
holding notes through) intermediaries.

If a non-U.S. Holder cannot satisfy the
requirements of the portfolio interest exemption, payments of
interest made to such holder will be subject to a 30%
U.S. federal withholding tax unless such holder provides us
or our paying agent, as the case may be, with a properly
executed Form W-8 either (i) claiming an exemption from or
a reduction in withholding under a

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income tax treaty or (ii) claiming the
interest is not subject to U.S. federal withholding tax
because it is effectively connected with its conduct of a trade
or business in the United States.


If a non-U.S. Holder is engaged in a trade
or business in the United States and interest on such
holders note is effectively connected with the conduct of
such trade or business (or, if certain income tax treaties
apply, is attributable to a U.S. permanent establishment),
such holder (although exempt from U.S. federal withholding
tax, as discussed above, provided the certification requirements
described above are satisfied), will be subject to
U.S. federal income tax on such interest on a net income
basis in the same manner as if the holder were a United States
person as defined under the Code. In addition, if such holder is
a foreign corporation, such holder may be subject to a branch
profits tax equal to 30% (or a lesser rate, if certain income
tax treaties apply) of such amount, subject to adjustments.

Upon the sale, exchange, retirement or other
disposition of notes by a non-U.S. Holder, any gain
realized generally will not be subject to U.S. federal
income tax unless:

(i) such gain is effectively connected with
such holders conduct of a trade or business in the United
States, or if certain income tax treaties apply, is attributable
to such holders permanent establishment; or

(ii) such holder is an individual, is
present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other
disposition and certain other conditions are met.

If a non-U.S. Holder is a foreign
corporation and is described in clause (i) above, such
holder will be subject to U.S. federal income tax on such
gain on a net income basis in the same manner as if the holder
were a United States person as defined under the Code and, in
addition, may be subject to the branch profits tax described
above.

We are required to report annually to the IRS and
to each non-U.S. Holder the amount of interest paid to such
holder and the tax withheld with respect to such interest.
Copies of the information returns reporting such interest and
withholding may also be made available to the tax authorities in
the country in which the non-U.S. Holder resides under the
provisions of an applicable income tax treaty. A
non-U.S. Holder may be subject to backup withholding on
interest paid to such holder unless applicable certification
requirements are met.

If a note is sold by a non-U.S. Holder
outside the United States and such sale is conducted through a
non-United States related financial institution or broker,
backup withholding and information reporting generally would not
apply. Information reporting and, depending on the
circumstances, backup withholding, may apply to the proceeds of
a sale of a note within the United States or conducted through a
U.S. related financial institution or broker unless the
beneficial owner certifies under penalties of perjury that it is
a non-U.S. Holder (and the payer does not have actual
knowledge or reason to know that the beneficial owner is a
United States person) or the owner otherwise establishes an
exemption.

As discussed above, any amounts withheld under
the backup withholding rules will be creditable against the
holders U.S. federal income tax liability.

Canadian Federal Income Tax
Considerations

The following summary describes the principal
Canadian federal income tax considerations generally applicable
to a person who exchanges notes for exchange notes pursuant to
the exchange offer and who, for the purposes of the Income
Tax Act(Canada) (the Canadian Tax Act) at all
relevant times, is not resident or deemed to be resident in
Canada, deals at arms length with us, and does not use or
hold and is not deemed or considered to use or hold the notes or
exchange notes in carrying on business in Canada (an
Unconnected Holder). Special rules which are not
discussed below may apply to an Unconnected Holder that is an
insurer that

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carries on an insurance business in Canada and
elsewhere. This summary does not apply in respect of additional
notes issued under the indenture as described in
Description of Notes  Principal, Maturity and
Interest.


This discussion is based on the current
provisions of the Canadian Tax Act and the regulations
thereunder (the Regulations) in force on the date
hereof, all specific proposals to amend the Canadian Tax Act and
the Regulations publicly announced or released by or on behalf
of the Minister of Finance (Canada) prior to the date hereof
(the Tax Proposals) and our understanding of the
published administrative and assessing policies and practices of
the Canada Revenue Agency. No assurances can be given that the
Tax Proposals will be enacted as proposed, or at all. This
summary is not exhaustive of all possible Canadian federal
income tax considerations and, except as mentioned above, does
not take into account or anticipate any other changes in law or
administrative practice, whether by legislative, government or
judicial decision or action and does not take into account
provincial, territorial or foreign income tax legislation or
considerations.

This discussion is not intended to be, nor
should it be interpreted as, legal or tax advice to any
particular Unconnected Holder and no representation is made with
respect to the Canadian federal income tax consequences to any
particular person acquiring exchange notes. Unconnected Holders
should therefore consult their own tax advisors with respect to
their particular circumstances.

The exchange of original notes for exchange notes
pursuant to the exchange offer will not be a taxable event for
Canadian federal income tax purposes.

An Unconnected Holder will not be subject to
withholding tax under the Canadian Tax Act in respect of amounts
paid or credited by us, on account or in lieu of payment of, or
in satisfaction of, the principal of the notes or exchange
notes, or interest or premium (if any) thereon.

No other taxes on income, including taxable
capital gains, will be payable by an Unconnected Holder under
the Canadian Tax Act solely as a consequence of the ownership,
acquisition or disposition of exchange notes.

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LEGAL MATTERS

Certain legal matters in connection with the
offering of the notes will be passed upon for us by Skadden,
Arps, Slate, Meagher & Flom LLP, Toronto, Ontario, with
respect to matters of United States law, and by Borden Ladner
Gervais LLP, Vancouver, British Columbia, with respect to
matters of Canadian law.

EXPERTS

The audited consolidated financial statements of
Ainsworth included in this prospectus have been audited by
Deloitte & Touche LLP, independent registered chartered
accountants, as stated in their report appearing in this
prospectus and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.

The financial statements of Voyageur Panel
Limited as of December 31, 2003 and 2002 and for each of
the years then ended, have been included in this prospectus and
in the Registration Statement, in reliance upon the report of
KPMG LLP, independent chartered accountants, appearing
elsewhere herein, and upon the authority of said firm as experts
in accounting and auditing.

The financial statements of the Oriented Strand
Board Manufacturing Facilities of Potlatch Corporation as of
December 31, 2003 and 2002 and for each of the years in the
three-year period ended December 31, 2003, have been
included in this prospectus and in the Registration Statement,
in reliance upon the report of KPMG LLP, independent
accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on
Form F-4 with the SEC with respect to the exchange notes
offered under this prospectus. This prospectus, which
constitutes a part of the registration statement, does not
contain all of the information in the registration statements or
the exhibits to the registration statement. For further
information about us and the exchange notes, you should review
the registration statement and the exhibits to the registration
statement.

We are subject to certain of the informational
requirements of the Securities Exchange Act of 1934, and in
accordance therewith, file reports and other information with
the SEC. As a foreign private issuer, we are exempt from the
rules under the Exchange Act prescribing the furnishing and
content of proxy statements, and our officers, directors and
principal shareholders are exempt from the reporting and short
swing profit recovery provisions contained in Section 16 of
the Exchange Act.

The registration statement of which this
prospectus forms a part, including the exhibits thereto, as well
as our Exchange Act reports and other information filed with the
SEC may be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SECs regional offices at 233 Broadway, New York,
New York 10279 and at Northwestern Atrium Center, 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661-2551.
Copies of such material can also be obtained from the principal
office of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates, or by
accessing the SECs world wide website on the Internet at
http://www.sec.gov.

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INDEX TO FINANCIAL STATEMENTS

|                                                                   |                                                                                                                                    |      |  |      | 
|------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | 
|                                                                   |                                                                                                                                    | Page
|                                                                   |                                                                                                                                    |     
|Consolidated Financial Statements of Ainsworth
    Lumber Co. Ltd. |                                                                                                                                    |      |  |     
|Audited Consolidated Financial Statements                          |                                                                                                                                    |      |  |     
|                                                                   | Report of Independent Registered Chartered
    Accountants                                                                         |      |  | F-3  | 
|                                                                   | Consolidated Balance Sheets as at
    December 31, 2002 and 2003                                                                   |      |  | F-4  | 
|                                                                   | Consolidated Statements of Operations and
    Retained Earnings (Deficit) for the years ended
    December 31, 2001, 2002 and 2003 |      |  | F-5  | 
|                                                                   | Consolidated Statements of Cash Flows for the
    years ended December 31, 2001, 2002 and 2003                                     |      |  | F-6  | 
|                                                                   | Notes to the Consolidated Financial Statements                                                                                     |      |  | F-7  | 
|Unaudited Consolidated Financial Statements                        |                                                                                                                                    |      |  |     
|                                                                   | Consolidated Balance Sheets as at
    December 31, 2003 and June 30, 2004                                                          |      |  | F-25 | 
|                                                                   | Consolidated Statements of Operations and
    Retained Earnings for the three months ended June 30, 2003
    and 2004              |      |  | F-26 | 
|                                                                   | Consolidated Statements of Cash Flows for the
    three months ended June 30, 2003 and 2004                                        |      |  | F-27 | 
|                                                                   | Notes to the Unaudited Consolidated Financial
    Statements                                                                       |      |  | F-28 | 
|Financial Statements of Voyageur Panel
    Limited                 |                                                                                                                                    |      |  |     
|Audited Financial Statements                                       |                                                                                                                                    |      |  |     
|                                                                   | Independent Auditors Report of KPMG LLP                                                                                           |      |  | F-38 | 
|                                                                   | Balance Sheets as at December 31, 2002 and
    2003                                                                                |      |  | F-39 | 
|                                                                   | Statements of Earnings (Loss) for the years ended
    December 31, 2002 and 2003                                                   |      |  | F-40 | 
|                                                                   | Statements of Shareholders Equity for the
    years ended December 31, 2002 and 2003                                              |      |  | F-41 | 
|                                                                   | Statements of Cash Flows for the years ended
    December 31, 2002 and 2003                                                        |      |  | F-42 | 
|                                                                   | Notes to Financial Statements                                                                                                      |      |  | F-43 | 
|Unaudited Financial Statements                                     |                                                                                                                                    |      |  |     
|                                                                   | Balance Sheets as at March 31, 2003 and 2004                                                                                       |      |  | F-53 | 
|                                                                   | Statements of Earnings for the three months ended
    March 31, 2003 and 2004                                                      |      |  | F-54 | 
|                                                                   | Statements of Shareholders Equity for the
    three months ended March 31, 2003 and 2004                                          |      |  | F-55 | 
|                                                                   | Statements of Cash Flows for the three months
    ended March 31, 2003 and 2004                                                    |      |  | F-56 | 
|                                                                   | Notes to the Unaudited Financial Statements                                                                                        |      |  | F-57 | 
|Financial Statements relating to the Minnesota
    OSB Facilities  |                                                                                                                                    |      |  |     
|Audited Financial Statements                                       |                                                                                                                                    |      |  |     
|                                                                   | Independent Auditors Report of KPMG LLP                                                                                           |      |  | F-66 | 
|                                                                   | Balance Sheets as at December 31, 2002 and
    2003                                                                                |      |  | F-67 | 
|                                                                   | Statements of Operations for the years ended
    December 31, 2001, 2002 and 2003                                                  |      |  | F-68 | 
|                                                                   | Statements of Parents Equity for the years
    ended December 31, 2001, 2002 and 2003                                             |      |  | F-69 | 
|                                                                   | Statements of Cash Flows for the years ended
    December 31, 2001, 2002 and 2003                                                  |      |  | F-70 | 
|                                                                   | Notes to Financial Statements                                                                                                      |      |  | F-71 | 
|Unaudited Financial Statements                                     |                                                                                                                                    |      |  |     
|                                                                   | Balance Sheets as at June 30, 2003 and 2004                                                                                        |      |  | F-80 | 
|                                                                   | Statements of Operations for the six months ended
    June 30, 2003 and 2004                                                       |      |  | F-81 | 
|                                                                   | Statements of Cash Flows for the six months ended
    June 30, 2003 and 2004                                                       |      |  | F-82 | 
|                                                                   | Notes to the Unaudited Financial Statements                                                                                        |      |  | F-83 | 

F-1



---



##### 



|                                              |                                                                                           |      |  |      | 
|--------------------------------------------- | ----------------------------------------------------------------------------------------- | ---- |  | ---- | 
|                                              |                                                                                           | Page
|                                              |                                                                                           |     
|Unaudited Pro Forma Financial
    Information |                                                                                           |      |  |     
|                                              | Pro Forma Consolidated Balance Sheet as at
    June 30, 2004                              |      |  | F-88 | 
|                                              | Pro Forma Consolidated Statement of Operations
    for the year ended December 31, 2003   |      |  | F-89 | 
|                                              | Pro Forma Consolidated Statement of Operations
    for the six months ended June 30, 2004 |      |  | F-90 | 
|                                              | Notes to Pro Forma Consolidated Financial
    Statements                                  |      |  | F-91 | 

F-2



---



##### 



Report of Independent Registered Chartered
Accountants

To the Board of Directors of

Ainsworth Lumber Co. Ltd.


We have audited the consolidated balance sheets
of Ainsworth Lumber Co. Ltd. as at December 31, 2002 and
2003 and the consolidated statements of operations and retained
earnings and cash flows for each of the years ended
December 31, 2001, 2002 and 2003. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Company as at
December 31, 2002 and December 31, 2003 and the
results of its operations and its cash flows for the years ended
December 31, 2001, 2002 and 2003 in accordance with
Canadian generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Chartered Accountants


Vancouver, British Columbia


February 14, 2004


F-3



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Balance Sheets

As at December 31

(thousands of Canadian dollars)


|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------- | ---- | --------- | ---- |  | ---- | ------- | ------ |  | - | ------- | ------- | 
|                                         |                                                                                       | Note |           | 2002 |  | 2003
|                                         |                                                                                       |      |           |      |  |     
|ASSETS                                   |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|CURRENT ASSETS                           |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         | Cash and cash equivalents                                                             |      |           | 2    |  |      | $       | 80,195 |  |   | $       | 194,054 | 
|                                         | Accounts receivable, net of allowance for
    doubtful accounts of $320 (2002  $646) |      |           |      |  |      |         | 23,592 |  |   |         | 30,242  | 
|                                         | Inventories                                                                           |      |           | 3    |  |      |         | 50,906 |  |   |         | 53,153  | 
|                                         | Investment tax credit recoverable                                                     |      |           | 4    |  |      |         |       |  |   |         | 30,060  | 
|                                         | Income taxes receivable                                                               |      |           |      |  |      |         | 120    |  |   |         |        | 
|                                         | Prepaid expenses                                                                      |      |           |      |  |      |         | 2,655  |  |   |         | 3,433   | 
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         |                                                                                       |      |           |      |  |      | 157,468 |        |  |   | 310,942 |        
|CAPITAL ASSETS                           |                                                                                       |      | 5         |      |  |      | 369,263 |        |  |   | 293,502 |        
|OTHER ASSETS                             |                                                                                       |      | 7         |      |  |      | 28,321  |        |  |   | 23,277  |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         |                                                                                       |      |           |      |  | $    | 555,052 |        |  | $ | 627,721 |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|CURRENT LIABILITIES                      |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         | Accounts payable                                                                      |      |           |      |  |      | $       | 17,415 |  |   | $       | 17,985  | 
|                                         | Accrued liabilities                                                                   |      |           |      |  |      |         | 36,954 |  |   |         | 29,776  | 
|                                         | Income taxes payable                                                                  |      |           |      |  |      |         |       |  |   |         | 3,494   | 
|                                         | Current portion of long-term debt                                                     |      |           | 10   |  |      |         | 46     |  |   |         | 250     | 
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         |                                                                                       |      |           |      |  |      | 54,415  |        |  |   | 51,505  |        
|REFORESTATION OBLIGATION                 |                                                                                       |      | 9         |      |  |      | 4,634   |        |  |   | 4,802   |        
|LONG-TERM DEBT                           |                                                                                       |      | 10        |      |  |      | 440,332 |        |  |   | 352,227 |        
|FUTURE INCOME TAXES                      |                                                                                       |      | 13        |      |  |      | 7,300   |        |  |   | 47,396  |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         |                                                                                       |      |           |      |  |      | 506,681 |        |  |   | 455,930 |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|COMMITMENTS AND CONTINGENCIES            |                                                                                       |      | 15 and 17 |      |  |      |         |        |  |   |         |        
|SHAREHOLDERS EQUITY                     |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|Capital stock                            |                                                                                       |      | 11        |      |  |      | 53,083  |        |  |   | 53,110  |        
|Contributed surplus                      |                                                                                       |      |           |      |  |      | 375     |        |  |   | 118     |        
|Retained earnings (deficit)              |                                                                                       |      |           |      |  |      | (5,087  | )      |  |   | 118,563 |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         |                                                                                       |      |           |      |  |      | 48,371  |        |  |   | 171,791 |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        
|                                         |                                                                                       |      |           |      |  | $    | 555,052 |        |  | $ | 627,721 |        
|                                         |                                                                                       |      |           |      |  |      |         |        |  |   |         |        

See accompanying Notes to the Consolidated
Financial Statements

F-4



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Statements of Operations and
Retained Earnings (Deficit)

Years ended December 31

(thousand of Canadian Dollars, except share and
per share data)


|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |         |  
|------------------------------------------------------------- | ---------------------------------------- | ---- | -- | ---- |  | ---- | ---------- | ------- | - | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                                              |                                          | Note |    | 2001 |  | 2002 |            | 2003   
|                                                              |                                          |      |    |      |  |      |            |        
|SALES                                                         |                                          |      |    |      |  | $    | 326,664    |         |   | $ | 356,055    |         |   | $ | 481,073    |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|COSTS AND EXPENSES                                            |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              | Costs of products sold                   |      |    |      |  |      |            | 244,009 |   |   |            | 263,968 |   |   |            | 260,915 |  
|                                                              | Selling and administration               |      |    |      |  |      |            | 22,698  |   |   |            | 21,908  |   |   |            | 18,167  |  
|                                                              | Amortization of capital assets           |      |    | 5    |  |      |            | 30,377  |   |   |            | 31,960  |   |   |            | 32,972  |  
|                                                              | Write-down of capital assets             |      |    | 5    |  |      |            | 3,306   |   |   |            | 1,044   |   |   |            | 13,696  |  
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              |                                          |      |    |      |  |      | 300,390    |         |   |   | 318,880    |         |   |   | 325,750    |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|OPERATING EARNINGS                                            |                                          |      |    |      |  |      | 26,274     |         |   |   | 37,175     |         |   |   | 155,323    |        
|FINANCE EXPENSE                                               |                                          |      | 12 |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              | Interest charges                         |      |    |      |  |      |            | (51,729 | ) |   |            | (57,151 | ) |   |            | (51,177 | )
|                                                              | Amortization charges                     |      |    |      |  |      |            | (8,278  | ) |   |            | (5,349  | ) |   |            | (4,867  | )
|                                                              | Loss on repurchase of debt               |      |    | 10   |  |      |            |        |   |   |            |        |   |   |            | (81     | )
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              |                                          |      |    |      |  |      | (60,007    | )       |   |   | (62,500    | )       |   |   | (56,125    | )      
|OTHER INCOME (EXPENSE)                                        |                                          |      |    |      |  |      | 2,768      |         |   |   | 2,901      |         |   |   | (508       | )      
|UNREALIZED FOREIGN EXCHANGE GAIN (LOSS) ON LONG
    TERM DEBT |                                          |      |    |      |  |      | (17,401    | )       |   |   | 4,279      |         |   |   | 76,932     |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|INCOME (LOSS) BEFORE INCOME TAXES                             |                                          |      |    |      |  |      | (48,366    | )       |   |   | (18,145    | )       |   |   | 175,622    |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|INCOME TAX EXPENSE (RECOVERY)                                 |                                          |      | 13 |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              | Current                                  |      |    |      |  |      |            | 1,261   |   |   |            | 1,777   |   |   |            | 11,876  |  
|                                                              | Future                                   |      |    |      |  |      |            | (19,976 | ) |   |            | (2,049  | ) |   |            | 40,096  |  
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              |                                          |      |    |      |  |      | (18,715    | )       |   |   | (272       | )       |   |   | 51,972     |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|INCOME (LOSS) FROM CONTINUING OPERATIONS                      |                                          |      |    |      |  |      | (29,651    | )       |   |   | (17,873    | )       |   |   | 123,650    |        
|GAIN FROM DISCONTINUED OPERATIONS                             |                                          |      | 14 |      |  |      | 4,227      |         |   |   |           |         |   |   |           |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|NET INCOME (LOSS)                                             |                                          |      |    |      |  |      | (25,424    | )       |   |   | (17,873    | )       |   |   | 123,650    |        
|RETAINED EARNINGS (DEFICIT), BEGINNING OF YEAR                |                                          |      |    |      |  |      | 38,210     |         |   |   | 12,786     |         |   |   | (5,087     | )      
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|RETAINED EARNINGS (DEFICIT), END OF YEAR                      |                                          |      |    |      |  | $    | 12,786     |         |   | $ | (5,087     | )       |   | $ | 118,563    |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|BASIC AND FULLY DILUTED EARNINGS (LOSS) PER SHARE             |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              | Income (loss) from continuing operations |      |    |      |  |      | $          | (2.04   | ) |   | $          | (1.23   | ) |   | $          | 8.49    |  
|                                                              | Gain from discontinued operations        |      |    |      |  |      |            | 0.29    |   |   |            |        |   |   |            |        |  
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|                                                              | Earnings (loss) per share                |      |    |      |  |      | $          | (1.75   | ) |   | $          | (1.23   | ) |   | $          | 8.49    |  
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        
|WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING                 |                                          |      |    |      |  |      | 14,544,800 |         |   |   | 14,544,800 |         |   |   | 14,558,707 |        
|                                                              |                                          |      |    |      |  |      |            |         |   |   |            |         |   |   |            |        

See accompanying Notes to the Consolidated
Financial Statements

F-5



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Statements of Cash
Flows

Years ended December 31

(Thousands of Canadian dollars)


|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |         |         |  
|------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------------------- | -- | ---- | - | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | - | ------- | ------- | ------- | -
|                                                              |                                                          | Note                                                        |    | 2001 |   | 2002 |         | 2003   
|                                                              |                                                          |                                                             |    |      |   |      |         |        
|CASH FLOWS FROM OPERATING ACTIVITIES                          |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|                                                              | Income (Loss) from continuing operations                 |                                                             |    |      |   |      | $       | (29,651 | )       |   | $       | (17,873 | )      |   | $       | 123,650 |        
|                                                              | Amounts not requiring an outlay of cash                  |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |         |        
|                                                              |                                                          | Amortization of capital assets                              |    |      | 5 |      |         |         | 30,377  |   |         |         | 31,960 |   |         |         | 32,972  |  
|                                                              |                                                          | Amortization of financing costs                             |    |      |   |      |         |         | 1,385   |   |         |         | 2,567  |   |         |         | 2,568   |  
|                                                              |                                                          | Amortization of debt discount                               |    |      |   |      |         |         | 721     |   |         |         | 854    |   |         |         | 852     |  
|                                                              |                                                          | Unrealized foreign exchange (gain) loss;
    long-term debt |    |      |   |      |         |         | 17,401  |   |         |         | (4,279 | ) |         |         | (76,932 | )
|                                                              |                                                          | Loss on repurchase of debt                                  |    |      |   |      |         |         |        |   |         |         |       |   |         |         | 81      |  
|                                                              |                                                          | Amortization of consent and commitment fees                 |    |      |   |      |         |         | 6,172   |   |         |         | 1,929  |   |         |         | 1,447   |  
|                                                              |                                                          | Non-cash stock based compensation                           |    |      |   |      |         |         | 64      |   |         |         | 29     |   |         |         | (230    | )
|                                                              |                                                          | Loss (gain) on disposal of capital assets                   |    |      |   |      |         |         | (26     | ) |         |         | 7      |   |         |         | 400     |  
|                                                              |                                                          | Writedown of capital assets                                 |    |      | 5 |      |         |         | 3,306   |   |         |         | 1,044  |   |         |         | 13,296  |  
|                                                              |                                                          | Write-off of security deposits on lease
    termination     |    |      |   |      |         |         |        |   |         |         | 980    |   |         |         |        |  
|                                                              |                                                          | Adjustment to deferred pension assets                       |    |      |   |      |         |         | (1,461  | ) |         |         | 9      |   |         |         | 803     |  
|                                                              |                                                          | Change in non-current reforestation obligation              |    |      |   |      |         |         | 624     |   |         |         | (218   | ) |         |         | 168     |  
|                                                              |                                                          | Utilization of investment tax credit                        |    |      | 4 |      |         |         |        |   |         |         |       |   |         |         | 7,120   |  
|                                                              |                                                          | Future income taxes                                         |    |      |   |      |         |         | (19,976 | ) |         |         | (2,049 | ) |         |         | 40,096  |  
|                                                              | Change in non-cash operating working capital             |                                                             |    | 20   |   |      |         | (36,720 | )       |   |         | (7,530  | )      |   |         | (12,669 | )      
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|Cash provided by (used in) operating activities               |                                                          |                                                             |    |      |   |      | (27,784 | )       |         |   | 7,430   |         |        |   | 133,622 |        
|Cash provided by discontinued operations                      |                                                          |                                                             | 14 |      |   |      | 4,812   |         |         |   |        |         |        |   |        |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|                                                              |                                                          |                                                             |    |      |   |      | (22,972 | )       |         |   | 7,430   |         |        |   | 133,622 |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                          |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|                                                              | Additions to capital assets                              |                                                             |    |      |   |      |         | (20,110 | )       |   |         | (14,113 | )      |   |         | (8,236  | )      
|                                                              | Decrease (increase) in other assets                      |                                                             |    |      |   |      |         | 723     |         |   |         | (161    | )      |   |         | (144    | )      
|                                                              | Proceeds on disposals of capital assets                  |                                                             |    |      |   |      |         | 201     |         |   |         | 38      |        |   |         | 151     |        
|                                                              | Discontinued operations, additions to capital
    assets |                                                             |    |      |   |      |         | (1,650  | )       |   |         |        |        |   |         |        |        
|                                                              | Discontinued operations, proceeds on disposal            |                                                             |    |      |   |      |         | 29,226  |         |   |         |        |        |   |         |        |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|                                                              |                                                          |                                                             |    |      |   |      | 8,390   |         |         |   | (14,236 | )       |        |   | (8,229  | )      
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                          |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|                                                              | Proceeds from issue of Senior Secured Notes              |                                                             |    |      |   |      |         | 151,316 |         |   |         |        |        |   |         |        |        
|                                                              | Redemption of Senior Secured Notes                       |                                                             |    |      |   |      |         |        |         |   |         |        |        |   |         | (11,985 | )      
|                                                              | Financing costs                                          |                                                             |    |      |   |      |         | (7,007  | )       |   |         |        |        |   |         |        |        
|                                                              | Consent and commitment fees                              |                                                             |    |      |   |      |         | (14,164 | )       |   |         |        |        |   |         |        |        
|                                                              | Decrease in bank indebtedness                            |                                                             |    |      |   |      |         | (28,331 | )       |   |         |        |        |   |         |        |        
|                                                              | Increase (decrease) in capital lease obligations         |                                                             |    |      |   |      |         | (270    | )       |   |         | 39      |        |   |         | 451     |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|                                                              |                                                          |                                                             |    |      |   |      | 101,544 |         |         |   | 39      |         |        |   | (11,534 | )      
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|NET CASH INFLOW (OUTFLOW)                                     |                                                          |                                                             |    |      |   |      | 86,962  |         |         |   | (6,767  | )       |        |   | 113,859 |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF
    YEAR              |                                                          |                                                             |    |      |   |      |        |         |         |   | 86,962  |         |        |   | 80,195  |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|CASH AND CASH EQUIVALENTS, END OF
    YEAR                    |                                                          |                                                             |    |      |   | $    | 86,962  |         |         | $ | 80,195  |         |        | $ | 194,054 |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:             |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|Interest (including commitment, bonus and loan
    fees) paid |                                                          |                                                             |    |      |   | $    | 32,091  |         |         | $ | 58,316  |         |        | $ | 52,974  |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        
|Income taxes paid                                             |                                                          |                                                             |    |      |   | $    | 1,253   |         |         | $ | 726     |         |        | $ | 1,567   |        
|                                                              |                                                          |                                                             |    |      |   |      |         |         |         |   |         |         |        |   |         |        

See accompanying Notes to the Consolidated
Financial Statements

F-6



---



##### 



AINSWORTH LUMBER CO. LTD.

Notes to the Consolidated Financial
Statements

Years ended December 31

(Figures in tables are in thousands of Canadian
dollars unless indicated otherwise)


1. SIGNIFICANT ACCOUNTING
POLICIES

These consolidated financial statements have been
prepared in Canadian dollars in accordance with Canadian
generally accepted accounting principles (Canadian
GAAP) and include estimates and assumptions made by
management. These estimates and assumptions affect the reported
amounts of assets and liabilities and other disclosures in these
consolidated financial statements. Actual results may differ
from those estimates.

Canadian GAAP, in the case of the Company,
differs in certain respects from accounting principles generally
accepted in the United States (U.S. GAAP) as
explained in Note 22.

The significant accounting policies are:

(a) Basis
of consolidation

These consolidated financial statements include
the Companys proportionate interest in a jointly
controlled oriented strand board facility in High Level, Alberta
(Note 6) that is held by a wholly-owned subsidiary company,
Steen River Forest Products Ltd. (Steen). Steen
exists for the sole purpose of holding that interest. Steen has
no operating results as all of its operations are conducted on
behalf of Ainsworth Lumber Co. Ltd. The Senior Secured Notes
(Note 10) are secured in part by priority interests on all
of the shares of Steen.

(b) Cash
and cash equivalents

Cash and cash equivalents generally consist of
cash balances with banks and investments in high grade
commercial paper with original maturities of less than three
months.

(c) Inventories

Logs, lumber and panel products are valued at the
lower of average cost and net realizable value. Materials and
supplies are valued at cost.

(d) Capital
Assets

Property, plant and equipment are stated at cost,
including capitalized debt financing costs, interest incurred
for major projects during the period of construction, and
start-up costs. The cost of renewals and betterments that extend
the useful life of the property, plant and equipment is also
capitalized. The cost of repairs and replacements is charged to
expense as incurred. Oriented strand board facilities are
amortized on the units-of-production method based on the
estimated useful life of the assets at normal production levels
over 15 years. Other panel product mills, the lumber
remanufacturing plant and other assets are amortized on the
declining balance basis at annual rates based on the estimated
useful lives of the assets as follows:

|                        |  |      |           | 
|----------------------- |  | ---- | --------- | 
|Asset                   |  | Rate
|                        |  |     
|Buildings               |  |      | 5%        | 
|Machinery and equipment |  |      | 12% - 20% | 
|Office equipment        |  |      | 15%       | 

F-7



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



1. SIGNIFICANT ACCOUNTING POLICIES 
(Continued)


Timber rights and logging roads are stated at
cost and are amortized on the basis of the volume of timber cut.
The Company reviews the carrying values of its capital assets on
a regular basis, by reference to estimated future operating
results and undiscounted net cash flows. If the carrying value
of these assets exceeds estimated net recoverable amounts, a
provision for impairment will be made for an other than
temporary decline in value.

(e) Financing
and debt discount costs

Costs relating to long-term debt are amortized on
the straight-line basis over the term of the related debt.

(f) Reforestation
obligation

Timber is harvested under various licenses issued
by the Provinces of British Columbia and Alberta. The future
estimated reforestation obligation is accrued and charged to
earnings on the basis of the volume of timber cut.

(g) Foreign
currency translation

Transactions denominated in U.S. dollars
have been translated into Canadian dollars at the approximate
rate of exchange prevailing at the time of the transaction.
Monetary assets and liabilities denominated in foreign
currencies have been translated into Canadian dollars at the
year-end exchange rate. Exchange gains and losses, including
unrealized foreign exchange gains and losses on long-term debt,
are included in earnings.

(h) Earnings
per share

Earnings per share have been calculated using the
weighted average number of voting common shares outstanding
during the periods.

(i) Income
taxes

Income taxes are accounted for using the asset
and liability method. Future income taxes reflect the tax
effect, using substantively enacted tax rates, of differences
between the book and tax bases of assets and liabilities and the
anticipated benefit of losses carried forward for income tax
purposes.

(j) Revenue
recognition

Revenue, net of shipping costs, is recognized
upon shipment at agreed prices to credit-approved customers,
consistent with common forest industry terms of trade.

(k) Employee
participation share plan

The Company has an employee participation share
plan which is described in Note 11. The determination of
compensatory adjustments measures the difference between market
value of the Companys Common Shares at the reporting date
compared to the market value as at the dates of issue of
Class B shares and options on the Common Shares. To the
extent that these differences are positive, notional
compensatory amounts are measured and amortized over five years,
the vesting period. Any consideration paid by employees on
purchase of stock is credited to share capital.

F-8



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



1. SIGNIFICANT ACCOUNTING POLICIES 
(Continued)


(l) Employee
Benefit Plans

The Company uses the projected benefit method
prorated on services to account for defined benefit pension
plans earned by employees. The Company accrues its obligations
under employee benefits plans and the related costs, net of plan
assets. In determining pension expense, the unrecognized pension
surplus or liability, adjustments arising from changes in
actuarial assumptions, and experience gains and losses are being
amortized on a straight-line basis over the expected average
remaining service life of the employee group. The plan assets
are valued at market values.

(m) Comparative
figures

Certain comparative figures have been
reclassified to conform to the current year presentation.

2. CASH AND CASH EQUIVALENTS

|                 |  |      |        |      |  |   |         | 
|---------------- |  | ---- | ------ | ---- |  | - | ------- | 
|                 |  | 2002 |        | 2003
|                 |  |      |        |     
|Cash             |  | $    | 29,975 |      |  | $ | 2,506   | 
|Cash equivalents |  |      | 50,220 |      |  |   | 191,548 | 
|                 |  |      |        |      |  |   |         | 
|                 |  | $    | 80,195 |      |  | $ | 194,054 | 
|                 |  |      |        |      |  |   |         | 

3. INVENTORIES

|                       |  |      |        |      |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                       |  | 2002 |        | 2003
|                       |  |      |        |     
|Logs                   |  | $    | 19,777 |      |  | $ | 21,362 | 
|Panel products         |  |      | 13,312 |      |  |   | 12,598 | 
|Materials and supplies |  |      | 16,451 |      |  |   | 19,159 | 
|Lumber                 |  |      | 1,366  |      |  |   | 34     | 
|                       |  |      |        |      |  |   |        | 
|                       |  | $    | 50,906 |      |  | $ | 53,153 | 
|                       |  |      |        |      |  |   |        | 

4. INVESTMENT TAX CREDIT
RECOVERABLE

At December 31 2003, the company recognized
an unclaimed special investment tax credit in respect of its
investment in the Grande Prairie wood processing facilities. The
Company recorded the tax credit as a $37,180,000 reduction in
the capital cost of the Grande Prairie assets and recognized the
portion of the tax credit to be utilized in 2003 as a $7,120,000
reduction to federal taxes payable.

F-9



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)

5. CAPITAL ASSETS

|                                    |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|----------------------------------- |  | -------- | ------- | ---- |  | ------------ | ------- | -------- |  | - | ------- |  |  | - | ------- | 
|                                    |  |          |         |     
|                                    |  | 2002     |         | 2003
|                                    |  |          |         |     
|                                    |  | Net Book |         |      |  | Accumulated  |         | Net Book
|                                    |  | Value    |         | Cost |  | Depreciation |         | Value   
|                                    |  |          |         |      |  |              |         |         
|Property, plant and equipment       |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|Panel product mills                 |  | $        | 324,872 |      |  | $            | 467,595 |          |  | $ | 205,999 |  |  | $ | 261,596 | 
|Land                                |  |          | 1,964   |      |  |              | 1,964   |          |  |   |        |  |  |   | 1,964   | 
|Other                               |  |          | 2,650   |      |  |              | 11,367  |          |  |   | 8,209   |  |  |   | 3,158   | 
|Construction in progress            |  |          | 13,201  |      |  |              | 1,030   |          |  |   |        |  |  |   | 1,030   | 
|                                    |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|                                    |  |          | 342,687 |      |  |              | 481,956 |          |  |   | 214,208 |  |  |   | 267,748 | 
|                                    |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|Timber and logging roads            |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|Timber rights and development costs |  |          | 11,773  |      |  |              | 18,498  |          |  |   | 7,443   |  |  |   | 11,055  | 
|Logging roads                       |  |          | 14,803  |      |  |              | 22,148  |          |  |   | 7,449   |  |  |   | 14,699  | 
|                                    |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|                                    |  |          | 26,576  |      |  |              | 40,646  |          |  |   | 14,892  |  |  |   | 25,754  | 
|                                    |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 
|                                    |  | $        | 369,263 |      |  | $            | 522,602 |          |  | $ | 229,100 |  |  | $ | 293,502 | 
|                                    |  |          |         |      |  |              |         |          |  |   |         |  |  |   |         | 

|                                  |                               |      |        |        |  |      |        |        |  |   |        |        | 
|--------------------------------- | ----------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                  |                               | 2001 |        | 2002   |  | 2003
|                                  |                               |      |        |        |  |     
|Amortization expense for the year |                               |      |        |        |  |      |        |        |  |   |        |       
|                                  | Property, plant and equipment |      | $      | 27,832 |  |      | $      | 29,560 |  |   | $      | 31,128 | 
|                                  | Timber and logging roads      |      |        | 2,545  |  |      |        | 2,400  |  |   |        | 1,844  | 
|                                  |                               |      |        |        |  |      |        |        |  |   |        |       
|                                  |                               | $    | 30,377 |        |  | $    | 31,960 |        |  | $ | 32,972 |       
|                                  |                               |      |        |        |  |      |        |        |  |   |        |       

In December 2003, the Company provided a
write-down of capital assets of $13.3 million in costs
relating to the construction and design of the proposed
expansion of the Grande Prairie OSB operations. The company has
been unsuccessful in its attempt to secure additional long-term
timber tenures. Without confirmation of a secure timber supply,
the Company has decided not to pursue the expansion of the
Grande Prairie facility at this time.

6. THE HIGH LEVEL OPERATION

The Company has jointly developed an oriented
strand board (OSB) facility in High Level, Alberta.
The Companys proportionate (50%) share of major assets
including plant and equipment is held by a bare trustee
corporation, on behalf of the Company, together with the 50%
interest of a third party in such assets.

The Company and the third party also jointly
control a company that is responsible for log harvesting and
oriented strand board production. The Company reflects its
investment in the High Level operation as an interest in jointly
controlled operations.

F-10



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



6. THE HIGH LEVEL
OPERATION (Continued)


The following is a summary of the Companys
proportionate interest in the financial position and cash flow
of the High Level operation:

|                    |                                            |      |   |         |  |  |   |         | 
|------------------- | ------------------------------------------ | ---- | - | ------- |  |  | - | ------- | 
|                    |                                            | 2002 |   | 2003   
|                    |                                            |      |   |        
|Assets              |                                            |      |   |         |  |  |   |        
|                    | Receivables                                |      | $ | 1,205   |  |  | $ | 752     | 
|                    | Inventories                                |      |   | 5,520   |  |  |   | 7,641   | 
|                    | Prepaid expenses                           |      |   | 298     |  |  |   | 366     | 
|                    | Capital assets                             |      |   | 128,938 |  |  |   | 123,676 | 
|Current Liabilities |                                            |      |   |         |  |  |   |        
|                    | Excess of cheques issued over cash in bank |      |   | 1,470   |  |  |   | 1,814   | 
|                    | Accrued liabilities and accounts payable   |      |   | 4,800   |  |  |   | 3,609   | 
|Cash Flows          |                                            |      |   |         |  |  |   |        
|                    | Cash applied to operating activities       |      |   | 3,992   |  |  |   | 3,816   | 
|                    | Cash used for investing activities         |      |   | 3,354   |  |  |   | 1,689   | 

Operating results to March 31, 2001 were
capitalized as start-up costs pursuant to the Companys
accounting policies.

By agreement between the Company and its
co-venturer, if the co-venturer does not pay its share of
accounts payable and accrued liabilities, the Company may pay
such amounts and recover them from the co-venturers share
of production. The co-venturers share of accounts payable
and accrued liabilities amounted to $3,308,000 as at
December 31, 2003 and $4,450,000 as at December 31,
2002.

7. OTHER ASSETS

|                                |  |      |        |      |  |   |        | 
|------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                |  | 2002 |        | 2003
|                                |  |      |        |     
|Advances and deposits           |  | $    | 5,393  |      |  | $ | 5,537  | 
|Accrued benefit asset (Note 16) |  |      | 4,959  |      |  |   | 4,156  | 
|Unamortized financing costs     |  |      | 17,969 |      |  |   | 13,584 | 
|                                |  |      |        |      |  |   |        | 
|                                |  | $    | 28,321 |      |  | $ | 23,277 | 
|                                |  |      |        |      |  |   |        | 

8. BANK LOAN FACILITIES

As at December 31, 2003 the Company had
outstanding letters of credit of $6,228,000 (2002 
$4,548,500) to support the Companys ongoing business
operations. The Company had an unutilized $7,250,000 foreign
exchange and future contract credit facility at
December 31, 2003.

F-11



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)

9. REFORESTATION OBLIGATION

|                                         |  |      |       |      |  |   |       | 
|---------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                         |  | 2002 |       | 2003
|                                         |  |      |       |     
|Balance at beginning of year             |  | $    | 5,771 |      |  | $ | 5,679 | 
|Expense for the year                     |  |      | 1,256 |      |  |   | 2,227 | 
|                                         |  |      |       |      |  |   |       | 
|                                         |  |      | 7,027 |      |  |   | 7,906 | 
|Paid during the year                     |  |      | 1,348 |      |  |   | 1,842 | 
|                                         |  |      |       |      |  |   |       | 
|Balance at end of year                   |  | $    | 5,679 |      |  | $ | 6,064 | 
|                                         |  |      |       |      |  |   |       | 
|Current, included in accrued liabilities |  | $    | 1,045 |      |  | $ | 1,262 | 
|Long-term                                |  |      | 4,634 |      |  |   | 4,802 | 
|                                         |  |      |       |      |  |   |       | 
|                                         |  | $    | 5,679 |      |  | $ | 6,064 | 
|                                         |  |      |       |      |  |   |       | 

10. LONG-TERM DEBT

|                                                                                                                                                  |  |      |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                                                                                  |  | 2002 |         | 2003
|                                                                                                                                                  |  |      |         |     
|U.S. $184,600,000 (2002 
    U.S.$186,500,000) Senior Secured Notes due July 15, 2007
    with interest payable semi-annually at 12.5% per annum |  | $    | 294,222 |      |  | $ | 239,334 |  
|U.S.$89,085,000 (2002 
    U.S.$95,000,000) Senior Secured Notes due July 15, 2007
    with interest payable quarterly at 13.875% per annum      |  |      | 149,872 |      |  |   | 115,499 |  
|Capital lease obligations                                                                                                                         |  |      | 97      |      |  |   | 549     |  
|                                                                                                                                                  |  |      |         |      |  |   |         |  
|                                                                                                                                                  |  |      | 444,191 |      |  |   | 355,382 |  
|Unamortized deferred debt discount                                                                                                                |  |      | (3,813  | )    |  |   | (2,905  | )
|                                                                                                                                                  |  |      |         |      |  |   |         |  
|                                                                                                                                                  |  |      | 440,378 |      |  |   | 352,477 |  
|Current portion                                                                                                                                   |  |      | (46     | )    |  |   | (250    | )
|                                                                                                                                                  |  |      |         |      |  |   |         |  
|                                                                                                                                                  |  | $    | 440,332 |      |  | $ | 352,227 |  
|                                                                                                                                                  |  |      |         |      |  |   |         |  

In December 2003, the Company repurchased and
cancelled U.S.$1,900,000 of the U.S.$184,600,000 Senior Secured
Notes and also repurchased and cancelled U.S.$5,915,000 of the
U.S.$89,085,000 Senior Secured Notes realizing a total loss of
$81,000.

The U.S.$184,600,000 Senior Secured Notes are
secured by a first priority fixed charge on the Companys
100 Mile House and Grande Prairie mills and a second
priority floating charge on the Companys other properties
and assets. The U.S.$89,085,000 Senior Secured Notes are secured
by a first priority pledge of shares of Steen (Note 1(a))
and a first priority security interest in the Companys
Savona and Lillooet mills and the Companys current assets.
The indentures governing the Senior Secured Notes contain
certain restrictions regarding, among other things, the ability
of the Company to incur additional indebtedness and pay cash
dividends. Under the terms of the indenture governing the
U.S.$89,085,000 Senior Secured Notes, the Company was required
to create the High Level Qualified Account. This account is to
be funded with $10,000,000 on a monthly basis and is used as an
imprest fund for the Companys participation in the High
Level operation.

SUBSEQUENT EVENT

On January 5, 2004 the Company made an offer
to purchase up to U.S.$53,625,000 of its outstanding Senior
Secured Notes. The total consideration for each U.S.$1,000
principal amounts for notes validly tendered and not withdrawn
was U.S.$1,060. This offer was made pursuant to the indentures
for both the U.S.$89,085,000 Senior Secured Notes and the
U.S.$184,600,000

F-12



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)

10. LONG-TERM
DEBT (Continued)

Senior Secured Notes. The offer expired on
February 5, 2004 with U.S.$70,000 validly tendered. On
February 6, 2004, the Company extended the offer period
until February 26, 2004.

11. CAPITAL STOCK

(a) The Companys authorized share
capital is as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) 100,000,000 common shares without par
    value;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (ii) 1,500,000 Class B non-voting
    common shares without par value, of which 717,500 have been
    designated for an employee participation share plan. The
    designated Class B common shares are convertible into the
    number of common shares equivalent to the ratio of a) the
    greater of future appreciation in market value of the common
    shares from the date the Board of Directors of the Company
    resolve to issue the Class B common shares and the issue
    price of the Class B common shares, divided by b) the
    market value of the common shares when the conversion and
    completion of vesting occurs on the fifth anniversary of
    issuance of the Class B common shares. Vesting occurs
    equally upon the third, fourth and fifth anniversaries; and
|
| | (iii) 100,000,000 preferred shares without
    par value, of which 300,000 have been designated Series 1
    and 4,000,000 have been designated Series 2. The
    Series 1 preferred shares are non-voting, redeemable at the
    issue price of $10 and are entitled to a 6% non-cumulative
    dividend. The Series 2 preferred shares are non-voting with
    a cumulative dividend rate equal to 72% of bank prime rate and
    are redeemable by the Company at any time or retractable by the
    holder any time after five years from the date of issue.                                                                                                                                                                                                                                      

(b) The Companys issued share capital
is as follows:

|                                      |                                                         |               |            |               |  |        |        |        |  |        |         |          |   |   |    |     |   |   |        |     |  
|------------------------------------- | ------------------------------------------------------- | ------------- | ---------- | ------------- |  | ------ | ------ | ------ |  | ------ | ------- | -------- | - | - | -- | --- | - | - | ------ | --- | -
|                                      |                                                         |               |            |               |  |        |        |       
|                                      |                                                         |               |            | Class B       |  |       
|                                      |                                                         | Common Shares |            | Common Shares |  |       
|                                      |                                                         |               |            |               |  | Total 
|Issued Share Capital                  |                                                         | Shares        |            | Amount        |  | Shares |        | Amount |  | Amount
|                                      |                                                         |               |            |               |  |        |        |        |  |       
|Balance at December 31, 2001 and 2002 |                                                         |               | 14,544,800 |               |  | $      | 53,016 |        |  |        | 447,500 |          |   | $ | 67 |     |   | $ | 53,083 |    
|                                      | Exchange of Class B common shares for common
    shares |               |            | 20,148        |  |        |        | 78     |  |        |         | (222,500 | ) |   |    | (33 | ) |   |        | 45  |  
|                                      | Cancellation of Class B common shares                   |               |            |               |  |        |        |        |  |        |         | (117,500 | ) |   |    | (18 | ) |   |        | (18 | )
|                                      |                                                         |               |            |               |  |        |        |        |  |        |         |          |   |   |    |     |   |   |        |    
|Balance at December 31, 2003          |                                                         |               | 14,564,948 |               |  | $      | 53,094 |        |  |        | 107,500 |          |   | $ | 16 |     |   | $ | 53,110 |    
|                                      |                                                         |               |            |               |  |        |        |        |  |        |         |          |   |   |    |     |   |   |        |    

(c) Employee Participation Share Plan as at
December 31, 2003

|              |  |              |      |       |  |           |      |             |  |               |        |  |  |  |         |  |  |   |    | 
|------------- |  | ------------ | ---- | ----- |  | --------- | ---- | ----------- |  | ------------- | ------ |  |  |  | ------- |  |  | - | -- | 
|              |  | Common Share |      |       |  | Number    |      | Class B     |  |              
|              |  | Conversion   |      | Issue |  | of Shares |      | Shares      |  | Total        
|Date Issued   |  | Base Price   |      | Price |  | Vested    |      | Outstanding |  | Consideration
|              |  |              |      |       |  |           |      |             |  |              
|June 25, 1999 |  | $            | 3.00 |       |  | $         | 0.15 |             |  |               | 71,667 |  |  |  | 107,500 |  |  | $ | 16 | 
|              |  |              |      |       |  |           |      |             |  |               |        |  |  |  |         |  |  |   |    | 

The market value per common share at
December 31, 2003 was $12.28.

F-13



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



11. CAPITAL
STOCK (Continued)


During the year ended December 31, 2003 the
Company issued 20,148 common shares to the holders of 222,500
Class B common shares issued on December 18, 1996 and
August 11, 1998 who became entitled under the Employee
Participation Share Plan to receive common shares in exchange
for those Class B common shares.

The Company then cancelled 55,000 Class B
common shares issued on December 18, 1996 and
August 11, 1998 pursuant to the Plan and also cancelled
62,500 Class B common shares issued on June 25, 1999.

12. FINANCE EXPENSE

|                           |  |      |        |      |  |      |        |  |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                           |  | 2001 |        | 2002 |  | 2003
|                           |  |      |        |      |  |     
|Current debt               |  | $    | 17,362 |      |  | $    | 276    |  |  | $ | 35     | 
|Loss on Repurchase of Debt |  |      |       |      |  |      |       |  |  |   | 81     | 
|Long-term debt             |  |      | 42,645 |      |  |      | 62,224 |  |  |   | 56,009 | 
|                           |  |      |        |      |  |      |        |  |  |   |        | 
|                           |  | $    | 60,007 |      |  | $    | 62,500 |  |  | $ | 56,125 | 
|                           |  |      |        |      |  |      |        |  |  |   |        | 

Finance expense on long-term debt includes the
amortization of deferred financing costs, amortization of
deferred debt discounts, and amortization of consent and
commitment fees as follows: $2,568,062, $852,275, and $1,446,281
respectively, for the year ended December 31, 2003;
$2,566,750, $853,692, and $1,929,035 respectively, for the year
ended December 31, 2002; and $1,384,502, $791,454 and
$6,171,895 respectively, for the year ended December 31,
2001.

13. INCOME TAXES

The adjusted income (loss) for purposes of
providing for income taxes is:

|                                                                 |  |      |         |      |  |      |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                 |  | 2001 |         | 2002 |  | 2003
|                                                                 |  |      |         |      |  |     
|Income (loss) from continuing operations before
    income taxes |  | $    | (48,366 | )    |  | $    | (18,145 | ) |  | $ | 175,622 |  
|Non (taxable) deductible items                                   |  |      | 9,775   |      |  |      | 13,532  |   |  |   | (35,149 | )
|                                                                 |  |      |         |      |  |      |         |   |  |   |         |  
|Adjusted income (loss)                                           |  | $    | (38,591 | )    |  | $    | (4,613  | ) |  | $ | 140,473 |  
|                                                                 |  |      |         |      |  |      |         |   |  |   |         |  

F-14



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



13. INCOME
TAXES (Continued)


A reconciliation of the statutory tax rate to the
effective tax rate on adjusted income (loss) is as follows:

|                                              |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |   | 
|--------------------------------------------- | ------------------- | ---- | ------- | ------- | - | ---- | ----- | - |  | ---- | ------ | ------ | - |  | ----- | - |  | - | ------ | ------ |  |  | ----- | - | 
|                                              |                     | 2001 |         | %       |   | 2002 |       | % |  | 2003 |        | %     
|                                              |                     |      |         |         |   |      |       |   |  |      |        |       
|Federal income tax, net                       |                     | $    | (8,529  | )       |   |      | (22.1 | ) |  | $    | (1,019 | )      |   |  | (22.1 | ) |  |   | 31,044 |        |  |  | (22.1 | )
|Provincial taxes, net                         |                     |      | (6,020  | )       |   |      | (15.6 | ) |  |      | (720   | )      |   |  | (15.6 | ) |  |   | 18,542 |        |  |  | (13.2 | )
|                                              |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |  
|Tax expense (recovery)                        |                     |      | (14,549 | )       |   |      | (37.7 | ) |  |      | (1,739 | )      |   |  | (37.7 | ) |  |   | 49,586 |        |  |  | (35.3 | )
|Large corporation tax                         |                     |      | 1,261   |         |   |      | 3.2   |   |  |      | 1,777  |        |   |  | 38.5  |   |  |   | 1,123  |        |  |  | (0.8  | )
|Prospective effect of change of enacted rates |                     |      | (3,093  | )       |   |      | (7.9  | ) |  |      |       |        |   |  |      |   |  |   |        |        |  |  |       |  
|Other                                         |                     |      | (2,334  | )       |   |      | (6.0  | ) |  |      | (310   | )      |   |  | (6.7  | ) |  |   | 1,263  |        |  |  | (0.9  | )
|                                              |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |  
|Tax expense (recovery)                        |                     | $    | (18,715 | )       |   |      | (48.4 | ) |  | $    | (272   | )      |   |  | (5.9  | ) |  | $ | 51,972 |        |  |  | (37.0 | )
|                                              |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |  
|Comprised of:                                 |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |  
|                                              | Current taxes       |      | $       | 1,261   |   |      |       |   |  |      | $      | 1,777  |   |  |       |   |  |   | $      | 11,876 |  |  |       |   | 
|                                              | Future income taxes |      |         | (19,976 | ) |      |       |   |  |      |        | (2,049 | ) |  |       |   |  |   |        | 40,096 |  |  |       |   | 
|                                              |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |  
|                                              |                     | $    | (18,715 | )       |   |      |       |   |  | $    | (272   | )      |   |  |       |   |  | $ | 51,972 |        |  |  |       |  
|                                              |                     |      |         |         |   |      |       |   |  |      |        |        |   |  |       |   |  |   |        |        |  |  |       |  

Temporary timing differences and tax loss
carryforwards which give rise to the net future income tax
liability are as follows:

|                            |                              |                                   |       |         |         |   |        |        |        |  
|--------------------------- | ---------------------------- | --------------------------------- | ----- | ------- | ------- | - | ------ | ------ | ------ | -
|                            |                              | 2002                              |       | 2003   
|                            |                              |                                   |       |        
|Future tax liability, net   |                              |                                   |       |         |         |   |        |       
|                            | Temporary timing differences |                                   |       |         |         |   |        |        |       
|                            |                              | Depreciable capital assets        |       | $       | 31,617  |   |        | $      | 45,679 |  
|                            |                              | Eligible capital expenditures     |       |         | (374    | ) |        |        | (3,454 | )
|                            |                              | Deferred pension costs            |       |         | 1,766   |   |        |        | 1,463  |  
|                            |                              | Financing costs                   |       |         | (12,181 | ) |        |        | 7,956  |  
|                            |                              | Accruals not currently deductible |       |         | (2,364  | ) |        |        | (2,298 | )
|                            |                              | Other                             |       |         | (385    | ) |        |        |       |  
|                            | Tax loss carryforwards       |                                   |       | (11,153 | )       |   |        | (1,950 | )     
|                            |                              |                                   |       |         |         |   |        |       
|Future income tax liability |                              | $                                 | 7,300 |         |         | $ | 47,396 |       
|                            |                              |                                   |       |         |         |   |        |       

Capital losses of $10,500,000 can be carried
forward indefinitely to be applied against future capital gains.

14. DISCONTINUED OPERATIONS

On April 24, 2001, the Company completed the
sale of its Chasm lumber operations to West Fraser Mills Ltd.

F-15



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



14. DISCONTINUED
OPERATIONS (Continued)


Results of discontinued operations, including an
allocation of applicable indirect expenses, are as follows:

|                                                        |  |      |        |  
|------------------------------------------------------- |  | ---- | ------ | -
|                                                        |  | 2001
|                                                        |  |     
|Sales                                                   |  | $    | 15,402 |  
|Operating expenses                                      |  |      | 12,730 |  
|Depreciation and amortization                           |  |      |       |  
|                                                        |  |      |        |  
|Operating income                                        |  |      | 2,672  |  
|                                                        |  |      |        |  
|Administration expenses                                 |  |      | (123   | )
|Income tax expense                                      |  |      | (908   | )
|                                                        |  |      |        |  
|Net income                                              |  |      | 1,641  |  
|Gain on disposition, net of related taxes of
    $1,430 |  |      | 2,586  |  
|                                                        |  |      |        |  
|Gain from discontinued operations                       |  | $    | 4,227  |  
|                                                        |  |      |        |  

Cash provided by discontinued operations are as
follows:

|                                             |                            |      |       |        |  
|-------------------------------------------- | -------------------------- | ---- | ----- | ------ | -
|                                             |                            | 2001
|                                             |                            |     
|Net income from discontinued operations      |                            | $    | 4,227 |       
|Items not requiring an outlay of cash        |                            |      |       |       
|                                             | Gain on disposal of assets |      |       | (4,015 | )
|                                             | Reforestation obligation   |      |       | 877    |  
|                                             | Future income taxes        |      |       | 2,338  |  
|                                             |                            |      |       |       
|                                             |                            |      | 3,427 |       
|Change in non-cash operating working capital |                            |      | 1,385 |       
|                                             |                            |      |       |       
|Cash provided by discontinued operations     |                            | $    | 4,812 |       
|                                             |                            |      |       |       

In addition to cash proceeds of $29,226,000 for
discontinued operations disclosed in the consolidated statement
of cash flows, long-term reforestation obligations of $9,200,000
were assumed by the purchaser without cash effect.

15. COMMITMENTS

The Company is committed to capital and operating
lease payments in respect of premises and equipment as follows:

|                             |  |         |     |           |  |   |       | 
|---------------------------- |  | ------- | --- | --------- |  | - | ----- | 
|                             |  | Capital |     | Operating
|                             |  | Leases  |     | Leases   
|                             |  |         |     |          
|2004                         |  | $       | 271 |           |  | $ | 2,735 | 
|2005                         |  |         | 347 |           |  |   | 1,550 | 
|2006                         |  |         |    |           |  |   | 461   | 
|2007                         |  |         |    |           |  |   | 218   | 
|2008                         |  |         |    |           |  |   |      | 
|                             |  |         |     |           |  |   |       | 
|Total minimum lease payments |  | $       | 618 |           |  | $ | 4,964 | 
|                             |  |         |     |           |  |   |       | 
|Imputed interest             |  |         | 69  |           |  |   |       | 
|                             |  |         |     |           |  |   |       | 
|Capital lease obligations    |  | $       | 549 |           |  |   |       | 
|                             |  |         |     |           |  |   |       | 

F-16



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



15. COMMITMENTS (Continued)


Rent expense was $5,125,000, $5,627,000 and
$4,317,298 for 2001, 2002 and 2003, respectively.

The Company has entered into agreements with
suppliers of energy. The Companys Grande Prairie and High
Level OSB facilities have established fixed price contracts to
purchase 10.95 megawatts (MW) in 2004 and 7.25 MW in 2005.
The total commitment arising from these agreements is $4,500,000
in 2004 and $2,800,000 in 2005.

During 2003, the Company entered into a fixed
price propane supply agreement which expires September 30,
2006. Based on the current annual consumption, the estimated
obligation in 2004 and 2005 are both $1,725,000 and $1,365,000
in 2006. The Company also entered into fixed price natural gas
purchase contracts which expire in 2004. The total outstanding
commitment in respect of these contracts is $100,000.

16. PENSION PLANS

The Company maintains a defined benefit pension
plan for certain salaried and certain hourly employees.

The Company also participates in a multi-employer
pension plan for hourly employees who are subject to a
collective bargaining agreement and sponsors a Group Registered
Retirement Savings Plan (RRSP) at two of its operations. The
Company made Group RRSP contributions of $2,347,000 for 2001,
$1,155,000 for 2002 and $1,164,000 for 2003.

Information about the Companys defined
benefit pension plan is as follows:

|                           |                                                                      |      |        |         |   |      |        |        |   |   |        |        |  
|-------------------------- | -------------------------------------------------------------------- | ---- | ------ | ------- | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                           |                                                                      | 2001 |        | 2002    |   | 2003
|                           |                                                                      |      |        |         |   |     
|PLAN ASSETS                |                                                                      |      |        |         |   |      |        |        |   |   |        |       
|                           | Fair value at beginning of year                                      |      | $      | 41,588  |   |      | $      | 27,718 |   |   | $      | 25,801 |  
|                           | Return on plan assets                                                |      |        | 2,687   |   |      |        | 1,923  |   |   |        | 1,757  |  
|                           | Employer contributions                                               |      |        | 1,392   |   |      |        | 1,701  |   |   |        | 1,466  |  
|                           | Transfer of assets due to settlement, sale of
    Chasm operations   |      |        | (9,716  | ) |      |        |       |   |   |        |       |  
|                           | Benefits paid                                                        |      |        | (3,047  | ) |      |        | (2,185 | ) |   |        | (2,865 | )
|                           | Experience (loss) gain                                               |      |        | (5,186  | ) |      |        | (3,356 | ) |   |        | 741    |  
|                           |                                                                      |      |        |         |   |      |        |        |   |   |        |       
|                           | Fair value at end of year                                            |      |        | 27,718  |   |      |        | 25,801 |   |   |        | 26,900 |  
|                           |                                                                      |      |        |         |   |      |        |        |   |   |        |       
|ACCRUED BENEFIT OBLIGATION |                                                                      |      |        |         |   |      |        |        |   |   |        |       
|                           | Balance at beginning of year                                         |      |        | 38,553  |   |      |        | 28,934 |   |   |        | 30,760 |  
|                           | Current service cost                                                 |      |        | 1,612   |   |      |        | 1,419  |   |   |        | 1,506  |  
|                           | Interest cost                                                        |      |        | 2,219   |   |      |        | 2,048  |   |   |        | 2,158  |  
|                           | Benefits paid                                                        |      |        | (3,047  | ) |      |        | (2,185 | ) |   |        | (2,865 | )
|                           | Plan improvement cost                                                |      |        |        |   |      |        | 544    |   |   |        |       |  
|                           | Adjustment to discount rate                                          |      |        |        |   |      |        |       |   |   |        | 2,100  |  
|                           | Liabilities released due to settlement, sale of
    Chasm operations |      |        | (10,403 | ) |      |        |       |   |   |        |       |  
|                           |                                                                      |      |        |         |   |      |        |        |   |   |        |       
|                           | Balance at end of year                                               |      |        | 28,934  |   |      |        | 30,760 |   |   |        | 33,659 |  
|                           |                                                                      |      |        |         |   |      |        |        |   |   |        |       
|NET DEFICIT, END OF YEAR   |                                                                      | $    | (1,216 | )       |   | $    | (4,959 | )      |   | $ | (6,759 | )     
|                           |                                                                      |      |        |         |   |      |        |        |   |   |        |       

F-17



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)



16. PENSION
PLANS (Continued)


|                                       |                                                                        |                                |     |        |        |      |       |        |        |   |       |        |        |  
|-------------------------------------- | ---------------------------------------------------------------------- | ------------------------------ | --- | ------ | ------ | ---- | ----- | ------ | ------ | - | ----- | ------ | ------ | -
|                                       |                                                                        | 2001                           |     | 2002   |        | 2003
|                                       |                                                                        |                                |     |        |        |     
|ACCRUED BENEFIT ASSET IS COMPRISED OF: |                                                                        |                                |     |        |        |      |       |        |        |   |       |       
|                                       | Funded Status  Plan Deficit                                           |                                | $   | (1,216 | )      |      | $     | (4,959 | )      |   | $     | (6,759 | )     
|                                       |                                                                        | Unamortized net actuarial loss |     |        | 8,599  |      |       |        | 11,619 |   |       |        | 12,476 |  
|                                       |                                                                        | Unamortized transitional asset |     |        | (2,415 | )    |       |        | (2,245 | ) |       |        | (2,070 | )
|                                       |                                                                        | Unamortized past service cost  |     |        |       |      |       |        |       |   |       |        | 509    |  
|                                       | Plan improvement cost                                                  |                                |     |       |        |      |       | 544    |        |   |       |       |       
|                                       |                                                                        |                                |     |        |        |      |       |        |        |   |       |       
|                                       | Accrued Benefit Asset                                                  |                                | $   | 4,968  |        |      | $     | 4,959  |        |   | $     | 4,156  |       
|                                       |                                                                        |                                |     |        |        |      |       |        |        |   |       |       
|PENSION EXPENSE IS COMPRISED OF:       |                                                                        |                                |     |        |        |      |       |        |        |   |       |       
|                                       | Accrual for Services                                                   |                                | $   | 1,612  |        |      | $     | 1,418  |        |   |       | 1,506  |       
|                                       | Interest on accrued benefits                                           |                                |     | 2,219  |        |      |       | 2,048  |        |   |       | 2,158  |       
|                                       | Interest on pension fund assets                                        |                                |     | (2,687 | )      |      |       | (1,923 | )      |   |       | (1,757 | )     
|                                       | Amortization amounts                                                   |                                |     |        |        |      |       |        |        |   |       |        |       
|                                       |                                                                        | Unfunded liability (surplus)   |     |        | (192   | )    |       |        | (173   | ) |       |        | (173   | )
|                                       |                                                                        | Experience gains and losses    |     |        | 22     |      |       |        | 336    |   |       |        | 503    |  
|                                       |                                                                        | Past service costs             |     |        |       |      |       |        |       |   |       |        | 32     |  
|                                       | Gain (Loss) on Settlement                                              |                                |     | (687   | )      |      |       |       |        |   |       |       |       
|                                       | Unamortized transition obligation recognized due
    to Settlement     |                                |     | (875   | )      |      |       |       |        |   |       |       |       
|                                       | Unamortized experience gains / losses recognized
    due to Settlement |                                |     | 1,185  |        |      |       |       |        |   |       |       |       
|                                       |                                                                        |                                |     |        |        |      |       |        |        |   |       |       
|                                       |                                                                        | $                              | 597 |        |        | $    | 1,707 |        |        | $ | 2,269 |       
|                                       |                                                                        |                                |     |        |        |      |       |        |        |   |       |       

The significant weighted-average actuarial
assumptions adopted in measuring the Companys accrued
benefit obligations as at December 31 included the
following:

|                                                 |  |      |      |      |  |      |      |  |  |  |      | 
|------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                                 |  | 2001 |      | 2002 |  | 2003
|                                                 |  |      |      |      |  |     
|Discount rate                                    |  |      | 7.0% |      |  |      | 7.0% |  |  |  | 6.5% | 
|Expected long-term rate of return on plan assets |  |      | 8.0% |      |  |      | 7.0% |  |  |  | 7.0% | 
|Rate of compensation increase                    |  |      | 4.5% |      |  |      | 4.5% |  |  |  | 4.5% | 

17. CONTINGENCIES

Consistent with the nature of its business, the
Company is involved in various legal actions. In the opinion of
management, any resulting liability would not have a material
adverse effect on the Companys financial position.

F-18



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)

18. RELATED PARTY TRANSACTIONS

The Company had transactions with companies owned
by or related to its officers and directors as follows:

|                                                                                                          |  |      |     |      |  |      |     |  |  |   |     | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                                                                                          |  | 2001 |     | 2002 |  | 2003
|                                                                                                          |  |      |     |      |  |     
|Rental charges for mobile forestry and
    transportation equipment at normal commercial terms and prices |  | $    | 100 |      |  | $    | 120 |  |  | $ | 120 | 
|Acquisition of capital assets                                                                             |  |      |    |      |  |      | 22  |  |  |   |    | 
|Amounts due from officers and companies with
    directors in common included in other assets             |  |      | 967 |      |  |      | 466 |  |  |   | 479 | 
|Amounts due to companies with directors in common
    included in accounts payable                        |  |      |    |      |  |      | 2   |  |  |   |    | 

The Companys co-venturer in the High Level
operation (Note 6) is a significant shareholder of the
Company.

19. SEGMENTED INFORMATION

Following discontinuance of the Chasm lumber
operations, the Company operates in one business segment,
manufacturing wood panel products.

All capital assets are located in Canada.

|                              |        |      |         |         |  |      |         |         |  |   |         |         | 
|----------------------------- | ------ | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                              |        | 2001 |         | 2002    |  | 2003
|                              |        |      |         |         |  |     
|Geographic sales information: |        |      |         |         |  |      |         |         |  |   |         |        
|                              | Canada |      | $       | 49,271  |  |      | $       | 69,078  |  |   | $       | 84,278  | 
|                              | U.S.A. |      |         | 227,462 |  |      |         | 246,928 |  |   |         | 362,737 | 
|                              | Europe |      |         | 11,258  |  |      |         | 6,855   |  |   |         | 7,394   | 
|                              | Japan  |      |         | 38,673  |  |      |         | 33,194  |  |   |         | 26,664  | 
|                              |        |      |         |         |  |      |         |         |  |   |         |        
|                              |        | $    | 326,664 |         |  | $    | 356,055 |         |  | $ | 481,073 |        
|                              |        |      |         |         |  |      |         |         |  |   |         |        

20. CHANGE IN NON-CASH OPERATING WORKING
CAPITAL

|                                         |  |      |         |      |  |      |        |   |  |   |         |  
|---------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                         |  | 2001 |         | 2002 |  | 2003
|                                         |  |      |         |      |  |     
|Accounts receivable                      |  | $    | 1,221   |      |  | $    | (1,388 | ) |  | $ | (6,650  | )
|Inventories                              |  |      | 7,400   |      |  |      | (5,440 | ) |  |   | (2,247  | )
|Prepaid expenses                         |  |      | 322     |      |  |      | (1,655 | ) |  |   | (778    | )
|Accounts payable and accrued liabilities |  |      | (47,343 | )    |  |      | 3,325  |   |  |   | (6,608  | )
|Income taxes receivable / payable        |  |      | 1,680   |      |  |      | (2,372 | ) |  |   | 3,614   |  
|                                         |  |      |         |      |  |      |        |   |  |   |         |  
|Total                                    |  | $    | (36,720 | )    |  | $    | (7,530 | ) |  | $ | (12,669 | )
|                                         |  |      |         |      |  |      |        |   |  |   |         |  

F-19



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)

21. FINANCIAL INSTRUMENTS

(a) Financial
and credit risk

The value of the Companys financial
instruments will vary due to fluctuations in interest rates and
foreign exchange rates, and the degree of volatility of these
rates.

The Company does not have a significant exposure
to any individual customer or counterparty. Concentrations of
credit risk on trade accounts receivable are with customers in
the forestry industry in Canada and the United States.

(b) Fair
values

The fair value of the Companys accounts
receivable, accounts payable and accrued liabilities is
estimated to approximate their carrying value due to the
immediate or short term maturity of these financial instruments.

The fair value of the long-term debt is
determined using quoted market values for the Companys
Senior Secured Notes. The estimated fair value may differ from
the amount which could be realized in an immediate settlement of
the instruments.

The carrying value and fair value of the long
term debt are as follows:

|               |                |          |         |         |  |          |         |         |  |   |         |         |  |   |         |         | 
|-------------- | -------------- | -------- | ------- | ------- |  | -------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|               |                |          |         |        
|               |                | 2002     |         | 2003   
|               |                |          |         |        
|               |                | Carrying |         | Fair    |  | Carrying |         | Fair   
|               |                | Value    |         | Value   |  | Value    |         | Value  
|               |                |          |         |         |  |          |         |        
|LONG-TERM DEBT |                |          |         |         |  |          |         |         |  |   |         |         |  |   |         |        
|               | Senior notes   |          | $       | 444,094 |  |          | $       | 465,333 |  |   | $       | 354,833 |  |   | $       | 414,041 | 
|               | Capital leases |          |         | 97      |  |          |         | 97      |  |   |         | 549     |  |   |         | 549     | 
|               |                |          |         |         |  |          |         |         |  |   |         |         |  |   |         |        
|               |                | $        | 444,191 |         |  | $        | 465,430 |         |  | $ | 355,382 |         |  | $ | 414,590 |        
|               |                |          |         |         |  |          |         |         |  |   |         |         |  |   |         |        

F-20



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)

22. U.S. GAAP
RECONCILIATION

As indicated in Note 1, these consolidated
financial statements have been prepared in accordance with
Canadian GAAP, which, in the case of the Company, conforms in
all material respects with U.S. GAAP, except as set forth
below:



|    |                                                                
|--- | ---------------------------------------------------------------
|(a) | Adjustments to assets, liabilities and
    shareholders equity

|                                                                                        |  |      |         |      |  |   |         |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                        |  | 2002 |         | 2003
|                                                                                        |  |      |         |     
|Total assets in accordance with Canadian GAAP                                           |  | $    | 555,052 |      |  | $ | 627,721 |  
|Write-off of capitalized start-up costs(1)                                              |  |      | (10,380 | )    |  |   | (8,966  | )
|Intangible asset, arising from minimum pension
    liability calculation(2)             |  |      |        |      |  |   | 509     |  
|                                                                                        |  |      |         |      |  |   |         |  
|Total assets in accordance with U.S. GAAP                                               |  | $    | 544,672 |      |  | $ | 619,264 |  
|                                                                                        |  |      |         |      |  |   |         |  
|Total liabilities in accordance with Canadian GAAP                                      |  | $    | 506,681 |      |  | $ | 455,930 |  
|Future income taxes relating to write-off:
    of capitalized start-up costs(1)         |  |      | (3,700  | )    |  |   | (3,194  | )
|Minimum pension liability, net of tax effect(2)                                         |  |      | 6,447   |      |  |   | 7,273   |  
|                                                                                        |  |      |         |      |  |   |         |  
|Total liabilities in accordance with
    U.S. GAAP                                      |  | $    | 509,428 |      |  | $ | 460,009 |  
|                                                                                        |  |      |         |      |  |   |         |  
|Total shareholders equity in accordance
    with Canadian GAAP                         |  | $    | 48,371  |      |  | $ | 171,791 |  
|Change in retained earnings relating to:
    Write-off of capitalized start-up costs(1) |  |      | (6,680  | )    |  |   | (5,772  | )
|Accumulated other comprehensive (loss)(2)                                               |  |      | (6,447  | )    |  |   | (6,764  | )
|                                                                                        |  |      |         |      |  |   |         |  
|Total shareholders equity in accordance
    with U.S. GAAP                             |  | $    | 35,244  |      |  | $ | 159,255 |  
|                                                                                        |  |      |         |      |  |   |         |  

Consolidated Statement of Shareholders
Equity

|                                                                 |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | - | ------- | - |  | - | ------- | -
|Capital Stock                                                    |  | $ | 53,083  |   |  | $ | 53,110  |  
|Contributed surplus                                              |  |   | 375     |   |  |   | 118     |  
|Accumulated other comprehensive loss(2)                          |  |   | (6,447  | ) |  |   | (6,764  | )
|                                                                 |  |   |         |   |  |   |         |  
|                                                                 |  |   | 47,011  |   |  |   | 46,464  |  
|                                                                 |  |   |         |   |  |   |         |  
|Retained earnings (deficit) in accordance with
    Canadian GAAP |  |   | (5,087  | ) |  |   | 118,563 |  
|Write-off of capitalized start-up costs(1)                       |  |   | (6,680  | ) |  |   | (5,772  | )
|                                                                 |  |   |         |   |  |   |         |  
|Retained earnings (deficit) in accordance with
    U.S. GAAP     |  |   | (11,767 | ) |  |   | 112,791 |  
|                                                                 |  |   |         |   |  |   |         |  
|Shareholders equity in accordance with
    U.S. GAAP            |  | $ | 35,244  |   |  | $ | 159,255 |  
|                                                                 |  |   |         |   |  |   |         |  

F-21



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)





22. U.S. GAAP
RECONCILIATION (Continued)


(b) Adjustments
to earnings

|                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                          |  | 2001 |         | 2002 |  | 2003
|                                                                                          |  |      |         |      |  |     
|Net income (loss) in accordance with Canadian GAAP                                        |  | $    | (25,424 | )    |  | $    | (17,873 | ) |  | $ | 124,355 |  
|Reversal of amortization of capitalized start-up
    costs, net of future income taxes(1) |  |      | (410    | )    |  |      | 874     |   |  |   | 677     |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|Net income (loss) in accordance with
    U.S. GAAP                                        |  |      | (25,834 | )    |  |      | (16,999 | ) |  |   | 125,032 |  
|Other comprehensive loss(2)                                                               |  |      | (4,020  | )    |  |      | (2,427  | ) |  |   | (317    | )
|                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|Comprehensive income (loss) in accordance with
    U.S. GAAP                              |  | $    | (29,854 | )    |  | $    | (19,426 | ) |  | $ | 124,715 |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  

|                                                                           |  |      |       |      |  |      |       |   |  |   |      | 
|-------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ---- | 
|                                                                           |  | 2001 |       | 2002 |  | 2003
|                                                                           |  |      |       |      |  |     
|Basic and diluted income (loss) per share in
    accordance with U.S. GAAP |  | $    | (1.78 | )    |  | $    | (1.17 | ) |  | $ | 8.57 | 
|                                                                           |  |      |       |      |  |      |       |   |  |   |      | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under U.S. GAAP, the direct operating losses
    arising during the start-up phase of the oriented strand board
    facilities, which were capitalized under Canadian GAAP, are
    charged against earnings.                                                                                                                                                                                                                                                                  
|   
|(2) | Under U.S. GAAP the Company would recognize
    the difference between the unfunded accumulated pension benefit
    obligation and the accrued benefit asset (Note 16) as an
    additional minimum pension liability, and an equal amount as an
    intangible asset, subject to the following. If the additional
    liability exceeded unrecognized past service cost the excess
    would be recognized as other comprehensive loss, net of any
    resulting tax benefits.

(c) Discontinued
Operations

The loss from discontinued operations
(Note 14) would not change if U.S. GAAP was applied.
All adjustments in (a) and (b) above relate to continuing
operations.



|    |                                          
|--- | -----------------------------------------
|(d) | Other Information Regarding
    U.S. GAAP

(i) Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting
Comprehensive Income, issued under U.S. GAAP, requires
the reporting and display of comprehensive income and its
components in a full set of general purpose financial
statements. Comprehensive income, which incorporates net income,
includes all changes in equity during a period except those
resulting from investments by and distributions to owners. There
is currently no requirement to disclose comprehensive income
under Canadian GAAP. Comprehensive loss arising from minimum
pension liability:

|                                                            |  |      |        |      |  |      |        |   |  |   |       |  
|----------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                                            |  | 2001 |        | 2002 |  | 2003
|                                                            |  |      |        |      |  |     
|Amount arising in year                                      |  | $    | 6,184  |      |  | $    | 3,734  |   |  | $ | 488   |  
|Future income tax (recovery)                                |  |      | (2,164 | )    |  |      | (1,307 | ) |  |   | (171  | )
|                                                            |  |      |        |      |  |      |        |   |  |   |       |  
|                                                            |  |      | 4,020  |      |  |      | 2,427  |   |  |   | 317   |  
|Accumulated other comprehensive loss, beginning
    of year |  |      |       |      |  |      | 4,020  |   |  |   | 6,447 |  
|                                                            |  |      |        |      |  |      |        |   |  |   |       |  
|Accumulated other comprehensive loss, end of year           |  | $    | 4,020  |      |  | $    | 6,447  |   |  | $ | 6,764 |  
|                                                            |  |      |        |      |  |      |        |   |  |   |       |  

F-22



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)





22. U.S. GAAP
RECONCILIATION (Continued)


(ii) SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, establishes
accounting and reporting standards for derivatives, and for
hedging activities. SFAS No. 149, Amendment of Statement
133 on Derivative and Hedging Activities, amends and clarifies
SFAS No. 133. SFAS No. 133 and SFAS No. 149 do
not have an impact on the Companys financial statements as
the Company does not enter into derivative transactions.

(iii) In accordance with Canadian GAAP,
joint ventures are required to be proportionately consolidated
regardless of the legal form of the entity. Under
U.S. GAAP, incorporated joint ventures are required to be
accounted for by the equity method. However, in accordance with
practices prescribed by the SEC, the Company has provided
(Note 6) summary information regarding use of the
proportionate consolidation method.

(iv) In June 2001, the Financial Accounting
Standards Board (FASB) introduced SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 addresses the
initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition of intangible
assets acquired outside of a business combination whether
acquired individually or with a group of other assets. These
standards require all future business combinations to be
accounted for using the purchase method of accounting. Goodwill
will no longer be amortized but instead will be subject to
impairment tests at least annually. SFAS No. 141 and 142
had no impact on the Companys financial statements.

(v) In June 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and
reporting obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
SFAS No. 143 requires the company to record the fair value
of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the
retirement of tangible long-lived assets that result from the
acquisition, construction, development and/ or normal use of a
long-lived asset. The fair value of the liability is added to
the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each
period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. If the
obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on
settlement. SFAS No. 143 has no impact on the
Companys financial statements.

(vi) In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of
long-lived assets to be held and used, to be disposed of other
than by sale, and to be disposed of by sale. The Company adopted
SFAS No. 144 in the first quarter of 2002 on a prospective
basis without significant impact on the Companys financial
statements.

(vii) Under U.S. GAAP, the Company
would disclose shipping costs as part of costs of products as a
component of cost of sales, rather than netted against revenue
as per the Companys existing accounting policy. If the
Company had reported shipping costs as costs of products,
revenue would have increased by $62,000,000, $65,625,000, and
$60,855,000, with a corresponding increase in costs of products
sold in 2001, 2002, and 2003 respectively.

F-23



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Consolidated Financial Statements
 (Continued)





22. U.S. GAAP
RECONCILIATION (Continued)


(viii) In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Among other things, SFAS No. 145
rescinds both SFAS No. 4, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Through this rescission, SFAS No. 145
eliminates the requirement (in both SFAS No. 4 and SFAS
No. 64) that gains and losses from the extinguishment of
debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect.
Generally, SFAS No. 145 is effective for transactions
occurring after May 15, 2002. SFAS No. 145 does not
have a material impact on the Companys financial
statements.

(ix) In June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal of Activities. SFAS No. 146 requires that the
liability for a cost associated with an exit or disposal
activity be recognized at its fair value when the liability is
incurred. Under previous guidance, a liability for certain exit
costs was recognized at the date that management committed to an
exit plan, which was generally before the actual liability had
been incurred. SFAS No. 146 does not have a material impact
on the Companys financial statements.

(x) In November 2002, the FASB issued
Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires the recognition of a liability
by a guarantor at the inception of certain guarantees entered
into or modified after December 31, 2002. FIN 45
requires the guarantor to recognize a liability for the
non-contingent component of certain guarantees. It requires the
recognition of a liability for the obligation to stand ready to
perform in the event that specified triggering events or
conditions occur. The initial measurement of this liability is
the fair value of the guarantees at inception. The adoption of
FIN 45 did not have a material impact on the Companys
financial statements.

(xi) In January 2003, the FASB issued
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. Its
consolidation provisions are applicable for all newly created
entities created after January 31, 2003, and is applicable
to existing variable interest entities as July 1, 2003.
With respect to entities that do not qualify to be assessed for
consolidation based on voting interests, FIN 46 generally
requires a company that has a variable interest that will absorb
a majority of the variable interest entitys expected
losses if they occur, receive a majority of the entitys
expected residual returns if they occur, or both to consolidate
that variable interest entity. FIN 46 does not have a
material impact on the Companys financial statements.

F-24



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Balance Sheets

(In thousands of dollars)


|                                         |                                                                                       |           |         |             |  |   |         |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------- | --------- | ------- | ----------- |  | - | ------- | ------- | 
|                                         |                                                                                       | June 30   |         | December 31
|                                         |                                                                                       | 2004      |         | 2003       
|                                         |                                                                                       |           |         |            
|                                         |                                                                                       | Unaudited |         | Audited    
|ASSETS                                   |                                                                                       |           |         |             |  |   |         |        
|CURRENT ASSETS                           |                                                                                       |           |         |             |  |   |         |        
|                                         | Cash and cash equivalents                                                             |           | $       | 100,042     |  |   | $       | 194,054 | 
|                                         | Accounts receivable, net of allowance for
    doubtful accounts of $320 (2003  $542) |           |         | 51,478      |  |   |         | 30,242  | 
|                                         | Inventories                                                                           |           |         | 57,303      |  |   |         | 53,153  | 
|                                         | Investment tax credit recoverable                                                     |           |         |            |  |   |         | 30,060  | 
|                                         | Prepaid expenses                                                                      |           |         | 3,077       |  |   |         | 3,433   | 
|                                         |                                                                                       |           |         |             |  |   |         |        
|                                         |                                                                                       |           | 211,900 |             |  |   | 310,942 |        
|CAPITAL ASSETS                           |                                                                                       |           | 447,042 |             |  |   | 293,502 |        
|OTHER ASSETS                             |                                                                                       |           | 26,128  |             |  |   | 23,277  |        
|GOODWILL (Note 3)                        |                                                                                       |           | 91,022  |             |  |   |        |        
|                                         |                                                                                       |           |         |             |  |   |         |        
|                                         |                                                                                       | $         | 776,092 |             |  | $ | 627,721 |        
|                                         |                                                                                       |           |         |             |  |   |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                                                                                       |           |         |             |  |   |         |        
|CURRENT LIABILITIES                      |                                                                                       |           |         |             |  |   |         |        
|                                         | Accounts payable                                                                      |           |         | 26,544      |  |   |         | 17,985  | 
|                                         | Accrued liabilities                                                                   |           |         | 15,059      |  |   |         | 29,776  | 
|                                         | Income taxes payable                                                                  |           |         | 33,007      |  |   |         | 3,494   | 
|                                         | Current portion of long term debt (Note 4)                                            |           |         | 388         |  |   |         | 250     | 
|                                         |                                                                                       |           |         |             |  |   |         |        
|                                         |                                                                                       |           | 74,998  |             |  |   | 51,505  |        
|REFORESTATION OBLIGATION                 |                                                                                       |           | 4,551   |             |  |   | 4,802   |        
|LONG TERM DEBT (Note 4)                  |                                                                                       |           | 417,690 |             |  |   | 352,227 |        
|FUTURE INCOME TAXES                      |                                                                                       |           | 53,100  |             |  |   | 47,396  |        
|                                         |                                                                                       |           |         |             |  |   |         |        
|                                         |                                                                                       |           | 550,339 |             |  |   | 455,930 |        
|                                         |                                                                                       |           |         |             |  |   |         |        
|SHAREHOLDERS EQUITY                     |                                                                                       |           |         |             |  |   |         |        
|Capital stock (Note 5)                   |                                                                                       |           | 55,827  |             |  |   | 53,110  |        
|Contributed surplus                      |                                                                                       |           |        |             |  |   | 118     |        
|Retained earnings                        |                                                                                       |           | 169,926 |             |  |   | 118,563 |        
|                                         |                                                                                       |           |         |             |  |   |         |        
|                                         |                                                                                       |           | 225,753 |             |  |   | 171,791 |        
|                                         |                                                                                       |           |         |             |  |   |         |        
|                                         |                                                                                       | $         | 776,092 |             |  | $ | 627,721 |        
|                                         |                                                                                       |           |         |             |  |   |         |        

The accompanying Notes to the Interim
Consolidated Financial Statements

are an integral part of these
statements.


Approved by the Board:

|                    |  |                 
|------------------- |  | ----------------
|Cochrane Ainsworkth |  | Allen Ainsworkth

F-25



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Statements of Operations and
Retained Earnings

(In thousands of dollars, except per share
data) Unaudited


|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |         |  
|------------------------------------------------ | --------------------------------------------- | ------------- | ------- | ---------------- | - | ---- | ------- | ------- | - | - | -------- | -------- | - | - | ------- | ------- | -
|                                                 |                                               |               |         |                 
|                                                 |                                               | Three Months  |         | Six Months Ended
|                                                 |                                               | Ended June 30 |         | June 30         
|                                                 |                                               |               |         |                 
|                                                 |                                               | 2004          |         | 2003             |   | 2004 |         | 2003   
|                                                 |                                               |               |         |                  |   |      |         |        
|SALES (Note 2)                                   |                                               | $             | 241,090 |                  |   | $    | 106,236 |         |   | $ | 431,722  |          |   | $ | 213,564 |        
|COSTS AND EXPENSES                               |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|                                                 | Costs of products sold (Note 2)               |               |         | 105,206          |   |      |         | 82,023  |   |   |          | 191,424  |   |   |         | 160,910 |  
|                                                 | Selling and administration                    |               |         | 4,900            |   |      |         | 4,405   |   |   |          | 10,016   |   |   |         | 8,518   |  
|                                                 | Amortization of capital assets                |               |         | 10,832           |   |      |         | 7,075   |   |   |          | 19,146   |   |   |         | 15,238  |  
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|                                                 |                                               |               | 120,938 |                  |   |      | 93,503  |         |   |   | 220,586  |          |   |   | 184,666 |        
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|OPERATING EARNINGS                               |                                               |               | 120,152 |                  |   |      | 12,733  |         |   |   | 211,136  |          |   |   | 28,898  |        
|FINANCE EXPENSE                                  |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|                                                 | Interest                                      |               |         | (6,512           | ) |      |         | (12,842 | ) |   |          | (16,900  | ) |   |         | (26,623 | )
|                                                 | Amortization of finance costs                 |               |         | (396             | ) |      |         | (1,219  | ) |   |          | (1,257   | ) |   |         | (2,411  | )
|                                                 | Loss on repurchase of long term debt (Note 4) |               |         |                 |   |      |         |        |   |   |          | (106,198 | ) |   |         |        |  
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|                                                 |                                               |               | (6,908  | )                |   |      | (14,061 | )       |   |   | (124,355 | )        |   |   | (29,034 | )      
|OTHER INCOME                                     |                                               |               | 2,018   |                  |   |      | 362     |         |   |   | 7,076    |          |   |   | 830     |        
|FOREIGN EXCHANGE (LOSS) GAIN ON LONG TERM DEBT   |                                               |               | (104    | )                |   |      | 33,864  |         |   |   | (5,786   | )        |   |   | 64,773  |        
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|INCOME BEFORE INCOME TAXES                       |                                               |               | 115,158 |                  |   |      | 32,898  |         |   |   | 88,071   |          |   |   | 65,467  |        
|INCOME AND LARGE CORPORATION TAX EXPENSE         |                                               |               | 43,756  |                  |   |      | 5,276   |         |   |   | 36,465   |          |   |   | 11,727  |        
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|NET INCOME                                       |                                               |               | 71,402  |                  |   |      | 27,622  |         |   |   | 51,606   |          |   |   | 53,740  |        
|RETAINED EARNINGS (DEFICIT), BEGINNING OF PERIOD |                                               |               | 98,767  |                  |   |      | 21,031  |         |   |   | 118,563  |          |   |   | (5,087  | )      
|REPURCHASE OF CAPITAL STOCK (Note 5)             |                                               |               | (243    | )                |   |      |        |         |   |   | (243     | )        |   |   |        |        
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|RETAINED EARNINGS, END OF PERIOD                 |                                               | $             | 169,926 |                  |   | $    | 48,653  |         |   | $ | 169,926  |          |   | $ | 48,653  |        
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        
|Basic and diluted earnings per share             |                                               | $             | 4.87    |                  |   | $    | 1.90    |         |   | $ | 3.52     |          |   | $ | 3.69    |        
|                                                 |                                               |               |         |                  |   |      |         |         |   |   |          |          |   |   |         |        

The accompanying Notes to the Interim
Consolidated Financial Statements

are an integral part of these
statements.


F-26



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Statements of Cash
Flows

(In thousands of dollars) Unaudited


|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |         |  
|--------------------------------------------------------- | ---------------------------------------------- | ------------------ | -------- | ---------------- | - | ---- | ------ | ------- | - | - | -------- | ------- | - | - | ------ | ------- | -
|                                                          |                                                |                    |          |                 
|                                                          |                                                | Three Months Ended |          | Six Months Ended
|                                                          |                                                | June 30            |          | June 30         
|                                                          |                                                |                    |          |                 
|                                                          |                                                | 2004               |          | 2003             |   | 2004 |        | 2003   
|                                                          |                                                |                    |          |                  |   |      |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES                      |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|Net income                                                |                                                | $                  | 71,402   |                  |   | $    | 27,622 |         |   | $ | 51,606   |         |   | $ | 53,740 |        
|Amounts not requiring an outlay of cash                   |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|                                                          | Amortization of capital assets                 |                    |          | 10,832           |   |      |        | 7,075   |   |   |          | 19,146  |   |   |        | 15,238  |  
|                                                          | Amortization of financing costs                |                    |          | 213              |   |      |        | 644     |   |   |          | 685     |   |   |        | 1,273   |  
|                                                          | Amortization of debt discount                  |                    |          | 179              |   |      |        | 213     |   |   |          | 323     |   |   |        | 422     |  
|                                                          | Amortization of consent and commitment fees    |                    |          | 4                |   |      |        | 362     |   |   |          | 249     |   |   |        | 803     |  
|                                                          | Foreign exchange loss (gain) on long term debt |                    |          | 104              |   |      |        | (33,864 | ) |   |          | 5,786   |   |   |        | (64,773 | )
|                                                          | Loss on repurchase of long term debt           |                    |          |                 |   |      |        |        |   |   |          | 106,198 |   |   |        |        |  
|                                                          | Non-cash stock-based compensation              |                    |          |                 |   |      |        | (210    | ) |   |          | 2,640   |   |   |        | (210    | )
|                                                          | (Gain) loss on disposal of capital assets      |                    |          | (14              | ) |      |        | 6       |   |   |          | (25     | ) |   |        | 13      |  
|                                                          | Change in non-current reforestation obligation |                    |          | (662             | ) |      |        | (711    | ) |   |          | (252    | ) |   |        | (6      | )
|                                                          | Future income taxes                            |                    |          | (26,903          | ) |      |        | 5,687   |   |   |          | (34,476 | ) |   |        | 11,783  |  
|Change in non-cash operating working capital              |                                                |                    | 94,433   |                  |   |      | 24,486 |         |   |   | 42,695   |         |   |   | (9,093 | )      
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|                                                          |                                                |                    | 149,588  |                  |   |      | 31,310 |         |   |   | 194,575  |         |   |   | 9,190  |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES                      |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|Proceeds on Issuance of Senior Unsecured Notes            |                                                |                    | 136,359  |                  |   |      |       |         |   |   | 417,507  |         |   |   |       |        
|Financing costs on Issuance of Senior Unsecured
    Notes |                                                |                    | (4,411   | )                |   |      |       |         |   |   | (10,406  | )       |   |   |       |        
|Repurchase of Senior Secured Notes                        |                                                |                    |         |                  |   |      |       |         |   |   | (451,305 | )       |   |   |       |        
|Repurchase of Common shares                               |                                                |                    | (284     | )                |   |      |       |         |   |   | (284     | )       |   |   |       |        
|Decrease in capital lease obligations                     |                                                |                    | (94      | )                |   |      | 595    |         |   |   | (162     | )       |   |   | 584    |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|                                                          |                                                |                    | 131,570  |                  |   |      | 595    |         |   |   | (44,650  | )       |   |   | 584    |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|CASH FLOWS FROM (USED IN) INVESTING
    ACTIVITIES        |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|Investment in Voyageur Panel Limited                      |                                                |                    | (284,551 | )                |   |      |       |         |   |   | (284,551 | )       |   |   |       |        
|Acquisition of cash of Voyageur Panel Limited             |                                                |                    | 51,143   |                  |   |      |       |         |   |   | 51,143   |         |   |   |       |        
|Additions to capital assets                               |                                                |                    | (3,848   | )                |   |      | (1,923 | )       |   |   | (5,613   | )       |   |   | (3,803 | )      
|(Increase) decrease in other assets                       |                                                |                    | (4,455   | )                |   |      | (321   | )       |   |   | (4,956   | )       |   |   | 455    |        
|Proceeds on disposal of capital assets                    |                                                |                    | 26       |                  |   |      | 3      |         |   |   | 40       |         |   |   | 16     |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|                                                          |                                                |                    | (241,685 | )                |   |      | (2,241 | )       |   |   | (243,937 | )       |   |   | (3,332 | )      
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|NET CASH INFLOW (OUTFLOW)                                 |                                                |                    | 39,473   |                  |   |      | 29,664 |         |   |   | (94,012  | )       |   |   | 6,442  |        
|CASH, BEGINNING OF PERIOD                                 |                                                |                    | 60,569   |                  |   |      | 56,973 |         |   |   | 194,054  |         |   |   | 80,195 |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|CASH, END OF PERIOD                                       |                                                | $                  | 100,042  |                  |   | $    | 86,637 |         |   | $ | 100,042  |         |   | $ | 86,637 |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:         |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|Interest paid                                             |                                                | $                  | 9,350    |                  |   | $    | 4,972  |         |   | $ | 35,259   |         |   | $ | 27,590 |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        
|Income taxes paid                                         |                                                | $                  | 2,479    |                  |   | $    | 279    |         |   | $ | 8,813    |         |   | $ | 508    |        
|                                                          |                                                |                    |          |                  |   |      |        |         |   |   |          |         |   |   |        |        

The accompanying Notes to the Interim
Consolidated Financial Statements

are an integral part of these
statements.


F-27



---



##### 



AINSWORTH LUMBER CO. LTD.

Notes to the Interim Consolidated Financial
Statements

Three and six month periods ended
June 30, 2004 and 2003

Figures in tables are in thousands, unless
otherwise indicated.


(Unaudited)


1. BASIS OF PRESENTATION

These interim unaudited consolidated financial
statements do not include all disclosures normally provided in
annual financial statements and accordingly, should be read in
conjunction with the Companys audited financial statements
for the year ended December 31, 2003. The Companys
accounting policies are in accordance with accounting principles
generally accepted in Canada. These accounting policies are
consistent with those outlined in the annual audited financial
statements except as disclosed in Note 2. In
managements opinion, these unaudited interim consolidated
financial statements include all adjustments (consisting solely
of normal recurring adjustments) necessary to present fairly
such information. The results of operations for the interim
periods are not necessarily indicative of the results to be
expected in future periods.

2. CHANGE IN ACCOUNTING
PRESENTATION

The Company has presented freight and other
distribution costs as part of costs of products sold in the
statement of operations and reclassified prior periods
presentation accordingly. Previously these costs were presented
as a reduction of sales in accordance with industry practice at
the time. The effect of the change was to increase sales and
cost of sales by $19.4 million for the three months ended
June 30, 2004 (2003  $14.9 million) and
increase sales and costs of products sold by $35.3 million
for the six months ended June 30, 2004 (2003 
$31.0 million).

3. ACQUISITION OF VOYAGEUR PANEL
LIMITED

On May 19, 2004, the Company completed the
acquisition of 100% of the voting shares of Voyageur Panel
Limited (Voyageur) for a purchase price of
US$206.7 million (CDN$284.5 million) paid in cash. The
vendors are also entitled to additional future consideration, to
a maximum of US$10 million, based on realization of
oriented strand board sales prices and volumes at Voyageur
between closing the transaction and December 31, 2004. This
additional consideration will be accrued as a cost of the
acquisition if and when the performance criteria are met. The
purpose of the additional consideration is to share the profit
that is earned during the period from the closing of the
acquisition to December 31, 2004. As a result, the amount
will be expensed when recognized. It is expected that
performance criteria will be met during the three month period
ended September 30, 2004.

The acquisition of Voyageur has been accounted
for using the purchase method, and the operating results are
included in the consolidated statement of operations from the
date of the acquisition. The amounts allocated to specific
identifiable tangible and intangible assets and

F-28



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)

liabilities at May 19, 2004 are preliminary
and may be adjusted when additional information on asset and
liability valuations become available:

|                                 |                             |   |         |         | 
|-------------------------------- | --------------------------- | - | ------- | ------- | 
|Net Assets acquired:             |                             |   |         |        
|                                 | Current assets              |   | $       | 74,954  | 
|                                 | Other assets                |   |         | 1,170   | 
|                                 | Capital Assets              |   |         | 167,086 | 
|                                 |                             |   |         |        
|Total assets acquired            |                             |   | 243,210 |        
|                                 |                             |   |         |        
|                                 | Current liabilities         |   |         | 9,470   | 
|                                 | Future income taxes         |   |         | 40,179  | 
|                                 | Other long term liabilities |   |         | 32      | 
|                                 |                             |   |         |        
|Total liabilities acquired       |                             |   | 49,681  |        
|                                 |                             |   |         |        
|Net identifiable assets acquired |                             |   | 193,529 |        
|Goodwill                         |                             |   | 91,022  |        
|                                 |                             |   |         |        
|Total purchase price             |                             | $ | 284,551 |        
|                                 |                             |   |         |        

4. LONG TERM DEBT

On March 3, 2004, the Company completed a
refinancing of its Senior Secured Notes and issued
US$210 million 6.75% Senior Unsecured Notes. Together with
its existing cash balance, the Company utilized the proceeds
from the notes to repurchase US$87.1 million of its 13.875%
notes and US$182.2 million of its 12.5% notes realizing a
total loss of $106.2 million. The loss is comprised of a
$15.5 million write-off of deferred financing costs, an
$83.5 million redemption premium, and payment of consent
fees of $7.2 million.

On May 19, 2004, the Company issued
US$110 million 6.75% Senior Unsecured Notes at a discount
of US$11 million. Financing costs of $4.4 million
relating to this debt have been deferred in other assets and
amortized over the term of the debt.

The details of the outstanding long term debt at
June 30, 2004 are as follows:

|                                                                                                                          |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------- |  | - | ------- | -
|U.S.$210,000,000 Senior Unsecured Notes due
    March 15, 2014 with interest payable semi-annually at 6.75%
    per annum |  | $ | 280,098 |  
|U.S.$110,000,000 Senior Unsecured Notes due
    March 15, 2014 with interest payable semi-annually at 6.75%
    per annum |  |   | 146,718 |  
|U.S.$2,351,000 Senior Unsecured Notes due
    July 15, 2007 with interest payable semi-annually at 12.5%
    per annum    |  |   | 3,136   |  
|U.S.$2,000,000 Senior Unsecured Notes due
    July 15, 2007 with interest payable quarterly at 13.875%
    per annum      |  |   | 2,668   |  
|Capital lease obligations                                                                                                 |  |   | 388     |  
|                                                                                                                          |  |   |         |  
|                                                                                                                          |  |   | 433,008 |  
|Unamortized deferred debt discount                                                                                        |  |   | (14,930 | )
|                                                                                                                          |  |   |         |  
|                                                                                                                          |  |   | 418,078 |  
|Current portion                                                                                                           |  |   | (388    | )
|                                                                                                                          |  |   |         |  
|                                                                                                                          |  | $ | 417,690 |  
|                                                                                                                          |  |   |         |  

F-29



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)

On March 15, 2004, the Company established a
$50,000,000 revolving credit facility with interest rates of
prime plus 0.5% or the bankers acceptance rate plus 2.0%.
At June 30, 2004 this facility was unutilized.

5. CAPITAL STOCK

On March 29, 2004, the Company issued 95,116
common shares to the holders of 107,500 Class B common
shares issued on June 25, 1999 who became entitled under
the Employee Participation Share Plan to receive common shares
in exchange for those Class B common shares. As at
June 30, 2004, there are no issued and outstanding
Class B common shares.

On June 29, 2004, the Company repurchased
10,924 common shares at a purchase price of $26.03 per share.
The excess of $0.2 million between the purchase price and
the weighted average cost was charged to retained earnings.

6. BENEFIT PLANS

The expense for the Companys retirement
benefit plans is as follows:

|                                 |  |              |     |            |  |      |     |      |  |   |       |  |  |   |       | 
|-------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | ----- |  |  | - | ----- | 
|                                 |  |              |     |           
|                                 |  | Three Months |     | Six Months
|                                 |  | Ended        |     | Ended     
|                                 |  | June 30      |     | June 30   
|                                 |  |              |     |           
|                                 |  | 2004         |     | 2003       |  | 2004 |     | 2003
|                                 |  |              |     |            |  |      |     |     
|Defined Benefit Plans            |  | $            | 274 |            |  | $    | 410 |      |  | $ | 610   |  |  | $ | 732   | 
|Contribution to Group RRSP Plans |  |              | 333 |            |  |      | 291 |      |  |   | 658   |  |  |   | 607   | 
|                                 |  |              |     |            |  |      |     |      |  |   |       |  |  |   |       | 
|Pension Expense                  |  | $            | 607 |            |  | $    | 701 |      |  | $ | 1,268 |  |  | $ | 1,339 | 
|                                 |  |              |     |            |  |      |     |      |  |   |       |  |  |   |       | 

F-30



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)

7. U.S. GAAP
RECONCILIATION

The interim consolidated financial statements
have been prepared in accordance with Canadian GAAP, which,
in the case of the Company, conforms in all material respects
with U.S. GAAP, except as set forth below:



|    |                                                                
|--- | ---------------------------------------------------------------
|(a) | Adjustments to assets, liabilities and
    shareholders equity

|     |  |                                                                             |                                            |              |         |          |   |   |         |        |  
|---- |  | --------------------------------------------------------------------------- | ------------------------------------------ | ------------ | ------- | -------- | - | - | ------- | ------ | -
|     |  |                                                                             |                                            | December 31, |         | June 30,
|     |  |                                                                             |                                            | 2003         |         | 2004    
|     |  |                                                                             |                                            |              |         |         
|(i)  |  | Total assets in accordance with Canadian GAAP                               |                                            | $            | 627,721 |          |   | $ | 776,092 |       
|     |  | Write-off of capitalized start-up costs(1)                                  |                                            |              | (8,966  | )        |   |   | (8,119  | )     
|     |  | Intangible asset, arising from minimum pension
    liability calculation(2) |                                            |              | 509     |          |   |   | 509     |       
|     |  |                                                                             |                                            |              |         |          |   |   |         |       
|     |  | Total assets in accordance with U.S. GAAP                                   |                                            | $            | 619,264 |          |   | $ | 768,482 |       
|     |  |                                                                             |                                            |              |         |          |   |   |         |       
|(ii) |  | Total liabilities in accordance with
    Canadian GAAP                      |                                            | $            | 455,930 |          |   | $ | 550,339 |       
|     |  | Future income taxes relating to write-off:                                  |                                            |              |         |          |   |   |         |       
|     |  |                                                                             | of capitalized start-up costs(1)           |              |         | (3,194   | ) |   |         | (2,892 | )
|     |  | Minimum pension liability, net of
    tax effect(2)                         |                                            |              | 7,273   |          |   |   | 7,273   |       
|     |  |                                                                             |                                            |              |         |          |   |   |         |       
|     |  | Total liabilities in accordance with
    U.S. GAAP                          |                                            | $            | 460,009 |          |   | $ | 554,720 |       
|     |  |                                                                             |                                            |              |         |          |   |   |         |       
|(iii |  | ) Total shareholders equity in accordance
    with Canadian GAAP           |                                            | $            | 171,791 |          |   | $ | 225,753 |       
|     |  | Change in retained earnings relating to:                                    |                                            |              |         |          |   |   |         |       
|     |  |                                                                             | Write-off of capitalized start-up costs(1) |              |         | (5,772   | ) |   |         | (5,227 | )
|     |  |                                                                             | Accumulated other comprehensive loss(2)    |              |         | (6,764   | ) |   |         | (6,764 | )
|     |  |                                                                             |                                            |              |         |          |   |   |         |       
|     |  | Total shareholders equity in accordance
    with U.S. GAAP                 |                                            | $            | 159,255 |          |   | $ | 213,762 |       
|     |  |                                                                             |                                            |              |         |          |   |   |         |       



|    |                        
|--- | -----------------------
|(b) | Adjustments to earnings

|                                                                                          |  |                  |        |      |  |   |        | 
|----------------------------------------------------------------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | 
|                                                                                          |  |                 
|                                                                                          |  | Six Months Ended
|                                                                                          |  | June 30,        
|                                                                                          |  |                 
|                                                                                          |  | 2003             |        | 2004
|                                                                                          |  |                  |        |     
|Net income in accordance with Canadian GAAP                                               |  | $                | 53,740 |      |  | $ | 51,606 | 
|Reversal of amortization of capitalized start-up
    costs, net of future income taxes(1) |  |                  | 489    |      |  |   | 545    | 
|                                                                                          |  |                  |        |      |  |   |        | 
|Net income (loss) in accordance with
    U.S. GAAP                                        |  | $                | 54,229 |      |  | $ | 52,151 | 
|                                                                                          |  |                  |        |      |  |   |        | 
|Basic and diluted income per share in accordance
    with U.S. GAAP                       |  | $                | 3.70   |      |  | $ | 3.56   | 
|                                                                                          |  |                  |        |      |  |   |        | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under U.S. GAAP, the direct operating losses
    arising during the start-up phase of the oriented strand board
    facilities, which were capitalized under Canadian GAAP, are
    charged against earnings.                                                                                                                                                                                                                                                        
|   
|(2) | Under U.S. GAAP the Company would recognize
    the difference between the unfunded accumulated pension benefit
    obligation and the accrued benefit asset as an additional
    minimum pension liability, and an equal amount as an intangible
    asset, subject to the following. If the additional liability
    exceeded unrecognized past service cost the excess would be
    recognized as other comprehensive loss, net of any resulting
    tax benefits.

F-31



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)



|   |                                                                           
|-- | --------------------------------------------------------------------------
|8. | Separate Financial Information of Subsidiary
    Guarantor of Indebtedness

On March 3, 2004, the Company issued
US$210 million of 6.75% Senior Unsecured Notes to refinance
its outstanding indebtedness at the time. On May 19, 2004,
the Company issued US$110 million of 6.75% Senior Unsecured
Notes to finance the acquisition of Voyageur. Under the terms of
the Senior Notes, Ainsworth Engineered Corp. (formerly Voyageur)
became a joint and several guarantor of the indebtedness (the
Guarantor). The guarantee is a full and
unconditional guarantee.

Additionally, if at any time a subsidiary of the
Company constitutes a significant subsidiary, then such
subsidiary will also become a guarantor of the indebtedness. If
the Company were to fail to make a payment of interest or
principal on its due date, the Guarantor is obligated to pay the
outstanding indebtedness. At June 30, 2004, the Company had
the following outstanding amounts related to the guaranteed debt:

|                                                                                                                          |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------- |  | - | ------- | 
|U.S.$210,000,000 Senior Unsecured Notes due
    March 15, 2014 with interest payable semi-annually at 6.75%
    per annum |  | $ | 280,098 | 
|U.S.$110,000,000 Senior Unsecured Notes due
    March 15, 2014 with interest payable semi-annually at 6.75%
    per annum |  |   | 146,718 | 
|                                                                                                                          |  |   |         | 
|                                                                                                                          |  | $ | 426,816 | 
|                                                                                                                          |  |   |         | 

The following condensed consolidating financial
information reflects the summarized financial information of the
Company and its Guarantor:

F-32



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)



|   |                                                                                       
|-- | --------------------------------------------------------------------------------------
|8. | Separate Financial Information of Subsidiary
    Guarantor of Indebtedness (Continued)

Condensed Consolidated Balance Sheet

as at June 30, 2004


(Unaudited)


|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|---------------------------------------- |  | ---------------- | ------- | ---------- |  | ----------- | ------- | --------------- |  | - | -------- | - |  | - | ------- | 
|                                         |  | Ainsworth        |         | Ainsworth  |  |             |         | Ainsworth      
|                                         |  | Lumber Co. Ltd.  |         | Engineered |  |             |         | Lumber Co. Ltd.
|                                         |  | Non-Consolidated |         | Corp.      |  | Adjustments |         | Consolidated   
|                                         |  |                  |         |            |  |             |         |                
|ASSETS                                   |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|CASH                                     |  | $                | 98,906  |            |  | $           | 1,136   |                 |  | $ |         |   |  | $ | 100,042 | 
|OTHER CURRENT ASSETS                     |  |                  | 103,591 |            |  |             | 8,267   |                 |  |   |         |   |  |   | 111,858 | 
|CAPITAL ASSETS                           |  |                  | 277,093 |            |  |             | 101,641 |                 |  |   | 68,308   |   |  |   | 447,042 | 
|OTHER ASSETS                             |  |                  | 24,958  |            |  |             | 1,170   |                 |  |   |          |   |  |   | 26,128  | 
|GOODWILL                                 |  |                  |        |            |  |             |         |                 |  |   | 91,022   |   |  |   | 91,022  | 
|DUE FROM PARENT COMPANY                  |  |                  |        |            |  |             | 67,448  |                 |  |   | (67,448  | ) |  |   |        | 
|INVESTMENT IN SUBSIDIARY                 |  |                  | 291,306 |            |  |             |        |                 |  |   | (291,306 | ) |  |   |        | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|                                         |  | $                | 795,854 |            |  | $           | 179,662 |                 |  | $ | (199,424 | ) |  | $ | 776,092 | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|LIABILITIES AND SHAREHOLDERS
    EQUITY |  |                  |         |            |  |             |         |                 |  |   |          |  
|CURRENT LIABILITIES                      |  | $                | 67,524  |            |  | $           | 7,474   |                 |  | $ |         |   |  | $ | 74,998  | 
|REFORESTATION OBLIGATION                 |  |                  | 4,551   |            |  |             |         |                 |  |   |          |   |  |   | 4,551   | 
|DUE TO SUBSIDIARY COMPANY                |  |                  | 67,448  |            |  |             |         |                 |  |   | (67,448  | ) |  |   |         | 
|LONG TERM DEBT                           |  |                  | 417,657 |            |  |             | 33      |                 |  |   |          |   |  |   | 417,690 | 
|FUTURE INCOME TAXES                      |  |                  | 12,921  |            |  |             | 17,450  |                 |  |   | 22,729   |   |  |   | 53,100  | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|                                         |  |                  | 570,101 |            |  |             | 24,957  |                 |  |   | (44,719  | ) |  |   | 550,339 | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|                                        
|PREFERRED SHARES                         |  |                  |        |            |  |             | 25,999  |                 |  |   | (25,999  | ) |  |   |        | 
|                                        
|SHAREHOLDERS EQUITY                     |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|Capital stock                            |  |                  | 55,827  |            |  |             | 55,419  |                 |  |   | (55,419  | ) |  |   | 55,827  | 
|Retained earnings                        |  |                  | 169,926 |            |  |             | 73,287  |                 |  |   | (73,287  | ) |  |   | 169,926 | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|                                         |  |                  | 225,753 |            |  |             | 128,706 |                 |  |   | (128,706 | ) |  |   | 225,753 | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 
|                                         |  | $                | 795,854 |            |  | $           | 179,662 |                 |  | $ | (199,424 | ) |  | $ | 776,092 | 
|                                         |  |                  |         |            |  |             |         |                 |  |   |          |   |  |   |         | 

F-33



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)



|   |                                                                                       
|-- | --------------------------------------------------------------------------------------
|8. | Separate Financial Information of Subsidiary
    Guarantor of Indebtedness (Continued)

|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |        |  
|------------------------------------------------------------------------------ | ------------------------------------------ | ---------------- | ------- | ---------- | - | ----------- | ------- | --------------- |  | - | - | - |  | - | ------- | ------ | -
|                                                                               |                                            | Ainsworth        |         | Ainsworth  |   |             |         | Ainsworth      
|                                                                               |                                            | Lumber Co. Ltd.  |         | Engineered |   |             |         | Lumber Co. Ltd.
|                                                                               |                                            | Non-Consolidated |         | Corp.      |   | Adjustments |         | Consolidated   
|                                                                               |                                            |                  |         |            |   |             |         |                
|Total assets in accordance with Canadian GAAP                                  |                                            | $                | 795,854 |            |   | $           | 179,662 |                 |  | $ |  |   |  | $ | 776,092 |       
|Write-off of capitalized start-up costs(1)                                     |                                            |                  | (8,119  | )          |   |             |        |                 |  |   |  |   |  |   | (8,119  | )     
|Intangible asset, arising from minimum pension
    liability calculation(2)    |                                            |                  | 509     |            |   |             |        |                 |  |   |  |   |  |   | 509     |       
|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       
|Total assets in accordance with U.S. GAAP                                      |                                            | $                | 788,244 |            |   | $           | 179,662 |                 |  | $ |  |   |  | $ | 768,482 |       
|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       
|Total liabilities in accordance with Canadian GAAP                             |                                            | $                | 570,101 |            |   | $           | 17,483  |                 |  | $ |  |   |  | $ | 550,339 |       
|Future income taxes relating to write-off of
    capitalized start-up costs(1) |                                            |                  | (2,892  | )          |   |             |        |                 |  |   |  |   |  |   | (2,892  | )     
|Minimum pension liability, net of tax effect(2)                                |                                            |                  | 7,273   |            |   |             |        |                 |  |   |  |   |  |   | 7,273   |       
|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       
|                                                                               |                                            | $                | 574,482 |            |   | $           | 17,483  |                 |  | $ |  |   |  | $ | 554,720 |       
|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       
|Total shareholders equity in accordance
    with Canadian GAAP                |                                            | $                | 225,753 |            |   | $           | 128,706 |                 |  | $ |  |   |  | $ | 225,753 |       
|Change in retained earnings relating to:                                       |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       
|                                                                               | Write-off of capitalized start-up costs(1) |                  |         | (5,227     | ) |             |         |                |  |   |   |  |  |   |         | (5,227 | )
|                                                                               | Accumulated other comprehensive loss(2)    |                  |         | (6,764     | ) |             |         |                |  |   |   |  |  |   |         | (6,764 | )
|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       
|                                                                               |                                            | $                | 213,762 |            |   | $           | 128,706 |                 |  | $ |  |   |  | $ | 213,762 |       
|                                                                               |                                            |                  |         |            |   |             |         |                 |  |   |   |   |  |   |         |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under U.S. GAAP, the direct operating losses
    arising during the start-up phase of the oriented strand board
    facilities, which were capitalized under Canadian GAAP, are
    charged against earnings.                                                                                                                                                                                                                                                        
|   
|(2) | Under U.S. GAAP the Company would recognize
    the difference between the unfunded accumulated pension benefit
    obligation and the accrued benefit asset as an additional
    minimum pension liability, and an equal amount as an intangible
    asset, subject to the following. If the additional liability
    exceeded unrecognized past service cost the excess would be
    recognized as other comprehensive loss, net of any resulting
    tax benefits.

F-34



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)



|   |                                                                                       
|-- | --------------------------------------------------------------------------------------
|8. | Separate Financial Information of Subsidiary
    Guarantor of Indebtedness (Continued)

Statement of Operations

For the six months ended June 30,
2004


(Unaudited)


|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |          |  
|----------------------------------------------------------------------------------------- | ------------------------------------ | ---------------- | -------- | ---------- | - | ----------- | ------ | --------------- |  | - | ---- | --- |  | - | -------- | -------- | -
|                                                                                          |                                      | Ainsworth        |          | Ainsworth  |   |             |        | Ainsworth      
|                                                                                          |                                      | Lumber Co. Ltd.  |          | Engineered |   |             |        | Lumber Co. Ltd.
|                                                                                          |                                      | Non-Consolidated |          | Corp.(a)   |   | Adjustments |        | Consolidated   
|                                                                                          |                                      |                  |          |            |   |             |        |                
|SALES                                                                                     |                                      | $                | 410,684  |            |   | $           | 21,038 |                 |  |   |      |     |  | $ | 431,722  |         
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|COSTS AND EXPENSES                                                                        |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|                                                                                          | Costs of products sold               |                  |          | 182,746    |   |             |        | 8,678           |  |   |      |     |  |   |          | 191,424  |  
|                                                                                          | Selling and administration           |                  |          | 9,910      |   |             |        | 106             |  |   |      |     |  |   |          | 10,016   |  
|                                                                                          | Amortization of capital assets       |                  |          | 16,765     |   |             |        | 1,638           |  |   |      | 743 |  |   |          | 19,146   |  
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|                                                                                          |                                      |                  | 209,421  |            |   |             | 10,422 |                 |  |   | 743  |     |  |   | 220,586  |         
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|OPERATING EARNINGS                                                                        |                                      |                  | 201,263  |            |   |             | 10,616 |                 |  |   | (743 | )   |  |   | 211,136  |         
|FINANCE EXPENSE                                                                           |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|                                                                                          | Interest                             |                  |          | (16,900    | ) |             |        |                 |  |   |      |     |  |   |          | (16,900  | )
|                                                                                          | Amortization of finance costs        |                  |          | (1,257     | ) |             |        |                 |  |   |      |     |  |   |          | (1,257   | )
|                                                                                          | Loss on repurchase of long term debt |                  |          | (106,198   | ) |             |        |                 |  |   |      |     |  |   |          | (106,198 | )
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|                                                                                          |                                      |                  | (124,355 | )          |   |             |       |                 |  |   |     |     |  |   | (124,355 | )       
|OTHER INCOME                                                                              |                                      |                  | 7,076    |            |   |             |        |                 |  |   |      |     |  |   | 7,076    |         
|FOREIGN EXCHANGE LOSS ON LONG TERM DEBT                                                   |                                      |                  | (5,786   | )          |   |             |        |                 |  |   |      |     |  |   | (5,786   | )       
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|INCOME BEFORE INCOME TAXES                                                                |                                      |                  | 78,198   |            |   |             | 10,616 |                 |  |   | (743 | )   |  |   | 88,071   |         
|INCOME AND LARGE CORPORATION TAX EXPENSE                                                  |                                      |                  | 32,749   |            |   |             | 3,716  |                 |  |   |      |     |  |   | 36,465   |         
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|NET INCOME                                                                                |                                      | $                | 45,449   |            |   | $           | 6,900  |                 |  | $ | (743 | )   |  | $ | 51,606   |         
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|                                                                                         
|Net income in accordance with Canadian GAAP                                               |                                      | $                | 45,449   |            |   | $           | 6,900  |                 |  | $ | (743 | )   |  | $ | 51,606   |         
|Reversal of amortization of capitalized start-up
    costs, net of future income taxes(1) |                                      |                  | 545      |            |   |             |       |                 |  |   |     |     |  |   | 545      |         
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         
|Net income in accordance with U.S. GAAP                                                   |                                      | $                | 45,994   |            |   | $           | 6,900  |                 |  | $ | (743 | )   |  | $ | 52,151   |         
|                                                                                          |                                      |                  |          |            |   |             |        |                 |  |   |      |     |  |   |          |         






|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Statement of operations for the period from
    May 19, 2004 to June 30, 2004.                                                                                                                               
|   
|(1) | Under U.S. GAAP, the direct operating losses
    arising during the start-up phase of the oriented strand board
    facilities, which were capitalized under Canadian GAAP, are
    charged against earnings.

F-35



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)



|   |                                                                                       
|-- | --------------------------------------------------------------------------------------
|8. | Separate Financial Information of Subsidiary
    Guarantor of Indebtedness (Continued)

Statement of Cashflows

For the six months ended June 30,
2004


(Unaudited)


|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |          |         |  
|-------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------------- | -------- | ---------- | ------- | ------------ | ------- | --------------- | ----- | - | - | ------- | --- | - | -------- | -------- | ------- | -
|                                                   |                                                           | Ainsworth                                          |          | Ainsworth  |         |              |         | Ainsworth      
|                                                   |                                                           | Lumber Co. Ltd.                                    |          | Engineered |         |              |         | Lumber Co. Ltd.
|                                                   |                                                           | Non-Consolidated                                   |          | Corp.(a)   |         | Eliminations |         | Consolidated   
|                                                   |                                                           |                                                    |          |            |         |              |         |                
|CASH FLOWS FROM OPERATING ACTIVITIES               |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|                                                   | Net income                                                |                                                    | $        | 45,449     |         |              | $       | 6,900           |       |   | $ | (743    | )   |   | $        | 51,606   |        
|                                                   | Amounts not requiring an outlay of cash                   |                                                    |          |           |         |              |         |                 |       |   |   |         |     |   |          |          |        
|                                                   |                                                           | Amortization of capital assets                     |          |            | 16,765  |              |         |                 | 1,638 |   |   |         | 743 |   |          |          | 19,146  |  
|                                                   |                                                           | Amortization of financing costs                    |          |            | 685     |              |         |                 |      |   |   |         |    |   |          |          | 685     |  
|                                                   |                                                           | Amortization of debt discount                      |          |            | 323     |              |         |                 |      |   |   |         |    |   |          |          | 323     |  
|                                                   |                                                           | Amortization of consent and commitment fees        |          |            | 249     |              |         |                 |      |   |   |         |    |   |          |          | 249     |  
|                                                   |                                                           | Foreign exchange loss (gain) on long
    term debt |          |            | 5,786   |              |         |                 |      |   |   |         |    |   |          |          | 5,786   |  
|                                                   |                                                           | Loss on repurchase of long term debt               |          |            | 106,198 |              |         |                 |      |   |   |         |    |   |          |          | 106,198 |  
|                                                   |                                                           | Non-cash stock-based compensation                  |          |            | 2,640   |              |         |                 |      |   |   |         |    |   |          |          | 2,640   |  
|                                                   |                                                           | (Gain) loss on disposal of capital assets          |          |            | (25     | )            |         |                 |      |   |   |         |    |   |          |          | (25     | )
|                                                   |                                                           | Change in non-current reforestation obligation     |          |            | (252    | )            |         |                 |      |   |   |         |    |   |          |          | (252    | )
|                                                   |                                                           | Future income taxes                                |          |            | (34,476 | )            |         |                 |      |   |   |         |    |   |          |          | (34,476 | )
|                                                   | Change in non-cash operating working capital              |                                                    |          | 22,327     |         |              |         | 20,368          |       |   |   |        |     |   |          | 42,695   |        
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|                                                   |                                                           |                                                    | 165,669  |            |         |              | 28,906  |                 |       |   |  |         |     |   | 194,575  |         
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES               |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|                                                   | Proceeds on Issuance of Senior
    Unsecured Notes        |                                                    |          | 417,507    |         |              |         |                |       |   |   |        |     |   |          | 417,507  |        
|                                                   | Financing costs on Issuance of Senior
    Unsecured Notes |                                                    |          | (10,406    | )       |              |         |                |       |   |   |        |     |   |          | (10,406  | )      
|                                                   | Advances to Parent Company                                |                                                    |          |           |         |              |         | (67,448         | )     |   |   | 67,448  |     |   |          |         |        
|                                                   | Advances from Subsidiary Company                          |                                                    |          | 67,448     |         |              |         |                |       |   |   | (67,448 | )   |   |          |         |        
|                                                   | Repurchase of Senior Secured Notes                        |                                                    |          | (451,305   | )       |              |         |                |       |   |   |        |     |   |          | (451,305 | )      
|                                                   | Repurchase of Common shares                               |                                                    |          | (284       | )       |              |         |                 |       |   |   |         |     |   |          | (284     | )      
|                                                   | Decrease in capital lease obligations                     |                                                    |          | (162       | )       |              |         |                |       |   |   |        |     |   |          | (162     | )      
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|                                                   |                                                           |                                                    | 22,798   |            |         |              | (66,748 | )               |       |   |  |         |     |   | (44,650  | )       
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|CASH FLOWS FROM (USED IN) INVESTING
    ACTIVITIES |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|                                                   | Investment in Voyageur Panel Limited                      |                                                    |          | (284,551   | )       |              |         |                |       |   |   |        |     |   |          | (284,551 | )      
|                                                   | Acquisition of cash of Voyageur Panel Limited             |                                                    |          | 51,143     |         |              |         |                |       |   |   |        |     |   |          | 51,143   |        
|                                                   | Additions to capital assets                               |                                                    |          | (829       | )       |              |         | (4,784          | )     |   |   |        |     |   |          | (5,613   | )      
|                                                   | (Increase) decrease in other assets                       |                                                    |          | (4,956     | )       |              |         |                |       |   |   |        |     |   |          | (4,956   | )      
|                                                   | Proceeds on disposal of capital assets                    |                                                    |          | 40         |         |              |         |                |       |   |   |        |     |   |          | 40       |        
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|                                                   |                                                           |                                                    | (239,153 | )          |         |              | (4,784  | )               |       |   |  |         |     |   | (243,937 | )       
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|NET CASH INFLOW (OUTFLOW)                          |                                                           |                                                    | (50,686  | )          |         |              | (43,326 | )               |       |   |  |         |     |   | (94,012  | )       
|CASH, BEGINNING OF PERIOD                          |                                                           |                                                    | 149,592  |            |         |              | 44,462  |                 |       |   |   |         |     |   | 194,054  |         
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         
|CASH, END OF PERIOD                                |                                                           | $                                                  | 98,906   |            |         | $            | 1,136   |                 |       | $ |  |         |     | $ | 100,042  |         
|                                                   |                                                           |                                                    |          |            |         |              |         |                 |       |   |   |         |     |   |          |         






|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(a) | Statement of cash flows for the period from
    May 19, 2004 to June 30, 2004.

F-36



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Interim Consolidated Financial
Statements  (Continued)

9. SUBSEQUENT EVENTS

On August 13, 2004, the Company announced
that its Board of Directors declared a cash dividend of $1.00
per common share, payable on September 7, 2004 to holders
of record of its common shares as of the close of business on
August 24, 2004.

On August 25, 2004, the Company announced
that it had reached an agreement with Potlatch Corporation to
buy three OSB facilities located in Minnesota for a
purchase price of US$454.7 million (subject to adjustment
upon closing). The transaction is expected to close in
September 2004.

F-37



---



##### 



AUDITORS REPORT

To the Board of Directors of 
 Voyageur Panel Limited

We have audited the balance sheets of Voyageur
Panel Limited as at December 31, 2003 and 2002 and the
statements of earnings (loss), shareholders equity and
cash flows for years then ended. These financial statements are
the responsibility of the companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

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

/s/ KPMG LLP

Chartered Accountants


Winnipeg, Canada


April 27, 2004


F-38



---



##### 



VOYAGEUR PANEL LIMITED

BALANCE SHEETS

|                                           |                                          |                                |         |         |       |   |         |         |       | 
|------------------------------------------ | ---------------------------------------- | ------------------------------ | ------- | ------- | ----- | - | ------- | ------- | ----- | 
|                                           |                                          |                               
|                                           |                                          | December 31                   
|                                           |                                          |                               
|                                           |                                          | 2002                           |         | 2003   
|                                           |                                          |                                |         |        
|                                           |                                          |                               
|                                           |                                          | (expressed in                 
|                                           |                                          | thousands of                  
|                                           |                                          | Canadian dollars)             
|ASSETS                                     |                                          |                                |         |         |       |   |         |        
|Current                                    |                                          |                                |         |         |       |   |         |        
|                                           | Cash                                     |                                | $       | 6,132   |       |   | $       | 42,989  |      
|                                           | Receivables                              |                                |         |         |       |   |         |         |      
|                                           |                                          | Affiliated company (note 10)   |         |         | 6,005 |   |         |         | 7,034 | 
|                                           |                                          | Other                          |         |         | 317   |   |         |         | 976   | 
|                                           | Inventory (note 3)                       |                                |         | 5,166   |       |   |         | 6,225   |      
|                                           | Prepaid expenses                         |                                |         | 11      |       |   |         | 13      |      
|                                           |                                          |                                |         |         |       |   |         |        
|                                           |                                          |                                | 17,631  |         |       |   | 57,237  |        
|                                           |                                          |                                |         |         |       |   |         |        
|Property, plant and equipment (note 4)     |                                          |                                | 111,017 |         |       |   | 100,037 |        
|Other assets (note 5)                      |                                          |                                | 1,754   |         |       |   | 1,208   |        
|                                           |                                          |                                |         |         |       |   |         |        
|                                           |                                          | $                              | 130,402 |         |       | $ | 158,482 |        
|                                           |                                          |                                |         |         |       |   |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY        |                                          |                                |         |         |       |   |         |        
|Current                                    |                                          |                                |         |         |       |   |         |        
|                                           | Accounts payable and accrued liabilities |                                |         |         |       |   |         |         |      
|                                           |                                          | Trade                          |         | $       | 3,340 |   |         | $       | 3,869 | 
|                                           |                                          | Affiliated companies (note 10) |         |         | 2,564 |   |         |         | 4,132 | 
|Income taxes payable                       |                                          |                                |        |         |       |   | 7,975   |        
|Current portion of long-term debt (note 6) |                                          |                                | 8,176   |         |       |   |        |        
|                                           |                                          |                                |         |         |       |   |         |        
|                                           |                                          |                                | 14,080  |         |       |   | 15,976  |        
|                                           |                                          |                                |         |         |       |   |         |        
|Other                                      |                                          |                                |         |         |       |   |         |        
|                                           | Future income taxes (note 9)             |                                |         | 13,538  |       |   |         | 16,469  |      
|                                           | Other long-term liabilities              |                                |         | 22      |       |   |         | 26      |      
|                                           |                                          |                                |         |         |       |   |         |        
|                                           |                                          |                                | 13,560  |         |       |   | 16,495  |        
|                                           |                                          |                                |         |         |       |   |         |        
|Preferred Class A shares (note 7)          |                                          |                                | 64,619  |         |       |   | 80,869  |        
|                                           |                                          |                                |         |         |       |   |         |        
|Shareholders equity                       |                                          |                                |         |         |       |   |         |        
|                                           | Common stock (note 8)                    |                                |         | 55,419  |       |   |         | 55,419  |      
|                                           | Deficit                                  |                                |         | (17,276 | )     |   |         | (10,277 | )    
|                                           |                                          |                                |         |         |       |   |         |        
|                                           |                                          |                                | 38,143  |         |       |   | 45,142  |        
|                                           |                                          |                                |         |         |       |   |         |        
|Contingencies (note 12)                    |                                          |                                |         |         |       |   |         |        
|Subsequent event (note 14)                 |                                          | $                              | 130,402 |         |       | $ | 158,482 |        
|                                           |                                          |                                |         |         |       |   |         |        

See accompanying notes to financial
statements.

F-39



---



##### 



VOYAGEUR PANEL LIMITED

STATEMENTS OF EARNINGS (LOSS)

|                                                                  |                               |                         |        |        |        |   |         |         |        | 
|----------------------------------------------------------------- | ----------------------------- | ----------------------- | ------ | ------ | ------ | - | ------- | ------- | ------ | 
|                                                                  |                               |                        
|                                                                  |                               | Years Ended            
|                                                                  |                               | December 31            
|                                                                  |                               |                        
|                                                                  |                               | 2002                    |        | 2003  
|                                                                  |                               |                         |        |       
|                                                                  |                               |                        
|                                                                  |                               | (expressed in          
|                                                                  |                               | thousands of           
|                                                                  |                               | Canadian dollars)      
|Revenues                                                          |                               |                         |        |        |        |   |         |        
|                                                                  | Sales                         |                         |        |        |        |   |         |         |       
|                                                                  |                               | Trade                   |        | $      | 39,249 |   |         | $       | 48,460 | 
|                                                                  |                               | Related party (note 10) |        |        | 60,454 |   |         |         | 95,231 | 
|                                                                  |                               |                         |        |        |        |   |         |        
|                                                                  |                               |                         | 99,703 |        |        |   | 143,691 |        
|                                                                  |                               |                         |        |        |        |   |         |        
|Costs and expenses                                                |                               |                         |        |        |        |   |         |        
|                                                                  | Operating expenses            |                         |        | 80,697 |        |   |         | 85,377  |       
|                                                                  | Sales commissions (note 10)   |                         |        | 3,386  |        |   |         | 5,163   |       
|                                                                  | Management fees (note 10)     |                         |        | 1,746  |        |   |         | 1,601   |       
|                                                                  | Depreciation and amortization |                         |        | 12,639 |        |   |         | 12,156  |       
|                                                                  |                               |                         |        |        |        |   |         |        
|                                                                  |                               |                         | 98,468 |        |        |   | 104,297 |        
|                                                                  |                               |                         |        |        |        |   |         |        
|Earnings from operations                                          |                               |                         | 1,235  |        |        |   | 39,394  |        
|                                                                  |                               |                         |        |        |        |   |         |        
|Interest income                                                   |                               |                         | 123    |        |        |   | 126     |        
|Interest expense                                                  |                               |                         | (675   | )      |        |   | (201    | )      
|Foreign exchange gain (loss)                                      |                               |                         | 79     |        |        |   | (2,036  | )      
|Unrealized increase in fair value of preferred
    Class A shares |                               |                         | (6,719 | )      |        |   | (16,250 | )      
|                                                                  |                               |                         |        |        |        |   |         |        
|                                                                  |                               |                         | (7,192 | )      |        |   | (18,361 | )      
|                                                                  |                               |                         |        |        |        |   |         |        
|Earnings (loss) before income taxes                               |                               |                         | (5,957 | )      |        |   | 21,033  |        
|Income taxes (note 9)                                             |                               |                         |        |        |        |   |         |        
|                                                                  | Current                       |                         |        | (756   | )      |   |         | (11,103 | )     
|                                                                  | Future                        |                         |        | (1,052 | )      |   |         | (2,931  | )     
|                                                                  |                               |                         |        |        |        |   |         |        
|                                                                  |                               |                         | (1,808 | )      |        |   | (14,034 | )      
|                                                                  |                               |                         |        |        |        |   |         |        
|Net earnings (loss)                                               |                               | $                       | (7,765 | )      |        | $ | 6,999   |        
|                                                                  |                               |                         |        |        |        |   |         |        

See accompanying notes to financial
statements.

F-40



---



##### 



VOYAGEUR PANEL LIMITED

STATEMENTS OF SHAREHOLDERS
EQUITY

|                           |                                   |                              |         |          |  |             |       |   |  |   |         |        | 
|-------------------------- | --------------------------------- | ---------------------------- | ------- | -------- |  | ----------- | ----- | - |  | - | ------- | ------ | 
|                           |                                   |                             
|                           |                                   | Year Ended December 31, 2003
|                           |                                   |                             
|                           |                                   | December 31                  |         | Net      |  | December 31
|                           |                                   | 2002                         |         | Earnings |  | 2003       
|                           |                                   |                              |         |          |  |            
|                           |                                   |                             
|                           |                                   | (expressed in thousands of  
|                           |                                   | Canadian dollars)           
|Common stock               |                                   |                              |         |          |  |             |       |   |  |   |         |       
|                           | Boise Cascade Corporation         |                              | $       | 38,314   |  |             | $     |  |  |   | $       | 38,314 | 
|                           | Rainy River
    OSB Holdings Inc. |                              |         | 17,105   |  |             |       |  |  |   |         | 17,105 | 
|                           |                                   |                              |         |          |  |             |       |   |  |   |         |       
|                           |                                   |                              | 55,419  |          |  |             |      |   |  |   | 55,419  |       
|                           |                                   |                              |         |          |  |             |       |   |  |   |         |       
|Deficit                    |                                   |                              | (17,276 | )        |  |             | 6,999 |   |  |   | (10,277 | )     
|                           |                                   |                              |         |          |  |             |       |   |  |   |         |       
|Balance at end of the year |                                   | $                            | 38,143  |          |  | $           | 6,999 |   |  | $ | 45,142  |       
|                           |                                   |                              |         |          |  |             |       |   |  |   |         |       

|                           |                               |                              |        |        |  |             |        |   |  |   |         |        | 
|-------------------------- | ----------------------------- | ---------------------------- | ------ | ------ |  | ----------- | ------ | - |  | - | ------- | ------ | 
|                           |                               |                             
|                           |                               | Year Ended December 31, 2002
|                           |                               |                             
|                           |                               | December 31                  |        | Net    |  | December 31
|                           |                               | 2001                         |        | Loss   |  | 2002       
|                           |                               |                              |        |        |  |            
|                           |                               |                             
|                           |                               | (expressed in thousands of  
|                           |                               | Canadian dollars)           
|Common stock               |                               |                              |        |        |  |             |        |   |  |   |         |       
|                           | Boise Cascade Corporation     |                              | $      | 38,314 |  |             | $      |  |  |   | $       | 38,314 | 
|                           | Rainy River OSB Holdings Inc. |                              |        | 17,105 |  |             |        |  |  |   |         | 17,105 | 
|                           |                               |                              |        |        |  |             |        |   |  |   |         |       
|                           |                               |                              | 55,419 |        |  |             |       |   |  |   | 55,419  |       
|                           |                               |                              |        |        |  |             |        |   |  |   |         |       
|Deficit                    |                               |                              | (9,511 | )      |  |             | (7,765 | ) |  |   | (17,276 | )     
|                           |                               |                              |        |        |  |             |        |   |  |   |         |       
|Balance at end of the year |                               | $                            | 45,908 |        |  | $           | (7,765 | ) |  | $ | 38,143  |       
|                           |                               |                              |        |        |  |             |        |   |  |   |         |       

See accompanying notes to financial
statements.

F-41



---



##### 



VOYAGEUR PANEL LIMITED

STATEMENTS OF CASH FLOWS

|                                       |                                                             |                                                                   |         |         |        |   |        |        |        | 
|-------------------------------------- | ----------------------------------------------------------- | ----------------------------------------------------------------- | ------- | ------- | ------ | - | ------ | ------ | ------ | 
|                                       |                                                             |                                                                  
|                                       |                                                             | Years Ended                                                      
|                                       |                                                             | December 31                                                      
|                                       |                                                             |                                                                  
|                                       |                                                             | 2002                                                              |         | 2003   
|                                       |                                                             |                                                                   |         |        
|                                       |                                                             |                                                                  
|                                       |                                                             | (expressed in                                                    
|                                       |                                                             | thousands of                                                     
|                                       |                                                             | Canadian dollars)                                                
|Cash provided by (used for) operations |                                                             |                                                                   |         |         |        |   |        |       
|                                       | Net earnings (loss)                                         |                                                                   | $       | (7,765  | )      |   | $      | 6,999  |       
|                                       | Items in net earnings (loss) not using
    (providing) cash |                                                                   |         |         |        |   |        |        |       
|                                       |                                                             | Depreciation                                                      |         |         | 11,883 |   |        |        | 11,779 | 
|                                       |                                                             | Amortization of deferred financing costs                          |         |         | 756    |   |        |        | 377    | 
|                                       |                                                             | Future income taxes                                               |         |         | 1,052  |   |        |        | 2,931  | 
|                                       |                                                             | Unrealized foreign exchange gain                                  |         |         | (102   | ) |        |        |       | 
|                                       |                                                             | Unrealized increase in fair value of preferred
    Class A shares |         |         | 6,719  |   |        |        | 16,250 | 
|                                       | Receivables                                                 |                                                                   |         | 91      |        |   |        | (1,688 | )     
|                                       | Inventory                                                   |                                                                   |         | (888    | )      |   |        | (1,059 | )     
|                                       | Accounts payable and accrued liabilities                    |                                                                   |         | (908    | )      |   |        | 2,097  |       
|                                       | Income taxes payable                                        |                                                                   |         | 973     |        |   |        | 7,975  |       
|                                       | Other                                                       |                                                                   |         | (1,240  | )      |   |        | 171    |       
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Cash provided by operations            |                                                             |                                                                   | 10,571  |         |        |   | 45,832 |       
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Cash provided by (used for) investment |                                                             |                                                                   |         |         |        |   |        |       
|                                       | Expenditures for property, plant and equipment              |                                                                   |         | (3,011  | )      |   |        | (799   | )     
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Cash used for investment               |                                                             |                                                                   | (3,011  | )       |        |   | (799   | )     
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Cash provided by (used for) financing  |                                                             |                                                                   |         |         |        |   |        |       
|                                       | Payments of long-term debt                                  |                                                                   |         | (16,207 | )      |   |        | (7,636 | )     
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Cash used for financing                |                                                             |                                                                   | (16,207 | )       |        |   | (7,636 | )     
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Effect of exchange rate change on cash |                                                             |                                                                   | (349    | )       |        |   | (540   | )     
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Increase (decrease) in cash            |                                                             |                                                                   | (8,996  | )       |        |   | 36,857 |       
|Cash, beginning of year                |                                                             |                                                                   | 15,128  |         |        |   | 6,132  |       
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Cash, end of year                      |                                                             | $                                                                 | 6,132   |         |        | $ | 42,989 |       
|                                       |                                                             |                                                                   |         |         |        |   |        |       
|Supplementary information              |                                                             |                                                                   |         |         |        |   |        |       
|                                       | Income taxes paid, net                                      |                                                                   | $       | (219    | )      |   | $      | 2,110  |       
|                                       | Interest paid                                               |                                                                   |         | 675     |        |   |        | 201    |       
|                                       |                                                             |                                                                   |         |         |        |   |        |       

See accompanying notes to financial
statements.

F-42



---



##### 



VOYAGEUR PANEL LIMITED

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2003 AND
2002

1. ORGANIZATION AND PURPOSE

Voyageur Panel Limited (the
Corporation), doing business in the province of
Ontario, Canada, was formed October 12, 1995, pursuant to
the Unanimous Shareholders Agreement
(Shareholders Agreement) between Boise Cascade
Corporation (Boise), Rainy River Forest Products
Inc. (Rainy), Rainy River OSB Holdings Inc.
(Rainy Sub), a wholly owned subsidiary of Rainy, the
Northwestern Mutual Life Insurance Company
(Northwestern), and Allstate Insurance Company
(Allstate). Boise and Rainy Sub hold common shares;
Northwestern and Allstate hold preferred shares
(Class A shares) (see note 7). In November
1995, Rainy amalgamated with Stone-Consolidated Corporation and
the new company, also named Stone-Consolidated Corporation
(Stone), succeeded to Rainys interest in Rainy
Sub and to Rainys contractual rights and obligations. On
May 30, 1997, Stone and Abitibi-Price Inc. amalgamated and
the new company, named Abitibi-Consolidated, Inc., succeeded to
Stones contractual rights and obligations. Effective
January 1, 2004, Rainy Sub was liquidated and its assets
and liabilities transferred to its parent, Abitibi-Consolidated
Company of Canada (Abitibi). The share certificates
in the name of Rainy Sub have been cancelled and a new
certificate for the same number of shares has been issued by
Voyageur to Abitibi. Each shareholder is entitled to vote the
total number of shares held by the shareholder on all matters
requiring shareholder approval as if the Class A shares and
common shares were one class.

The principal business of the Corporation is to
operate a 440 million square feet (MMSF) per
year oriented strand board (OSB) plant in Barwick,
Ontario, Canada. The Corporation is prohibited from engaging in
any other business activity by the terms of agreements among the
shareholders,

Under the terms of a Stock Purchase Agreement,
each shareholder contributed its equity contributions to the
Corporation at the times specified. Under the terms of the
Shareholders Agreement, additional capital, if needed, may
be called for, but no shareholder can be required to contribute.
No additional contributions have been called for.

The Shareholders Agreement provides that
neither Boise nor Abitibi are permitted to transfer their
shares, other than to an affiliate, prior to the fifth
anniversary of the closing date except with approval of
shareholders holding 85% of the outstanding shares. It also
provides that holders of the Class A shares may transfer
shares, other than to a competitor engaged in the manufacture of
wood products, at any time, without the consent of any party.
Additionally, it provides that holders of the Class A
shares may transfer shares to a competitor, at any time, with
the approval of shareholders holding 85% of the outstanding
shares. Any transfer by Abitibi or a holder of Class A
shares shall be subject to Boises right of first offer.
After the fifth anniversary of the closing date, and if certain
conditions are met, the holders of Class A shares may
exercise a Put Right that will initiate an appraisal process to
sell their shares to the Corporation at the then fair market
value. Boise may exercise a Call Right to purchase shares
available pursuant to the Put Right. The fifth anniversary date
was reached October 12, 2000. As at December 31, 2003,
these rights had not been exercised. Following the eighth
anniversary of the closing date, Boise may purchase all
Class A shares at fair market value. The eighth anniversary
date was reached October 12, 2003. As at December 31,
2003, these rights had not been exercised. The
Shareholders Agreement also defines other liquidation
rights of equity holders, and other standard terms and
conditions.

Boise manages the business and affairs of the
Corporation pursuant to the Operating and Marketing Agreement,
subject to limitations imposed by the Shareholders
Agreement. Certain

F-43



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002



1. ORGANIZATION AND
PURPOSE  (Continued)


matters, as defined in the Shareholders
Agreement, require shareholder approval. Under the terms of the
Operating and Marketing Agreement, Boise will provide to the
Corporation all engineering, financial, accounting, legal, and
general management services necessary to operate the plant and
will market all products produced by the plant. Product sales
prices to both unaffiliated customers and to related parties
will be based on then prevailing market prices. The term of this
agreement is through December 31, 2020, subject to early
termination if Boise were to liquidate its interest in the
Corporation. The marketing services include provisions for a
sales force and offices, marketing and sales plans, sales entry
and billing, invoicing, collection, customer selection and
credit, customer service, and claims services.

Under the terms of a Wood Supply Service
Agreement, Abitibi will exercise the rights of the Corporation
under various wood procurement agreements and will acquire wood
from private lands. Abitibi will pay all costs incurred by it in
performing the agreement including all Crown charges, stumpage
payments to private landowners, logging and hauling costs, and
all other expenses incurred in delivering. Abitibi will be
compensated for its costs. The initial term of this agreement
ends December 31, 2005, and is renewable year to year
thereafter.

2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

BASIS OF PRESENTATION. These financial statements
are expressed in Canadian dollars and are prepared in accordance
with Canadian generally accepted accounting principles
(Canadian GAAP). These financial statements differ in
certain respects from those prepared in accordance with United
States generally accepted accounting principles (U.S.
GAAP) and are not intended to provide certain disclosures
which would be found in U.S. GAAP financial statements. These
measurement differences are described in note 13
Differences between Canadian and United States generally
accepted accounting principles.

USE OF ESTIMATES. The preparation of financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the amounts of revenues and
expenses for the reporting period. Actual results may vary from
those estimates.

FOREIGN CURRENCY TRANSLATION. Monetary assets and
liabilities that are denominated in U.S. dollars are translated
into Canadian dollars at the rate of exchange in effect at the
balance sheet date. Revenues and expenses that are denominated
in US. dollars are translated into Canadian dollars at average
monthly exchange rates prevailing during the year. Resulting
translation adjustments are included in the Statements of
Earnings (Loss) under the caption Foreign exchange gain
(loss).

FINANCIAL INSTRUMENTS. The estimated fair values
of financial instruments including cash, receivables, accounts
payable and accrued liabilities, income taxes payable, current
portion of long-term debt and other long-term liabilities are
approximately the same as their carrying values. The preferred
Class A shares are recorded at fair value as at the end of
the reporting period. The change in the fair value of the
preferred Class A shares between reporting periods is
recorded in the Statements of Earnings (Loss).

F-44



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002



2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (Continued)


REVENUE RECOGNITION. Revenue is recognized when
persuasive evidence of an arrangement exists, the sales price is
fixed and determinable, title transfers, and risk of loss has
passed to the customer.

INVENTORY. The Corporation values inventory at
the lower of cost or market with cost based on average costing.
Manufactured inventories include costs for materials, labor, and
factory overhead.

PROPERTY, PLANT AND EQUIPMENT. Property, plant
and equipment is recorded at cost. Cost includes expenditures
for major improvements and replacements and the net amount of
interest cost associated with significant capital additions. No
interest was capitalized in 2003 or 2002. Depreciation is
determined using the straight-line method. Gains and losses from
sales and retirements are included in income as they occur.
Estimated service lives of principal items of property, plant
and equipment are 40 years for buildings and range from 3
to 20 years for machinery and equipment.

OTHER ASSETS. At December 31, 2003, other
assets consisted of deposits. At December 31, 2002, other
assets consisted primarily of deposits and financing costs
incurred by the Corporation. Financing costs were amortized on a
straight-line basis over the term of the loan.

INCOME TAXES. The Corporation uses the asset and
liability method of accounting for income taxes. Under the asset
and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the date of enactment or
substantive enactment. A valuation allowance is recorded against
any future income tax asset if it is more likely than not that
the asset will not be realized in its entirety.

3. INVENTORY

|                                   |  |               |       |      |  |   |       | 
|---------------------------------- |  | ------------- | ----- | ---- |  | - | ----- | 
|                                   |  |              
|                                   |  | December 31  
|                                   |  |              
|                                   |  | 2002          |       | 2003
|                                   |  |               |       |     
|                                   |  |              
|                                   |  | (expressed in
|                                   |  | thousands of 
|                                   |  | Canadian     
|                                   |  | dollars)     
|Finished goods and work in process |  | $             | 924   |      |  | $ | 691   | 
|Logs                               |  |               | 1,631 |      |  |   | 2,669 | 
|Other raw materials and supplies   |  |               | 2,611 |      |  |   | 2,865 | 
|                                   |  |               |       |      |  |   |       | 
|                                   |  | $             | 5,166 |      |  | $ | 6,225 | 
|                                   |  |               |       |      |  |   |       | 

F-45



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002

4. PROPERTY, PLANT AND
EQUIPMENT

|                           |  |                            |         |              |  |     |        |  |  |   |         | 
|-------------------------- |  | -------------------------- | ------- | ------------ |  | --- | ------ |  |  | - | ------- | 
|                           |  |                           
|                           |  | December 31, 2003         
|                           |  |                           
|                           |  |                            |         | Accumulated  |  |    
|                           |  | Cost                       |         | Depreciation |  | Net
|                           |  |                            |         |              |  |    
|                           |  |                           
|                           |  | (expressed in thousands of
|                           |  | Canadian dollars)         
|Land                       |  | $                          | 587     |              |  | $   |       |  |  | $ | 587     | 
|Buildings and improvements |  |                            | 33,058  |              |  |     | 7,222  |  |  |   | 25,836  | 
|Machinery and equipment    |  |                            | 138,898 |              |  |     | 65,284 |  |  |   | 73,614  | 
|                           |  |                            |         |              |  |     |        |  |  |   |         | 
|                           |  | $                          | 172,543 |              |  | $   | 72,506 |  |  | $ | 100,037 | 
|                           |  |                            |         |              |  |     |        |  |  |   |         | 

|                           |  |                            |         |              |  |     |        |  |  |   |         | 
|-------------------------- |  | -------------------------- | ------- | ------------ |  | --- | ------ |  |  | - | ------- | 
|                           |  |                           
|                           |  | December 31, 2002         
|                           |  |                           
|                           |  |                            |         | Accumulated  |  |    
|                           |  | Cost                       |         | Depreciation |  | Net
|                           |  |                            |         |              |  |    
|                           |  |                           
|                           |  | (expressed in thousands of
|                           |  | Canadian dollars)         
|Land                       |  | $                          | 587     |              |  | $   |       |  |  | $ | 587     | 
|Buildings and improvements |  |                            | 32,801  |              |  |     | 5,982  |  |  |   | 26,819  | 
|Machinery and equipment    |  |                            | 138,356 |              |  |     | 54,745 |  |  |   | 83,611  | 
|                           |  |                            |         |              |  |     |        |  |  |   |         | 
|                           |  | $                          | 171,744 |              |  | $   | 60,727 |  |  | $ | 111,017 | 
|                           |  |                            |         |              |  |     |        |  |  |   |         | 

5. OTHER ASSETS

|                         |  |                   |        |      |  |   |       | 
|------------------------ |  | ----------------- | ------ | ---- |  | - | ----- | 
|                         |  |                  
|                         |  | December 31      
|                         |  |                  
|                         |  | 2002              |        | 2003
|                         |  |                   |        |     
|                         |  |                  
|                         |  | (expressed in    
|                         |  | thousands of     
|                         |  | Canadian dollars)
|Deferred financing costs |  | $                 | 3,396  |      |  | $ |      | 
|Accumulated amortization |  |                   | (3,019 | )    |  |   |      | 
|                         |  |                   |        |      |  |   |       | 
|                         |  |                   | 377    |      |  |   |      | 
|Deposits                 |  |                   | 1,377  |      |  |   | 1,208 | 
|                         |  |                   |        |      |  |   |       | 
|                         |  | $                 | 1,754  |      |  | $ | 1,208 | 
|                         |  |                   |        |      |  |   |       | 

6. LONG-TERM DEBT

In October 1995, the Corporation entered into a
variable rate lending commitment which included a non-revolving
progress draw term credit facility (Credit B),
of up to US$65,000,000, denominated in U.S. dollars. The
Credit B facility provided funds for construction. Interest
rate options available to the Corporation included rates based
on the London Interbank Offering Rate, or the U.S. Base
Rate. At December 31, 2002, $8,176,000 (US$5,200,000) of
borrowings were outstanding with a variable interest rate of
3.17%. Full and final payment of the Credit B facility was
made in May, 2003.

F-46



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002

7. PREFERRED CLASS A
SHARES

On October 12, 1995, the Corporation
authorized 19,000,000 preferred Class A shares, US$1.00 par
value. At December 31, 2003 and 2002, 10,000,000
Class A shares to Northwestern, and 9,000,000 Class A
shares to Allstate were outstanding. After the fifth anniversary
of the closing date, and if certain conditions are met, the
holders of Class A shares may exercise a Put Right that
will initiate an appraisal process to sell their shares to the
Corporation at the then fair market value. The fair market value
was $80,869,000 and $64,619,000 at December 31,2003 and
2002, and was determined based on the Class A shareholders
portion of an estimated U.S. dollar purchase price
translated at the applicable current exchange rate. Boise may
exercise a Call Right to purchase shares available pursuant to
the Put Right. The fifth anniversary date was reached
October 12, 2000. As at December 31, 2003, these
rights had not been exercised. Following the eighth anniversary
of the closing date, Boise may purchase all Class A shares
at fair market value. The eighth anniversary date was reached
October 12, 2003. As at December 31, 2003, these
rights had not been exercised.

Dividends will be paid on a semiannual basis by
the Corporation, unless otherwise agreed. The Class A
shares will be entitled to a 12% per annum dividend, preference
over the common shares in dividend payments, and unpaid
Class A share dividends will compound semi-annually. No
dividends have been paid through December 31, 2003. At
December 31, 2003 and 2002, the cumulative Class A
dividend in arrears was $33,792,000 (US$25,753,000) and
$32,752,000 (US$20,830,000). Class A shares may participate
in additional dividend distributions if certain conditions are
met. The policy of the Corporation is to distribute all
available cash not required for other purposes.

8. COMMON STOCK

|                                                   |                                 |                   |   |        |  |  |   |        | 
|-------------------------------------------------- | ------------------------------- | ----------------- | - | ------ |  |  | - | ------ | 
|                                                   |                                 |                  
|                                                   |                                 | December 31      
|                                                   |                                 |                  
|                                                   |                                 | 2002              |   | 2003  
|                                                   |                                 |                   |   |       
|                                                   |                                 |                  
|                                                   |                                 | (expressed in    
|                                                   |                                 | thousands of     
|                                                   |                                 | Canadian dollars)
|Authorized                                         |                                 |                   |   |        |  |  |   |       
|40,500,000 common voting shares, US$1.00 par value
|Issued                                             |                                 |                   |   |        |  |  |   |       
|                                                   | 40,500,000 common voting shares |                   | $ | 55,419 |  |  | $ | 55,419 | 

Dividends will be paid on a semiannual basis by
the Corporation, unless otherwise agreed. The Class A
shares will be entitled to preference over the common shares in
dividend payments. No dividends have been paid through
December 31, 2003.

F-47



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002

9. INCOME TAXES

The overall income tax provision differs from the
amount that would be obtained by applying the combined statutory
income tax rate to earnings as a result of manufacturing and
processing credit, large corporation taxes, and changes in tax
rates as follows:

|                                                                                                 |  |                   |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ----------------- | ------ | ---- |  | - | ------- | -
|                                                                                                 |  |                  
|                                                                                                 |  | Year Ended       
|                                                                                                 |  | December 31      
|                                                                                                 |  |                  
|                                                                                                 |  | 2002              |        | 2003
|                                                                                                 |  |                   |        |     
|                                                                                                 |  |                  
|                                                                                                 |  | (expressed in    
|                                                                                                 |  | thousands of     
|                                                                                                 |  | Canadian dollars)
|Earnings (loss) before income taxes                                                              |  | $                 | (5,957 | )    |  | $ | 21,033  |  
|Combined federal and provincial income tax rate                                                  |  |                   | 38.6   | %    |  |   | 36.6    | %
|                                                                                                 |  |                   |        |      |  |   |         |  
|Income tax expense based on statutory income tax
    rate                                        |  |                   | 2,299  |      |  |   | (7,698  | )
|Permanent difference from unrealized increases in
    the fair value of preferred Class A shares |  |                   | (2,593 | )    |  |   | (5,948  | )
|Manufacturing and processing credit                                                              |  |                   | 42     |      |  |   | 1,298   |  
|Large corporation tax                                                                            |  |                   | (756   | )    |  |   | 204     |  
|Change in tax rate                                                                               |  |                   | (788   | )    |  |   | (1,591  | )
|Other                                                                                            |  |                   | (12    | )    |  |   | (299    | )
|                                                                                                 |  |                   |        |      |  |   |         |  
|                                                                                                 |  | $                 | (1,808 | )    |  | $ | (14,034 | )
|                                                                                                 |  |                   |        |      |  |   |         |  

Future income taxes are provided for temporary
differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured for
tax purposes. The components of the net future income tax
liability in the Balance Sheets are as follows:

|                                                                                               |  |                   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ---- |  | - | ------ | -
|                                                                                               |  |                  
|                                                                                               |  | Year Ended       
|                                                                                               |  | December 31      
|                                                                                               |  |                  
|                                                                                               |  | 2002              |        | 2003
|                                                                                               |  |                   |        |     
|                                                                                               |  |                  
|                                                                                               |  | (expressed in    
|                                                                                               |  | thousands of     
|                                                                                               |  | Canadian dollars)
|Non-capital loss carry forwards                                                                |  | $                 | (2,624 | )    |  | $ |       |  
|Capital loss carry forwards                                                                    |  |                   | (2,364 | )    |  |   | (4,462 | )
|Unrealized foreign exchange loss on long-term debt                                             |  |                   | (1,210 | )    |  |   |       |  
|Excess of carrying value of property, plant and
    equipment and other assets over tax values |  |                   | 17,923 |      |  |   | 19,006 |  
|Other temporary differences                                                                    |  |                   | (1,578 | )    |  |   | (1,795 | )
|Valuation allowance                                                                            |  |                   | 3,391  |      |  |   | 3,720  |  
|                                                                                               |  |                   |        |      |  |   |        |  
|                                                                                               |  | $                 | 13,538 |      |  | $ | 16,469 |  
|                                                                                               |  |                   |        |      |  |   |        |  

At December 31, 2003, the Corporation had
$1,751,000 of Ontario corporation minimum tax credits which
expire in 2006 through 2011.

F-48



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002

10. RELATED PARTY TRANSACTIONS

Pursuant to the Operating and Marketing
Agreement, Boise is entitled to reimbursement for certain
materials and services provided during construction and
operation of the facility and will receive an annual fee
escalating at 3% per year. Boise will also receive a commission
equaling 4% of the net selling price on sales for which Boise
acts as agent. See the table below.

Under the terms of the Wood Supply Services
Agreement, the Corporation will pay to Abitibi all costs
incurred by it in performing the agreement plus a management fee
of $500,000 per year beginning at the start of operations. In
addition, if renewal charges for hardwood exceed the amount
covered by Crown charges, the Corporation will pay a
proportionate share of these charges. See the table below.

Boise and Abitibi have received reimbursement for
the following operating, development, and other costs:

|                                                                      |                   |                   |        |        |  |   |        |        | 
|--------------------------------------------------------------------- | ----------------- | ----------------- | ------ | ------ |  | - | ------ | ------ | 
|                                                                      |                   |                  
|                                                                      |                   | Year Ended       
|                                                                      |                   | December 31      
|                                                                      |                   |                  
|                                                                      |                   | 2002              |        | 2003  
|                                                                      |                   |                   |        |       
|                                                                      |                   |                  
|                                                                      |                   | (expressed in    
|                                                                      |                   | thousands of     
|                                                                      |                   | Canadian dollars)
|Paid to Boise:                                                        |                   |                   |        |        |  |   |        |       
|                                                                      | Management fees   |                   | $      | 1,746  |  |   | $      | 1,601  | 
|                                                                      | Sales commissions |                   |        | 3,386  |  |   |        | 5,163  | 
|                                                                      | Freight           |                   |        | 14,368 |  |   |        | 14,261 | 
|                                                                      |                   |                   |        |        |  |   |        |       
|                                                                      |                   | $                 | 19,500 |        |  | $ | 21,025 |       
|                                                                      |                   |                   |        |        |  |   |        |       
|Paid to Abitibi:                                                      |                   |                   |        |        |  |   |        |       
|                                                                      | Management fees   |                   | $      | 590    |  |   | $      | 607    | 
|                                                                      | Wood purchases    |                   |        | 28,818 |  |   |        | 31,126 | 
|                                                                      |                   |                   |        |        |  |   |        |       
|                                                                      |                   | $                 | 29,408 |        |  | $ | 31,733 |       
|                                                                      |                   |                   |        |        |  |   |        |       
|Sales to Boise                                                        |                   | $                 | 60,454 |        |  | $ | 95,231 |       
|                                                                      |                   |                   |        |        |  |   |        |       
|Receivables from affiliated company Boise                             |                   | $                 | 6,005  |        |  | $ | 7,034  |       
|                                                                      |                   |                   |        |        |  |   |        |       
|Accounts payable and accrued liabilities to
    affiliated companies: |                   |                   |        |        |  |   |        |       
|                                                                      | Abitibi           |                   | $      | 2,123  |  |   | $      | 3,578  | 
|                                                                      | Boise             |                   |        | 441    |  |   |        | 554    | 
|                                                                      |                   |                   |        |        |  |   |        |       
|                                                                      |                   | $                 | 2,564  |        |  | $ | 4,132  |       
|                                                                      |                   |                   |        |        |  |   |        |       

These transactions are in the normal course of
operations and are measured at the exchange amount which is the
amount of consideration established and agreed to by the related
parties.

F-49



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002

11. MAJOR CUSTOMERS

A substantial portion of the net sales of the
Corporation are made to a limited number of customers. During
the years ended December 31, 2003 and 2002, two such
customers accounted for 79% and 75% of sales, respectively.
Substantially all of the Corporations sales to related
parties and to unaffiliated customers were into the United
States.

12. CONTINGENCIES

The Corporation is involved in litigation and
administrative proceedings primarily arising in the normal
course of Corporation business. In the opinion of management,
the Corporations recovery, if any, or liability, if any,
under any pending litigation or administrative proceeding would
not materially affect the Corporations financial condition
or results of operations.



|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Corporations financial statements have
been prepared in accordance with Canadian GAAP which, in the
case of the Corporation, are in conformity in all material
respects with U.S. GAAP, with the following exceptions:

Reconciliation
of Canadian and U.S. GAAP

Under U.S. GAAP, future income tax assets
and liabilities are revalued for enacted changes in tax rates.
Under Canadian GAAP, future income tax assets and liabilities
are revalued for all enacted or substantially enacted changes in
tax rates.

Under US. GAAP, changes in the fair value of
redeemable securities are treated in the same manner as a
dividend and are charged against retained earnings, or in the
absence of retained earnings, as charges against paid-in
capital. Under Canadian GAAP, changes in the fair value of
redeemable securities are charged to income.

The following information is presented in
accordance with U.S. GAAP, reflecting these adjustments.

Effect on net earnings (loss):

|                                        |                                                                        |             |        |       |   |   |        |        | 
|--------------------------------------- | ---------------------------------------------------------------------- | ----------- | ------ | ----- | - | - | ------ | ------ | 
|                                        |                                                                        |            
|                                        |                                                                        | Year Ended 
|                                        |                                                                        | December 31
|                                        |                                                                        |            
|                                        |                                                                        | 2002        |        | 2003 
|                                        |                                                                        |             |        |      
|Net earnings (loss) under Canadian GAAP |                                                                        | $           | (7,765 | )     |   | $ | 6,999  |       
|Adjustments:                            |                                                                        |             |        |       |   |   |        |       
|                                        | Unrealized increases in the fair value of
    preferred Class A shares |             |        | 6,719 |   |   |        | 16,250 | 
|                                        | Future income taxes                                                    |             |        | (86   | ) |   |        | 1,102  | 
|                                        |                                                                        |             |        |       |   |   |        |       
|Net earnings (loss) under U.S. GAAP     |                                                                        | $           | (1,132 | )     |   | $ | 24,351 |       
|                                        |                                                                        |             |        |       |   |   |        |       

F-50



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 
    (Continued)

Effect on balance sheets:

|                                                   |                                        |             |        |        |   |   |         |   | 
|-------------------------------------------------- | -------------------------------------- | ----------- | ------ | ------ | - | - | ------- | - | 
|                                                   |                                        |            
|                                                   |                                        | December 31
|                                                   |                                        |            
|                                                   |                                        | 2002        |        | 2003  
|                                                   |                                        |             |        |       
|Total liabilities under Canadian GAAP              |                                        | $           | 92,259 |        |   | $ | 113,340 |  
|Adjustment:                                        |                                        |             |        |        |   |   |         |  
|                                                   | Future income taxes                    |             |        | 1,102  |   |   |         |  | 
|                                                   |                                        |             |        |        |   |   |         |  
|Total liabilities under U.S. GAAP                  |                                        | $           | 93,361 |        |   | $ | 113,340 |  
|                                                   |                                        |             |        |        |   |   |         |  
|Total shareholders equity under Canadian
    GAAP |                                        | $           | 38,143 |        |   | $ | 45,142  |  
|Adjustment:                                        |                                        |             |        |        |   |   |         |  
|                                                   | Total shareholders equity adjustments |             |        | (1,102 | ) |   |         |  | 
|                                                   |                                        |             |        |        |   |   |         |  
|Total shareholders equity under
    U.S. GAAP     |                                        | $           | 37,041 |        |   | $ | 45,142  |  
|                                                   |                                        |             |        |        |   |   |         |  



| |                      
| | ---------------------
| | Recent Pronouncements

In November 2002, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others. This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain
guarantees that it has issued. It also requires that a guarantor
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of Interpretation
No. 45 became effective for periods ending after
December 15, 2002. The recognition and measurement
provisions of Interpretation No. 45 became effective
January 1, 2003. This statement had no impact on the
Corporations financial position or results of operations.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities. In
December 2003, the FASB issued a revised Interpretation
No. 46. This interpretation, as revised, requires that an
enterprises consolidated financial statements include
subsidiaries in which the enterprise has a controlling financial
interest. This statement had no impact on the Corporations
financial position or results of operations.

Effective January 1, 2003, the Corporation
adopted the provisions of SFAS No. 143, Accounting for
Asset Retirement Obligations, which affects the way landfill
closure costs are accounted for. This statement requires an
asset and a liability (discounted) be recorded for estimated
closure and closed-site monitoring costs and the asset to be
depreciated over the landfills useful life. This statement
had no impact on the Corporations financial position or
results of operations.

Effective January 1, 2003, the Corporation
adopted the provisions of SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This
statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is
incurred, as opposed to the date of an entitys commitment
to an exit plan. It also establishes that fair value is the
objective for initial measurement of the liability. This
statement had no impact on the Corporations financial
position or results of operations.

F-51



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

YEARS ENDED DECEMBER 31, 2003 AND
2002

14. SUBSEQUENT EVENT

On April 15, 2004, the Corporations
shareholders announced that they had reached an agreement with
Ainsworth Lumber Co. Ltd. for its purchase of the Corporation
for approximately US$193,000,000, plus as much as US$10,000,000
more based on OSB prices between closing the transaction and
December 31,2004. The transaction is expected to close in
second quarter 2004.

F-52



---



##### 



VOYAGEUR PANEL LIMITED

BALANCE SHEETS

(Unaudited)


|                                         |                                            |                                |         |         |       |   |         |        |        | 
|---------------------------------------- | ------------------------------------------ | ------------------------------ | ------- | ------- | ----- | - | ------- | ------ | ------ | 
|                                         |                                            |                               
|                                         |                                            | March 31                      
|                                         |                                            |                               
|                                         |                                            | 2003                           |         | 2004   
|                                         |                                            |                                |         |        
|                                         |                                            |                               
|                                         |                                            | (expressed in                 
|                                         |                                            | thousands of                  
|                                         |                                            | Canadian dollars)             
|ASSETS                                   |                                            |                                |         |         |       |   |         |       
|Current                                  |                                            |                                |         |         |       |   |         |       
|                                         | Cash                                       |                                | $       | 4,958   |       |   | $       | 49,469 |       
|                                         | Receivables                                |                                |         |         |       |   |         |        |       
|                                         |                                            | Affiliated company (note 10)   |         |         | 5,793 |   |         |        | 12,114 | 
|                                         |                                            | Other                          |         |         | 380   |   |         |        | 918    | 
|                                         | Inventory (note 3)                         |                                |         | 6,891   |       |   |         | 8,820  |       
|                                         | Prepaid expenses                           |                                |         | 29      |       |   |         | 274    |       
|                                         |                                            |                                |         |         |       |   |         |       
|                                         |                                            |                                | 18,051  |         |       |   | 71,595  |       
|                                         |                                            |                                |         |         |       |   |         |       
|Property, plant and equipment (note 4)   |                                            |                                | 108,078 |         |       |   | 98,542  |       
|Other assets (note 5)                    |                                            |                                | 1,500   |         |       |   | 1,205   |       
|                                         |                                            |                                |         |         |       |   |         |       
|                                         |                                            | $                              | 127,629 |         |       | $ | 171,342 |       
|                                         |                                            |                                |         |         |       |   |         |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                                            |                                |         |         |       |   |         |       
|Current                                  |                                            |                                |         |         |       |   |         |       
|                                         | Accounts payable and accrued liabilities   |                                |         |         |       |   |         |        |       
|                                         |                                            | Trade                          |         | $       | 2,008 |   |         | $      | 3,054  | 
|                                         |                                            | Affiliated companies (note 10) |         |         | 4,716 |   |         |        | 5,408  | 
|                                         | Income taxes payable                       |                                |         |        |       |   |         | 6,691  |       
|                                         | Current portion of long-term debt (note 6) |                                |         | 3,822   |       |   |         |       |       
|                                         |                                            |                                |         |         |       |   |         |       
|                                         |                                            |                                | 10,546  |         |       |   | 15,153  |       
|                                         |                                            |                                |         |         |       |   |         |       
|Other                                    |                                            |                                |         |         |       |   |         |       
|                                         | Future income taxes (note 9)               |                                |         | 13,802  |       |   |         | 16,016 |       
|                                         | Other long-term liabilities                |                                |         | 22      |       |   |         | 33     |       
|                                         |                                            |                                |         |         |       |   |         |       
|                                         |                                            |                                | 13,824  |         |       |   | 16,049  |       
|                                         |                                            |                                |         |         |       |   |         |       
|Preferred Class A shares (note 7)        |                                            |                                | 61,384  |         |       |   | 82,885  |       
|                                         |                                            |                                |         |         |       |   |         |       
|Shareholders equity                     |                                            |                                |         |         |       |   |         |       
|                                         | Common stock (note 8)                      |                                |         | 55,419  |       |   |         | 55,419 |       
|                                         | Retained earnings (deficit)                |                                |         | (13,544 | )     |   |         | 1,836  |       
|                                         |                                            |                                |         |         |       |   |         |       
|                                         |                                            |                                | 41,875  |         |       |   | 57,255  |       
|                                         |                                            |                                |         |         |       |   |         |       
|Contingencies (note 12)                  |                                            |                                |         |         |       |   |         |       
|Subsequent event (note 14)               |                                            |                                |         |         |       |   |         |       
|                                         |                                            | $                              | 127,629 |         |       | $ | 171,342 |       
|                                         |                                            |                                |         |         |       |   |         |       

See accompanying notes to financial
statements.

F-53



---



##### 



VOYAGEUR PANEL LIMITED

STATEMENTS OF EARNINGS

(Unaudited)


|                                                                                     |                               |                         |        |        |        |   |        |        |        | 
|------------------------------------------------------------------------------------ | ----------------------------- | ----------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                     |                               |                        
|                                                                                     |                               | Three Months           
|                                                                                     |                               | Ended March 31         
|                                                                                     |                               |                        
|                                                                                     |                               | 2003                    |        | 2004  
|                                                                                     |                               |                         |        |       
|                                                                                     |                               |                        
|                                                                                     |                               | (expressed in          
|                                                                                     |                               | thousands of           
|                                                                                     |                               | Canadian dollars)      
|Revenues                                                                             |                               |                         |        |        |        |   |        |       
|                                                                                     | Sales                         |                         |        |        |        |   |        |        |       
|                                                                                     |                               | Trade                   |        | $      | 8,741  |   |        | $      | 2,705  | 
|                                                                                     |                               | Related party (note 10) |        |        | 17,584 |   |        |        | 45,137 | 
|                                                                                     |                               |                         |        |        |        |   |        |       
|                                                                                     |                               |                         | 26,325 |        |        |   | 47,842 |       
|                                                                                     |                               |                         |        |        |        |   |        |       
|Costs and expenses                                                                   |                               |                         |        |        |        |   |        |       
|                                                                                     | Operating expenses            |                         |        | 20,648 |        |   |        | 20,845 |       
|                                                                                     | Sales commissions (note 10)   |                         |        | 900    |        |   |        | 1,792  |       
|                                                                                     | Management fees (note 10)     |                         |        | 424    |        |   |        | 382    |       
|                                                                                     | Depreciation and amortization |                         |        | 3,133  |        |   |        | 2,950  |       
|                                                                                     |                               |                         |        |        |        |   |        |       
|                                                                                     |                               |                         | 25,105 |        |        |   | 25,969 |       
|                                                                                     |                               |                         |        |        |        |   |        |       
|Earnings from operations                                                             |                               |                         | 1,220  |        |        |   | 21,873 |       
|                                                                                     |                               |                         |        |        |        |   |        |       
|Interest income                                                                      |                               |                         | 19     |        |        |   | 66     |       
|Interest expense                                                                     |                               |                         | (79    | )      |        |   | (6     | )     
|Foreign exchange loss                                                                |                               |                         | (330   | )      |        |   | (373   | )     
|Unrealized (increase) decrease in the fair
    value of
    preferred Class A shares |                               |                         | 3,235  |        |        |   | (2,016 | )     
|                                                                                     |                               |                         |        |        |        |   |        |       
|                                                                                     |                               |                         | 2,845  |        |        |   | (2,329 | )     
|                                                                                     |                               |                         |        |        |        |   |        |       
|Earnings before income taxes                                                         |                               |                         | 4,065  |        |        |   | 19,544 |       
|Income taxes (note 9)                                                                |                               |                         |        |        |        |   |        |       
|                                                                                     | Current                       |                         |        | (69    | )      |   |        | (7,883 | )     
|                                                                                     | Future                        |                         |        | (264   | )      |   |        | 452    |       
|                                                                                     |                               |                         |        |        |        |   |        |       
|                                                                                     |                               |                         | (333   | )      |        |   | (7,431 | )     
|                                                                                     |                               |                         |        |        |        |   |        |       
|Net earnings                                                                         |                               | $                       | 3,732  |        |        | $ | 12,113 |       
|                                                                                     |                               |                         |        |        |        |   |        |       

See accompanying notes to financial
statements.

F-54



---



##### 



VOYAGEUR PANEL LIMITED

STATEMENTS OF SHAREHOLDERS
EQUITY

(Unaudited)


(expressed in thousands of Canadian
dollars)


|                             |                               |                                   |         |          |  |          |        |   |  |   |        |        | 
|---------------------------- | ----------------------------- | --------------------------------- | ------- | -------- |  | -------- | ------ | - |  | - | ------ | ------ | 
|                             |                               |                                  
|                             |                               | Three Months Ended March 31, 2004
|                             |                               |                                  
|                             |                               | December 31                       |         | Net      |  | March 31
|                             |                               | 2003                              |         | Earnings |  | 2004    
|                             |                               |                                   |         |          |  |         
|Common stock                 |                               |                                   |         |          |  |          |        |   |  |   |        |       
|                             | Boise Cascade Corporation     |                                   | $       | 38,314   |  |          | $      |  |  |   | $      | 38,314 | 
|                             | Rainy River OSB Holdings Inc. |                                   |         | 17,105   |  |          |        |  |  |   |        | 17,105 | 
|                             |                               |                                   |         |          |  |          |        |   |  |   |        |       
|                             |                               |                                   | 55,419  |          |  |          |       |   |  |   | 55,419 |       
|                             |                               |                                   |         |          |  |          |        |   |  |   |        |       
|Retained earnings (deficit)  |                               |                                   | (10,277 | )        |  |          | 12,113 |   |  |   | 1,836  |       
|                             |                               |                                   |         |          |  |          |        |   |  |   |        |       
|Balance at end of the period |                               | $                                 | 45,142  |          |  | $        | 12,113 |   |  | $ | 57,255 |       
|                             |                               |                                   |         |          |  |          |        |   |  |   |        |       

|                             |                               |                                   |         |          |  |          |       |   |  |   |         |        | 
|---------------------------- | ----------------------------- | --------------------------------- | ------- | -------- |  | -------- | ----- | - |  | - | ------- | ------ | 
|                             |                               |                                  
|                             |                               | Three Months Ended March 31, 2003
|                             |                               |                                  
|                             |                               | December 31                       |         | Net      |  | March 31
|                             |                               | 2002                              |         | Earnings |  | 2003    
|                             |                               |                                   |         |          |  |         
|Common stock                 |                               |                                   |         |          |  |          |       |   |  |   |         |       
|                             | Boise Cascade Corporation     |                                   | $       | 38,314   |  |          | $     |  |  |   | $       | 38,314 | 
|                             | Rainy River OSB Holdings Inc. |                                   |         | 17,105   |  |          |       |  |  |   |         | 17,105 | 
|                             |                               |                                   |         |          |  |          |       |   |  |   |         |       
|                             |                               |                                   | 55,419  |          |  |          |      |   |  |   | 55,419  |       
|                             |                               |                                   |         |          |  |          |       |   |  |   |         |       
|Deficit                      |                               |                                   | (17,276 | )        |  |          | 3,732 |   |  |   | (13,544 | )     
|                             |                               |                                   |         |          |  |          |       |   |  |   |         |       
|Balance at end of the period |                               | $                                 | 38,143  |          |  | $        | 3,732 |   |  | $ | 41,875  |       
|                             |                               |                                   |         |          |  |          |       |   |  |   |         |       

See accompanying notes to financial
statements.

F-55



---



##### 



VOYAGEUR PANEL LIMITED

STATEMENTS OF CASH FLOWS

(Unaudited)


|                                        |                                                      |                                                                              |        |        |        |   |        |        |       |  
|--------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ----- | -
|                                        |                                                      |                                                                             
|                                        |                                                      | Three Months                                                                
|                                        |                                                      | Ended March 31                                                              
|                                        |                                                      |                                                                             
|                                        |                                                      | 2003                                                                         |        | 2004  
|                                        |                                                      |                                                                              |        |       
|                                        |                                                      |                                                                             
|                                        |                                                      | (expressed in                                                               
|                                        |                                                      | thousands of                                                                
|                                        |                                                      | Canadian dollars)                                                           
|Cash provided by (used for) operations  |                                                      |                                                                              |        |        |        |   |        |       
|                                        | Net earnings                                         |                                                                              | $      | 3,732  |        |   | $      | 12,113 |      
|                                        | Items in net earnings not using
    (providing) cash |                                                                              |        |        |        |   |        |        |      
|                                        |                                                      | Depreciation                                                                 |        |        | 2,944  |   |        |        | 2,950 |  
|                                        |                                                      | Amortization of deferred financing costs                                     |        |        | 189    |   |        |        |      |  
|                                        |                                                      | Future income taxes                                                          |        |        | 264    |   |        |        | (452  | )
|                                        |                                                      | Unrealized foreign exchange gain                                             |        |        | (266   | ) |        |        |      |  
|                                        |                                                      | Unrealized increase (decrease) in fair value
    of preferred Class A shares |        |        | (3,235 | ) |        |        | 2,016 |  
|                                        | Receivables                                          |                                                                              |        | 149    |        |   |        | (5,022 | )    
|                                        | Inventory                                            |                                                                              |        | (1,725 | )      |   |        | (2,595 | )    
|                                        | Accounts payable and accrued liabilities             |                                                                              |        | 820    |        |   |        | 461    |      
|                                        | Income taxes payable                                 |                                                                              |        |       |        |   |        | (1,285 | )    
|                                        | Other                                                |                                                                              |        | 47     |        |   |        | (250   | )    
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Cash provided by operations             |                                                      |                                                                              | 2,919  |        |        |   | 7,936  |       
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Cash provided by (used for) investment  |                                                      |                                                                              |        |        |        |   |        |       
|                                        | Expenditures for property, plant and equipment       |                                                                              |        | (5     | )      |   |        | (1,456 | )    
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Cash used for investment                |                                                      |                                                                              | (5     | )      |        |   | (1,456 | )     
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Cash provided by (used for) financing   |                                                      |                                                                              |        |        |        |   |        |       
|                                        | Payments of long-term debt                           |                                                                              |        | (3,884 | )      |   |        |       |      
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Cash used for financing                 |                                                      |                                                                              | (3,884 | )      |        |   |       |       
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Effect of exchange rate changes on cash |                                                      |                                                                              | (204   | )      |        |   |       |       
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Increase (decrease) in cash             |                                                      |                                                                              | (1,174 | )      |        |   | 6,480  |       
|Cash, beginning of period               |                                                      |                                                                              | 6,132  |        |        |   | 42,989 |       
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Cash, end of period                     |                                                      | $                                                                            | 4,958  |        |        | $ | 49,469 |       
|                                        |                                                      |                                                                              |        |        |        |   |        |       
|Supplementary Information               |                                                      |                                                                              |        |        |        |   |        |       
|                                        | Income taxes paid, net                               |                                                                              | $      | (950   | )      |   | $      | 9,166  |      
|                                        | Interest paid                                        |                                                                              |        | 77     |        |   |        |       |      
|                                        |                                                      |                                                                              |        |        |        |   |        |       

See accompanying notes to financial
statements

F-56



---



##### 



VOYAGEUR PANEL LIMITED

NOTES TO FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)


1. ORGANIZATION AND PURPOSE

Voyageur Panel Limited (the
Corporation), doing business in the province of
Ontario, Canada, was formed October 12, 1995, pursuant to
the Unanimous Shareholders Agreement
(Shareholders Agreement) between Boise Cascade
Corporation (Boise), Rainy River Forest Products
Inc. (Rainy), Rainy River OSB Holdings Inc.
(Rainy Sub), a wholly owned subsidiary of Rainy, the
Northwestern Mutual Life Insurance Company
(Northwestern), and Allstate Insurance Company
(Allstate). Boise and Rainy Sub hold common shares;
Northwestern and Allstate hold preferred shares
(Class A shares) (see note 7). In November
1995, Rainy amalgamated with Stone-Consolidated Corporation and
the new company, also named Stone-Consolidated Corporation
(Stone), succeeded to Rainys interest in Rainy
Sub and to Rainys contractual rights and obligations. On
May 30, 1997, Stone and Abitibi-Price Inc. amalgamated and
the new company, named Abitibi-Consolidated, Inc., succeeded to
Stones contractual rights and obligations. Effective
January 1, 2004, Rainy Sub was liquidated and its assets
and liabilities transferred to its parent, Abitibi-Consolidated
Company of Canada (Abitibi). The share certificates
in the name of Rainy Sub have been cancelled and a new
certificate for the same number of shares has been issued by
Voyageur to Abitibi. Each shareholder is entitled to vote the
total number of shares held by the shareholder on all matters
requiring shareholder approval as if the Class A shares and
common shares were one class.

The principal business of the Corporation is to
operate a 440 million square feet (MMSF) per
year oriented strand board (OSB) plant in Barwick,
Ontario, Canada. The Corporation is prohibited from engaging in
any other business activity by the terms of agreements among the
shareholders.

Under the terms of a Stock Purchase Agreement,
each shareholder contributed its equity contributions to the
Corporation at the times specified. Under the terms of the
Shareholders Agreement, additional capital, if needed, may
be called for, but no shareholder can be required to contribute.
No additional contributions have been called for.

The Shareholders Agreement provides that
neither Boise nor Abitibi are permitted to transfer their
shares, other than to an affiliate, prior to the fifth
anniversary of the closing date except with approval of
shareholders holding 85% of the outstanding shares. It also
provides that holders of the Class A shares may transfer
shares, other than to a competitor engaged in the manufacture of
wood products, at any time, without the consent of any party.
Additionally, it provides that holders of the Class A
shares may transfer shares to a competitor, at any time, with
the approval of shareholders holding 85% of the outstanding
shares. Any transfer by Abitibi or a holder of Class A
shares shall be subject to Boises right of first offer.
After the fifth anniversary of the closing date, and if certain
conditions are met, the holders of Class A shares may
exercise a Put Right that will initiate an appraisal process to
sell their shares to the Corporation at the then fair market
value. Boise may exercise a Call Right to purchase shares
available pursuant to the Put Right. The fifth anniversary date
was reached October 12, 2000. As at March 31, 2004,
these rights had not been exercised. Following the eighth
anniversary of the closing date, Boise may purchase all
Class A shares at fair market value. The eighth anniversary
date was reached October 12, 2003. As at March 31, 2004,
these rights had not been exercised. The Shareholders
Agreement also defines other liquidation rights of equity
holders, and other standard terms and conditions.

F-57



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)




1. ORGANIZATION AND PURPOSE 
(Continued)


Boise manages the business and affairs of the
Corporation pursuant to the Operating and Marketing Agreement,
subject to limitations imposed by the Shareholders
Agreement. Certain matters, as defined in the Shareholders
Agreement, require shareholder approval. Under the terms of the
Operating and Marketing Agreement, Boise will provide to the
Corporation all engineering, financial, accounting, legal, and
general management services necessary to operate the plant and
will market all products produced by the plant. Product sales
prices to both unaffiliated customers and to related parties
will be based on then prevailing market prices. The term of this
agreement is through December 31, 2020, subject to early
termination if Boise were to liquidate its interest in the
Corporation. The marketing services include provisions for a
sales force and offices, marketing and sales plans, sales entry
and billing, invoicing, collection, customer selection and
credit, customer service, and claims services.

Under the terms of a Wood Supply Service
Agreement, Abitibi will exercise the rights of the Corporation
under various wood procurement agreements and will acquire wood
from private lands. Abitibi will pay all costs incurred by it in
performing the agreement including all Crown charges, stumpage
payments to private landowners, logging and hauling costs, and
all other expenses incurred in delivering. Abitibi will be
compensated for its costs. The initial term of this agreement
ends December 31, 2005, and is renewable year to year
thereafter.

2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

BASIS OF PRESENTATION. These financial statements
are expressed in Canadian dollars and are prepared in accordance
with Canadian generally accepted accounting principles
(Canadian GAAP). These financial statements differ
in certain respects from those prepared in accordance with
United States generally accepted accounting principles
(U.S. GAAP) and are not intended to provide
certain disclosures which would be found in U.S. GAAP
financial statements. These measurement differences are
described in note 13 Differences between Canadian and
United States generally accepted accounting principles.

USE OF ESTIMATES. The preparation of financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the amounts of revenues and
expenses for the reporting period. Actual results may vary from
those estimates.

FOREIGN CURRENCY TRANSLATION. Monetary assets and
liabilities that are denominated in U.S. dollars are
translated into Canadian dollars at the rate of exchange in
effect at the balance sheet date. Revenues and expenses that are
denominated in U.S. dollars are translated into Canadian
dollars at average monthly exchange rates prevailing during the
year. Resulting translation adjustments are included in the
Statements of Earnings under the caption Foreign exchange
loss.

FINANCIAL INSTRUMENTS. The estimated fair values
of financial instruments including cash, receivables, accounts
payable and accrued liabilities, income taxes payable, current
portion of long-term debt and other long-term liabilities are
approximately the same as their carrying values. The preferred
Class A shares are recorded at fair value as at the end of
the reporting

F-58



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)




2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (Continued)


period. The change in the fair value of the
preferred Class A shares between reporting periods is
recorded in the Statements of Earnings.

REVENUE RECOGNITION. Revenue is recognized when
persuasive evidence of an arrangement exists, the sales price is
fixed and determinable, title transfers, and risk of loss has
passed to the customer.

INVENTORY. The Corporation values inventory at
the lower of cost or market with cost based on average costing.
Manufactured inventories include costs for materials, labor, and
factory overhead.

PROPERTY, PLANT AND EQUIPMENT. Property, plant
and equipment is recorded at cost. Cost includes expenditures
for major improvements and replacements and the net amount of
interest cost associated with significant capital additions. No
interest was capitalized in 2004 or 2003. Depreciation is
determined using the straight-line method. Gains and losses from
sales and retirements are included in income as they occur.
Estimated service lives of principal items of property, plant
and equipment are 40 years for buildings and range
from 3 to 20 years for machinery and equipment.

OTHER ASSETS. At March 31, 2004,other assets
consisted of deposits. At March 31, 2003, other assets
consisted of deposits and financing costs incurred by the
Corporation. Financing costs were amortized on a straight-line
basis over the term of the loan.

INCOME TAXES. The Corporation uses the asset and
liability method of accounting for income taxes. Under the asset
and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the date of enactment or
substantive enactment. A valuation allowance is recorded against
any future income tax asset if it is more likely than not that
the asset will not be realized in its entirety.

3. INVENTORY

|                                   |  |                   |       |      |  |   |       | 
|---------------------------------- |  | ----------------- | ----- | ---- |  | - | ----- | 
|                                   |  |                  
|                                   |  | March 31         
|                                   |  |                  
|                                   |  | 2003              |       | 2004
|                                   |  |                   |       |     
|                                   |  |                  
|                                   |  | (expressed in    
|                                   |  | thousands of     
|                                   |  | Canadian dollars)
|Finished goods and work in process |  | $                 | 938   |      |  | $ | 1,394 | 
|Logs                               |  |                   | 3,329 |      |  |   | 4,312 | 
|Other raw materials and supplies   |  |                   | 2,624 |      |  |   | 3,114 | 
|                                   |  |                   |       |      |  |   |       | 
|                                   |  | $                 | 6,891 |      |  | $ | 8,820 | 
|                                   |  |                   |       |      |  |   |       | 

F-59



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)


4. PROPERTY, PLANT AND
EQUIPMENT

|                           |  |                            |         |              |  |     |        |  |  |   |        | 
|-------------------------- |  | -------------------------- | ------- | ------------ |  | --- | ------ |  |  | - | ------ | 
|                           |  |                           
|                           |  | March 31, 2004            
|                           |  |                           
|                           |  |                            |         | Accumulated  |  |    
|                           |  | Cost                       |         | Depreciation |  | Net
|                           |  |                            |         |              |  |    
|                           |  |                           
|                           |  | (expressed in thousands of
|                           |  | Canadian dollars)         
|Land                       |  | $                          | 587     |              |  | $   |       |  |  | $ | 587    | 
|Buildings and improvements |  |                            | 33,058  |              |  |     | 7,538  |  |  |   | 25,520 | 
|Machinery and equipment    |  |                            | 140,327 |              |  |     | 67,892 |  |  |   | 72,435 | 
|                           |  |                            |         |              |  |     |        |  |  |   |        | 
|                           |  | $                          | 173,972 |              |  | $   | 75,430 |  |  | $ | 98,542 | 
|                           |  |                            |         |              |  |     |        |  |  |   |        | 

|                           |  |                            |         |              |  |     |        |  |  |   |         | 
|-------------------------- |  | -------------------------- | ------- | ------------ |  | --- | ------ |  |  | - | ------- | 
|                           |  |                           
|                           |  | March 31, 2003            
|                           |  |                           
|                           |  |                            |         | Accumulated  |  |    
|                           |  | Cost                       |         | Depreciation |  | Net
|                           |  |                            |         |              |  |    
|                           |  |                           
|                           |  | (expressed in thousands of
|                           |  | Canadian dollars)         
|Land                       |  | $                          | 587     |              |  | $   |       |  |  | $ | 587     | 
|Buildings and improvements |  |                            | 32,801  |              |  |     | 6,292  |  |  |   | 26,509  | 
|Machinery and equipment    |  |                            | 138.361 |              |  |     | 57,379 |  |  |   | 80,982  | 
|                           |  |                            |         |              |  |     |        |  |  |   |         | 
|                           |  | $                          | 171,749 |              |  | $   | 63,671 |  |  | $ | 108,078 | 
|                           |  |                            |         |              |  |     |        |  |  |   |         | 

5. OTHER ASSETS

|                         |  |                   |        |      |  |   |       | 
|------------------------ |  | ----------------- | ------ | ---- |  | - | ----- | 
|                         |  |                  
|                         |  | March 31         
|                         |  |                  
|                         |  | 2003              |        | 2004
|                         |  |                   |        |     
|                         |  |                  
|                         |  | (expressed in    
|                         |  | thousands of     
|                         |  | Canadian dollars)
|Deferred financing costs |  | $                 | 3,396  |      |  | $ |      | 
|Accumulated amortization |  |                   | (3,208 | )    |  |   |      | 
|                         |  |                   |        |      |  |   |       | 
|                         |  |                   | 188    |      |  |   |      | 
|Deposits                 |  |                   | 1,312  |      |  |   | 1,205 | 
|                         |  |                   |        |      |  |   |       | 
|                         |  | $                 | 1,500  |      |  | $ | 1,205 | 
|                         |  |                   |        |      |  |   |       | 

6. LONG-TERM DEBT

In October 1995, the Corporation entered into a
variable rate lending commitment which included a nonrevolving
progress draw term credit facility (Credit B), up to
US$65,000,000, denominated in U.S. dollars. The Credit B
facility provided funds for construction. Interest rate options
available to the Corporation included rates based on the London
Interbank Offering Rate, or the U.S. Base Rate. At
March 31, 2003, $3,822,000 (US$2,600,000) of borrowings
were outstanding with a variable interest rate of 3.17%. Full
and final payment of the Credit B facility was made in May, 2003.

F-60



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)


7. PREFERRED CLASS A
SHARES

On October 12, 1995, the Corporation
authorized 19,000,000 preferred Class A shares, US$1.00 par
value. At March 31, 2004 and 2003, 10,000,000 Class A
shares to Northwestern, and 9,000,000 Class A shares to
Allstate were outstanding. After the fifth anniversary of the
closing date, and if certain conditions are met, the holders of
Class A shares may exercise a Put Right that will initiate
an appraisal process to sell their shares to the Corporation at
the then fair market value. The fair market value was
$82,885,000 and $61,384,000 at March 31, 2004 and 2003, and
was determined based on the Class A shareholders
portion of an estimated U.S. dollar purchase price
translated at the applicable current exchange rate. Boise may
exercise a Call Right to purchase shares available pursuant to
the Put Right. The fifth anniversary date was reached
October 12, 2000. As at March 31, 2004, these rights
had not been exercised. Following the eighth anniversary of the
closing date, Boise may purchase all Class A shares at fair
market value. The eighth anniversary date was reached
October 12, 2003. As at March 31, 2004, these rights
had not been exercised.

Dividends will be paid on a semiannual basis by
the Corporation, unless otherwise agreed. The Class A
shares will be entitled to a 12% per annum dividend, preference
over the common shares in dividend payments, and unpaid
Class A share dividends will compound semi-annually. No
dividends have been paid through March 31, 2004. At
March 31, 2004 and 2003, the cumulative Class A
dividend in arrears was $35,526,000 (US$27,096,000) and
$32,375,000 (US$22,025,000). Class A shares may participate
in additional dividend distributions if certain conditions are
met. The policy of the Corporation is to distribute all
available cash not required for other purposes.

8. COMMON STOCK

|           |                                                    |                   |   |        |  |  |   |        | 
|---------- | -------------------------------------------------- | ----------------- | - | ------ |  |  | - | ------ | 
|           |                                                    |                  
|           |                                                    | March 31         
|           |                                                    |                  
|           |                                                    | 2003              |   | 2004  
|           |                                                    |                   |   |       
|           |                                                    |                  
|           |                                                    | (expressed in    
|           |                                                    | thousands of     
|           |                                                    | Canadian dollars)
|Authorized |                                                    |                   |   |        |  |  |   |       
|           | 40,500,000 common voting shares, US$1.00 par value |                   |   |        |  |  |   |        | 
|Issued     |                                                    |                   |   |        |  |  |   |       
|           | 40,500,000 common voting shares                    |                   | $ | 55,419 |  |  | $ | 55,419 | 

Dividends will be paid on a semiannual basis by
the Corporation, unless otherwise agreed. The Class A
shares will be entitled to preference over the common shares in
dividend payments. No dividends have been paid through March 31,
2004.

F-61



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)


9. INCOME TAXES

The overall income tax provision differs from the
amount that would be obtained by applying the combined statutory
income tax rate to earnings as a result of manufacturing and
processing credit, large corporation taxes, and changes in tax
rates as follows:

|                                                                                                           |  |                   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ---- |  | - | ------ | -
|                                                                                                           |  |                  
|                                                                                                           |  | Three Months     
|                                                                                                           |  | Ended March 31   
|                                                                                                           |  |                  
|                                                                                                           |  | 2003              |        | 2004
|                                                                                                           |  |                   |        |     
|                                                                                                           |  |                  
|                                                                                                           |  | (expressed in    
|                                                                                                           |  | thousands of     
|                                                                                                           |  | Canadian dollars)
|Earnings before income taxes                                                                               |  | $                 | 4,065  |      |  | $ | 19,544 |  
|Combined federal and provincial income tax rate                                                            |  |                   | 36.62  | %    |  |   | 36.12  | %
|                                                                                                           |  |                   |        |      |  |   |        |  
|Income tax expense based on statutory income tax
    rate                                                  |  |                   | (1,489 | )    |  |   | (7,059 | )
|Permanent difference from unrealized (increase)
    decrease in the fair value of preferred Class A shares |  |                   | 1,185  |      |  |   | (728   | )
|Manufacturing and processing credit                                                                        |  |                   | 29     |      |  |   | 431    |  
|Large corporation tax                                                                                      |  |                   | (69    | )    |  |   | (69    | )
|Change in tax rate                                                                                         |  |                   | 11     |      |  |   |       |  
|Other                                                                                                      |  |                   |       |      |  |   | (6     | )
|                                                                                                           |  |                   |        |      |  |   |        |  
|                                                                                                           |  | $                 | (333   | )    |  | $ | (7,431 | )
|                                                                                                           |  |                   |        |      |  |   |        |  

Future income taxes are provided for temporary
differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured for
tax purposes. The components of the net future income tax
liability in the Balance Sheets are as follows:

|                                                                                               |  |                   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ---- |  | - | ------ | -
|                                                                                               |  |                  
|                                                                                               |  | Three Months     
|                                                                                               |  | Ended March 31   
|                                                                                               |  |                  
|                                                                                               |  | 2003              |        | 2004
|                                                                                               |  |                   |        |     
|                                                                                               |  |                  
|                                                                                               |  | (expressed in    
|                                                                                               |  | thousands of     
|                                                                                               |  | Canadian dollars)
|Non-capital loss carry forwards                                                                |  | $                 | (1,986 | )    |  | $ |       |  
|Capital loss carry forwards                                                                    |  |                   | (2,364 | )    |  |   | (4,462 | )
|Unrealized foreign exchange loss on long-term debt                                             |  |                   | (1,210 | )    |  |   |       |  
|Excess of carrying value of property, plant and
    equipment and other assets over tax values |  |                   | 17,548 |      |  |   | 18,555 |  
|Other temporary differences                                                                    |  |                   | (1,577 | )    |  |   | (1,797 | )
|Valuation allowance                                                                            |  |                   | 3,391  |      |  |   | 3,720  |  
|                                                                                               |  |                   |        |      |  |   |        |  
|                                                                                               |  | $                 | 13,802 |      |  | $ | 16,016 |  
|                                                                                               |  |                   |        |      |  |   |        |  

At March 31, 2004, the Corporation had
$1,751,000 of Ontario corporation minimum tax credits which
expire in 2006 through 2011.

F-62



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)


10.     RELATED PARTY
TRANSACTIONS

Pursuant to the Operating and Marketing
Agreement, Boise is entitled to reimbursement for certain
materials and services provided during construction and
operation of the facility and will receive an annual fee
escalating at 3% per year. Boise shall also receive a commission
equaling 4% of the net selling price on sales for which Boise
acts as agent. See the table below.

Under the terms of the Wood Supply Services
Agreement, the Corporation will pay to Abitibi all costs
incurred by it in performing the agreement plus a management fee
of $500,000 per year beginning at the start of operations. In
addition, if renewal charges for hardwood exceed the amount
covered by Crown charges, the Corporation will pay a
proportionate share of these charges. See the table below.

Boise and Abitibi have received reimbursement for
the following operating, development, and other costs:

|                                                                      |                   |                   |        |       |  |   |        |        | 
|--------------------------------------------------------------------- | ----------------- | ----------------- | ------ | ----- |  | - | ------ | ------ | 
|                                                                      |                   |                  
|                                                                      |                   | Three Months     
|                                                                      |                   | Ended March 31   
|                                                                      |                   |                  
|                                                                      |                   | 2003              |        | 2004 
|                                                                      |                   |                   |        |      
|                                                                      |                   |                  
|                                                                      |                   | (expressed in    
|                                                                      |                   | thousands of     
|                                                                      |                   | Canadian dollars)
|Paid to Boise:                                                        |                   |                   |        |       |  |   |        |       
|                                                                      | Management fees   |                   | $      | 424   |  |   | $      | 382    | 
|                                                                      | Sales Commissions |                   |        | 900   |  |   |        | 1,792  | 
|                                                                      | Freight           |                   |        | 3,709 |  |   |        | 3,075  | 
|                                                                      |                   |                   |        |       |  |   |        |       
|                                                                      |                   | $                 | 5,033  |       |  | $ | 5,249  |       
|                                                                      |                   |                   |        |       |  |   |        |       
|Paid to Abitibi:                                                      |                   |                   |        |       |  |   |        |       
|                                                                      | Management fees   |                   | $      | 149   |  |   | $      | 154    | 
|                                                                      | Wood purchases    |                   |        | 8,578 |  |   |        | 9,413  | 
|                                                                      |                   |                   |        |       |  |   |        |       
|                                                                      |                   | $                 | 8,727  |       |  | $ | 9,567  |       
|                                                                      |                   |                   |        |       |  |   |        |       
|Sales to Boise                                                        |                   |                   | 17,584 |       |  | $ | 45,137 |       
|                                                                      |                   |                   |        |       |  |   |        |       
|Receivables from affiliated company:                                  |                   |                   |        |       |  |   |        |       
|                                                                      | Boise             |                   | $      | 5,793 |  |   | $      | 12,114 | 
|                                                                      |                   |                   |        |       |  |   |        |       
|Accounts payable and accrued liabilities to
    affiliated companies: |                   |                   |        |       |  |   |        |       
|                                                                      | Abitibi           |                   | $      | 2,995 |  |   | $      | 3,540  | 
|                                                                      | Boise             |                   |        | 1,721 |  |   |        | 1,868  | 
|                                                                      |                   |                   |        |       |  |   |        |       
|                                                                      |                   | $                 | 4,716  |       |  | $ | 5,408  |       
|                                                                      |                   |                   |        |       |  |   |        |       

These transactions are in the normal course of
operations and are measured at the exchange amount which is the
amount of consideration established and agreed to by the related
parties.

F-63



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)


11.     MAJOR
CUSTOMERS

A substantial portion of the net sales of the
Corporation are made to a limited number of customers. During
the three months ended March 31, 2004 and 2003, two such
customers accounted for 94% and 67% of sales. Substantially all
of the Corporations sales to related parties and to
unaffiliated customers were into the United States.

12.     CONTINGENCIES

The Corporation is involved in litigation and
administrative proceedings primarily arising in the normal
course of Corporation business. In the opinion of management,
the Corporations recovery, if any, or liability, if any,
under any pending litigation or administrative proceeding would
not materially affect the Corporations financial condition
or results of operations.



|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Corporations financial statements have
been prepared in accordance with Canadian GAAP which, in the
case of the Corporation, are in conformity in all material
respects with U.S. GAAP, with the following exceptions:

Reconciliation
of Canadian and U.S. GAAP

Under U.S. GAAP, future income tax assets and
liabilities are revalued for enacted changes in tax rates. Under
Canadian GAAP, future income tax assets and liabilities are
revalued for all enacted or substantially enacted changes in tax
rates.

Under U.S. GAAP, changes in the fair value of
redeemable securities are treated in the same manner as a
dividend and are charged against retained earnings, or in the
absence of retained earnings, as charges against paid-in
capital. Under Canadian GAAP, changes in the fair value of
redeemable securities are charged to income.

The following information is presented in
accordance with U.S. GAAP, reflecting these adjustments.

|                                                                                     |  |                |        |      |  |   |        | 
|------------------------------------------------------------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                                                     |  |               
|                                                                                     |  | Three Months  
|                                                                                     |  | Ended March 31
|                                                                                     |  |               
|Effect on net earnings:                                                              |  | 2003           |        | 2004
|                                                                                     |  |                |        |     
|Net earnings under Canadian GAAP                                                     |  | $              | 3,732  |      |  | $ | 12,113 | 
|Adjustments:                                                                         |  |                |        |      |  |   |        | 
|Unrealized increase (decrease) in the fair value
    of
    preferred Class A shares |  |                | (3,235 | )    |  |   | 2,016  | 
|Future income taxes                                                                  |  |                | (11    | )    |  |   |       | 
|                                                                                     |  |                |        |      |  |   |        | 
|Net earnings under U.S. GAAP                                                         |  | $              | 486    |      |  | $ | 14,129 | 
|                                                                                     |  |                |        |      |  |   |        | 

F-64



---



##### 



VOYAGEUR PANEL LIMITED


NOTES TO FINANCIAL STATEMENTS 
(Continued)

THREE MONTHS ENDED MARCH 31, 2004 AND
2003

(Unaudited)




|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 
    (Continued)

|                                                   |  |          |        |      |  |   |         | 
|-------------------------------------------------- |  | -------- | ------ | ---- |  | - | ------- | 
|                                                   |  |         
|                                                   |  | March 31
|                                                   |  |         
|Effect on balance sheets:                          |  | 2003     |        | 2004
|                                                   |  |          |        |     
|Total liabilities under Canadian GAAP              |  | $        | 85,754 |      |  | $ | 114,087 | 
|Adjustment:                                        |  |          |        |      |  |   |         | 
|Future income taxes                                |  |          | 1,113  |      |  |   |        | 
|                                                   |  |          |        |      |  |   |         | 
|Total liabilities under U.S. GAAP                  |  | $        | 86,867 |      |  | $ | 114,087 | 
|                                                   |  |          |        |      |  |   |         | 
|Total shareholders equity under Canadian
    GAAP |  | $        | 41,875 |      |  | $ | 57,255  | 
|Adjustment:                                        |  |          |        |      |  |   |         | 
|Total shareholders equity adjustments             |  |          | (1,113 | )    |  |   |        | 
|                                                   |  |          |        |      |  |   |         | 
|Total shareholders equity under U.S. GAAP         |  | $        | 40,762 |      |  | $ | 57,255  | 
|                                                   |  |          |        |      |  |   |         | 

14.     SUBSEQUENT
EVENT

On April 15, 2004, the Corporations
shareholders announced that they had reached an agreement with
Ainsworth Lumber Co. Ltd. for its purchase of the Corporation
for approximately US$193,000,000, plus as much as US$10,000,000
more based on OSB prices between closing the transaction and
December 31, 2004. The transaction is expected to close in
second quarter 2004.

F-65



---



##### 



Independent Auditors Report

The Board of Directors

Potlatch Corporation:


We have audited the balance sheets of the
Oriented Strand Board Manufacturing Facilities (the
Business) of Potlatch Corporation (the Parent)
as of December 31, 2003 and 2002, and the related
statements of operations, parents equity and cash flows
for each of the years in the three-year period ended
December 31, 2003. These financial statements are the
responsibility of the Parents management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

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

/s/ KPMG LLP

September 10, 2004


Portland, Oregon


F-66



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Balance Sheets

December 31, 2003 and 2002

(Expressed in US Dollars in
thousands)


|                                          |                                                                          |                      |         |        |        |   |         |        |        | 
|----------------------------------------- | ------------------------------------------------------------------------ | -------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                          |                                                                          | 2003                 |         | 2002  
|                                          |                                                                          |                      |         |       
|Assets                                    |                                                                          |                      |         |        |        |   |         |       
|Current assets:                           |                                                                          |                      |         |        |        |   |         |       
|                                          | Cash                                                                     |                      | $       | 1      |        |   | $       | 1      |       
|                                          | Receivables, net of allowance for doubtful
    accounts of $150 and $150 |                      |         | 14,295 |        |   |         | 9,412  |       
|                                          | Inventories (note 2)                                                     |                      |         | 19,327 |        |   |         | 16,880 |       
|                                          | Prepaid expenses                                                         |                      |         | 183    |        |   |         | 155    |       
|                                          |                                                                          |                      |         |        |        |   |         |       
|                                          |                                                                          | Total current assets |         |        | 33,806 |   |         |        | 26,448 | 
|Land                                      |                                                                          |                      | 981     |        |        |   | 981     |       
|Plant and equipment, net (note 3)         |                                                                          |                      | 139,378 |        |        |   | 151,688 |       
|Timber permit deposits and roads (note 4) |                                                                          |                      | 2,417   |        |        |   | 3,371   |       
|Pension assets (note 7)                   |                                                                          |                      | 20,708  |        |        |   | 17,474  |       
|Other assets                              |                                                                          |                      | 197     |        |        |   | 105     |       
|                                          |                                                                          |                      |         |        |        |   |         |       
|                                          |                                                                          | $                    | 197,487 |        |        | $ | 200,067 |       
|                                          |                                                                          |                      |         |        |        |   |         |       
|Liabilities and Parents Equity           |                                                                          |                      |         |        |        |   |         |       
|Current liabilities:                      |                                                                          |                      |         |        |        |   |         |       
|                                          | Accounts payable and accrued liabilities
    (note 6)                    |                      | $       | 13,608 |        |   | $       | 16,431 |       
|Future income taxes (note 5)              |                                                                          |                      | 27,383  |        |        |   | 24,274  |       
|Retiree medical liability (note 7)        |                                                                          |                      | 14,825  |        |        |   | 13,650  |       
|Parents equity                           |                                                                          |                      | 141,671 |        |        |   | 145,712 |       
|Commitments and contingencies (note 9)    |                                                                          |                      |         |        |        |   |         |       
|                                          |                                                                          |                      |         |        |        |   |         |       
|                                          |                                                                          | $                    | 197,487 |        |        | $ | 200,067 |       
|                                          |                                                                          |                      |         |        |        |   |         |       

See accompanying notes to financial
statements.

F-67



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Statements of Operations

Years ended December 31, 2003, 2002, and
2001

(Expressed in US Dollars in
thousands)


|                                                     |                                                |                                        |         |         |        |      |         |         |         |   |         |         |         |  
|---------------------------------------------------- | ---------------------------------------------- | -------------------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                     |                                                | 2003                                   |         | 2002    |        | 2001
|                                                     |                                                |                                        |         |         |        |     
|Net sales                                            |                                                | $                                      | 314,452 |         |        | $    | 187,460 |         |         | $ | 167,327 |        
|Costs and expenses:                                  |                                                |                                        |         |         |        |      |         |         |         |   |         |        
|                                                     | Depreciation and amortization                  |                                        |         | 15,872  |        |      |         | 17,464  |         |   |         | 16,744  |        
|                                                     | Materials, labor, and other operating expenses |                                        |         | 200,451 |        |      |         | 182,457 |         |   |         | 167,909 |        
|                                                     | Selling, general, and administrative expenses  |                                        |         | 4,882   |        |      |         | 3,878   |         |   |         | 3,522   |        
|                                                     |                                                |                                        |         |         |        |      |         |         |         |   |         |        
|                                                     |                                                |                                        | 221,205 |         |        |      | 203,799 |         |         |   | 188,175 |        
|                                                     |                                                |                                        |         |         |        |      |         |         |         |   |         |        
|                                                     |                                                | Earnings (loss) before taxes on income |         |         | 93,247 |      |         |         | (16,339 | ) |         |         | (20,848 | )
|Provision (benefit) for taxes on income
    (note 5) |                                                |                                        | 36,366  |         |        |      | (6,372  | )       |         |   | (8,131  | )      
|                                                     |                                                |                                        |         |         |        |      |         |         |         |   |         |        
|                                                     |                                                | Net earnings (loss)                    |         | $       | 56,881 |      |         | $       | (9,967  | ) |         | $       | (12,717 | )
|                                                     |                                                |                                        |         |         |        |      |         |         |         |   |         |        

See accompanying notes to financial
statements.

F-68



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Statements of Parents Equity

Years ended December 31, 2003, 2002, and
2001

(Expressed in US Dollars in
thousands)


|                              |  |   |         |  
|----------------------------- |  | - | ------- | -
|Balance, December 31, 2000    |  | $ | 156,539 |  
|Net loss                      |  |   | (12,717 | )
|Transfers from corporate, net |  |   | 14,247  |  
|                              |  |   |         |  
|Balance, December 31, 2001    |  |   | 158,069 |  
|Net loss                      |  |   | (9,967  | )
|Transfers to corporate, net   |  |   | (2,390  | )
|                              |  |   |         |  
|Balance, December 31, 2002    |  |   | 145,712 |  
|Net earnings                  |  |   | 56,881  |  
|Transfers to corporate, net   |  |   | (60,922 | )
|                              |  |   |         |  
|Balance, December 31, 2003    |  | $ | 141,671 |  
|                              |  |   |         |  

See accompanying notes to financial
statements.

F-69



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Statements of Cash Flows

Years ended December 31, 2003, 2002, and
2001

(Expressed in US Dollars in
thousands)


|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |         |        |         |  
|------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------- | - | ------ | ------ | ------ | - | ------- | ------ | ------- | -
|                                      |                                                                                                          | 2003                                                                |                                                         | 2002    |        | 2001   
|                                      |                                                                                                          |                                                                     |                                                         |         |        |        
|Cash flows from operating activities: |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|                                      | Net earnings (loss)                                                                                      |                                                                     | $                                                       | 56,881  |        |         | $ | (9,967 | )      |        | $ | (12,717 | )     
|                                      | Adjustments to reconcile net earnings (loss) to
    net cash provided by (used in) operating activities: |                                                                     |                                                         |         |        |         |   |        |        |        |   |         |       
|                                      |                                                                                                          | Depreciation and amortization                                       |                                                         |         | 15,872 |         |   |        | 17,464 |        |   |         | 16,744 |        
|                                      |                                                                                                          | Employee benefit plans                                              |                                                         |         | (2,059 | )       |   |        | (2,360 | )      |   |         | (1,622 | )      
|                                      |                                                                                                          | Future income taxes                                                 |                                                         |         | 3,109  |         |   |        | 3,218  |        |   |         | 502    |        
|                                      |                                                                                                          | Decrease (increase) in receivables                                  |                                                         |         | (4,883 | )       |   |        | 126    |        |   |         | (1,611 | )      
|                                      |                                                                                                          | Increase in inventories                                             |                                                         |         | (2,447 | )       |   |        | (3,511 | )      |   |         | (1,841 | )      
|                                      |                                                                                                          | Decrease (increase) in prepaids                                     |                                                         |         | (28    | )       |   |        | 99     |        |   |         | (62    | )      
|                                      |                                                                                                          | Decrease (increase) in timber permit deposits                       |                                                         |         | 954    |         |   |        | 1,685  |        |   |         | (1,136 | )      
|                                      |                                                                                                          | Increase (decrease) in accounts payable and
    accrued liabilities |                                                         |         | (2,823 | )       |   |        | (92    | )      |   |         | 86     |        
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|                                      |                                                                                                          |                                                                     | Net cash provided by (used in) operating
    activities |         |        | 64,576  |   |        |        | 6,662  |   |         |        | (1,657  | )
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|Cash flows from investing activities: |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|                                      | Additions to plant and equipment                                                                         |                                                                     |                                                         | (3,665  | )      |         |   | (4,378 | )      |        |   | (13,882 | )     
|                                      | Other, net                                                                                               |                                                                     |                                                         | (92     | )      |         |   | 13     |        |        |   | (119    | )     
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|                                      |                                                                                                          |                                                                     | Net cash used in investing activities                   |         |        | (3,757  | ) |        |        | (4,365 | ) |         |        | (14,001 | )
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|Cash flows from financing activities: |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|                                      | Transfers (to) from corporate, net                                                                       |                                                                     |                                                         | (60,819 | )      |         |   | (2,297 | )      |        |   | 15,658  |       
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|                                      |                                                                                                          |                                                                     | Net cash provided by (used in) financing
    activities |         |        | (60,819 | ) |        |        | (2,297 | ) |         |        | 15,658  |  
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|Change in cash                        |                                                                                                          |                                                                     |                                                        |         |        |         |  |        |        |        |  |        
|Balance at beginning of period        |                                                                                                          |                                                                     | 1                                                       |         |        |         | 1 |        |        |        | 1 |        
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        
|Balance at end of period              |                                                                                                          | $                                                                   | 1                                                       |         |        | $       | 1 |        |        | $      | 1 |        
|                                      |                                                                                                          |                                                                     |                                                         |         |        |         |   |        |        |        |   |        

See accompanying notes to financial
statements.

F-70



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements

(US Dollars)


December 31, 2003 and 2002


(1) Summary of Principal Accounting
Policies



|    |                                         
|--- | ----------------------------------------
|(a) | Background and Basis of
    Presentation

The accompanying financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles for the purpose of presenting the Oriented
Strand Board (OSB) Manufacturing Facilities (the Business
or Minnesota OSB Facilities) of Potlatch Corporation (Potlatch
or the Parent) and the results of its operations, and its cash
flows. The Minnesota OSB facilities are part of a proposed sale
to Ainsworth Lumber Co. Ltd. (Ainsworth). The Minnesota OSB
Facilities of Potlatch are located at Bemidji, Cook and Grand
Rapids, Minnesota. These financial statements do not reflect any
effects of the sale of the Business. Material measurement
differences to accounting principles generally accepted in the
United States of America are set out in Note 11.

The proposed sale includes the capital assets,
inventory and accounts receivable of the Business (certain
assets), and the assumption of certain contracts directly
associated with the operations (certain liabilities). The
proposed sale does not include the transfer to the buyer of
pension assets or liabilities, and retiree medical and income
tax liabilities (though such assets and liabilities have been
reflected in the accompanying financial statements). The
Business has been managed as part of the Wood Products segment
of Potlatch.

Potlatch did not maintain the Business as a
separate business unit, nor did management analyze the Business
as a separate line of business, and external financial
statements historically have not been prepared. The accompanying
financial statements have been derived from the historical
accounting records of Potlatch and the Minnesota OSB Facilities
in order to present the balance sheets of the Business as of
December 31, 2003 and 2002 and the results of operations,
and cash flows for the years ended December 31, 2003, 2002,
and 2001 solely for the purpose of filing with securities
regulatory authorities. The historical operating results of the
Business may not be indicative of its results in the future or
what its results of operations, financial position and cash
flows would have been had it been a stand-alone company.

The statements of operations for the Business
include allocations for certain costs from the parent level
directly related to the operations of the Business: medical
costs for hourly and salaried active and retired employees,
hourly pension, workers compensation, general liability
and property insurance, salaried payroll costs (payroll taxes,
pension, and other payroll related costs), pro-rata share of
corporate administration expense for accounting, purchasing,
information systems, and research and development. In addition,
the balance sheets include an allocation of pension assets and
retiree medical liabilities. Such allocations were done based
primarily upon the percentage of the Business headcount
and payroll related matters as compared to overall headcount and
payroll related matters of Potlatch on a consolidated basis.
Management believes the methodologies applied for the allocation
of these costs and assets and liabilities are reasonable.
Interest expense incurred by the Parent has not been allocated
to the Business.

Significant changes could have occurred in the
funding and operations of the Business, were it to operate as an
independent stand-alone entity, including an increase in debt,
which would have a significant impact on its financial position
and results of operations.

F-71



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002




(1) Summary of Principal Accounting
Policies  (Continued)




|    |                
|--- | ---------------
|(b) | Parents Equity

Investments by and advances from Potlatch
represents Potlatchs interest in the recorded net assets
of the Business. Potlatch uses a centralized approach to cash
management and the financing of operations. As a result, none of
Potlatchs cash, cash equivalents, or direct indebtedness
have been allocated to the Business in the financial statements.
All transactions between the Business and Potlatch, including
the allocation of corporate expenses, flow through the
Parents equity account.



|    |            
|--- | -----------
|(c) | Inventories

Inventories are stated at the lower of current
average cost or net realizable value. The average cost method is
used to determine cost of all inventories.



|    |           
|--- | ----------
|(d) | Properties

Property, plant, and equipment are valued at cost
less accumulated depreciation. Depreciation of buildings,
equipment and other depreciable assets is determined using the
straight-line method. Estimated useful lives range from 30 to
40 years for buildings and structures and 2 to
25 years for equipment.

Timber permit deposits are for timber purchased
under contracts where the Business does not own the underlying
land. The cost of permit timber deposits is capitalized in
timber accounts, and as timber is harvested and finished goods
are sold, the costs are expensed.

Major improvements and replacements of property,
plant, and equipment are capitalized. Maintenance, repairs, and
minor improvements and replacements are expensed as incurred.
Upon retirement or other disposition, applicable cost and
accumulated depreciation or amortization are removed from the
accounts. Any gains or losses are included in earnings.



|    |                  
|--- | -----------------
|(e) | Long-Lived Assets

Long-lived assets are accounted for in accordance
with CICA 3063, Impairment of Long-Lived Assets and CICA
3475, Disposal of Long-Lived Assets and Discontinued
Operations. These statements require that long-lived assets
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. Assets to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.



|    |                                    
|--- | -----------------------------------
|(f) | Revenue and Revenue
    Recognition

The Business recognizes revenue from product
sales to customers when the product is shipped from the mills in
accordance with sales arrangements. To determine net sales,
discounts, returns, and allowances are deducted from gross
sales. The net sales figure presented herein in the statements
of operations includes sales to other segments of Potlatch.
These intersegment sales totaled $0.2 million for each year
presented.

F-72



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002




(1) Summary of Principal Accounting
Policies  (Continued)


Freight costs are classified as cost of goods
sold for all periods presented.



|    |             
|--- | ------------
|(g) | Income Taxes

The Business is a division of Potlatch and, for
the purposes of U.S. federal and state income taxes, is not
directly subject to income taxes but is included in
Potlatchs consolidated income tax returns. For purposes of
these financial statements, the Business provision
(benefit) for U.S. income taxes has been determined on a
separate return basis.

Income taxes are accounted for under the asset
and liability method. Income taxes payable are settled in the
current period through transfers to (from) corporate in the
parents equity account. Future income tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Future income tax assets and liabilities
are measured using substantively enacted or enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on future income tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the substantive enactment date.



|    |            
|--- | -----------
|(h) | Environment

As part of Potlatchs corporate policy,
there is an ongoing process to monitor, report on and comply
with environmental requirements. Based on this process, accruals
for environmental liabilities are established. Management
estimates environmental liabilities based on various assumptions
and judgments, the specific nature of which varies in light of
the particular facts and circumstances surrounding each
potential environmental liability. These estimates typically
reflect assumptions and judgments as to the probable nature,
magnitude and timing of required investigation, remediation, and
monitoring activities and the probable cost of these activities,
and in some cases reflect assumptions and judgments as to the
obligation or willingness and ability of third parties to bear a
proportionate or allocated share of the cost of these
activities. Due to the numerous uncertainties and variables
associated with these assumptions and judgments, and the effects
of changes in governmental regulation and environmental
technologies, both the precision and reliability of the
resulting estimates of the related liabilities are subject to
substantial uncertainties. Management regularly monitors
estimated exposure to environmental liabilities and, as
additional information becomes known, the estimates may change
significantly. The estimates of environmental liabilities do not
reflect potential future recoveries from insurance carriers
except to the extent that recovery may from time to time be
deemed probable as a result of a carriers agreement to
payment terms. In those instances in which the estimated
exposure reflects actual or anticipated cost-sharing
arrangements with third parties, management does not believe
that there will be exposure to additional material liability as
a result of nonperformance by such third parties. Currently,
management is not aware of any material environmental
liabilities and have accrued for only specific environmental
remediation costs that have been determined are probable and
reasonably estimable.

F-73



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002




(1) Summary of Principal Accounting
Policies  (Continued)




|    |                                     
|--- | ------------------------------------
|(i) | Recent Accounting
    Pronouncements

CICA 3110, Asset Retirement
Obligations, was adopted effective January 1, 2003. The
Statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which
it is incurred, with the associated asset retirement costs
capitalized as part of the carrying amount of the long-lived
asset. Adoption of this Statement did not have a material effect
on the financial condition of the Business or results of
operations of the Business.

(2) Inventories

|                       |  |               |        |      |  |   |        | 
|---------------------- |  | ------------- | ------ | ---- |  | - | ------ | 
|                       |  | 2003          |        | 2002
|                       |  |               |        |     
|                       |  |              
|                       |  | (US Dollars  
|                       |  | in thousands)
|Logs                   |  | $             | 8,584  |      |  | $ | 8,055  | 
|Finished goods         |  |               | 3,778  |      |  |   | 2,304  | 
|Materials and supplies |  |               | 6,965  |      |  |   | 6,521  | 
|                       |  |               |        |      |  |   |        | 
|                       |  | $             | 19,327 |      |  | $ | 16,880 | 
|                       |  |               |        |      |  |   |        | 

(3) Plant and Equipment

|                                                |                          |               |          |         |  |   |          |         | 
|----------------------------------------------- | ------------------------ | ------------- | -------- | ------- |  | - | -------- | ------- | 
|                                                |                          | 2003          |          | 2002   
|                                                |                          |               |          |        
|                                                |                          |              
|                                                |                          | (US Dollars  
|                                                |                          | in thousands)
|Land improvements                               |                          | $             | 11,076   |         |  | $ | 10,776   |        
|Buildings and structures                        |                          |               | 60,559   |         |  |   | 60,740   |        
|Machinery and equipment                         |                          |               | 264,275  |         |  |   | 266,272  |        
|Construction in progress                        |                          |               | 2,142    |         |  |   | 751      |        
|                                                |                          |               |          |         |  |   |          |        
|                                                | Subtotal                 |               |          | 338,052 |  |   |          | 338,539 | 
|Less: accumulated depreciation and amortization |                          |               | (198,674 | )       |  |   | (186,851 | )      
|                                                |                          |               |          |         |  |   |          |        
|                                                | Plant and equipment, net |               | $        | 139,378 |  |   | $        | 151,688 | 
|                                                |                          |               |          |         |  |   |          |        

(4) Timber Permit Deposits and
Roads

|                       |       |               |       |       |  |   |       |       | 
|---------------------- | ----- | ------------- | ----- | ----- |  | - | ----- | ----- | 
|                       |       | 2003          |       | 2002 
|                       |       |               |       |      
|                       |       |              
|                       |       | (US Dollars  
|                       |       | in thousands)
|Timber permit deposits |       | $             | 2,359 |       |  | $ | 3,294 |      
|Permit roads           |       |               | 58    |       |  |   | 77    |      
|                       |       |               |       |       |  |   |       |      
|                       | Total |               | $     | 2,417 |  |   | $     | 3,371 | 
|                       |       |               |       |       |  |   |       |      

F-74



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002


(5) Taxes on Income

The provision (benefit) for taxes on income
is comprised of the following:

|        |                                         |                           |        |        |  |      |        |        |   |   |        |        |  
|------- | --------------------------------------- | ------------------------- | ------ | ------ |  | ---- | ------ | ------ | - | - | ------ | ------ | -
|        |                                         | 2003                      |        | 2002   |  | 2001
|        |                                         |                           |        |        |  |     
|        |                                         |                          
|        |                                         | (US Dollars in thousands)
|Current |                                         | $                         | 33,257 |        |  | $    | (9,590 | )      |   | $ | (8,633 | )     
|Future  |                                         |                           | 3,109  |        |  |      | 3,218  |        |   |   | 502    |       
|        |                                         |                           |        |        |  |      |        |        |   |   |        |       
|        | Provision (benefit) for taxes on income |                           | $      | 36,366 |  |      | $      | (6,372 | ) |   | $      | (8,131 | )
|        |                                         |                           |        |        |  |      |        |        |   |   |        |       

The provision (benefit) for taxes on income
differs from the amount computed by applying the statutory
federal income tax rate of 35% to earnings before taxes on
income due to the following:

|                                                              |                                         |                           |        |        |  |      |        |        |   |   |        |        |  
|------------------------------------------------------------- | --------------------------------------- | ------------------------- | ------ | ------ |  | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                                              |                                         | 2003                      |        | 2002   |  | 2001
|                                                              |                                         |                           |        |        |  |     
|                                                              |                                         |                          
|                                                              |                                         | (US Dollars in thousands)
|Computed expected tax provision
    (benefit)               |                                         | $                         | 32,636 |        |  | $    | (5,718 | )      |   | $ | (7,297 | )     
|State and local taxes, net of federal income tax
    benefits |                                         |                           | 3,730  |        |  |      | (654   | )      |   |   | (834   | )     
|                                                              |                                         |                           |        |        |  |      |        |        |   |   |        |       
|                                                              | Provision (benefit) for taxes on income |                           | $      | 36,366 |  |      | $      | (6,372 | ) |   | $      | (8,131 | )
|                                                              |                                         |                           |        |        |  |      |        |        |   |   |        |       
|Effective tax rate                                            |                                         |                           | 39.0   | %      |  |      | 39.0   | %      |   |   | 39.0   | %     

The tax effects of significant temporary
differences creating future income tax assets and liabilities at
December 31 were:

|                                |  |                |        |      |  |   |        |  
|------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                |  | 2003           |        | 2002
|                                |  |                |        |     
|                                |  |               
|                                |  | (US Dollars in
|                                |  | thousands)    
|Plant and equipment             |  | $              | 25,089 |      |  | $ | 22,783 |  
|Pensions                        |  |                | 8,076  |      |  |   | 6,815  |  
|Retiree medical                 |  |                | (5,782 | )    |  |   | (5,324 | )
|                                |  |                |        |      |  |   |        |  
|Net future income tax liability |  | $              | 27,383 |      |  | $ | 24,274 |  
|                                |  |                |        |      |  |   |        |  

F-75



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002


(6) Accounts Payable and Accrued
Liabilities

|                                       |  |                |        |      |  |   |        | 
|-------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                       |  | 2003           |        | 2002
|                                       |  |                |        |     
|                                       |  |               
|                                       |  | (US Dollars in
|                                       |  | thousands)    
|Trade accounts payable                 |  | $              | 3,782  |      |  | $ | 5,006  | 
|Accrued stumpage                       |  |                | 1,692  |      |  |   | 1,863  | 
|Accrued wages and employee benefits    |  |                | 5,628  |      |  |   | 6,396  | 
|Accrued taxes, other than income taxes |  |                | 804    |      |  |   | 876    | 
|Accrued freight                        |  |                | 787    |      |  |   | 1,420  | 
|Accrued utilities                      |  |                | 745    |      |  |   | 692    | 
|Other                                  |  |                | 170    |      |  |   | 178    | 
|                                       |  |                |        |      |  |   |        | 
|                                       |  | $              | 13,608 |      |  | $ | 16,431 | 
|                                       |  |                |        |      |  |   |        | 

(7) Employee Benefit Plans

Potlatch maintains defined benefit pension plans
for its salaried and hourly employees. The benefits provided
under the pension plans are funded by a master trust Potlatch
has established for that purpose. Potlatch also provides
benefits under a defined benefit retiree health care and life
insurance plan to eligible salaried employees. Benefits provided
under the health care and life insurance plan are currently
funded by the general assets of Potlatch. The amounts presented
in these financial statements under the balance sheet captions
Pension assets and Retiree medical
liability represent the estimated portions of
Potlatchs pension and retiree medical plans assets
and liabilities that correspond to the employees of the
Minnesota OSB Facilities being sold. The allocation of these
amounts has been primarily based upon the percentage of the
Business payroll costs as compared to the overall payroll
costs of Potlatch on a consolidated basis. As stated previously
in these footnotes, no transfer of pension assets or liabilities
and no transfer of retiree medical liabilities will be made as a
result of the proposed sale. Inclusion of pension assets and the
retiree medical liability has been made for the purpose of
presenting financial statements for the Minnesota OSB
Facilities. The management of Potlatch determined that it was
not practical to prepare detailed employee benefit plan footnote
disclosures for the stand alone financial statements of the
Business in a manner that would be consistent with the level of
detail provided in the Parents consolidated financial
statements.

The Business had income of $669, $1,343 and
$1,492 related to its employee benefit plans for the years ended
December 31, 2003, 2002 and 2001, respectively.

(8) Disclosures about Fair Value of
Financial Instruments and Concentration of Credit Risk

The fair value of financial instruments, such as
receivables, does not differ from the carrying value.

The Business eight largest customers
accounted for approximately 58%, 49% and 46% of combined net
sales for 2003, 2002 and 2001, respectively.

F-76



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002


(9) Commitments and
Contingencies

The Business has operating leases for a sales
office and certain equipment in the mills and administration
offices expiring at various dates through 2008.

The following table includes a schedule of future
minimum lease payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one
year as of December 31, 2003. It also summarizes the
contractual obligations of the Business as of December 31, 2003.
Portions of the amounts shown are reflected in accounts payable:

|                     |       |       |        |                           |  |       |       |       |  |        |       |       |  |   |       |       |  |   |    |    | 
|-------------------- | ----- | ----- | ------ | ------------------------- |  | ----- | ----- | ----- |  | ------ | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- | 
|                     |       |       |        |                          
|                     |       |       |        | Payments due by period   
|                     |       |       |        |                          
|                     |       |       |        | 1                         |  | 2-3   |       | 4-5   |  | Over 5
|                     |       | Total |        | Year                      |  | Years |       | Years |  | Years 
|                     |       |       |        |                           |  |       |       |       |  |       
|                     |       |       |        |                           |  |      
|                     |       |       |        | (US Dollars in thousands) |  |      
|Operating leases     |       | $     | 2,014  |                           |  | $     | 859   |       |  | $      | 1,149 |       |  | $ | 6     |       |  | $ |   |   
|Purchase obligations |       |       | 21,363 |                           |  |       | 8,640 |       |  |        | 8,740 |       |  |   | 3,888 |       |  |   | 95 |   
|                     |       |       |        |                           |  |       |       |       |  |        |       |       |  |   |       |       |  |   |    |   
|                     | Total |       | $      | 23,377                    |  |       | $     | 9,499 |  |        | $     | 9,889 |  |   | $     | 3,894 |  |   | $  | 95 | 
|                     |       |       |        |                           |  |       |       |       |  |        |       |       |  |   |       |       |  |   |    |   

Total rent and lease expense was
$0.3 million. $0.1 million and $0.1 million for
the years ended December 31, 2003, 2002 and 2001,
respectively.

In late January 2004, Potlatch voluntarily
reported to the Minnesota Pollution Control Agency (MPCA) a
potential air permit violation at the oriented strand board
facility in Bemidji, Minnesota, relating to the nonoperation of
equipment used to control nitrous oxide emissions from a
wood-fired boiler for a period of approximately 29 months.
Corrective action has been taken, and Potlatch is cooperating
with the MPCA in its investigation. As the investigation is
ongoing, Potlatch has not been advised as to what action the
MPCA may take. Because Potlatch discovered the violation,
corrected the situation and voluntarily reported it to the MPCA
management does not believe any potential fine will be
significant based on previous experience with the MPCA. The MPCA
has not indicated any potential range for a possible fine. No
amount has been accrued in these financial statements.

The site environmental manager reported to
management on August 6, 2004, that soil contamination
appears to remain at the oriented strand board facility in Cook,
Minnesota. This contamination appears to be in the area of the
former primary slasher at the site, from an original discovery
in 2000. Management is in the process of determining the
remediation necessary for the situation and the related costs;
accordingly, no amounts have been accrued.

The hourly employees at the Grand Rapids OSB
facility are covered under a collective bargaining agreement
with the Paper, Allied-Industrial, Chemical and Energy Workers
International Union. The current bargaining agreement is
scheduled to expire on October 14, 2004.

F-77



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002


(10) Related Party Transactions

Purchases
and Sales

Until mid-2002 the Business purchased logs from
Potlatchs Resource segment. Since that time, the
procurement function of the Resource segment has been part of
the Business and, as such, intersegment purchases declined
significantly as a result. For 2003, 2002 and 2001 intersegment
purchases amounted to $0.2 million, $63.5 million and
$87.6 million, respectively. Sales to other Potlatch
segments for each of the years presented were $0.2 million.
The purchases and sales are recorded as costs and revenues of
the Business with a corresponding amount recorded in
parents equity as transfers (to) from corporate, net,
at their exchange amount which is the amount set by the related
parties to the transactions.

(11) Reconciliation to U.S.
GAAP

These financial statements were prepared in
conformity with accounting principles generally accepted in
Canada. To conform the balance sheets to accounting principles
generally accepted in the United States of America
(U.S. GAAP), the following adjustments relating to minimum
pension liabilities were made in US dollars in thousands:

|                      |                     |          |   |            |  |           |   |        |   |  |   |         | 
|--------------------- | ------------------- | -------- | - | ---------- |  | --------- | - | ------ | - |  | - | ------- | 
|                      |                     | Canadian |   |            |  |          
|                      |                     | GAAP     |   | Adjustment |  | U.S. GAAP
|                      |                     |          |   |            |  |          
|At December 31, 2003: |                     |          |   |            |  |           |   |        |   |  |   |        
|                      | Pension assets      |          | $ | 20,708     |  |           | $ | (2,626 | ) |  | $ | 18,082  | 
|                      | Pension liabilities |          |   |           |  |           |   | 3,387  |   |  |   | 3,387   | 
|                      | Future income taxes |          |   | 27,383     |  |           |   | (2,345 | ) |  |   | 25,038  | 
|                      | Parents equity     |          |   | 141,671    |  |           |   | (3,668 | ) |  |   | 138,003 | 
|At December 31, 2002: |                     |          |   |            |  |           |   |        |   |  |   |        
|                      | Pension assets      |          | $ | 17,474     |  |           | $ | (1,762 | ) |  | $ | 15,712  | 
|                      | Pension liabilities |          |   |           |  |           |   | 4,471  |   |  |   | 4,471   | 
|                      | Future income taxes |          |   | 24,274     |  |           |   | (2,431 | ) |  |   | 21,843  | 
|                      | Parents equity     |          |   | 145,712    |  |           |   | (3,802 | ) |  |   | 141,910 | 

Under U.S. GAAP, the Business would
recognize the difference between the unfunded accumulated
pension benefit obligation and the accrued benefit asset as an
additional minimum pension liability, and an equal amount as an
intangible asset. If the additional liability exceeded
unrecognized past service cost, the excess would be recognized
as other comprehensive loss, net of any resulting tax benefits.

F-78



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


December 31, 2003 and 2002




(11) Reconciliation to U.S.
GAAP  (Continued)


Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive
Income, issued under U.S. GAAP, requires the reporting
and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive
income, which incorporates net income, includes all changes in
equity during a period except those resulting from investments
by and distributions to owners. There is currently no
requirement to disclose comprehensive income under Canadian
GAAP. To conform the statements of operations to U.S. GAAP,
amounts would have been recorded for other comprehensive income
(loss) totaling $134 and $(3,802), net of tax, for the years
ended December 31, 2003 and 2002, respectively.

F-79



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Balance Sheets

June 30, 2004 and 2003

(US Dollars in thousands)


Unaudited


|                                                                                        |                                                                          |                      |         |        |        |   |         |        |        | 
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                        |                                                                          | 2004                 |         | 2003  
|                                                                                        |                                                                          |                      |         |       
|Assets                                                                                  |                                                                          |                      |         |        |        |   |         |       
|Current assets:                                                                         |                                                                          |                      |         |        |        |   |         |       
|                                                                                        | Cash                                                                     |                      | $       | 1      |        |   | $       | 1      |       
|                                                                                        | Receivables, net of allowance for doubtful
    accounts of $150 and $150 |                      |         | 18,902 |        |   |         | 11,232 |       
|                                                                                        | Inventories (note 2)                                                     |                      |         | 24,834 |        |   |         | 17,412 |       
|                                                                                        | Prepaid expenses                                                         |                      |         | 552    |        |   |         | 739    |       
|                                                                                        |                                                                          |                      |         |        |        |   |         |       
|                                                                                        |                                                                          | Total current assets |         |        | 44,289 |   |         |        | 29,384 | 
|Land                                                                                    |                                                                          |                      | 981     |        |        |   | 981     |       
|Plant and equipment, at cost less accumulated
    depreciation of $206,123 and $194,166 |                                                                          |                      | 134,175 |        |        |   | 145,469 |       
|Timber permit deposits and roads                                                        |                                                                          |                      | 1,928   |        |        |   | 1,781   |       
|Pension assets (note 5)                                                                 |                                                                          |                      | 22,098  |        |        |   | 19,054  |       
|Other assets                                                                            |                                                                          |                      | 214     |        |        |   | 120     |       
|                                                                                        |                                                                          |                      |         |        |        |   |         |       
|                                                                                        |                                                                          | $                    | 203,685 |        |        | $ | 196,789 |       
|                                                                                        |                                                                          |                      |         |        |        |   |         |       
|Liabilities and Parents Equity                                                         |                                                                          |                      |         |        |        |   |         |       
|Current liabilities:                                                                    |                                                                          |                      |         |        |        |   |         |       
|                                                                                        | Accounts payable and accrued liabilities
    (note 4)                    |                      | $       | 14,376 |        |   | $       | 15,623 |       
|Future income taxes                                                                     |                                                                          |                      | 27,607  |        |        |   | 24,781  |       
|Retiree medical liability (note 5)                                                      |                                                                          |                      | 15,640  |        |        |   | 13,931  |       
|Parents equity                                                                         |                                                                          |                      | 146,062 |        |        |   | 142,454 |       
|Commitments and contingencies (note 6)                                                  |                                                                          |                      |         |        |        |   |         |       
|                                                                                        |                                                                          |                      |         |        |        |   |         |       
|                                                                                        |                                                                          | $                    | 203,685 |        |        | $ | 196,789 |       
|                                                                                        |                                                                          |                      |         |        |        |   |         |       

See accompanying notes to financial
statements.

F-80



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Statements of Operations

Six months ended June 30, 2004 and
2003

(US Dollars in thousands)


Unaudited


|                                       |                                                |                                 |         |         |         |   |         |        |       | 
|-------------------------------------- | ---------------------------------------------- | ------------------------------- | ------- | ------- | ------- | - | ------- | ------ | ----- | 
|                                       |                                                | 2004                            |         | 2003   
|                                       |                                                |                                 |         |        
|Net sales                              |                                                | $                               | 233,458 |         |         | $ | 114,734 |       
|Costs and expenses:                    |                                                |                                 |         |         |         |   |         |       
|                                       | Depreciation and amortization                  |                                 |         | 7,793   |         |   |         | 7,963  |      
|                                       | Materials, labor, and other operating expenses |                                 |         | 106,965 |         |   |         | 99,516 |      
|                                       | Selling, general, and administrative expenses  |                                 |         | 2,833   |         |   |         | 2,266  |      
|                                       |                                                |                                 |         |         |         |   |         |       
|                                       |                                                |                                 | 117,591 |         |         |   | 109,745 |       
|                                       |                                                |                                 |         |         |         |   |         |       
|                                       |                                                | Earnings before taxes on income |         |         | 115,867 |   |         |        | 4,989 | 
|Provision for taxes on income (note 3) |                                                |                                 | 45,767  |         |         |   | 1,946   |       
|                                       |                                                |                                 |         |         |         |   |         |       
|                                       |                                                | Net earnings                    |         | $       | 70,100  |   |         | $      | 3,043 | 
|                                       |                                                |                                 |         |         |         |   |         |       

See accompanying notes to financial
statements.

F-81



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Statements of Cash Flows

Six months ended June 30, 2004 and
2003

(US Dollars in thousands)


Unaudited


|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |        |        |        |  
|------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------- | - | ------ | ------ | ------ | -
|                                      |                                                                                         | 2004                                                                |                                           | 2003   
|                                      |                                                                                         |                                                                     |                                           |        
|Cash flows from operating activities: |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      | Net earnings                                                                            |                                                                     | $                                         | 70,100  |        |         | $ | 3,043  |       
|                                      | Adjustments to reconcile net earnings to net cash
    provided by operating activities: |                                                                     |                                           |         |        |         |   |        |       
|                                      |                                                                                         | Depreciation and amortization                                       |                                           |         | 7,793  |         |   |        | 7,963  |       
|                                      |                                                                                         | Employee benefit plans                                              |                                           |         | (575   | )       |   |        | (1,299 | )     
|                                      |                                                                                         | Future income taxes                                                 |                                           |         | 224    |         |   |        | 507    |       
|                                      |                                                                                         | Increase in receivables                                             |                                           |         | (4,607 | )       |   |        | (1,820 | )     
|                                      |                                                                                         | Increase in inventories                                             |                                           |         | (5,507 | )       |   |        | (532   | )     
|                                      |                                                                                         | Increase in prepaid expenses                                        |                                           |         | (369   | )       |   |        | (584   | )     
|                                      |                                                                                         | Decrease in timber permit deposits                                  |                                           |         | 489    |         |   |        | 1,590  |       
|                                      |                                                                                         | Increase (decrease) in accounts payable and
    accrued liabilities |                                           |         | 768    |         |   |        | (808   | )     
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      |                                                                                         |                                                                     | Net cash provided by operating activities |         |        | 68,316  |   |        |        | 8,060  |  
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|Cash flows from investing activities: |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      | Additions to plant and equipment                                                        |                                                                     |                                           | (2,581  | )      |         |   | (1,713 | )     
|                                      | Other, net                                                                              |                                                                     |                                           | (16     | )      |         |   | (15    | )     
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      |                                                                                         |                                                                     | Net cash used in investing activities     |         |        | (2,597  | ) |        |        | (1,728 | )
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|Cash flows from financing activities: |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      | Transfers to corporate, net                                                             |                                                                     |                                           | (65,719 | )      |         |   | (6,332 | )     
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      |                                                                                         |                                                                     | Net cash used in financing activities     |         |        | (65,719 | ) |        |        | (6,332 | )
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|                                      |                                                                                         |                                                                     | Change in cash                            |         |        |        |   |        |        |       |  
|Balance at beginning of period        |                                                                                         |                                                                     | 1                                         |         |        |         | 1 |       
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       
|Balance at end of period              |                                                                                         | $                                                                   | 1                                         |         |        | $       | 1 |       
|                                      |                                                                                         |                                                                     |                                           |         |        |         |   |       

See accompanying notes to financial
statements.

F-82



---



##### 



THE BUSINESS

(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements

(US Dollars)


June 30, 2004 and 2003


Unaudited


(1) Summary of Principal Accounting
Policies

(a) Background
and Basis of Presentation

The accompanying financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles for the purpose of presenting the Oriented
Strand Board Manufacturing Facilities (the Business or Minnesota
OSB Facilities) of Potlatch Corporation (Potlatch or the Parent)
and the results of its operations, and its cash flows. The
Minnesota OSB facilities are part of a proposed sale to
Ainsworth Lumber Co. Ltd. (Ainsworth). The Minnesota OSB
Facilities of Potlatch are located at Bemidji, Cook and Grand
Rapids, Minnesota. These financial statements do not reflect any
effects of the sale of the Business.

The proposed sale includes the capital assets,
inventory and accounts receivable of the Business (certain
assets), and the assumption of certain contracts directly
associated with the operations (certain liabilities). The
proposed sale does not include the transfer to the buyer of
pension assets or liabilities, and retiree medical and income
tax liabilities (though such assets and liabilities have been
reflected in the accompanying financial statements). The
Business has been managed as part of the Wood Products segment
of Potlatch.

Potlatch did not maintain the Business as a
separate business unit, nor did management analyze the Business
as a separate line of business, and external financial
statements historically have not been prepared. The accompanying
financial statements have been derived from the historical
accounting records of Potlatch and the Minnesota OSB Facilities
in order to present the balance sheets of the Business as of
June 30, 2004 and 2003 and the results of operations, and
cash flows for the periods then ended solely for the purpose of
filing with securities regulatory authorities. The historical
operating results of the Business may not be indicative of its
results in the future or what its results of operations,
financial position and cash flows would have been had it been a
stand-alone company.

The statements of operations for the Business
include allocations for certain costs from the parent level
directly related to the operations of the Business: medical
costs for hourly and salaried active and retired employees,
hourly pension, workers compensation, general liability
and property insurance, salaried payroll costs (payroll taxes,
pension, and other payroll related costs), pro-rata share of
corporate administration expense for accounting, purchasing,
information systems, and research and development. In addition,
the balance sheets include an allocation of pension assets and
retiree medical liabilities. Management believes the
methodologies applied for the allocation of these costs and
assets and liabilities are reasonable. Interest expense incurred
by the Parent has not been allocated to the Business.

Significant changes could have occurred in the
funding and operations of the Business were it to operate as an
independent stand-along entity, including an increase in debt,
which would have a significant impact on its financial position
and results of operations.

These interim unaudited financial statements do
not include all disclosures required by generally accepted
accounting principles for complete financial statements.
Accordingly, the accompanying financial statements should be
read in connection with the Business audited financial
statements as of December 31, 2003 and 2002 and for each of
the years in the three-

F-83



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


June 30, 2004 and 2003


Unaudited




(1) Summary of Principal Accounting
Policies  (Continued)


year period then ended. The Business
accounting policies are in accordance with accounting principles
generally accepted in Canada. In managements opinion,
these unaudited interim financial statements include all
adjustments necessary to present fairly such information. The
results of operations for the interim period are not necessarily
indicative of the results to be expected in future periods.

(b) Parents
Equity

Investments by and advances from Potlatch
represent Potlatchs interest in the recorded net assets of
the Business. Potlatch uses a centralized approach to cash
management and the financing of operations. As a result, none of
Potlatchs cash, cash equivalents, or direct indebtedness
has been allocated to the Business in the financial statements.
All transactions between the Business and Potlatch, including
the allocation of corporate expenses, flow through the
Parents equity account.

(2) Inventories

|                       |  |                |        |          |  |   |        | 
|---------------------- |  | -------------- | ------ | -------- |  | - | ------ | 
|                       |  | June 30,       |        | June 30,
|                       |  | 2004           |        | 2003    
|                       |  |                |        |         
|                       |  |               
|                       |  | (US Dollars in
|                       |  | thousands)    
|Logs                   |  | $              | 13,452 |          |  | $ | 7,262  | 
|Finished goods         |  |                | 4,071  |          |  |   | 3,183  | 
|Materials and supplies |  |                | 7,311  |          |  |   | 6,967  | 
|                       |  |                |        |          |  |   |        | 
|                       |  | $              | 24,834 |          |  | $ | 17,412 | 
|                       |  |                |        |          |  |   |        | 

(3) Taxes on Income

Current and future income taxes were $45,543 and
$224, respectively, for the six-month period ended June 30,
2004, and $1,439 and $507, respectively, for the six-month
period ended June 30, 2003.

The provision for taxes on income is computed by
applying an estimated annual effective tax rate. This rate was
39.5% for the six months ended June 30, 2004, and 39% for
the six months ended June 30, 2003.

F-84



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


June 30, 2004 and 2003


Unaudited


(4) Accounts Payable and Accrued
Liabilities

|                                       |  |                |        |          |  |   |        | 
|-------------------------------------- |  | -------------- | ------ | -------- |  | - | ------ | 
|                                       |  | June 30,       |        | June 30,
|                                       |  | 2004           |        | 2003    
|                                       |  |                |        |         
|                                       |  |               
|                                       |  | (US Dollars in
|                                       |  | thousands)    
|Trade accounts payable                 |  | $              | 5,109  |          |  | $ | 5,550  | 
|Accrued stumpage                       |  |                | 947    |          |  |   | 917    | 
|Accrued wages and employee benefits    |  |                | 5,849  |          |  |   | 5,812  | 
|Accrued taxes, other than income taxes |  |                | 842    |          |  |   | 974    | 
|Accrued freight                        |  |                | 782    |          |  |   | 1,467  | 
|Accrued utilities                      |  |                | 784    |          |  |   | 677    | 
|Other                                  |  |                | 63     |          |  |   | 226    | 
|                                       |  |                |        |          |  |   |        | 
|                                       |  | $              | 14,376 |          |  | $ | 15,623 | 
|                                       |  |                |        |          |  |   |        | 

(5) Employee Benefit Plans

Potlatch maintains defined benefit pension plans
for its salaried and hourly employees. The benefits provided
under the pension plans are funded by a master trust Potlatch
has established for that purpose. Potlatch also provides
benefits under a defined benefit retiree health care and life
insurance plan to eligible salaried employees. Benefits provided
under the health care and life insurance plan are currently
funded by the general assets of Potlatch. The amounts presented
in these financial statements under the balance sheet captions
Pension assets and Retiree medical
liability represent the estimated portions of
Potlatchs pension and retiree medical plans assets
and liabilities that correspond to the employees of the OSB
manufacturing facilities being sold. The allocation of these
amounts has been primarily based upon the percentage of the
Business payroll costs as compared to the overall payroll
costs of Potlatch on a consolidated basis. As stated previously
in these footnotes, no transfer of pension assets or liabilities
and no transfer of retiree medical liabilities will be made as a
result of the proposed sale. Inclusion of pension assets and the
retiree medical liability has been made for the purpose of
presenting financial statements for the Minnesota OSB
Facilities. The management of Potlatch determined that it was
not practical to prepare detailed employee benefit plan footnote
disclosures for the stand alone financial statements of the
Business in a manner that would be consistent with the level of
detail provided in the Parents consolidated financial
statements.

The Business had income (expense) of $(110) and
$624, relating to employee benefit plans for the six-month
periods ended June 30, 2004 and 2003, respectively.

(6) Commitments and
Contingencies

The Business has operating leases for a sales
office and certain equipment in the mills and administration
offices expiring at various dates through 2008.

The following table includes a schedule of future
minimum lease payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one
year

F-85



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


June 30, 2004 and 2003


Unaudited




(6) Commitments and
Contingencies  (Continued)


as of December 31, 2003. It also summarizes
the contractual obligations of the Business as of December 31,
2003. Portions of the amounts shown are reflected in accounts
payable:

|                     |       |       |        |                           |  |       |       |       |  |        |       |       |  |   |       |       |  |   |    |    | 
|-------------------- | ----- | ----- | ------ | ------------------------- |  | ----- | ----- | ----- |  | ------ | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- | 
|                     |       |       |        |                          
|                     |       |       |        | Payments due by period   
|                     |       |       |        |                          
|                     |       |       |        | 1                         |  | 2-3   |       | 4-5   |  | Over 5
|                     |       | Total |        | Year                      |  | Years |       | Years |  | Years 
|                     |       |       |        |                           |  |       |       |       |  |       
|                     |       |       |        |                           |  |      
|                     |       |       |        | (US Dollars in thousands) |  |      
|Operating leases     |       | $     | 2,014  |                           |  | $     | 859   |       |  | $      | 1,149 |       |  | $ | 6     |       |  | $ |   |   
|Purchase obligations |       |       | 21,363 |                           |  |       | 8,640 |       |  |        | 8,740 |       |  |   | 3,888 |       |  |   | 95 |   
|                     |       |       |        |                           |  |       |       |       |  |        |       |       |  |   |       |       |  |   |    |   
|                     | Total |       | $      | 23,377                    |  |       | $     | 9,499 |  |        | $     | 9,889 |  |   | $     | 3,894 |  |   | $  | 95 | 
|                     |       |       |        |                           |  |       |       |       |  |        |       |       |  |   |       |       |  |   |    |   

Total rent and lease expense was
$0.4 million and $0.1 million for the six month
periods ended June 30, 2004 and 2003, respectively.

In late January 2004, Potlatch voluntarily
reported to the Minnesota Pollution Control Agency (MPCA) a
potential air permit violation at the oriented strand board
facility in Bemidji, Minnesota, relating to the nonoperation of
equipment used to control nitrous oxide emissions from a
wood-fired boiler for a period of approximately 29 months.
Corrective action has been taken, and Potlatch is cooperating
with the MPCA in its investigation. As the investigation is
ongoing, Potlatch has not been advised as to what action the
MPCA may take. Because Potlatch discovered the violation,
corrected the situation and voluntarily reported it to the MPCA
management does not believe any potential fine will be
significant based on previous experience with the MPCA. The MPCA
has not indicated any potential range for a possible fine. No
amount has been accrued in these financial statements.

The site environmental manager reported to
management on August 6, 2004, that soil contamination
appears to remain at the oriented strand board facility in Cook,
Minnesota. This contamination appears to be in the area of the
former primary slasher at the site, from an original discovery
in 2000. Management is in the process of determining the
remediation necessary for the situation and the related costs;
accordingly, no amounts have been accrued.

The hourly employees at the Grand Rapids OSB
facility are covered under a collective bargaining agreement
with the Paper, Allied-Industrial, Chemical and Energy Workers
International Union. The current bargaining agreement is
scheduled to expire on October 14, 2004.

(7) Reconciliation to United States
Generally Accepted Accounting Principles

These financial statements were prepared in
conformity with accounting principles generally accepted in
Canada. To conform the balance sheets to accounting principles
generally accepted in the United States of America
(U.S. GAAP), the following adjustments relating to minimum
pension liabilities and major maintenance accruals were made in
U.S. dollars in thousands:

F-86



---



##### 



THE BUSINESS


(Oriented Strand Board Manufacturing


Facilities of Potlatch Corporation)


Notes to Financial Statements 
(Continued)

(US Dollars)


June 30, 2004 and 2003


Unaudited




(7) Reconciliation to United States
Generally Accepted Accounting Principles 
(Continued)


|                  |                     |          |   |            |  |      |   |        |   |  |   |         | 
|----------------- | ------------------- | -------- | - | ---------- |  | ---- | - | ------ | - |  | - | ------- | 
|                  |                     | Canadian |   |            |  | U.S.
|                  |                     | GAAP     |   | Adjustment |  | GAAP
|                  |                     |          |   |            |  |     
|At June 30, 2004: |                     |          |   |            |  |      |   |        |   |  |   |        
|                  | Prepaid expenses    |          | $ | 552        |  |      | $ | 460    |   |  | $ | 1,012   | 
|                  | Pension assets      |          |   | 22,098     |  |      |   | (3,084 | ) |  |   | 19,014  | 
|                  | Pension liabilities |          |   |           |  |      |   | 3,185  |   |  |   | 3,185   | 
|                  | Future income taxes |          |   | 27,607     |  |      |   | (2,445 | ) |  |   | 25,162  | 
|                  | Parents equity     |          |   | 146,062    |  |      |   | (3,364 | ) |  |   | 142,698 | 
|At June 30, 2003: |                     |          |   |            |  |      |   |        |   |  |   |        
|                  | Prepaid expenses    |          | $ | 739        |  |      | $ | 45     |   |  | $ | 784     | 
|                  | Pension assets      |          |   | 19,054     |  |      |   | (2,148 | ) |  |   | 16,906  | 
|                  | Pension liabilities |          |   |           |  |      |   | 3,929  |   |  |   | 3,929   | 
|                  | Future income taxes |          |   | 24,781     |  |      |   | (2,370 | ) |  |   | 22,411  | 
|                  | Parents equity     |          |   | 142,454    |  |      |   | (3,662 | ) |  |   | 138,792 | 

Under U.S. GAAP, the Business would
recognize the difference between the unfunded accumulated
pension benefit obligation and the accrued benefit asset as an
additional minimum pension liability, and an equal amount as an
intangible asset. If the additional liability exceeded
unrecognized past service cost, the excess would be recognized
as other comprehensive loss, net of any resulting tax benefits.

Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive
Income, issued under U.S. GAAP, requires the reporting
and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive
income, which incorporates net income, includes all changes in
equity during a period except those resulting from investments
by and distributions to owners. There is currently no
requirement to disclose comprehensive income under Canadian
GAAP. To conform the statements of operations to Canadian GAAP,
expenses for major maintenance totaling $460 and $45 for the six
months ended June 30, 2004 and 2003, respectively, have
been recognized while amounts recorded for other comprehensive
income (loss) under U.S. GAAP totaling $(155) and $95, net
of tax, for the six months ended June 30, 2004 and 2003,
respectively, have been omitted.

F-87



---



##### 



AINSWORTH LUMBER CO. LTD.

Pro Forma Consolidated Balance Sheet

As at June 30, 2004


(Unaudited, in thousands of dollars)


|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |        | 
|---------------------------------------- | --------------------------------- | --------- | ------- | ------------- |  | ----------- | ------- | ------------ |  | ---------- | ------- |  | -------- | ------- | - | - | --------- | ------ | 
|                                         |                                   |           |         | Minnesota OSB |  |             |         |              |  |           
|                                         |                                   |           |         | Facilities    |  |             |         | Pro Forma   
|                                         |                                   | Ainsworth |         | June 30,      |  | Pro Forma   |         | Consolidated
|                                         |                                   | June 30,  |         | 2004          |  | Adjustments |         | June 30,    
|                                         |                                   | 2004      |         | (Note 2)      |  | (Note 3)    |         | 2004        
|                                         |                                   |           |         |               |  |             |         |             
|                                         |                                   |           |         |               |  |             |         |              |  |           
|ASSETS                                  
|CURRENT ASSETS                           |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         | Cash and cash equivalents         |           | $       | 100,042       |  |             | $       | 1            |  |            | a), b)  |  |          | (24,915 | ) |   | $         | 75,128 | 
|                                         | Accounts receivable               |           |         | 51,478        |  |             |         | 25,342       |  |            |         |  |          |         |   |   |           | 76,820 | 
|                                         | Inventories                       |           |         | 57,303        |  |             |         | 33,295       |  |            |         |  |          |         |   |   |           | 90,598 | 
|                                         | Prepaid expenses                  |           |         | 3,077         |  |             |         | 740          |  |            |         |  |          |         |   |   |           | 3,817  | 
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         |                                   |           | 211,900 |               |  |             | 59,378  |              |  |            |         |  |          |         |   |   | 246,363   |       
|CAPITAL ASSETS                           |                                   |           | 447,042 |               |  |             | 183,789 |              |  | b)(ii)(iv) |         |  | 370,335  |         |   |   | 1,001,166 |       
|OTHER ASSETS                             |                                   |           | 26,128  |               |  |             | 287     |              |  | b)(iii)    |         |  | 14,681   |         |   |   | 41,096    |       
|PENSION ASSETS                           |                                   |           |         |               |  |             | 29,627  |              |  | b)(v)      |         |  | (29,627  | )       |   |   |          |       
|GOODWILL                                 |                                   |           | 91,022  |               |  |             |        |              |  |            |         |  |          |         |   |   | 91,022    |       
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         |                                   | $         | 776,092 |               |  | $           | 273,081 |              |  |            |         |  |          |         |   | $ | 1,379,647 |       
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|CURRENT LIABILITIES                      |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         | Accounts payable                  |           | $       | 26,544        |  |             | $       | 6,850        |  |            | b)(vii) |  |          | (6,850  | ) |   |           | 26,544 | 
|                                         | Accrued liabilities               |           |         | 15,059        |  |             |         | 12,424       |  |            | b)(vii) |  |          | (12,184 | ) |   |           | 15,299 | 
|                                         | Income taxes payable              |           |         | 33,007        |  |             |         |             |  |            |         |  |          |         |   |   |           | 33,007 | 
|                                         | Current portion of long term debt |           |         | 388           |  |             |         |             |  |            |         |  |          |         |   |   |           | 388    | 
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         |                                   |           | 74,998  |               |  |             | 19,274  |              |  |            |         |  |          |         |   |   | 75,238    |       
|REFORESTATION OBLIGATION                 |                                   |           | 4,551   |               |  |             |        |              |  |            |         |  |          |         |   |   | 4,551     |       
|RETIREE MEDICAL LIABILITY                |                                   |           |         |               |  |             | 20,969  |              |  | b)(vi)     |         |  | (20,969  | )       |   |   |          |       
|LONG-TERM DEBT                           |                                   |           | 417,690 |               |  |             |        |              |  | b)(i)      |         |  | 603,315  |         |   |   | 1,021,005 |       
|FUTURE INCOME TAXES                      |                                   |           | 53,100  |               |  |             | 37,013  |              |  | b)(viii)   |         |  | (37,013  | )       |   |   | 53,100    |       
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         |                                   |           | 550,339 |               |  |             | 77,256  |              |  |            |         |  |          |         |   |   | 1,153,894 |       
|SHAREHOLDERS EQUITY                    
|CAPITAL STOCK                            |                                   |           | 55,827  |               |  |             |        |              |  |            |         |  |          |         |   |   | 55,827    |       
|PARENTS EQUITY                          |                                   |           |         |               |  |             | 195,825 |              |  |            |         |  | (195,825 | )       |   |   |          |       
|RETAINED EARNINGS                        |                                   |           | 169,926 |               |  |             |        |              |  |            |         |  |          |         |   |   | 169,926   |       
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         |                                   |           | 225,753 |               |  |             | 195,825 |              |  |            |         |  |          |         |   |   | 225,753   |       
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       
|                                         |                                   | $         | 776,092 |               |  | $           | 273,081 |              |  |            |         |  |          |         |   | $ | 1,379,647 |       
|                                         |                                   |           |         |               |  |             |         |              |  |            |         |  |          |         |   |   |           |       

See accompanying Notes to the Pro Forma
Consolidated Financial Statements

F-88



---



##### 



AINSWORTH LUMBER CO. LTD.

Pro Forma Consolidated Statement of
Operations

Year ended December 31, 2003


(Unaudited, in thousands of dollars except
share and per share data)


|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |         | 
|--------------------------------------------------------------------- | ------------------------------ | ------------ | ------- | ------------- |  | ----------- | ------- | ------------ |  | ------------ | ----- | ----------- |  | ------------ | ------- | ----------- |  | ------------ | ------- | ------- |  | - | ------- | --------- |  |  | -------- | --------- |  |  | ------- | ------ | - | - | --------- | ------- |  |  | -- | -- |  |  | ----- | ------- | - | - | --------- | ------- | 
|                                                                      |                                |              |         | Minnesota OSB |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |          
|                                                                      |                                |              |         | Facilities    |  |             |         |              |  | Pro Forma    |       |             |  |              |         |             |  | Pro Forma    |         |         |  |   |         | Pro Forma
|                                                                      |                                | Ainsworth    |         | Year Ended    |  |             |         | Consolidated |  | Voyageur     |       |             |  | Consolidated |         |             |  | Consolidated
|                                                                      |                                | Year Ended   |         | December 31,  |  | Pro Forma   |         | Year Ended   |  | Year Ended   |       | Pro Forma   |  | Year Ended   |         | Pro Forma   |  | Year Ended  
|                                                                      |                                | December 31, |         | 2003          |  | Adjustments |         | December 31, |  | December 31, |       | Adjustments |  | December 31, |         | Adjustments |  | December 31,
|                                                                      |                                | 2003         |         | (Note 2)      |  | (Note 3)    |         | 2003         |  | 2003         |       | (Note 4)    |  | 2003         |         | (Note 5)    |  | 2003        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |             
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |          
|SALES                                                                 |                                | $            | 541,928 |               |  | $           | 440,693 |              |  |              |       |             |  |              |         |             |  | $            | 982,621 |         |  | $ | 143,691 |           |  |  |          |           |  |  |         |        |   | $ | 1,126,312 |         |  |  |    |    |  |  |       |         |   | $ | 1,126,312 |        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|COSTS AND EXPENSES                                                    |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|                                                                      | Costs of products sold         |              |         | 321,770       |  |             |         | 280,294      |  |              |       |             |  |              |         |             |  |              |         | 602,694 |  |   |         | 85,377    |  |  |          | b)(vi)    |  |  |         | (607   | ) |   |           | 687,464 |  |  |    |    |  |  |       |         |   |   |           | 687,464 | 
|                                                                      | Selling and administration     |              |         | 18,167        |  |             |         | 6,842        |  |              |       |             |  |              |         |             |  |              |         | 25,009  |  |   |         | 6,764     |  |  |          | b)(v)(vi) |  |  |         | (6,614 | ) |   |           | 25,159  |  |  |    |    |  |  |       |         |   |   |           | 25,159  | 
|                                                                      | Amortization of capital assets |              |         | 32,972        |  |             |         | 22,244       |  |              |       | c)(i)(ii)   |  |              |         | 14,369      |  |              |         | 69,585  |  |   |         | 12,156    |  |  |          | b)(i)(ii) |  |  |         | 7,239  |   |   |           | 88,980  |  |  |    |    |  |  |       |         |   |   |           | 88,980  | 
|                                                                      | Write down of capital assets   |              |         | 13,696        |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         | 13,696  |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           | 13,696  |  |  |    |    |  |  |       |         |   |   |           | 13,696  | 
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|                                                                      |                                |              | 386,605 |               |  |             | 310,010 |              |  |              |       |             |  |              |         |             |  |              | 710,984 |         |  |   | 104,297 |           |  |  |          |           |  |  |         |        |   |   | 815,299   |         |  |  |    |    |  |  |       |         |   |   | 815,299   |        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|OPERATING EARNINGS                                                    |                                |              | 155,323 |               |  |             | 130,682 |              |  |              |       |             |  |              |         |             |  |              | 271,637 |         |  |   | 39,394  |           |  |  |          |           |  |  |         |        |   |   | 311,013   |         |  |  |    |    |  |  |       |         |   |   | 311,013   |        
|FINANCE EXPENSE                                                       |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|                                                                      | Interest charges               |              |         | 51,177        |  |             |         |              |  |              |       | c)(iii)     |  |              |         | 41,799      |  |              |         | 92,976  |  |   |         | 201       |  |  |          | b)(iii)   |  |  |         | 10,405 |   |   |           | 103,582 |  |  |    | a) |  |  |       | (18,231 | ) |   |           | 85,351  | 
|                                                                      | Amortization charges           |              |         | 4,867         |  |             |         |              |  |              |       | c)(iv)      |  |              |         | 2,447       |  |              |         | 7,314   |  |   |         |          |  |  |          | b)(iv)    |  |  |         | 1,762  |   |   |           | 9,076   |  |  |    |    |  |  |       |         |   |   |           | 9,076   | 
|                                                                      | Loss on repurchase of debt     |              |         | 81            |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         | 81      |  |   |         |          |  |  |          |           |  |  |         |        |   |   |           | 81      |  |  |    |    |  |  |       |         |   |   |           | 81      | 
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|                                                                      |                                |              | 56,125  |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              | 100,371 |         |  |   | 201     |           |  |  |          |           |  |  |         |        |   |   | 112,739   |         |  |  |    |    |  |  |       |         |   |   | 94,508    |        
|OTHER EXPENSE                                                         |                                |              | 508     |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              | 508     |         |  |   | 1,910   |           |  |  |          |           |  |  |         |        |   |   | 2,418     |         |  |  |    |    |  |  |       |         |   |   | 2,418     |        
|UNREALIZED INCREASE IN THE FAIR VALUE OF
    PREFERRED CLASS A SHARES |                                |              |        |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   | 16,250  |           |  |  | b)(vii)  |           |  |  | (16,250 | )      |   |   |          |         |  |  |    |    |  |  |       |         |   |   |          |        
|FOREIGN EXCHANGE GAIN ON LONG TERM DEBT                               |                                |              | (76,932 | )             |  |             |         |              |  |              |       |             |  |              |         |             |  |              | (76,932 | )       |  |   |        |           |  |  |          |           |  |  |         |        |   |   | (76,932   | )       |  |  |    |    |  |  |       |         |   |   | (76,932   | )      
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|INCOME BEFORE INCOME TAXES                                            |                                |              | 175,622 |               |  |             | 130,682 |              |  |              |       |             |  |              |         |             |  |              | 247,690 |         |  |   | 21,033  |           |  |  |          |           |  |  |         |        |   |   | 272,788   |         |  |  |    |    |  |  |       |         |   |   | 291,019   |        
|INCOME TAX EXPENSE                                                    |                                |              | 51,972  |               |  |             | 50,966  |              |  |              | c)(v) |             |  |              | (20,638 | )           |  |              | 82,300  |         |  |   | 14,034  |           |  |  | b)(viii) |           |  |  | (4,290  | )      |   |   | 92,044    |         |  |  | a) |    |  |  | 6,419 |         |   |   | 98,463    |        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|NET INCOME                                                            |                                | $            | 123,650 |               |  | $           | 79,717  |              |  |              |       |             |  |              |         |             |  | $            | 165,390 |         |  | $ | 6,999   |           |  |  |          |           |  |  |         |        |   | $ | 180,744   |         |  |  |    |    |  |  |       |         |   | $ | 192,556   |        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
    (000s)             |                                |              | 14,559  |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              | 14,559  |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   | 14,559    |         |  |  |    |    |  |  |       |         |   |   | 14,559    |        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        
|BASIC AND DILUTED EARNINGS PER SHARE                                  |                                | $            | 8.49    |               |  |             |         |              |  |              |       |             |  |              |         |             |  | $            | 11.36   |         |  |   |         |           |  |  |          |           |  |  |         |        |   | $ | 12.41     |         |  |  |    |    |  |  |       |         |   | $ | 13.23     |        
|                                                                      |                                |              |         |               |  |             |         |              |  |              |       |             |  |              |         |             |  |              |         |         |  |   |         |           |  |  |          |           |  |  |         |        |   |   |           |         |  |  |    |    |  |  |       |         |   |   |           |        

See accompanying Notes to the Pro Forma
Consolidated Financial Statements

F-89



---



##### 



AINSWORTH LUMBER CO. LTD.

Pro Forma Consolidated Statement of
Operations

Six Months ended June 30, 2004


(Unaudited, in thousands of dollars except
share and per share data)


|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |         | 
|--------------------------------------------------------------------- | ------------------------------ | ---------- | ------- | ------------- |  | ----------- | ------- | ------------ |  | ------------ | ----- | ------------- |  | ----------- | ------- | ------------ |  | ----------- | ------- | ---------- |  | - | ------ | ------ |  | ------------ | ------ | ----- | - |  | -------- | --------- |  |  | ------ | ------ | - | - | ------- | ------- |  |  | -- | -- |  |  | ----- | ------ | - | - | ------- | ------- | 
|                                                                      |                                |            |         | Minnesota OSB |  |             |         |              |  |              |       |               |  | Voyageur    |         |              |  |             |         |            |  |   |        |        |  |             
|                                                                      |                                |            |         | Facilities    |  |             |         |              |  |              |       |               |  | Pro Forma   |         |              |  |             |         |            |  |   |        |        |  | Pro Forma   
|                                                                      |                                | Ainsworth  |         | Six Months    |  |             |         |              |  | Pro Forma    |       | Voyageur      |  | Period from |         |              |  |             |         | Pro Forma  |  |   |        |        |  | Consolidated
|                                                                      |                                | Six Months |         | Ended         |  |             |         | Consolidated |  | Three Months |       | April 1, 2004 |  |             |         | Consolidated |  |             |         | Six Months
|                                                                      |                                | Ended      |         | June 30,      |  | Pro Forma   |         | Six Months   |  | Ended        |       | to May 19,    |  | Pro Forma   |         | Six Months   |  | Pro Forma   |         | Ended     
|                                                                      |                                | June 30,   |         | 2004          |  | Adjustments |         | June 30,     |  | March 31,    |       | 2004          |  | Adjustments |         | June 30,     |  | Adjustments |         | June 30,  
|                                                                      |                                | 2004       |         | (Note 2)      |  | (Note 3)    |         | 2004         |  | 2004         |       | (Note 1c))    |  | (Note 4)    |         | 2004         |  | (Note 5)    |         | 2004      
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |           
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |             
|SALES                                                                 |                                | $          | 431,722 |               |  | $           | 312,512 |              |  |              |       |               |  |             |         |              |  | $           | 744,234 |            |  | $ | 47,842 |        |  | $            | 21,996 |       |   |  |          |           |  |  |        |        |   | $ | 814,072 |         |  |  |    |    |  |  |       |        |   | $ | 814,072 |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|COSTS AND EXPENSES                                                    |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|                                                                      | Costs of products sold         |            |         | 191,424       |  |             |         | 143,186      |  |              |       |               |  |             |         |              |  |             |         | 334,610    |  |   |        | 20,845 |  |              |        | 7,155 |   |  |          | c)(vi)    |  |  |        | (234   | ) |   |         | 362,376 |  |  |    |    |  |  |       |        |   |   |         | 362,376 | 
|                                                                      | Selling and administration     |            |         | 10,016        |  |             |         | 3,792        |  |              |       |               |  |             |         |              |  |             |         | 13,808     |  |   |        | 2,174  |  |              |        | 1,208 |   |  |          | c)(v)(vi) |  |  |        | (3,327 | ) |   |         | 13,863  |  |  |    |    |  |  |       |        |   |   |         | 13,863  | 
|                                                                      | Amortization of capital assets |            |         | 19,146        |  |             |         | 10,432       |  |              |       | d)(i)(ii)     |  |             |         | 7,874        |  |             |         | 37,452     |  |   |        | 2,950  |  |              |        | 1,558 |   |  |          | c)(i)(ii) |  |  |        | 2,425  |   |   |         | 44,385  |  |  |    |    |  |  |       |        |   |   |         | 44,385  | 
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|                                                                      |                                |            | 220,586 |               |  |             | 157,410 |              |  |              |       |               |  |             |         |              |  |             | 385,871 |            |  |   | 25,969 |        |  |              | 9,921  |       |   |  |          |           |  |  |        |        |   |   | 420,624 |         |  |  |    |    |  |  |       |        |   |   | 420,624 |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|OPERATING EARNINGS                                                    |                                |            | 211,136 |               |  |             | 155,102 |              |  |              |       |               |  |             |         |              |  |             | 358,363 |            |  |   | 21,873 |        |  |              | 12,075 |       |   |  |          |           |  |  |        |        |   |   | 393,448 |         |  |  |    |    |  |  |       |        |   |   | 393,448 |        
|FINANCE EXPENSE                                                       |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|                                                                      | Interest charges               |            |         | 16,900        |  |             |         |              |  |              |       | d)(iii)       |  |             |         | 19,962       |  |             |         | 36,862     |  |   |        | 6      |  |              |        | (16   | ) |  |          | c)(iii)   |  |  |        | 2,433  |   |   |         | 39,285  |  |  |    | b) |  |  |       | (2,912 | ) |   |         | 36,373  | 
|                                                                      | Amortization charges           |            |         | 1,257         |  |             |         |              |  |              |       | d)(iv)        |  |             |         | 1,223        |  |             |         | 2,480      |  |   |        |       |  |              |        |      |   |  |          | c)(iv)    |  |  |        | 440    |   |   |         | 2,920   |  |  |    |    |  |  |       |        |   |   |         | 2,920   | 
|                                                                      | Loss on repurchase of debt     |            |         | 106,198       |  |             |         |             |  |              |       |               |  |             |         |              |  |             |         | 106,198    |  |   |        |       |  |              |        |      |   |  |          |           |  |  |        |        |   |   |         | 106,198 |  |  |    |    |  |  |       |        |   |   |         | 106,198 | 
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|                                                                      |                                |            | 124,355 |               |  |             | 155,102 |              |  |              |       |               |  |             |         |              |  |             | 145,541 |            |  |   | 6      |        |  |              | (16    | )     |   |  |          |           |  |  |        |        |   |   | 148,403 |         |  |  |    |    |  |  |       |        |   |   | 145,491 |        
|OTHER (INCOME) EXPENSE                                                |                                |            | (7,076  | )             |  |             |         |              |  |              |       |               |  |             |         |              |  |             | (7,076  | )          |  |   | 307    |        |  |              | (466   | )     |   |  |          |           |  |  |        |        |   |   | (7,235  | )       |  |  |    |    |  |  |       |        |   |   | (7,235  | )      
|UNREALIZED INCREASE IN THE FAIR VALUE OF
    PREFERRED CLASS A SHARES |                                |            |        |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   | 2,016  |        |  |              | 1,036  |       |   |  | c)(vii)  |           |  |  | (3,052 | )      |   |   |        |         |  |  |    |    |  |  |       |        |   |   |        |        
|FOREIGN EXCHANGE LOSS ON LONG-TERM DEBT                               |                                |            | 5,786   |               |  |             |        |              |  |              |       |               |  |             |         |              |  |             | 5,786   |            |  |   |       |        |  |              |       |       |   |  |          |           |  |  |        |        |   |   | 5,786   |         |  |  |    |    |  |  |       |        |   |   | 5,786   |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|(LOSS) INCOME BEFORE INCOME TAXES                                     |                                |            | (88,071 | )             |  |             | 155,102 |              |  |              |       |               |  |             |         |              |  |             | 214,112 |            |  |   | 19,544 |        |  |              | 11,521 |       |   |  |          |           |  |  |        |        |   |   | 246,494 |         |  |  |    |    |  |  |       |        |   |   | 249,406 |        
|INCOME TAX (RECOVERY) EXPENSE                                         |                                |            | 36,465  |               |  |             | 61,265  |              |  |              | d)(v) |               |  |             | (10,798 | )            |  |             | 86,932  |            |  |   | 7,431  |        |  |              | 3,192  |       |   |  | c)(viii) |           |  |  | (611   | )      |   |   | 96,944  |         |  |  | b) |    |  |  | 1,025 |        |   |   | 97,969  |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|NET (LOSS) INCOME                                                     |                                | $          | 51,606  |               |  | $           | 93,838  |              |  |              |       |               |  |             |         |              |  | $           | 127,180 |            |  | $ | 12,113 |        |  | $            | 8,329  |       |   |  |          |           |  |  |        |        |   | $ | 149,550 |         |  |  |    |    |  |  |       |        |   | $ | 151,437 |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
    (000s)             |                                |            | 14,568  |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   | 14,568  |         |  |  |    |    |  |  |       |        |   |   | 14,568  |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        
|BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                           |                                | $          | 3.52    |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   | $ | 10.27   |         |  |  |    |    |  |  |       |        |   | $ | 10.40   |        
|                                                                      |                                |            |         |               |  |             |         |              |  |              |       |               |  |             |         |              |  |             |         |            |  |   |        |        |  |              |        |       |   |  |          |           |  |  |        |        |   |   |         |         |  |  |    |    |  |  |       |        |   |   |         |        

See accompanying Notes to the Pro Forma
Consolidated Financial Statements

F-90



---



##### 



AINSWORTH LUMBER CO. LTD.

Notes to the Pro Forma Consolidated Financial
Statements

(Unaudited)


1) Basis of Presentation

On August 25, 2004, Ainsworth Lumber Co.
Ltd., (the Company) entered into a definitive
agreement with Potlatch Corporation (Potlatch) to
acquire the assets associated with three OSB
manufacturing facilities located in northern Minnesota (the
Minnesota OSB facilities) and related OSB
business at a purchase price of approximately
US$454.7 million (approximately $609.5 million)
(subject to adjustment upon closing) (Note 3).

On April 14, 2004, the Company entered into
a Share Purchase Agreement to acquire all of the outstanding
common and Class A preferred shares of Voyageur Panel
Limited (Voyageur) for a purchase price of
US$206.7 million. The acquisition closed on May 19,
2004 (Note 4).

On March 3, 2004, the Company completed an
offering of US$210 million principal of 6.750% Senior Notes
due March 15, 2014 for the purpose of refinancing
substantially all of its 13.875% Senior Secured Notes due
July 15, 2007 and its 12 1/2% Senior Secured Notes due
July 15, 2007. Prior to this refinancing, the
Companys annual debt servicing obligation was
approximately US$35 million.

The accompanying pro forma consolidated financial
statements have been prepared by management for inclusion in an
Offering Memorandum of the Company relating to the issuance of
US$275 million aggregate principal amount of
7.25% Senior Notes due October 1, 2012 and
US$175 million aggregate principal amount of Senior
Floating Rate Notes with a rate of LIBOR plus 3.75% due
October 1, 2010.

The pro forma consolidated financial statements
include:

a) A pro forma consolidated balance sheet as
at June 30, 2004 prepared from the unaudited consolidated
balance sheet of the Company as at June 30, 2004 and the
unaudited balance sheet of the Minnesota OSB facilities as at
June 30, 2004 after giving effect to the purchase of the
Minnesota OSB facilities pursuant to the Asset Purchase
Agreement together with the debt to be issued to finance the
acquisition. The pro forma balance sheet assumes that the
purchase of the Minnesota OSB facilities and the related
financing of US$450 million occurred on June 30, 2004.

b) A pro forma consolidated statement of
operations for the year ended December 31, 2003 combining
the audited consolidated statement of operations of the Company
for the year ended December 31, 2003 with the audited
statement of operations of the Minnesota OSB facilities for the
year ended December 31, 2003, and the audited statement of
operations of Voyageur for the year ended December 31,
2003, adjusted for the assumptions made giving effect to the
acquisition of the Minnesota OSB facilities as described in
Note 3, the acquisition of Voyageur as described in
Note 4 and the reduction of interest expense arising from
the US$210 million refinancing of Senior Notes as described
in Note 5.

c) A pro forma consolidated statement of
operations for the six months ended June 30, 2004 combining
the unaudited interim consolidated statement of operations of
the Company for the six months ended June 30, 2004 with the
unaudited statement of operations of the Minnesota
OSB facilities for the six months ended June 30, 2004,
the unaudited statement of operations of Voyageur for the three
months ended March 31, 2004, and the pro forma results of
operations of Voyageur for the period from April 1, 2004 to
May 19, 2004, adjusted for the assumptions made giving
effect to the acquisitions as described in Notes 3
and 4, and the reduction of interest expense arising from
the US$210 million refinancing of Senior Notes as described
in Note 5.

F-91



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




1) Basis of
Presentation (Continued)


The pro forma consolidated statements of
operations for the year ended December 31, 2003 and the six
month period ended June 30, 2004 assume that the purchase
of the Minnesota OSB facilities and Voyageur referred to
above and the issues of debt to finance the acquisitions
occurred on January 1, 2003 (Notes 3 and 4).

The pro forma consolidated financial statements
are not necessarily indicative of the actual results that would
have occurred if the transactions had been in effect on the
dates indicated and are not necessarily indicative of what the
actual results will be in the future had the Company, the
Minnesota OSB facilities and Voyageur operated as a single
entity.

2) Summary of Significant Accounting
Policies

The pro forma consolidated financial statements
have been compiled using the significant accounting policies as
set out in the audited consolidated financial statements of the
Company for the year ended December 31, 2003. The
accounting policies of the Minnesota OSB facilities and Voyageur
conform, in all material respects, to those of the Company with
the exception of the following:

Amortization expense

The Company amortizes its oriented strand board
facilities on a units of production basis whereas the Minnesota
OSB facilities and Voyageur amortize on a straight-line basis.
The Company has adjusted amortization expense to harmonize this
accounting policy.

Foreign Currency Translation

The balance sheet for the Minnesota OSB
facilities as at June 30, 2004 is derived from the US$
balance sheet translated into CDN$ at the June 30, 2004
exchange rate posted by the Federal Reserve Bank of New York of
US$0.7459 = $1.00. The US$ statement of operations for the
Minnesota OSB Facilities for the year ended December 31,
2003 has been translated into CDN$ at the average exchange rate
for the year of US$0.7135 = $1.00. The US$ statement of
operations for the Minnesota OSB facilities for the six months
ended June 30, 2004 has been translated into CDN$ at the
average exchange rate for the period of US$0.7470 = $1.00.

F-92



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




|   |                                                                                               
|-- | ----------------------------------------------------------------------------------------------
|3) | Pro Forma Assumptions Related to Acquisition
    and Financing of the Minnesota OSB Facilities

a) Acquisition

The acquisition of the Minnesota OSB facilities
has been accounted for in the accompanying pro forma
consolidated financial statements using the purchase method as
set out below. The amounts allocated to specific assets and
liabilities at June 30, 2004 are as follows:

|                                  |                   |               |       |       | 
|--------------------------------- | ----------------- | ------------- | ----- | ----- | 
|                                  |                   | June 30, 2004
|                                  |                   |              
|                                  |                   | (millions)   
|Net assets acquired at fair value |                   |               |       |      
|                                  | Total assets      |               | $     | 613.7 | 
|                                  | Total liabilities |               |       | 0.2   | 
|                                  |                   |               |       |      
|Total purchase price (i)          |                   | $             | 613.5 |      
|                                  |                   |               |       |      






|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(i) | Includes estimated acquisition costs of
    $4 million and excludes financing costs of
    $14.7 million on the issuance of notes.

The actual allocation of the purchase price will
be based on the assets and liabilities purchased at the
effective date of the acquisition and subject to agreement
between the Company and Potlatch. Accordingly, the actual amount
of each asset and liability will vary from the proforma amounts
and the variations may be material.

This acquisition is being financed with the
issuance of US$275 million aggregate principal amount of
7.25% Senior Notes and US$175 million aggregate
principal amount of Senior Floating Rate Notes with a rate of
LIBOR plus 3.75%.

b) Assumptions for pro forma consolidated
balance sheet as at June 30, 2004.

(i) Senior
Notes



| |                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company will issue an aggregate of
    US$450 million Senior Notes and Senior Floating Rate Notes.
    Using the June 30, 2004 exchange rate posted by the Federal
    Reserve Bank of New York of US$0.7459 = $1.00, the total
    fixed and floating rate notes to be issued of
    US$450 million represents Cdn$603.3 million.

(ii) Investment



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The purchase price of $613.5 million, has
    been allocated to the fair values of the assets and liabilities
    of the Minnesota OSB facilities.

(iii) Financing
costs



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Financing costs of $14.7 million will be
    deferred and amortized over the term of the related debt.

(iv) Acquisition
costs



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Acquisition costs estimated at $4.0 million
    have been added to the cost of the acquisition.

F-93



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




|   |                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------
|3) | Pro Forma Assumptions Related to Acquisition
    and Financing of the Minnesota
    OSB Facilities (Continued)

(v) Pension
Assets



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The Company will not acquire the pension assets
    of $29.6 million as part of the purchase of the Minnesota
    OSB facilities.

(vi) Retiree
Medical Liability



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | The Company will not assume the retiree medical
    liability of $21.0 million as part of the purchase of the
    Minnesota OSB facilities.

(vii) Accounts
Payable and Accrued Liabilities



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company will not assume certain accounts
    payable and accrued liabilities totaling $19.0 million as
    part of the purchase of the Minnesota OSB facilities.

(viii) Future
Income Taxes



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The Company will not assume future income taxes
    of $37.0 million as part of the purchase of the Minnesota
    OSB facilities.

c) Assumptions for pro forma consolidated
statement of operations for the year ended December 31,
2003.



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Amortization expense has been decreased
    by $3.0 million to reflect harmonization of accounting
    policies described in Note 2.                                                         
|
| | (ii) Amortization expense has been increased
    by $17.4 million to reflect the impact of revised carrying
    values of capital assets resulting from the allocation of the
    purchase price.
|
| | (iii) Additional interest expense of
    $41.8 million has been recorded to reflect the
    U.S. $450 million Senior Notes financing, as if it
    occurred on January 1, 2003.                  
|
| | (iv) Amortization of deferred financing
    costs of $2.5 million has been charged to Finance expense.                                                                                           
|
| | (v) A decrease in income tax expense of
    $20.6 million has been recorded to reflect the tax effect
    of items (i) thorough (iv) above.                                                      

d) Assumptions for pro forma consolidated
statement of operations for the six months ended June 30,
2004.



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Amortization expense has been decreased
    by $0.8 million to reflect the harmonization of accounting
    policies described in Note 2.                                                    
|
| | (ii) Amortization expense has been increased
    by $8.7 million to reflect the impact of revised carrying
    values of capital assets resulting from the allocation of the
    purchase price.
|
| | (iii) Additional interest expense of
    $20.0 million has been recorded to reflect the
    U.S.$450 million Senior Notes financing, as if it occurred
    on January 1, 2003.                  
|
| | (iv) Amortization of deferred financing
    costs of $1.2 million has been charged to Finance expense.                                                                                          

F-94



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




|   |                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------
|3) | Pro Forma Assumptions Related to Acquisition
    and Financing of the Minnesota
    OSB Facilities (Continued)



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | (v) A decrease in income tax expense of
    $10.8 million has been recorded to reflect the tax effect
    of items (i) thorough (iv) above.

4) Pro Forma Assumptions Related to
Acquisition and Financing of Voyageur

a) Acquisition

On May 19, 2004, the Company completed the
acquisition of 100% of the voting shares of Voyageur Panel
Limited (Voyageur) for a purchase price of
US$206.7 million (CDN$284.5 million). The acquisition
of Voyageur has been accounted for in the Companys
unaudited consolidated financial statements and the accompanying
pro forma consolidated financial statements using the purchase
method as set out below, and the operating results are included
in the Companys consolidated statement of operations from
the date of acquisition. The amounts allocated to specific
identifiable tangible and intangible assets and liabilities at
May 19, 2004 are as follows:

|                                  |                   |              |       |       | 
|--------------------------------- | ----------------- | ------------ | ----- | ----- | 
|                                  |                   | May 19, 2004
|                                  |                   |             
|                                  |                   | (millions)  
|Net assets acquired at fair value |                   |              |       |      
|                                  | Total assets      |              | $     | 243.3 | 
|                                  | Total liabilities |              |       | 49.7  | 
|                                  |                   |              |       |      
|Net assets acquired               |                   | $            | 193.6 |      
|Goodwill                          |                   |              | 91.0  |      
|                                  |                   |              |       |      
|Total purchase price              |                   | $            | 284.6 |      
|                                  |                   |              |       |      

b) Assumptions for pro forma consolidated
statement of operations for the year ended December 31,
2003.



| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Amortization expense has been increased
    by $0.8 million to reflect harmonization of accounting
    policies described in Note 2.                                                                                                                                                  
|
| | (ii) Amortization expense has been increased
    by $6.4 million to reflect the impact of revised carrying
    values of capital assets resulting from the allocation of the
    purchase price.                                                                                          
|
| | (iii) Additional interest expense of
    $10.4 million has been recorded to reflect the
    U.S. $110 million Senior Notes financing, as if it had
    occurred on January 1, 2003.                                                                                                       
|
| | (iv) Amortization of deferred financing
    costs and debt discount of $1.7 million has been charged to
    Finance expense.                                                                                                                                                              
|
| | (v) Selling and administration has been
    decreased by $5.2 million to reflect sales commissions paid
    by Voyageur for sales made via brokerage services that will no
    longer be paid by the Company, as it does not sell through
    brokers.                                    
|
| | (vi) Management fees of $2.0 million
    ($0.6 million in costs of products sold and
    $1.4 million in selling and administration) for services
    previously provided by significant shareholders under
    contractual terms have been removed, net of the estimated costs
    of the

F-95



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




4) Pro Forma Assumptions Related to
Acquisition and Financing of Voyageur (Continued)




| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Company providing equivalent services. These
    services will be provided within the Companys existing
    management structure.                                                                                                                                                                                                                   
|
| | (vii) The unrealized increase in the fair
    value of preferred Class A shares of $16.3 million has
    been removed for the purposes of preparing the pro forma
    consolidated statement of operations, as this charge would not
    be included in the consolidated statement of operations
    subsequent to the completion of the acquisition.
|
| | (viii) A decrease in income tax expense of
    $4.3 million has been recorded to reflect the tax effect of
    items (i) thorough (vii) above.                                                                                                                                                                                                       

c) Assumptions for pro forma consolidated
statement of operations for the period from January 1 to
May 19, 2004.



| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Amortization expense has been decreased
    by $0.03 million to reflect the harmonization of accounting
    policies described in Note 2.                                                                                                                                                                                                      
|
| | (ii) Amortization expense has been increased
    by $2.5 million to reflect the impact of revised carrying
    values of capital assets resulting from the allocation of the
    purchase price.                                                                                                                                                   
|
| | (iii) Additional interest expense of
    $2.4 million has been recorded to reflect the
    U.S. $110 million Senior Notes financing, as if it had
    occurred on January 1, 2003.                                                                                                                                                                 
|
| | (iv) Amortization of deferred financing
    costs and debt discount of $0.4 million has been charged to
    Finance expense.                                                                                                                                                                                                                       
|
| | (v) Selling and administration has been
    decreased by $2.8 million to reflect sales commissions paid
    by Voyageur for sales made via brokerage services that will no
    longer be paid by the Company, as it does not sell through
    brokers.                                                                                             
|
| | (vi) Management fees of $0.7 million
    ($0.2 million in cost of products sold and
    $0.5 million in selling and administration) for services
    previously provided by significant shareholders under
    contractual terms have been removed. These services will be
    provided within the Companys existing management structure.        
|
| | (vii) The unrealized increase in the fair
    value of preferred Class A shares of $3.1 million has
    been removed for the purposes of preparing the pro forma
    consolidated statement of operations as this charge would not be
    included in the consolidated statement of operations subsequent
    to the completion of the acquisition.
|
| | (viii) A decrease in income tax expense of
    $0.6 million has been recorded to reflect the tax effect of
    items (i) thorough (vii) above.                                                                                                                                                                                                     

F-96



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




|   |                                                                                            
|-- | -------------------------------------------------------------------------------------------
|5) | Pro Forma Assumptions Related to Refinancing
    of Senior Notes Completed on March 3, 2004

On March 3, 2004, the Company completed an
offering of US$210 million principal amount of 6.750%
Senior Notes due March 15, 2014 for the purpose of
refinancing substantially all of its 13.875% Senior Secured
Notes due July 15, 2007 and its 12 1/2% Senior Secured
Notes due July 15, 2007.

The pro forma consolidated statements of
operations reflect the reduced interest expense assuming that
US$210 million of the total outstanding indebtedness was
refinanced on January 1, 2003. No other pro forma
adjustments have been made in respect of this refinancing. The
impact of the refinancing on the statement of operations is as
follows:

a) For the year ended December 31,
2003, interest expense has been decreased by $18.2 million
and income tax expense has been increased by $6.4 million.

b) For the six months ended June 30,
2004, interest expense has been decreased by $2.9 million
and income tax expense has been increased by $1.0 million.



|   |                         
|-- | ------------------------
|6) | U.S. GAAP Reconciliation

The pro forma consolidated financial statements
have been prepared in accordance with Canadian GAAP, which,
in the case of the Company, conforms in all material respects
with U.S. GAAP, except as set forth below:

a) Adjustments to assets, liabilities and
shareholders equity

|                                                                            |  |               |           |  
|--------------------------------------------------------------------------- |  | ------------- | --------- | -
|                                                                            |  | June 30, 2004
|                                                                            |  |              
|Pro forma total assets in accordance with
    Canadian GAAP                 |  | $             | 1,379,647 |  
|Write-off of capitalized start-up costs(1)                                  |  |               | (8,119    | )
|Intangible asset, arising from minimum pension
    liability calculation(2) |  |               | 509       |  
|                                                                            |  |               |           |  
|Pro forma total assets in accordance with
    U.S. GAAP                     |  | $             | 1,372,037 |  
|                                                                            |  |               |           |  

|                                                                                |                                            |   |           |        |  
|------------------------------------------------------------------------------- | ------------------------------------------ | - | --------- | ------ | -
|Pro forma total liabilities in accordance with
    Canadian GAAP                |                                            | $ | 1,153,894 |       
|Future income taxes relating to write-off:
    of capitalized start-up costs(1) |                                            |   | (2,892    | )     
|Minimum pension liability, net of tax effect(2)                                 |                                            |   | 7,273     |       
|                                                                                |                                            |   |           |       
|Pro forma total liabilities in accordance with
    U.S. GAAP                    |                                            | $ | 1,158,275 |       
|                                                                                |                                            |   |           |       
|Pro forma total shareholders equity in
    accordance with Canadian GAAP       |                                            | $ | 225,753   |       
|Change in earnings relating to:                                                 |                                            |   |           |       
|                                                                                | Write-off of capitalized start-up costs(1) |   |           | (5,227 | )
|                                                                                | Accumulated other comprehensive loss(2)    |   |           | (6,764 | )
|                                                                                |                                            |   |           |       
|Pro forma total shareholders equity in
    accordance with U.S. GAAP           |                                            | $ | 213,762   |       
|                                                                                |                                            |   |           |       

F-97



---



##### 



AINSWORTH LUMBER CO. LTD.


Notes to the Pro Forma Consolidated Financial
Statements  (Continued)

(Unaudited)




|   |                                         
|-- | ----------------------------------------
|6) | U.S. GAAP
    Reconciliation (Continued)

b) Adjustments to earnings

|                                                                                          |  |            |         |              |  |   |         | 
|----------------------------------------------------------------------------------------- |  | ---------- | ------- | ------------ |  | - | ------- | 
|                                                                                          |  | Six Months |         | Year        
|                                                                                          |  | Ended      |         | Ended       
|                                                                                          |  | June 30,   |         | December 31,
|                                                                                          |  | 2004       |         | 2003        
|                                                                                          |  |            |         |             
|Pro forma net income in accordance with Canadian
    GAAP                                 |  | $          | 151,437 |              |  | $ | 192,556 | 
|Reversal of amortization of capitalized start-up
    costs, net of future income taxes(1) |  |            | 545     |              |  |   | 910     | 
|                                                                                          |  |            |         |              |  |   |         | 
|Pro forma net income in accordance with
    U.S. GAAP                                     |  | $          | 151,891 |              |  | $ | 193,466 | 
|                                                                                          |  |            |         |              |  |   |         | 
|Pro forma basic and diluted earnings per share in
    accordance with U.S. GAAP           |  | $          | 10.43   |              |  | $ | 13.29   | 
|                                                                                          |  |            |         |              |  |   |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under U.S. GAAP, the direct operating losses
    arising during the start-up phase of the oriented strand board
    facilities, which were capitalized under Canadian GAAP, are
    charged against earnings.                                                                                                                                                                                                                                                        
|   
|(2) | Under U.S. GAAP the Company would recognize
    the difference between the unfunded accumulated pension benefit
    obligation and the accrued benefit asset as an additional
    minimum pension liability, and an equal amount as an intangible
    asset, subject to the following. If the additional liability
    exceeded unrecognized past service cost the excess would be
    recognized as other comprehensive loss, net of any resulting tax
    benefits.

F-98



---



##### 









US$450,000,000



---

(AINSWORTH LOGO)



---

US$275,000,000 7 1/4% Senior Notes
due 2012

US$175,000,000 Senior Floating Rate Notes due
2010





---






---



##### 



PART II

INFORMATION NOT REQUIRED IN
PROSPECTUS

Item 20.     Indemnification
of Directors and Officers

The article (the Articles) of the
Registrant provide that, subject to the Company Act (British
Columbia) and the Articles, the directors shall cause the
Registrant to indemnify: (i) a present or former director
of the Registrant; (ii) a present or former officer of the
Registrant; (iii) a person who acts or has acted as a
director or officer of corporation which is a subsidiary of the
Registrant or (if such person acted at the request of the
Registrant) of any other corporation of which the Registrant is
or was a shareholder (each such corporation referred to herein
as such corporation); and (iv) the respective
heirs and legal representatives of each of the persons
designated in (i) through (iii) of this paragraph,
against all costs, charges and expenses whatsoever, including an
amount paid to settle an action or satisfy a judgment, actually
and reasonably incurred by the person, including an amount paid
to settle an action or satisfy a judgment in a civil, criminal
or administrative action or proceeding to which the person is
made a party by reason of being or having been a director or
officer of the Registrant or such corporation, provided that the
person acted honestly and in good faith with a view to the best
interests of the corporation of which the person is or was a
director or officer and, in the case of a criminal or
administrative action or proceeding provided that the person had
reasonable grounds for believing that his conduct was lawful or
duly authorized. The Registrant shall apply to the Court for all
approvals of the Court which may be required to make any
indemnity referred to in the Articles effective and enforceable.

A policy of directors and officers
liability insurance is maintained by the Registrant which
insures its directors and officers and those of its subsidiaries
against liability incurred by, arising from or against them for
certain of their acts, errors or omissions.

Reference is made to Item 22 for the
undertakings of the Registrant with respect to indemnification
for liabilities arising under the Securities Act of 1933, as
amended (the Securities Act).



|         |                                               
|-------- | ----------------------------------------------
|Item 21. | Exhibits and Financial Statement
    Schedules



| |    |         
| | -- | --------
| | A. | Exhibits

The following exhibits are attached hereto:

|        |      |       |  |                                                                                                                                                                 
|------- | ---- | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |      
|Number  |      | Title
|        |      |      
|        | 3   | .1    |  | Articles of Incorporation of Ainsworth                                                                                                                          
|        | 3   | .2    |  | By-laws of Ainsworth                                                                                                                                            
|        | 3 | .3    |  | Certificate of Amalgamation of Ainsworth
    Engineered Corp.                                                                                                   
|        | 3 | .4    |  | Articles of Association of Ainsworth Engineered
    Corp.                                                                                                       
|        | 3    | .5    |  | Certificate of Formation of Ainsworth Engineered
    (USA), LLC                                                                                                 
|        | 3    | .6    |  | Limited Liability Company Agreement of Ainsworth
    Engineered (USA), LLC                                                                                      
|        | 4    | .1    |  | Indenture dated as of September 22, 2004
    among the Registrant, Ainsworth Engineered Corp. and the Bank of
    New York                                      
|        | 4    | .2    |  | First Supplemental Indenture dated as of
    September 22, 2004 to the Indenture dated as of
    September 22, 2004                                             
|        | 4    | .3    |  | Form of 7 1/4% Senior Note due
    October 1, 2012 (included in Exhibit 4.1)                                                                                    
|        | 4    | .4    |  | Form of Senior Floating Rate Note due
    October 1, 2010 (included in Exhibit 4.1)                                                                             
|        | 4    | .5    |  | Exchange and Registration Rights Agreement, dated
    as of September 22, 2004, among the Registrant, Deutsche
    Bank Securities Inc. and Goldman, Sachs & Co.
|        | #5   | .1    |  | Opinion of Skadden, Arps, Slate, Meagher &
    Flom LLP as to the legality of the securities offered hereby                                                     
|        | #5   | .2    |  | Opinion of Borden Ladner Gervais LLP as to the
    legality of the issuance of the securities                                                                   
|        | #5   | .3    |  | Opinion of Stewart McKelvey Stirling Scales as to
    the legality of the issuance of the guarantee by Ainsworth
    Engineered Corp.                           

II-1



---



##### 



|        |      |       |  |                                                                                                                                                                                                                                           
|------- | ---- | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |      
|Number  |      | Title
|        |      |      
|        | *10  | .1    |  | Memorandum of Agreement dated December 9,
    1999, between the Registrant and Grant Forest Products Corp.                                                                                                                                
|        | 10 | .2    |  | Promissory Note in favor of the Registrant from
    Snow Mtn. Contracting Ltd. in the amount of Cdn$554,216, dated
    February 12, 2002                                                                                                  
|        | 10 | .3    |  | Management and Consulting Agreement between the
    Registrant and 2468 Holdings Ltd., dated April 25, 1999                                                                                                                               
|        | 10  | .4    |  | Pulpwood Agreement No. 16, dated
    April 26, 1990, and made between the Minister of Forests of
    British Columbia, on behalf of Her Majesty the Queen in Right of
    the Province of British Columbia and the Registrant, as amended.
|        | *10  | .5    |  | Forest License A18700, dated March 24, 1998,
    and made between The Regional Manager, on behalf of Her Majesty
    the Queen in the Right of the Province of British Columbia and
    the Registrant                                    
|        | 10 | .6    |  | Letter Agreement with the Province of Alberta,
    dated July 16, 1999, with respect to High Level Timber
    Allocation                                                                                                                  
|        | 10  | .7    |  | Deciduous Timber Allocation No. DTAF 510001
    with respect to High Level                                                                                                                                                                
|        | 10 | .8    |  | Deciduous Timber Allocation No. DTAF 110001
    with respect to High Level                                                                                                                                                                
|        | 10 | .9    |  | Deciduous Timber Allocation No. DTAF 110002
    with respect to High Level                                                                                                                                                                
|        | 10 | .10   |  | Forest Management Agreement, dated June 25,
    2002, and made between Her Majesty the Queen in the Right of the
    Province of Alberta, Tolko Industries Ltd. and Footner Forest
    Products Ltd.                                      
|        | *10  | .11   |  | Amended Deciduous Timber Allocation No. DTAC
    910001 with respect to Grande Prairie                                                                                                                                                    
|        | 10 | .12   |  | Deciduous Timber Permit DTPG 910001 with respect
    to Grande Prairie                                                                                                                                                                    
|        | **10 | .13   |  | Security Agreement and Floating Charge dated
    February 12, 2001 between Steen River and the Trust Company
    of Bank of Montreal, as trustee (the Security
    Trustee)                                                             
|        | **10 | .14   |  | Security Pledge Agreement dated February 12,
    2001 between the Company and the Security trustee                                                                                                                                        
|        | **10 | .15   |  | Assignment of Agreement dated February 12,
    2001 between the Company and Steen River, as borrowers and the
    Security Trustee                                                                                                        
|        | 10  | .16   |  | Indenture dated as of July 10, 1997, among
    Ainsworth Lumber Co. Ltd., Ainsworth Lumber Inc. and Bank of
    Montreal Trust Company                                                                                                    
|        | **10 | .17   |  | First Supplemental Indenture, dated as of
    February 14, 2000, to the Indenture dated as of
    July 10, 1997                                                                                                                           
|        | 10 | .18   |  | Second Supplemental Indenture, dated as of
    December 20, 2001 to the Indenture dated as of
    July 10, 1997                                                                                                                           
|        | 10 | .19   |  | Third Supplemental Indenture dated as of
    February 27, 2004 to the Indenture dated as of
    July 10, 1997                                                                                                                             
|        | 10 | .20   |  | Fourth Supplemental Indenture dated as of
    May 19, 2004 to the Indenture dated as of July 10, 1997                                                                                                                                     
|        | 10   | .21   |  | Fifth Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    July 10, 1997                                                                                                                          
|        | 10 | .22   |  | Indenture dated as of December 20, 2001,
    among Ainsworth Lumber Co. Ltd., Steen River Forest Products
    Ltd. And the Bank of Nova Scotia Trust Company of New York                                                                  
|        | 10 | .23   |  | First Supplemental Indenture, dated as of
    February 27, 2004 to the Indenture dated as of
    December 20, 2001                                                                                                                        
|        | 10 | .24   |  | Second Supplemental Indenture, dated as of
    May 19, 2004 to the Indenture dated as of December 20,
    2001                                                                                                                            
|        | 10   | .25   |  | Form of Third Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    December 20, 2001                                                                                                              
|        | 10 | .26   |  | Indenture dated as of March 3, 2004 between
    Ainsworth Lumber Co. Ltd and The Bank of New York                                                                                                                                         
|        | 10 | .27   |  | First Supplemental Indenture, dated as of
    May 19, 2004 to the Indenture dated as of March 3, 2004                                                                                                                                     
|        | 10   | .28   |  | Second Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    March 3, 2004                                                                                                                         

II-2



---



##### 



|        |       |       |  |                                                                                                                                                                                                                                                                            
|------- | ----- | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |      
|Number  |       | Title
|        |       |      
|        | 10  | .29   |  | Indenture, dated as of May 19, 2014, between
    the Registrant and The Bank of New York                                                                                                                                                                                   
|        | 10  | .30   |  | First Supplemental Indenture, dated as of
    May 19, 2004, to the Indenture dated as of May 19, 2004                                                                                                                                                                      
|        | 10    | .31   |  | Second Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    May 19, 2004                                                                                                                                                           
|        | **10  | .32   |  | Loan Agreement dated February 12, 2001
    between the Company and Steen River, as borrowers, and HSBC
    Capital (Canada) Inc. and B.C. Pacific Capital Corporation, as
    lenders                                                                                      
|        | ***10 | .33   |  | Loan Agreement dated March 15, 2004 between
    Ainsworth Lumber Co. Ltd. And GMAC Commercial Finance
    Corporation  Canada                                                                                                                                             
|        | ***10 | .34   |  | Share Purchase Agreement dated April 14,
    2004, among Boise Cascade Corporation Abitibi-Consolidated
    Company of Canada, the Northwestern Mutual Life Insurance
    Company, Allstate Insurance Company, and Voyageur Panel Limited
    and Ainsworth Lumber Co. Ltd.
|        | 10    | .35   |  | Asset Purchase Agreement, dated as of
    August 25, 2004, between Ainsworth Lumber Co. Ltd. and
    Potlatch Corporation                                                                                                                                                  
|        | ***21 | .1    |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                             
|        | 23    | .1    |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                           
|        | 23    | .2    |  | Consent of KPMG LLP (Canada)                                                                                                                                                                                                                                               
|        | 23    | .3    |  | Consent of KPMG LLP (USA)                                                                                                                                                                                                                                                  
|        | 23    | .4    |  | Consent of Skadden, Arps, Slate, Meagher &
    Flom LLP (included in Exhibit 5.1)                                                                                                                                                                                          
|        | 23    | .5    |  | Consent of Borden, Ladner Gervais LLP (included
    in Exhibit 5.2)                                                                                                                                                                                                        
|        | 23    | .6    |  | Consent of Stewart McKelvey Stirling Scales
    (included in Exhibit 5.3)                                                                                                                                                                                                  
|        | 24    | .1    |  | Powers of Attorney (contained on the signature
    pages of this Registration Statement)                                                                                                                                                                                   
|        | 25    | .1    |  | Form T-1 Statement of Eligibility of the
    Trustee (separately bound)                                                                                                                                                                                                    
|        | 99    | .1    |  | Form of Letter of Transmittal                                                                                                                                                                                                                                              
|        | 99    | .2    |  | Form of Notice of Guaranteed Delivery                                                                                                                                                                                                                                      
|        | 99    | .3    |  | Form of Letters to Brokers, Dealers, Commercial
    Banks, Trust Companies and other Nominees                                                                                                                                                                              
|        | 99    | .4    |  | Form of Brokers Letter to Clients                                                                                                                                                                                                                                         
|        | 99    | .5    |  | Form of Instructions to Registered Holder                                                                                                                                                                                                                                  



---



| |   |                          
| | - | -------------------------
| | # | To be filed by amendment.



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Incorporated by reference to the
    Registrants Annual Report on Form 20-F for the fiscal
    year ended December 31, 1999, filed with the Commission on
    May 19, 2000.



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Incorporated by reference to the
    Registrants Annual Report on Form 20-F for the fiscal
    year ended December 31, 2000, filed with the Commission on
    June 8, 2001.



| |     |                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *** | Incorporated by reference to the
    Registrants Annual Report on Form 20-F for the fiscal
    year ended December 31, 2003, filed with the Commission on
    May 26, 2004.



| |    |                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Incorporated by reference to Amendment No. 2
    to the Registration Statement on Form F-4, filed by the
    Registrant and Ainsworth Lumber Inc. on October 29, 1997
    (No. 333-7346).         
|
| |   | Incorporated by reference to Amendment No. 3
    to the Registration Statement on Form F-4 filed by the
    Registrant and Steen River Forest Products Ltd. on
    April 16, 2002 (No. 333-83230).
|
| |  | Incorporated by reference to the Registration
    Statement on Form F-4, filed by the Registrant on
    June 2, 2004 (No. 333-116068).                                                            
|
| |  | Incorporated by reference to Amendment No. 1
    to the Registration Statement on Form F-4, filed by the
    Registrant and Ainsworth Engineered Corp. on July 15, 2004
    (No. 333-116068)      

II-3



---



##### 





| |    |                              
| | -- | -----------------------------
| | B. | Financial Statement Schedules



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules are omitted because they are not
    applicable or the required information is shown in our
    consolidated financial statements and related notes.



|         |             
|-------- | ------------
|Item 22. | Undertakings



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Insofar as indemnification for
    liabilities arising under the Securities Act of 1933 may be
    permitted to directors, officers and controlling persons of the
    registrants pursuant to the foregoing provisions, or otherwise,
    the registrants have been advised that in the opinion of the
    Securities and Exchange Commission such indemnification is
    against public policy as expressed in the Act and is, therefore,
    unenforceable. In the event that a claim for indemnification
    against such liabilities (other than the payment by the
    Registrants of expenses incurred or paid by a director, officer
    or controlling person of the Registrants in the successful
    defense of any action, suit or proceeding) is asserted by such
    director, officer or controlling person in connection with the
    securities being registered, the Registrants will, unless in the
    opinion of its counsel the matter has been settled by
    controlling precedent, submit to a court of appropriate
    jurisdiction the question whether such indemnification by it is
    against public policy as expressed in the Act and will be
    governed by the final adjudication of such issue.
|
| | (b) The undersigned registrant hereby
    undertakes: (i) to respond to requests for information that
    is incorporated by reference into the prospectus pursuant to
    Item 4, 10(b), 11, or 13 of this form, within one business
    day of receipt of such request, and to send the incorporated
    documents by first class mail or other equally prompt means; and
    (ii) to arrange or provide for a facility in the U.S. for
    the purpose of responding to such requests. The undertaking in
    subparagraph (i) above includes information contained in
    documents files subsequent to the effective date of the
    registration statement through the date of responding to the
    request.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (c) The undersigned registrant hereby
    undertakes to supply by means of a post-effective amendment all
    information concerning a transaction and the company being
    acquired involved therein, that was not the subject of and
    included in the registration statement when it became effective.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

II-4



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities
Act, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, Province of British
Columbia, Canada, on October 18, 2004.



| |                          
| | -------------------------
| | AINSWORTH LUMBER CO. LTD.



| |     |                 
| | --- | ----------------
| | By: | /s/ ROBERT ALLEN

| |                           
| | --------------------------
| |                           
| | Robert Allen              
| | Chief Financial Officer   
|
| | AINSWORTH ENGINEERED CORP.



| |     |                 
| | --- | ----------------
| | By: | /s/ ROBERT ALLEN

| |                                
| | -------------------------------
| |                                
| | Robert Allen                   
| | Chief Financial Officer        
|
| | AINSWORTH ENGINEERED (USA), LLC



| |     |                           
| | --- | --------------------------
| | By: | /s/ CATHERINE E. AINSWORTH

| |                       
| | ----------------------
| |                       
| | Catherine E. Ainsworth
| | President             

II-5



---



##### 



POWERS OF ATTORNEY

KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that
each officer or director of Ainsworth Lumber Co. Ltd. whose
signature appears below constitutes and appoints Catherine E.
Ainsworth and Robert Allen, and each of them, with full power to
act without the other, his or her true and lawful
attorneys-in-fact and agents, with full and several power of
substitution, for him and her and in his or her name, place and
stead, in any and all capacities, to execute any or all
amendments, including post-effective amendments, and supplements
to this registration statement and any subsequent registration
statement for the same offering which may be filed under
Rule 462(b), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as they, he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Act, this registration statement has been signed below by or on
behalf of the following persons in the capacities indicated and
on October 18, 2004.

|                                                 |  |                                                                                                                              |  | 
|------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------- |  | 
|                                                 |  |                                                                                                                             
|Signature                                        |  | Title                                                                                                                       
|                                                 |  |                                                                                                                             
|                                                
|/s/ BRIAN E. AINSWORTHBrian E. Ainsworth         |  | Chairman and Chief Executive Officer, Director
    (Principal Executive Officer)                                            
|                                                
|D. Allen Ainsworth                               |  | President and Director                                                                                                      
|                                                
|/s/ ROBERT ALLENRobert Allen                     |  | Senior Vice-President and Chief Financial
    Officer
    (Principal Financial Officer and
    Principal Accounting Officer)
|                                                
|/s/ CATHERINE E. AINSWORTHCatherine E. Ainsworth |  | Chief Operating Officer & Corporate Secretary                                                                               
|                                                
|/s/ DAVID AINSWORTHDavid Ainsworth               |  | Director                                                                                                                    
|                                                
|/s/ SUSAN AINSWORTHSusan Ainsworth               |  | Director                                                                                                                    
|                                                
|/s/ K. GORDON GREENK. Gordon Green               |  | Director                                                                                                                    
|                                                
|/s/ MORLEY KOFFMANMorley Koffman                 |  | Director                                                                                                                    
|                                                
|/s/ W. GORDON LANCASTERW. Gordon Lancaster       |  | Director                                                                                                                    
|                                                
|/s/ RON ANDERSONRon Anderson                     |  | Director                                                                                                                    

II-6



---



##### 



AUTHORIZED U.S. REPRESENTATIVE

Pursuant to the requirements of Section 6(a)
of the Securities Act, the authorized representative has duly
caused this registration statement to be signed on its behalf by
the undersigned, solely in its capacity as the duly authorized
representative of Ainsworth Lumber Co. Ltd. in the United
States, in the City of Newark, State of Delaware, on
October 18, 2004.



| |                                          
| | -----------------------------------------
| | PUGLISI & ASSOCIATES                     
| | (Authorized United States Representative)



| |     |                      
| | --- | ---------------------
| | By: | /s/ DONALD J. PUGLISI

| |                  
| | -----------------
| |                  
| | Donald J. Puglisi
| | Managing Director

II-7



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities
Act, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, Province of British
Columbia, Canada, on October 18, 2004.



| |                           
| | --------------------------
| | AINSWORTH ENGINEERED CORP.



| |     |                 
| | --- | ----------------
| | By: | /s/ ROBERT ALLEN

| |                        
| | -----------------------
| |                        
| | Robert Allen           
| | Chief Financial Officer

II-8



---



##### 



POWERS OF ATTORNEY

KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that
each officer or director of Ainsworth Engineered Corp. whose
signature appears below constitutes and appoints Catherine E.
Ainsworth and Robert Allen, and each of them, with full power to
act without the other, his or her true and lawful
attorneys-in-fact and agents, with full and several power of
substitution, for him and her and in his or her name, place and
stead, in any and all capacities, to execute any or all
amendments, including post-effective amendments, and supplements
to this registration statement and any subsequent registration
statement for the same offering which may be filed under
Rule 462(b), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as they, he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Act, this registration statement has been signed below by or on
behalf of the following persons in the capacities indicated and
on October 18, 2004.

|                                                 |  |                                                                                                |  | 
|------------------------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | 
|                                                 |  |                                                                                               
|Signature                                        |  | Title                                                                                         
|                                                 |  |                                                                                               
|                                                
|/s/ BRIAN E. AINSWORTHBrian E. Ainsworth         |  | President and Director
    (Principal Executive Officer)                                      
|                                                
|/s/ D. MICHAEL AINSWORTHD. Michael Ainsworth     |  | Executive Vice President                                                                      
|                                                
|/s/ ROBERT ALLENRobert Allen                     |  | Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer)
|                                                
|/s/ CATHERINE E. AINSWORTHCatherine E. Ainsworth |  | Secretary and Director                                                                        

II-9



---



##### 



AUTHORIZED U.S. REPRESENTATIVE

Pursuant to the requirements of Section 6(a)
of the Securities Act, the authorized representative has duly
caused this registration statement to be signed on its behalf by
the undersigned, solely in its capacity as the duly authorized
representative of Ainsworth Engineered Corp. in the United
States, in the City of Newark, State of Delaware, on
October 18, 2004.



| |                                          
| | -----------------------------------------
| | PUGLISI & ASSOCIATES                     
| | (Authorized United States Representative)



| |     |                      
| | --- | ---------------------
| | By: | /s/ DONALD J. PUGLISI

| |                  
| | -----------------
| |                  
| | Donald J. Puglisi
| | Managing Director

II-10



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities
Act, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, Province of British
Columbia, Canada, on October 18, 2004.



| |                                
| | -------------------------------
| | AINSWORTH ENGINEERED (USA), LLC



| |     |                           
| | --- | --------------------------
| | By: | /s/ CATHERINE E. AINSWORTH

| |                       
| | ----------------------
| |                       
| | Catherine E. Ainsworth
| | President             

II-11



---



##### 



POWERS OF ATTORNEY

KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that
each officer or director of Ainsworth Engineered (USA), LLC
whose signature appears below constitutes and appoints Catherine
E. Ainsworth and Robert Allen, and each of them, with full power
to act without the other, his or her true and lawful
attorneys-in-fact and agents, with full and several power of
substitution, for him and her and in his or her name, place and
stead, in any and all capacities, to execute any or all
amendments, including post-effective amendments, and supplements
to this registration statement and any subsequent registration
statement for the same offering which may be filed under
Rule 462(b), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as they, he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Act, this registration statement has been signed below by or on
behalf of the following persons in the capacities indicated and
on October 18, 2004.

|                                                 |  |                                                                                  |  | 
|------------------------------------------------ |  | -------------------------------------------------------------------------------- |  | 
|                                                 |  |                                                                                 
|Signature                                        |  | Title                                                                           
|                                                 |  |                                                                                 
|                                                
|/s/ CATHERINE E. AINSWORTHCatherine E. Ainsworth |  | President
    (Principal Executive Officer)                                     
|                                                
|/s/ ROBERT ALLENRobert Allen                     |  | Treasurer
    (Principal Financial Officer and
    Principal Accounting Officer)

II-12



---



##### 



AUTHORIZED U.S. REPRESENTATIVE

Pursuant to the requirements of Section 6(a)
of the Securities Act, the authorized representative has duly
caused this registration statement to be signed on its behalf by
the undersigned, solely in its capacity as the duly authorized
representative of Ainsworth Engineered (USA), LLC in the United
States, in the City of Newark, State of Delaware, on
October 18, 2004.



| |                                          
| | -----------------------------------------
| | PUGLISI & ASSOCIATES                     
| | (Authorized United States Representative)



| |     |                      
| | --- | ---------------------
| | By: | /s/ DONALD J. PUGLISI

| |                  
| | -----------------
| |                  
| | Donald J. Puglisi
| | Managing Director

II-13



---



##### 



EXHIBIT INDEX

|        |      |             |  |                                                                                                                                                                                                                                           
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3   | .1          |  | Articles of Incorporation of Ainsworth                                                                                                                                                                                                    
|        | 3   | .2          |  | By-laws of Ainsworth                                                                                                                                                                                                                      
|        | 3 | .3          |  | Certificate of Amalgamation of Ainsworth
    Engineered Corp.                                                                                                                                                                             
|        | 3 | .4          |  | Articles of Association of Ainsworth Engineered
    Corp.                                                                                                                                                                                 
|        | 3    | .5          |  | Certificate of Formation of Ainsworth Engineered
    (USA), LLC                                                                                                                                                                           
|        | 3    | .6          |  | Limited Liability Company Agreement of Ainsworth
    Engineered (USA), LLC                                                                                                                                                                
|        | 4    | .1          |  | Indenture dated as of September 22, 2004
    among the Registrant, Ainsworth Engineered Corp. and the Bank of
    New York                                                                                                                
|        | 4    | .2          |  | First Supplemental Indenture dated as of
    September 22, 2004 to the Indenture dated as of
    September 22, 2004                                                                                                                       
|        | 4    | .3          |  | Form of 7 1/4% Senior Note due
    October 1, 2012 (included in Exhibit 4.1)                                                                                                                                                              
|        | 4    | .4          |  | Form of Senior Floating Rate Note due
    October 1, 2010 (included in Exhibit 4.1)                                                                                                                                                       
|        | 4    | .5          |  | Exchange and Registration Rights Agreement, dated
    as of September 22, 2004, among the Registrant, Deutsche
    Bank Securities Inc. and Goldman, Sachs & Co.                                                                          
|        | #5   | .1          |  | Opinion of Skadden, Arps, Slate, Meagher &
    Flom LLP as to the legality of the securities offered hereby                                                                                                                               
|        | #5   | .2          |  | Opinion of Borden Ladner Gervais LLP as to the
    legality of the issuance of the securities                                                                                                                                             
|        | #5   | .3          |  | Opinion of Stewart McKelvey Stirling Scales as to
    the legality of the issuance of the guarantee by Ainsworth
    Engineered Corp.                                                                                                     
|        | *10  | .1          |  | Memorandum of Agreement dated December 9,
    1999, between the Registrant and Grant Forest Products Corp.                                                                                                                                
|        | 10 | .2          |  | Promissory Note in favor of the Registrant from
    Snow Mtn. Contracting Ltd. in the amount of Cdn$554,216, dated
    February 12, 2002                                                                                                  
|        | 10 | .3          |  | Management and Consulting Agreement between the
    Registrant and 2468 Holdings Ltd., dated April 25, 1999                                                                                                                               
|        | 10  | .4          |  | Pulpwood Agreement No. 16, dated
    April 26, 1990, and made between the Minister of Forests of
    British Columbia, on behalf of Her Majesty the Queen in Right of
    the Province of British Columbia and the Registrant, as amended.
|        | *10  | .5          |  | Forest License A18700, dated March 24, 1998,
    and made between The Regional Manager, on behalf of Her Majesty
    the Queen in the Right of the Province of British Columbia and
    the Registrant                                    
|        | 10 | .6          |  | Letter Agreement with the Province of Alberta,
    dated July 16, 1999, with respect to High Level Timber
    Allocation                                                                                                                  
|        | 10 | .7          |  | Deciduous Timber Allocation No. DTAF 510001
    with respect to High Level                                                                                                                                                                
|        | 10 | .8          |  | Deciduous Timber Allocation No. DTAF 110001
    with respect to High Level                                                                                                                                                                
|        | 10 | .9          |  | Deciduous Timber Allocation No. DTAF 110002
    with respect to High Level                                                                                                                                                                
|        | 10 | .10         |  | Forest Management Agreement, dated June 25,
    2002, and made between Her Majesty the Queen in the Right of the
    Province of Alberta, Tolko Industries Ltd. and Footner Forest
    Products Ltd.                                      
|        | *10  | .11         |  | Amended Deciduous Timber Allocation No. DTAC
    910001 with respect to Grande Prairie                                                                                                                                                    
|        | 10 | .12         |  | Deciduous Timber Permit DTPG 910001 with respect
    to Grande Prairie                                                                                                                                                                    
|        | **10 | .13         |  | Security Agreement and Floating Charge dated
    February 12, 2001 between Steen River and the Trust Company
    of Bank of Montreal, as trustee (the Security
    Trustee)                                                             
|        | **10 | .14         |  | Security Pledge Agreement dated February 12,
    2001 between the Company and the Security trustee                                                                                                                                        
|        | **10 | .15         |  | Assignment of Agreement dated February 12,
    2001 between the Company and Steen River, as borrowers and the
    Security Trustee                                                                                                        



---



##### 



|        |       |             |  |                                                                                                                                                                                                                                                                            
|------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10   | .16         |  | Indenture dated as of July 10, 1997, among
    Ainsworth Lumber Co. Ltd., Ainsworth Lumber Inc. and Bank of
    Montreal Trust Company                                                                                                                                     
|        | **10  | .17         |  | First Supplemental Indenture, dated as of
    February 14, 2000, to the Indenture dated as of
    July 10, 1997                                                                                                                                                            
|        | 10  | .18         |  | Second Supplemental Indenture, dated as of
    December 20, 2001 to the Indenture dated as of
    July 10, 1997                                                                                                                                                            
|        | 10  | .19         |  | Third Supplemental Indenture dated as of
    February 27, 2004 to the Indenture dated as of
    July 10, 1997                                                                                                                                                              
|        | 10  | .20         |  | Fourth Supplemental Indenture dated as of
    May 19, 2004 to the Indenture dated as of July 10, 1997                                                                                                                                                                      
|        | 10    | .21         |  | Fifth Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    July 10, 1997                                                                                                                                                           
|        | 10  | .22         |  | Indenture dated as of December 20, 2001,
    among Ainsworth Lumber Co. Ltd., Steen River Forest Products
    Ltd. And the Bank of Nova Scotia Trust Company of New York                                                                                                   
|        | 10  | .23         |  | First Supplemental Indenture, dated as of
    February 27, 2004 to the Indenture dated as of
    December 20, 2001                                                                                                                                                         
|        | 10  | .24         |  | Second Supplemental Indenture, dated as of
    May 19, 2004 to the Indenture dated as of December 20,
    2001                                                                                                                                                             
|        | 10    | .25         |  | Form of Third Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    December 20, 2001                                                                                                                                               
|        | 10  | .26         |  | Indenture dated as of March 3, 2004 between
    Ainsworth Lumber Co. Ltd and The Bank of New York                                                                                                                                                                          
|        | 10  | .27         |  | First Supplemental Indenture, dated as of
    May 19, 2004 to the Indenture dated as of March 3, 2004                                                                                                                                                                      
|        | 10    | .28         |  | Second Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    March 3, 2004                                                                                                                                                          
|        | 10  | .29         |  | Indenture, dated as of May 19, 2014, between
    the Registrant and The Bank of New York                                                                                                                                                                                   
|        | 10  | .30         |  | First Supplemental Indenture, dated as of
    May 19, 2004, to the Indenture dated as of May 19, 2004                                                                                                                                                                      
|        | 10    | .31         |  | Second Supplemental Indenture, dated as of
    September 22, 2004, to the Indenture dated as of
    May 19, 2004                                                                                                                                                           
|        | **10  | .32         |  | Loan Agreement dated February 12, 2001
    between the Company and Steen River, as borrowers, and HSBC
    Capital (Canada) Inc. and B.C. Pacific Capital Corporation, as
    lenders                                                                                      
|        | ***10 | .33         |  | Loan Agreement dated March 15, 2004 between
    Ainsworth Lumber Co. Ltd. And GMAC Commercial Finance
    Corporation  Canada                                                                                                                                             
|        | ***10 | .34         |  | Share Purchase Agreement dated April 14,
    2004, among Boise Cascade Corporation Abitibi-Consolidated
    Company of Canada, the Northwestern Mutual Life Insurance
    Company, Allstate Insurance Company, and Voyageur Panel Limited
    and Ainsworth Lumber Co. Ltd.
|        | 10    | .35         |  | Asset Purchase Agreement, dated as of
    August 25, 2004, between Ainsworth Lumber Co. Ltd. and
    Potlatch Corporation                                                                                                                                                  
|        | ***21 | .1          |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                             
|        | 23    | .1          |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                           
|        | 23    | .2          |  | Consent of KPMG LLP (Canada)                                                                                                                                                                                                                                               
|        | 23    | .3          |  | Consent of KPMG LLP (USA)                                                                                                                                                                                                                                                  
|        | 23    | .4          |  | Consent of Skadden, Arps, Slate, Meagher &
    Flom LLP (included in Exhibit 5.1)                                                                                                                                                                                          
|        | 23    | .5          |  | Consent of Borden, Ladner Gervais LLP (included
    in Exhibit 5.2)                                                                                                                                                                                                        
|        | 23    | .6          |  | Consent of Stewart McKelvey Stirling Scales
    (included in Exhibit 5.3)                                                                                                                                                                                                  



---



##### 



|        |    |             |  |                                                                                              
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 24 | .1          |  | Powers of Attorney (contained on the signature
    pages of this Registration Statement)     
|        | 25 | .1          |  | Form T-1 Statement of Eligibility of the
    Trustee (separately bound)                      
|        | 99 | .1          |  | Form of Letter of Transmittal                                                                
|        | 99 | .2          |  | Form of Notice of Guaranteed Delivery                                                        
|        | 99 | .3          |  | Form of Letters to Brokers, Dealers, Commercial
    Banks, Trust Companies and other Nominees
|        | 99 | .4          |  | Form of Brokers Letter to Clients                                                           
|        | 99 | .5          |  | Form of Instructions to Registered Holder                                                    



---



| |   |                          
| | - | -------------------------
| | # | To be filed by amendment.



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Incorporated by reference to the
    Registrants Annual Report on Form 20-F for the fiscal
    year ended December 31, 1999, filed with the Commission on
    May 19, 2000.



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Incorporated by reference to the
    Registrants Annual Report on Form 20-F for the fiscal
    year ended December 31, 2000, filed with the Commission on
    June 8, 2001.



| |     |                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *** | Incorporated by reference to the
    Registrants Annual Report on Form 20-F for the fiscal
    year ended December 31, 2003, filed with the Commission on
    May 26, 2004.



| |     |                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Incorporated by reference to the Registration
    Statement on Form F-4 filed by the Registrant on July 30,
    1997 (No. 333-7346).                                                         
|
| |    | Incorporated by reference to Amendment No. 2
    to the Registration Statement on Form F-4, filed by the
    Registrant and Ainsworth Lumber Inc. on October 29, 1997
    (No. 333-7346).    
|
| |   | Incorporated by reference to the Registration
    Statement on Form F-4 filed by the Registrant on
    February 19, 2002 (No. 333-83230).                                                    
|
| |   | Incorporated by reference to the Registration
    Statement on Form F-4, filed by the Registrant on June 2,
    2004 (No. 333-116068).                                                       
|
| |  | Incorporated by reference to Amendment No. 1
    to the Registration Statement on Form F-4, filed by the
    Registrant and Ainsworth Engineered Corp. on July 15, 2004
    (No. 333-116068).