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| | 
| | 
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LOGO

Nexfor Inc.

CIRCULAR

Notice of

Annual and Special Meeting of
Shareholders,


Notice of Application and


Management Proxy Circular


with Respect to


an Arrangement Involving


Nexfor Inc.


May 3, 2004



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TABLE OF CONTENTS

|                                                                                                                      |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                      |  | Page
|                                                                                                                      |  |     
|NOTICE TO UNITED STATES
    SHAREHOLDERS                                                                              |  |      | ii  | 
|CURRENCY EXCHANGE RATES                                                                                               |  |      | ii  | 
|NOTICE OF ANNUAL AND SPECIAL
    MEETING OF SHAREHOLDERS                                                              |  |      | iii | 
|MANAGEMENT PROXY CIRCULAR                                                                                             |  |      | 1   | 
|GLOSSARY OF TERMS                                                                                                     |  |      | 2   | 
|FORWARD-LOOKING
    INFORMATION                                                                                       |  |      | 4   | 
|SUMMARY                                                                                                               |  |      | 5   | 
|PART I INFORMATION ON
    VOTING                                                                                      |  |      | 9   | 
|PART II ANNUAL MEETING
    BUSINESS                                                                                   |  |      | 11  | 
|PART III THE
    ARRANGEMENT                                                                                          |  |      | 26  | 
|PART IV INFORMATION
    CONCERNING NEXFOR/ NORBORD                                                                    |  |      | 44  | 
|PART V INFORMATION
    CONCERNING FRASER PAPERS                                                                       |  |      | 50  | 
|INTEREST OF MANAGEMENT AND
    OTHERS IN TRANSACTION                                                                  |  |      | 76  | 
|LEGAL MATTERS                                                                                                         |  |      | 76  | 
|DIRECTORS APPROVAL                                                                                                   |  |      | 76  | 
|AUDITORS CONSENT                                                                                                     |  |      | 76  | 
|EXHIBIT A ARRANGEMENT
    RESOLUTION                                                                                  |  |      | A-1 | 
|EXHIBIT B STOCK OPTION
    PLANS RESOLUTION                                                                           |  |      | B-1 | 
|EXHIBIT C INTERIM
    ORDER                                                                                           |  |      | C-1 | 
|EXHIBIT D NOTICE OF
    APPLICATION                                                                                   |  |      | D-1 | 
|EXHIBIT E ARRANGEMENT
    AGREEMENT AND PLAN OF ARRANGEMENT                                                           |  |      | E-1 | 
|EXHIBIT F COMBINED
    FINANCIAL STATEMENTS OF FRASER PAPERS DIVISION OF
    NEXFOR INC.                              |  |      | F-1 | 
|EXHIBIT G COMBINED
    INTERIM FINANCIAL STATEMENTS OF FRASER PAPERS DIVISION OF
    NEXFOR INC. AS AT MARCH 27, 2004 |  |      | G-1 | 
|EXHIBIT H PRO FORMA
    CONSOLIDATED FINANCIAL STATEMENTS OF FRASER PAPERS INC                                        |  |      | H-1 | 
|EXHIBIT I PRO FORMA
    CONSOLIDATED FINANCIAL STATEMENTS OF NORBORD INC.                                             |  |      | I-1 | 
|EXHIBIT J CORPORATE
    GOVERNANCE PRACTICES                                                                          |  |      | J-1 | 
|EXHIBIT K BOARD OF
    DIRECTORS  TERMS OF REFERENCE                                                                 |  |      | K-1 | 
|EXHIBIT L AUDIT
    COMMITTEE  TERMS OF REFERENCE                                                                    |  |      | L-1 | 
|EXHIBIT M CORPORATE
    GOVERNANCE GUIDELINES                                                                         |  |      | M-1 | 
|EXHIBIT N
    NORBORD INC. STOCK OPTION PLAN                                                                          |  |      | N-1 | 





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May 3, 2004

Dear Shareholder:

On behalf of the Board of Directors, I would
like to invite you to attend Nexfors Annual and Special
Meeting at The Design Exchange, Toronto, Ontario on
June 22, 2004 at 10:30 a.m. local time. As always, you
will have an opportunity to meet with the Directors and
Executives of the Company, who will be happy to answer your
questions. If you are unable to attend in person, I invite
you to log into our website at www.nexfor.com and listen to our
webcast.

In addition to the regular annual meeting
business, it is proposed that two of Nexfors businesses
will be transferred to a new public company and the shares of
that public company will be distributed to Nexfor common
shareholders by means of a plan of arrangement. On
March 10, 2004, the Board of Directors of Nexfor Inc.
concluded that the division of the holdings of Nexfor into two
separate publicly traded companies is in our best interests and
that of our shareholders.

In order to become effective, the arrangement
must be approved by the shareholders, the Ontario Superior Court
of Justice and certain tax and regulatory authorities, all in
form and substance satisfactory to the Nexfor Board. In
particular, we must receive an advance income tax ruling from
the Canada Customs and Revenue Agency which confirms that the
distribution may generally be made on a tax-deferred basis in
Canada for common shareholders who hold their shares as capital
property. In addition, the common shareholders are being asked
to confirm the stock option plans adopted by the companies.
The Nexfor Board unanimously recommends that you vote in
favour of the arrangement and confirmation of the stock option
plans.

Along with the Notice of Meeting, management
proxy circular, audited financial statements and
managements discussion and analysis we also enclose the
proxy form, or voting instruction form depending on whether you
are a registered holder or if you hold your shares beneficially.
In addition to outlining the usual annual meeting information,
the accompanying circular describes the arrangement. The
business, affairs and financial information of both of the
proposed public companies are also described in the circular.

I hope you can attend the meeting and vote in
person. However, if you are unable to attend, we encourage you
to vote as soon as possible, either by telephone, proxy or via
the internet.



| |                  
| | -----------------
| | Yours truly,     
|
| | (MacDonald Sig)  
| | K. LINN MACDONALD
| | Chairman         

Encl.

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NOTICE TO UNITED STATES SHAREHOLDERS

This Circular has been prepared in accordance
with the disclosure requirements of Canada. Shareholders should
be aware that such requirements are different from those of the
United States. Some of the financial information of Nexfor which
is included or incorporated by reference herein has been
prepared in accordance with Canadian generally accepted
accounting principles and is subject to Canadian auditing and
auditor independence standards and may not be comparable to
financial statements of U.S. companies.

Nexfor Shareholders should be aware that the
receipt of the securities or cash described herein pursuant to
the Arrangement may have tax consequences both in the United
States and in Canada. Such consequences for shareholders who are
residents in, or citizens of, the United States may not be fully
described in this Circular. See The
Arrangement  Income Tax Considerations 
Certain Canadian Federal Income Tax Considerations and
The Arrangement  Income Tax
Considerations  Certain U.S. Federal Income Tax
Considerations for certain information concerning tax
consequences of the Arrangement and the other transactions
described herein for Nexfor Shareholders who are United States
taxpayers.

The enforcement by shareholders of civil
liabilities under the United States securities laws may be
affected adversely by the fact that each of Nexfor and Fraser
Papers is incorporated or organized under the laws of a
jurisdiction other than the United States, that some or all of
their respective officers and directors may be residents of
countries other than the United States, that some or all of the
experts named in this Circular may be residents of countries
other than the United States and that a portion of the assets of
Nexfor and Fraser Papers and such persons may or will be located
outside the United States.

Neither the United States Securities and
Exchange Commission nor any state securities commission has
approved or disapproved any of the securities to be issued
pursuant to the Arrangement or determined if this Circular is
truthful or complete. Any representation to the contrary is a
criminal offense.



CURRENCY EXCHANGE RATES

Except where otherwise indicated, all dollar
amounts set forth in this Circular are expressed in
U.S. dollars and $ and US$ mean
U.S. dollars.The following table
sets forth (i) the noon rates of exchange for the Canadian
dollar, expressed in Canadian dollars per U.S. dollar, in
effect at the end of the periods indicated, (ii) the
average noon exchange rates for such periods and (iii) the
high and low exchange rates during such periods, based on the
rates quoted by the Bank of Canada.

|                              |  |                 |        |                        |  |      |        |      |  |      |        |  |  |      |        | 
|----------------------------- |  | --------------- | ------ | ---------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | ---- | ------ | 
|                              |  |                 |        |                       
|                              |  | January 1, 2004 |        | Year Ended December 31
|                              |  | through         |        |                       
|Canadian Dollar per US Dollar |  | March 27, 2004  |        | 2003                   |  | 2002 |        | 2001
|                              |  |                 |        |                        |  |      |        |     
|Noon rate at end of period    |  | CAD$            | 1.3200 |                        |  | CAD$ | 1.2924 |      |  | CAD$ | 1.5796 |  |  | CAD$ | 1.5926 | 
|Average noon rate for period  |  |                 | 1.3183 |                        |  |      | 1.4009 |      |  |      | 1.5703 |  |  |      | 1.5484 | 
|High for period               |  |                 | 1.3476 |                        |  |      | 1.5747 |      |  |      | 1.6132 |  |  |      | 1.6021 | 
|Low for period                |  |                 | 1.2692 |                        |  |      | 1.2924 |      |  |      | 1.5110 |  |  |      | 1.4936 | 

On May 3, 2004, the rate of exchange based
on the noon rate as quoted by the Bank of Canada was CAD$1.3739.

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NOTICE OF ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS

Date:June 22,
2004

Time:10:30 a.m.
(Toronto time)

Place:The
Design Exchange, 234 Bay Street, Toronto, Ontario

Business of the meeting:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | To receive reports and financial statements;                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (b) | To elect directors;                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (c) | To appoint auditors and to authorize the
    directors to fix their remuneration;                                                                                                                                                                                                                                                                                                                                                    
|
| | (d) | To consider, pursuant to the Interim Order of the
    Ontario Superior Court of Justice dated April 30, 2004,
    and, if deemed advisable, to pass, with or without variation,
    the Arrangement Resolution to approve the Arrangement under
    section 192 of the Canada Business Corporations Act
    to effectively distribute the Common Shares of Fraser Papers
    Inc. to the holders of Common Shares of the Corporation;
|
| | (e) | To consider and, if deemed advisable, to pass,
    with or without variation, the Stock Option Plans Resolution to
    approve the issuance of an additional 142,525 Common Shares
    under the Nexfor Stock Option Plan and to confirm the new stock
    option plans adopted by the Corporation and Fraser Papers Inc.;
    and                                                                                                   
|
| | (f) | To transact such other business as may properly
    come before the meeting or any adjournment or postponement
    thereof.                                                                                                                                                                                                                                                                                                          

A copy of the audited financial statements for
the years ended December 31, 2003 and December 31,
2002 and Managements Discussion and Analysis are forwarded
herewith. The Arrangement and stock option plans are described
in the accompanying Circular. The full text of the Arrangement
Resolution and Stock Option Plans Resolution are set out as
Exhibits to the Circular.

Only holders of shares or options of record at
the close of business on May 3, 2004 are entitled to notice
of and to vote at the meeting and any adjournment or
postponement of the meeting.

Pursuant to the Interim Order, shareholders and
optionholders have the right to dissent and be paid the fair
value of their shares or options in respect of the Arrangement.
This dissent right is described in the Circular.

Shareholders or optionholders are entitled to
vote at the meeting either in person or by proxy. Registered
shareholders or optionholders who are unable to attend the
meeting in person are asked to complete and return the enclosed
proxy form so their vote is represented. Proxies to be used at
the meeting must be deposited with Nexfor Inc. c/o ADP Investor
Communications, Proxy Department, 5970 Chedworth Way,
Mississauga, Ontario L5R 4G5 at least 24 hours prior
to the time of the meeting. Shareholders and optionholders may
also vote by telephone or via the internet. Instructions for
telephone and internet voting are located on the proxy form.
Non-registered shareholders will be provided with voting
instructions by the intermediaries who hold the shares on their
behalf.



| |                                                   
| | --------------------------------------------------
| | By order of the Board of Directors                
|
| | (McMillan Sig)                                    
| | GLEN MCMILLAN                                     
| | Vice President, Controller and Corporate Secretary

Toronto, Ontario

May 3, 2004


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MANAGEMENT PROXY CIRCULAR

This Circular is being furnished in connection
with the solicitation of proxies by management of Nexfor for use
at the annual and special meeting of Nexfor Shareholders to be
held at 10:30 a.m. (Toronto time) on Tuesday, June 22,
2004 at The Design Exchange, Toronto, Ontario, and at any
adjournment thereof.

At the meeting, Nexfor Shareholders will be
asked, among other things, to consider and vote upon a proposal
to approve an arrangement under section 192 of the
Canada Business Corporations Act involving Nexfor. In
addition, Nexfor Common Shareholders will be asked to vote on
the election of directors and appointment of auditors, to
approve certain stock option plans of Nexfor and Fraser Papers
and to transact such further or other business as may properly
come before the meeting or any adjournment thereof.

Unless otherwise indicated, information in this
Circular is given as at May 3, 2004.

Certain capitalized terms used, but not otherwise
defined, in this Circular have the meanings given to them in the
Glossary of Terms found at page 2 of this Circular.

All information in this Circular relating to
Nexfor and Fraser Papers has been supplied by Nexfor. See
The Arrangement  Risk Factors for certain
considerations relevant to Nexfor Shareholders regarding the
Arrangement and their investment in the securities referred to
herein along with the risk factors set out under
Information Concerning Fraser Papers and in the
documents incorporated by reference in this Circular.

No person is authorized to give any information
or to make any representation not contained in this Circular
and, if given or made, such information or representation should
not be relied upon as having been authorized. This Circular does
not constitute an offer to sell, or a solicitation or an offer
to purchase, any securities, or the solicitation of a proxy, by
any person in any jurisdiction in which such an offer or
solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such an offer or
solicitation of an offer or proxy solicitation. Neither delivery
of this Circular nor any distribution of the securities referred
to in this Circular will, under any circumstances, create an
implication that there has been no change in the information set
forth herein since the date of this Circular.

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GLOSSARY OF TERMS

In this Circular, unless the context indicates
otherwise:

Arrangement means the proposed
arrangement under the provisions of section 192 of the CBCA
on the terms and conditions set forth in the Plan of Arrangement.

Arrangement Agreement means
the arrangement agreement made as of April 22, 2004 between
Nexfor, FP (US), FP (CAD) and Fraser Papers, a copy of which is
Exhibit E to the Circular.

Arrangement Resolution means
the special resolution to be considered and, if deemed
advisable, passed, with or without variation, by the Nexfor
Shareholders at the annual and special meeting to approve the
Arrangement, a copy of which is Exhibit A to the Circular.

Business Day means a day other
than a Saturday, Sunday or statutory holiday in Ontario.

Canadian Federal Tax Ruling
means the advance income tax rulings and opinions from the CCRA
confirming the Canadian federal income tax consequences of
certain aspects of the Arrangement and related transactions.

CBCA means the Canada
Business Corporations Act.

CCRA means the Canada Customs
and Revenue Agency.

Circular means this management
proxy circular.

Common Shares means the
voting, equity shares of a corporation that are designated in
the articles of the corporation as common shares.

Corporation means Nexfor Inc.
unless the context indicates otherwise.

Court means the Ontario
Superior Court of Justice.

Dissent Rights means the
rights of a Nexfor Shareholder to dissent in respect of the
Arrangement pursuant to the procedures set forth in
section 190 of the CBCA, the Interim Order and the Plan of
Arrangement.

Dissenting Shareholder means a
Nexfor Common Shareholder, a Nexfor Optionholder or a Nexfor
Preferred Shareholder who exercises its Dissent Rights.

Distribution Record Date means
the fourth trading day on the TSX following the Effective Date
or such other date as the Nexfor Board may select.

Effective Date means the
effective date of the Arrangement, being the date shown on the
certificate of arrangement to be issued by the Director under
the CBCA giving effect to the Arrangement.

Effective Time means the
earliest moment on the Effective Date.

Final Hearing means the
hearing by the Court in respect of the Final Order.

Final Order means the order of
the Court approving the Arrangement.

Fraser Papers means
4229401 Canada Inc., a corporation incorporated under
the CBCA for purposes of the Arrangement that, after
amalgamating with 4229428 Canada Inc. under the
Arrangement, changes its name to Fraser Papers Inc.

Fraser Papers Common Shares
means the Common Shares that Fraser Papers is authorized to
issue.

Fraser Papers Convertible
Shares means the non-voting, convertible, equity
shares that Fraser Papers is authorized to issue.

Fraser Papers Stock Option
Plan means the stock option plan adopted by Fraser
Papers to be approved by the Nexfor Common Shareholders at the
annual and special meeting.

Fraser Papers USA means all
the entities carrying on the Paper and Timber businesses in the
United States.

FP (CAD) means Fraser
Papers Inc., a corporation governed by the CBCA.

FP (US) means Fraser
Papers Inc., a corporation governed by the laws of the
State of Delaware.

Interim Order means the
amended order of the Court dated May 11, 2004 providing,
among other things, for the calling of the annual and special
meeting of the Nexfor Shareholders, a copy of which is
Exhibit C to this Circular.

IRS means the
U.S. Internal Revenue Service.

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Nexfor means Nexfor Inc.,
a corporation governed by the CBCA, which is changing its name
to Norbord Inc. (Norbord) under the Plan of
Arrangement and is referred to as Norbord in this Circular after
the Effective Time.

Nexfor Board means the board
of directors of Nexfor.

Nexfor Common Shareholders
means the holders of Nexfor Common Shares. For greater
certainty, references herein to a Nexfor Common Shareholder
include a holder who, in the course of the transactions set out
in the Plan of Arrangement, holds Nexfor Convertible Shares,
Nexfor Non-Voting Shares, Fraser Papers Convertible Shares or
Fraser Papers Common Shares.

Nexfor Common Shares means the
outstanding Common Shares of Nexfor.

Nexfor Convertible Shares
means the voting, convertible, equity shares that Nexfor is
authorized to issue under the Plan of Arrangement.

Nexfor Non-Voting Shares means
the non-voting, equity shares that Nexfor is authorized to issue
under the Plan of Arrangement.

Nexfor Optionholders means the
holders of Nexfor Stock Options.

Nexfor Preferred Shareholders
means the holders of Nexfor Preferred Shares.

Nexfor Preferred Shares means
the outstanding Class A Preferred Shares, Series 1 of
Nexfor; referred to as Norbord Preferred
Shares after the Effective Time.

Nexfor Shareholders means,
collectively, Nexfor Common Shareholders, Nexfor Optionholders
and Nexfor Preferred Shareholders.

Nexfor Stock Option means an
outstanding option to acquire Nexfor Common Shares granted by
Nexfor pursuant to the Nexfor Stock Option Plan.

Nexfor Stock Option Plan means
the existing Nexfor Stock Option Plan.

Norbord Common Shares means
the Common Shares that Norbord is authorized to issue upon the
Arrangement becoming effective.

Norbord USA means all of the
entities operating in the US in the Panels business.

Norbord Stock Option Plan
means the stock option plan adopted by Nexfor to be approved by
the Nexfor Common Shareholders at the annual and special
meeting, and referred to in the Plan of Arrangement as the
Replacement Stock Option Plan.

Plan of Arrangement means the
plan of arrangement set out as Appendix A to the
Arrangement Agreement, as amended from time to time.

Replacement Stock Options
means the stock options issued to the holders of Nexfor Stock
Options pursuant to the Plan of Arrangement.

Stock Option Plans means,
collectively, the Norbord Stock Option Plan and the Fraser
Papers Stock Option Plan.

Stock Option Plans Resolution
means the ordinary resolution to be considered and, if deemed
advisable, passed, with or without variation, by the Nexfor
Common Shareholders at the annual and special meeting to approve
the issuance of an additional 142,525 Common Shares under
the Nexfor Stock Option Plan and to confirm the Stock Option
Plans, a copy of which is Exhibit B to this Circular.

Tax Act means the Income
Tax Act (Canada).

Tax Proposals means all
specific proposals to amend the Tax Act and the regulations
thereunder that have been publicly announced by or on behalf of
the Minister of Finance (Canada) prior to the date of this
Circular.

Tax Rulings means the Canadian
Federal Tax Ruling and any tax rulings, opinions and advices
from provincial or U.S. taxation authorities or Canadian or
U.S. tax counsel, in each case that have been sought by
Nexfor and other corporations controlled by Nexfor in respect of
the Arrangement and related transactions.

Transfer Agent means CIBC
Mellon Trust Company.

TSX means the Toronto Stock
Exchange.

See also the definitions of certain non-GAAP
measures on page 67 and the Glossary of Terms for
Fraser Papers on page 75.

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FORWARD-LOOKING INFORMATION

This Circular contains certain forward-looking
statements within the meaning of securities legislation
relating, but not limited, to operations, anticipated financial
performance, business prospects and strategies of each of
Nexfor/ Norbord and Fraser Papers. Forward-looking information
typically contains statements with words such as
anticipate, believe, expect,
plan or similar words.

Shareholders are cautioned not to place undue
reliance on forward-looking information. By its nature,
forward-looking information of Nexfor/ Norbord and Fraser Papers
involves numerous assumptions, inherent risks and uncertainties
both general and specific that contribute to the possibility
that the predictions, forecasts, projections and other
forward-looking statements will not occur. These factors
include, but are not limited to, those listed on pages 6
to 7 of Nexfors annual information form filed with
Canadian securities regulatory authorities, those listed in
The Arrangement  Risk Factors,
Information Concerning Fraser Papers 
Managements Discussion and Analysis and
Information Concerning Fraser Papers  Risk
Factors sections of this Circular and those included in
documents and filings which are incorporated by reference in
this Circular.

Nexfor continues to seek and obtain certain
necessary consents and approvals in order to implement the
Arrangement and related transactions as currently structured. In
addition, Fraser Papers is in discussions regarding new
financing facilities appropriate for its operations as an
independent public entity. As at May 3, 2004, Nexfor
believes that it and Fraser Papers will obtain such consents and
approvals prior to and will be in a position to effect
appropriate new financing arrangements immediately after the
proposed date for implementing the Arrangement. However, if
certain approvals and consents are not received prior to, or
Fraser Papers is not in a position to implement such new
financings immediately after, the proposed implementation date
of the Arrangement, Nexfor may either delay or amend the
implementation of the Arrangement, in order to allow sufficient
time to complete or be in a position to complete such matters.

Nexfor cautions that the foregoing list of
important factors is not exhaustive. Nexfor undertakes no
obligation to update publicly or otherwise revise any
forward-looking information, whether as a result of new
information, future events or otherwise, or the foregoing list
of factors affecting such information.

4



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SUMMARY The following is a summary of certain
information contained elsewhere in this Circular. This summary
is included for convenience only and is qualified in its
entirety by the more detailed information contained elsewhere
in, or incorporated by reference into, this Circular. Meeting The meeting will be held at 10:30 a.m.
(Toronto time) at The Design Exchange, Toronto, Ontario, on
June 22, 2004. In addition to the regular business of an
annual meeting to be considered by Nexfor Common Shareholders,
the purpose of the meeting is to permit the Nexfor Shareholders
to consider and, if deemed advisable, to pass, with or without
variation, a special resolution (the full text of which is set
out in Exhibit A to this Circular) approving the
Arrangement. See The Arrangement  Rulings and
Approvals Necessary for the Arrangement. At the meeting, Nexfor Common Shareholders will
also be asked to consider and, if deemed advisable, to pass,
with or without variation, the Stock Option Plans Resolution.
See Information Concerning Nexfor/ Norbord 
Norbord After the Arrangement  Stock Option
Plan and Information Concerning Fraser
Papers  Stock Option Plan. Shareholders Entitled to Vote The record date for the determination of Nexfor
Shareholders entitled to vote at the meeting is the close of
business on May 3, 2004. As at May 3, 2004,
149,412,804 Nexfor Common Shares, 3,409,415 Nexfor
Stock Options and 2.4 million Nexfor Preferred Shares
entitled to be voted at the meeting were outstanding. Proposed Transactions Upon the Arrangement becoming effective, the
holders of Nexfor Common Shares at the close of business on the
Distribution Record Date will own directly all the outstanding
Norbord Common Shares and Fraser Papers Common Shares. By way of
example, a holder of 1,000 Nexfor Common Shares of record at the
close of business on the Distribution Record Date will, upon the
Arrangement becoming effective, hold 1,000 Norbord Common Shares
and 200 Fraser Papers Common Shares and cash for any fractional
interest in a Fraser Papers Common Share. The number of shares of Norbord outstanding
immediately following the Arrangement will not vary from the
number of shares of Nexfor outstanding immediately prior to the
Arrangement taking effect. See The Plan of
Arrangement  Details of the Arrangement. Fraser Papers The Arrangement will result in the holders of
Nexfor Common Shares at the close of business on the
Distribution Record Date owning all of the issued and
outstanding Fraser Papers Common Shares. Fraser Papers is a
corporation that has been formed to acquire, under the
Arrangement, Nexfors Paper and Timber businesses. See
Information Concerning Fraser Papers. Reasons for the Arrangement Nexfor is a panelboard company with operations in
the United States, Canada and the United Kingdom. In addition,
Nexfor is a significant specialty paper producer. For several
years, the Nexfor Board and management have been considering
ways to reorganize Nexfors operations to continue to
maximize shareholder value and to enhance the ability of each
business to pursue its independent objectives and strategies. On
March 10, 2004, the Nexfor Board concluded that these
objectives would be achieved by separating the businesses. The Arrangement and Related
Transactions If approved by the Nexfor Shareholders and the
Court, subject to certain other conditions being fulfilled and
approvals obtained, the Arrangement will be implemented pursuant
to the terms of the Arrangement Agreement, including the Plan of
Arrangement. The Plan of Arrangement is set out as
Appendix A to the Arrangement Agreement which is
Exhibit E to this Circular. The steps in the Arrangement
are described under The Arrangement  Details of
the Arrangement. Approvals of Shareholders and the Court and
Intentions of the Principal Shareholder In order for the Arrangement to be implemented,
the Arrangement Resolution must be passed, with or without
variation, by the affirmative vote of at least two-thirds of the
votes cast by Nexfor Common Shareholders and Nexfor


5



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Optionholders, voting together, and by Nexfor
Preferred Shareholders, voting separately, present in person or
represented by proxy at the meeting.
 Brascan Corporation, which, together with
associated companies, owns approximately 43% of the Nexfor
Common Shares and 75% of the Nexfor Preferred Shares, has
advised Nexfor that it intends to vote all the Nexfor Common
Shares and Nexfor Preferred Shares held by it in favour of the
Arrangement Resolution and the Stock Option Plans Resolution. Following approval of the Arrangement by the
Nexfor Shareholders at the meeting, Nexfor will make application
to the Court for the Final Order at 10:00 a.m. (Toronto
time) on June 28, 2004, at 393 University Avenue, Toronto,
Ontario. A copy of the Notice of Application for the Final Order
is Exhibit C to this Circular. At that hearing, any
securityholder or creditor of Nexfor who wishes to participate
or to be represented or to present evidence or argument may do
so, subject to filing a notice of appearance with the Court and
satisfying other requirements. At the hearing for the Final Order, the Court
will consider, among other things, the fairness of the
Arrangement to the Nexfor Shareholders. Recommendations of the Board of Directors of
Nexfor The Nexfor Board has unanimously determined that
the Arrangement is in the best interests of Nexfor and the
Nexfor Common Shareholders and Nexfor Optionholders and that it
is not prejudicial to the Nexfor Preferred Shareholders. The
Board of Directors recommends that Nexfor Shareholders vote in
favour of the Arrangement Resolution. See The
Arrangement  Recommendation of Nexfor Board. The Nexfor Board also recommends that Nexfor
Common Shareholders vote in favour of the Stock Options Plans
Resolution. See Information Concerning Nexfor/
Norbord  Stock Option Plan and
Information Concerning Fraser Papers  Stock
Option Plan. Dividends Nexfor has historically paid quarterly cash
dividends on its Common Shares. The annual dividend rate has
been CAD$0.40 per Nexfor Common Share since the fourth
quarter of 1990. It is expected that after the Arrangement, the
amount of dividends declared on Norbord Common Shares will be at
an annual rate of CAD$0.40 per share payable on a quarterly
basis. Any determination to declare a dividend on the Norbord
Common Shares will be made by the Board of Directors of Norbord
in its discretion on the basis of earnings, financial
requirements and other conditions. Any decision to pay dividends on the Fraser
Papers Common Shares will be made by the Board of Directors of
Fraser Papers in its discretion on the basis of earnings,
financial requirements and other conditions. Treatment of Fractional Interests Under the Arrangement, fractional interests in
Fraser Papers Common Shares will be aggregated and then sold by
the Transfer Agent. The Transfer Agent will send a cheque for a
proportionate amount of the sale proceeds to each person
otherwise entitled to a fraction of a Fraser Papers Common Share. Distribution of Share Certificates Upon the Arrangement becoming effective,
certificates representing Nexfor Common Shares will represent
Norbord Common Shares and no new certificates will be issued for
the Norbord Common Shares issued pursuant to the Arrangement.
Accordingly, it will not be necessary for holders of Nexfor
Common Shares to surrender their certificates in connection with
the Arrangement. Similarly, certificates representing Nexfor
Preferred Shares will represent Norbord Preferred Shares and no
new certificates will be issued. Holders of certificates
representing Nexfor shares must retain their certificates as
evidence of their ownership of Norbord Common Shares or Norbord
Preferred Shares, as the case may be. Certificates representing Fraser Papers Common
Shares will be mailed as soon as practicable following the
Distribution Record Date to those persons whose names appear in
the register of holders of Nexfor Common Shares at the close of
business on the Distribution Record Date. Dissenting Shareholders Rights Pursuant to the Interim Order, each registered
holder of Nexfor Common Shares, Nexfor Stock Options or Nexfor
Preferred Shares has the right to dissent in respect of the
Arrangement if Nexfor receives from such Dissenting


6



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##### 



Shareholder a written objection thereto at or
before the annual and special meeting and such Dissenting
Shareholder otherwise complies with section 190 of the
CBCA. If the Arrangement becomes effective, each Dissenting
Shareholder will be entitled to be paid the fair value of the
Nexfor Common Shares, Nexfor Stock Options or Nexfor Preferred
Shares in respect of which it dissented in accordance with
section 190 of the CBCA.
 A Dissenting Shareholder will not be entitled to
participate in the Arrangement. Selected Pro Forma and Historical Financial
Information The following table sets forth certain selected
pro forma financial information for Norbord and Fraser
Papers. The pro forma financial information gives effect
to the Arrangement as of March 27, 2004 for the pro
formaconsolidated balance sheet information and as of
January 1, 2003 and 2004 for the pro forma
consolidated income statement information for the year ended
December 31, 2003 and the quarter ended March 27,
2004, respectively. The following data should be read in conjunction
with the consolidated financial statements of Nexfor
incorporated herein by reference, the combined financial
statements of Fraser Papers division of Nexfor set out in
Exhibits F and G to this Circular, the Pro
Forma financial statements of Fraser Papers set out in
Exhibit H and the Pro Forma financial statements of
Norbord set out in Exhibit I to this Circular. NEXFOR INC. SELECTED FINANCIAL
INFORMATION Year EndedQuarter EndedMarch 27,
    
    December 31,
    
    December 31,2004
    
    2003
    
    2002($ millions, except per share information)HistoricalRevenue
    
    $
    569
    
    
    $
    1,939
    
    
    $
    1,426EBITDA (1)
    
    
    157
    
    
    
    359
    
    
    
    136Earnings
    
    
    81
    
    
    
    126
    
    
    
    13Earnings Per Share
    
    
    0.54
    
    
    
    0.85
    
    
    
    0.08Cash Flow from Operating Activities
    
    
    27
    
    
    
    273
    
    
    
    134Total Assets
    
    
    2,111
    
    
    
    2,042
    
    
    
    1,969Pro Forma (Norbord)Revenue
    
    $
    348
    
    
    $
    1,066EBITDA (1)
    
    
    157
    
    
    
    361Earnings
    
    
    89
    
    
    
    178Earnings Per Share
    
    
    0.60
    
    
    
    1.21 FRASER PAPERS SELECTED FINANCIAL
INFORMATION Year EndedQuarter EndedMarch 27,
    
    December 31,
    
    December 31,2004
    
    2003
    
    2002($ millions, except per share information)HistoricalRevenue
    
    $
    221
    
    
    $
    873
    
    
    $
    747EBITDA (1)
    
    
    
    
    
    
    (2
    )
    
    
    46Loss
    
    
    14
    
    
    
    92
    
    
    
    14Cash Flow from Operating Activities
    
    
    (15
    )
    
    
    (59
    )
    
    
    52Total Assets
    
    
    754
    
    
    
    763
    
    
    
    761Pro FormaRevenue
    
    $
    221
    
    
    $
    873EBITDA (1)
    
    
    
    
    
    
    (2
    )Loss
    
    
    11
    
    
    
    79Loss Per Share
    
    
    0.37
    
    
    
    2.63 
  (1)
    Earnings before interest taxes and depreciation,
    excluding restructuring charge.


7



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##### 



Income Tax Considerations The following is a brief summary of the Canadian
federal income tax consequences of the Arrangement and is not
intended to be, nor should it be construed to be, advice to any
particular Nexfor Shareholder. Nexfor Shareholders should
consult their own tax advisers with respect to their particular
circumstances. In general, a Canadian resident holder of Nexfor
Common Shares (other than a Dissenting Shareholder) who holds
such shares as capital property will not realize a capital gain
or capital loss as a result of the Arrangement unless the holder
chooses to realize a capital gain or capital loss pursuant to
the provisions of the Tax Act. Assuming that a holder of Nexfor
Common Shares does not choose to realize a capital gain or a
capital loss on the Arrangement, the adjusted cost base of the
Nexfor Common Shares will generally be allocated among the
Fraser Papers Common Shares and the Norbord Common Shares based
upon the relative fair market values of such shares at the time
of the Arrangement. Following the Effective Date, Norbord will
advise holders by press release of its estimation of the
appropriate proportionate allocation. In general, a non-resident holder of Nexfor
Common Shares will not be subject to tax in Canada as a result
of the Arrangement provided the Nexfor Common Shares do not
constitute taxable Canadian property to such holder. For a more detailed description of the Canadian
federal income tax considerations relating to the Arrangement
see The Arrangement  Income Tax
Considerations  Certain Canadian Federal Income Tax
Considerations. For a summary of certain U.S. federal income
tax considerations, see The Arrangement  Income
Tax Considerations  Certain U.S. Federal Income
Tax Considerations. Stock Exchange Listings Norbord The Nexfor Common Shares are listed on the TSX.
The TSX has accepted notice of the proposed Arrangement and has
conditionally approved the listing of the Norbord Common Shares,
subject to Nexfor fulfilling all the requirements of such
exchange. The Norbord Common Shares will trade under the symbol
NBD. Nexfor has no current intention to list the Norbord Common
Shares on any other stock exchange or other market in Canada,
the United States or otherwise. See The
Arrangement  Stock Exchange Listings, Trading Prices
and Dividends. Fraser Papers The TSX has conditionally approved the listing of
the Fraser Papers Common Shares to be issued pursuant to the
Arrangement subject to Fraser Papers fulfilling all the
requirements of such exchange. The Fraser Papers Common Shares
are expected to trade under the symbol FPS. Fraser Papers has no
current intention to list the Fraser Papers Common Shares on any
other stock exchange or other market in Canada, the United
States or otherwise. See The Arrangement  Stock
Exchange Listings, Trading Prices and Dividends. Head and Principal Offices The head and principal offices of Nexfor and
Norbord are located at Suite 500, 1 Toronto Street,
Toronto, Ontario M5C 2W4 (telephone: 416-365-0710). The head and principal office of Fraser Papers
will be located at Suite 600, 1 Toronto Street,
Toronto, Ontario M5C 2W4 (telephone: 416-643-8820).


8



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##### 






PART I

INFORMATION ON VOTING

Shareholders Entitled to Vote

Shareholders of record of Nexfor Inc. (the
Corporation) at the close of business (Toronto time)
on May 3, 2004 will be entitled to vote at the meeting. As
of May 3, 2004, the Corporation had outstanding and
entitled to be voted at the meeting 149,412,804 Common Shares,
each share carrying the right to one vote on all matters to come
before the meeting and 3,409,415 Nexfor Stock Options and
2,400,000 Nexfor Preferred Shares, each with the right to one
vote on the approval of the Arrangement Resolution.

Appointment of Proxyholders

The people named in the enclosed proxy form are
officers of the Corporation. A Nexfor Shareholder has the right
to appoint a person other than the two people designated in the
enclosed proxy form to represent the Nexfor Shareholder at the
meeting. The person appointed need not be a shareholder or
optionholder. This right may be exercised by filling in such
other persons name in the blank space provided in the
enclosed proxy form or by completing and depositing another
proxy form. Proxies to be used at the meeting must be delivered
to Nexfor Inc., c/o ADP Investor Communications, Proxy
Department, 5970 Chedworth Way, Mississauga, ON, L5R 4G5,
not less than 24 hours before the time of the meeting.

Shares or options represented by properly
executed proxies in favour of the people whose names are printed
thereon will be voted for or against or withheld from voting in
accordance with the choice specified in the proxy on any ballot
that may be called. However, if no choice is specified, such
shares will be voted, in the case of Nexfor Common Shares:



| |       |                                                                                                                                                                 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | for the election, as directors of the
    Corporation, of the people listed under the heading Election of
    Directors below;                                  
|
| | (ii)  | for the appointment of Ernst & Young LLP,
    Chartered Accountants, as auditors of the Corporation and
    authorizing the directors to fix their remuneration;
|
| | (iii) | for the Arrangement Resolution; and                                                                                                                             
|
| | (iv)  | for the Stock Option Plans
    Resolution                                                                                                                       

and, in the case of Nexfor Stock Options and
Nexfor Preferred Shares, for the Arrangement Resolution.

The enclosed proxy form confers discretionary
authority with respect to amendments or variations to the
matters identified in the Notice of Meeting and other matters
that may properly come before the meeting.

A proxy may be revoked by an instrument in
writing, including another proxy, duly executed by or on behalf
of the shareholder and deposited at the registered office of the
Corporation prior to the day of the meeting or with the Chairman
of the meeting.

Instructions for voting by telephone or via the
Internet are located on the enclosed proxy form.

Non-Registered Shareholders

Most shareholders are non-registered
shareholders, i.e., their shares are registered in the name of
an intermediary, such as a securities broker, financial
institution, or other nominee who holds the shares on their
behalf, or in the name of a clearing agency in which the
intermediary is a participant. An intermediary must forward
special meeting materials to a non-registered shareholder
including a form of proxy or voting instruction form.
Non-registered shareholders should follow the voting
instructions provided by the intermediaries. If a non-registered
shareholder wishes to attend and vote in person at the meeting,
it must insert its name in the space provided for the
appointment of a proxyholder in the form of proxy or voting
instruction form provided by the intermediary and follow the
instructions for return of the executed form or other method of
response.

Shareholder Proposals

Any shareholder proposal to be considered at the
Corporations Annual Meeting in 2005 must be delivered to
the Corporate Secretary at Suite 500, 1 Toronto Street,
Toronto, Ontario, M5C 2W4 no later than December 15,
2004.

9



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##### 



Voting Shares and Principal Holders

To the knowledge of the Directors and officers of
the Corporation, no person or company beneficially owns or
exercises control or direction over shares carrying more than
10% of the voting rights attaching to all Nexfor Common Shares
except Brascan Corporation (Brascan). As at
May 3, 2004, Brascan owned 63,804,885 Nexfor Common Shares,
representing approximately 43% of the outstanding Nexfor Common
Shares, and 1,801,000 Nexfor Preferred Shares, representing
approximately 75% of the outstanding Nexfor Preferred Shares.

Brascan is a public company listed on the Toronto
and New York stock exchanges. Brascans major shareholder
is Partners Limited (Partners) who, together with
its shareholders, collectively own, directly or indirectly,
exercise control or direction over, or have options or warrants
to acquire, approximately 30 million Class A Limited
Voting Shares, representing approximately 17% of the
Class A Limited Voting Shares of Brascan on a fully diluted
basis, and 85,120 Class B Limited Voting Shares,
representing all of the Class B Limited Voting Shares of
Brascan. Messrs. Cockwell, Flatt, Harding and Price,
directors of the Corporation, and Messrs. Gammiero and
Tremayne, the President and CEO and the Executive Vice President
and CFO, respectively, of the Corporation, are shareholders of
Partners. Shareholders of Partners, in addition to receiving
dividends from their shareholdings in Brascan, participate in an
investment fund (the Fund) that invests in
securities other than those issued by Brascan and its
affiliates. Messrs. Gammiero and Tremayne received
distributions of $197,866 and $19,491 respectively, in February
2004 from the Fund.

10



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##### 






PART II

ANNUAL MEETING BUSINESS

Election of Directors

The people named in the enclosed proxy form
intend, unless otherwise directed, to vote for the election of a
Board of Directors (the Board) composed of the 11
nominees listed below to serve until the next Annual Meeting of
the Corporation or until their successors are duly elected or
appointed, unless any such person is not available to act as a
director of the Corporation (Director), in which
event a substitute may be nominated. Common Share ownership
(which includes direct and indirect ownership), deferred share
units and options held are as at May 3, 2004.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                              
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jack L. Cockwell,
    Director since 1987; Toronto, Ontario
    Group Chairman of Brascan Group of CompaniesMr. Cockwell is Group Chairman
    of Brascan Corporation (Brascan). Brascan is an
    asset management company with a focus on real estate and power
    generation. Brascan owns 43% of Nexfor. Mr. Cockwell was
    President and CEO of Brascan from 1991 until 2002. In addition
    to his role on the Nexfor Board, Mr. Cockwell is the
    Chairman of the Board of the Royal Ontario Museum and a director
    of a number of companies, including Brookfield Properties
    Corporation, Noranda Inc., Falconbridge Limited., and Astral
    Media Inc.              |  | Chair of Human Resources Committee1,692,005  Common Shares                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Dian Cohen, CMDirector since 1987; Hatley,
    Quebec
    President, DC Productions LtdMs. Cohen is an economist and a
    partner in her own economic consultancy. She is a well-known
    television and radio personality, and author of a number of
    books on government, personal money management and social policy
    issues. Ms. Cohen is the recipient of many literary awards,
    as well as the Order of Canada in 1993. In addition to her role
    on the Nexfor Board, Ms. Cohen is a director of
    Royal & SunAlliance Insurance Company of Canada, a
    trustee of Great Lakes Hydro Income Fund and Treasurer of the
    University Womens Scholarship Foundation. |  | Chair of Corporate Governance Committee and
    member of Environment, Health and Safety and Pension
    Committees6,000  Common Shares
    5,642  Deferred Share Units
    6,200  Options
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Pierre DupuisDirector since 1995; Brossard,
    Quebec
    Chief Operating Officer, Dorel Industries Inc.Mr. Dupuis is Chief Operating
    Officer of Dorel Industries Inc., a global company specializing
    in juvenile products, ready-to-assemble furniture and home
    furnishings and recreational products. Prior to his appointment
    at Dorel, Mr. Dupuis was President and COO of
    Transcontinental Group G.T.C. Ltd from 1996 until 1999. In
    addition to his role on the Nexfor Board, Mr. Dupuis is a
    trustee of Great Lakes Hydro Income Fund.                                                                                                                   |  | Member of Audit and Human Resources
    Committees5,367  Common Shares
    4,616  Deferred Share Units
    8,200  Options                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|J. Bruce FlattDirector since 2002; Toronto,
    Ontario
    President and CEO, Brascan CorporationMr. Flatt, a chartered
    accountant, is President and CEO of Brascan. Prior to his
    current role, Mr. Flatt was President and CEO of Brookfield
    Properties Corporation. In addition to his role on the Nexfor
    Board, Mr. Flatt is a director of Noranda Inc., Brookfield
    Properties Corporation and Brascan.                                                                                                                                                                                                                                                              |  | Member of Environment, Health & Safety
    Committee1,192,300  Common Shares                                                                                                                

11



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##### 



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Gordon E. ForwardDirector since 1995; San Diego,
    California
    Chairman Emeritus, United States Business Council for
    Sustainable DevelopmentDr. Forward is the former Vice
    Chairman of Texas Industries Inc., a position he held from 1998
    to 2000. Prior to that, he was President and CEO of the
    Chaparral Steel Company. In 2002, Dr. Forward received the
    Environmental Conservation Distinguished Service Award from the
    American Institute of Mining Metallurgical and Petroleum
    Engineers in recognition of his significant contribution to the
    field of waste minimization. In addition to his role on the
    Nexfor Board, Dr. Forward is a director of Texas Industries
    Inc.                                      |  | Member of Audit, Environment, Health &
    Safety and Human Resources Committees1,000  Common Shares
    9,314  Deferred Share Units
    8,200  Options                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Dominic Gammiero,
    Director since 1998; Mississauga, Ontario
    President and CEO, Nexfor Inc.Prior to becoming President and CEO
    of Nexfor in 1999, Mr. Gammiero held various positions
    within the organization, including Executive Vice President and
    Chief Operating Officer of Nexfor, and President of Norbord
    Industries. Mr. Gammiero has close to 30 years
    experience in the forest products industry in North America and
    Europe. Mr. Gammiero does not sit on the board of any other
    public company.                                                                                                                                                                                                                      |  | Mr. Gammiero was not a member of any
    Committees322,245  Common Shares
    866,875  Options                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Robert J. Harding, FCA,Director since 1998; Toronto,
    Ontario
    Chairman, Brascan CorporationMr. Harding, a chartered
    accountant, is Chairman of Brascan. Mr. Harding has held
    various roles with Brascan, including Chief Financial Officer
    and Chief Operating Officer. Mr. Harding is the Chair of
    the Board of Governors of the University of Waterloo and a
    member of the Board of Trustees of the United Way of Greater
    Toronto. In addition to his role as Lead Director on the Nexfor
    Board, Mr. Harding is a director of BPO Properties Inc.,
    Noranda Inc., Falconbridge Limited, and Burlington
    Resources Inc.                                                                                                     |  | Lead Director and member of Corporate
    Governance and Human Resources Committees168,782  Common Shares                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|K. Linn
    Macdonald, Director since 1991;
    Mississauga, Ontario
    Chairman, Nexfor Inc.Prior to becoming Chairman of the
    Board in 1999, Mr. Macdonald was President and CEO of
    Nexfor  a position he had since 1991.
    Mr. Macdonald has more than 40 years of operational
    experience in the North American forest products industry.
    Mr. Macdonald does not sit on the board of any other public
    company.                                                                                                                                                                                                                                                                                                                              |  | Mr. Macdonald was not a member of any
    Committees500 
    Common Shares
    390,000  Options                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Margot Northey,
    Director since 2000; North Saanich, British Columbia
    Former Dean, Queens University School of BusinessDr. Northey held the role of
    dean, Queens University School of Business from 1995 to
    2002. Prior to that, she was an Associate Professor at the
    University of Western Ontarios business school.
    Dr. Northey is a widely respected author of numerous
    articles, books and reports on a broad range of contemporary
    topics in business, corporate affairs, communications and the
    humanities. In addition to her role on the Nexfor Board,
    Dr. Northey is also a director of Alliance Atlantis
    Communications Inc., Wawanesa Insurance, Aliant Inc. and
    Stressgen Biotechnologies Corporation. |  | Chair of Environment, Health and Safety
    Committee and member of Corporate Governance and Human Resources
    Committees.2,340  Common Shares
    5,510  Deferred Share Units
    1,760  Options

12



---



##### 



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------
|Barrie Shineton,
    Director nominee; Toronto, Ontario
    Executive Vice-President  Wood Products, Nexfor
    Inc.Mr. Shineton was appointed
    Executive Vice President, Wood Products of Nexfor Inc. in 2003.
    Prior to that he held various positions with Nexfor, including
    President, Norbord Industries and Managing Director, Nexfor
    Limited (UK). Mr. Shineton has more than
    30 years experience in the forest industry, having
    held senior level marketing, sales and operations positions for
    companies in North America and Europe. Mr. Shineton does
    not sit on the board of any other public company.                                                                                                  |  | Director Nominee206,000  Options                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Don S. Wells,
    Director since 2003; Beaconsfield, Quebec
    Former Executive Vice President, Strategic Investments, Royal
    Bank Financial GroupMr. Wells, a chartered
    accountant, has senior management experience in strategy
    development, mergers and acquisitions, corporate governance and
    financial management. From 1990 to 1998, Mr. Wells was a
    senior advisor on strategy and corporate governance to the
    Chairman and CEO of the Royal Bank of Canada. He retired from
    the RBC Financial Group in 1998, after a career spanning
    26 years. In addition to his role on the Nexfor Board,
    Mr. Wells is a director of Terralogix Inc., Open Access
    Ltd., and a trustee of the Noranda Income Fund. |  | Member of Audit and Corporate Governance
    Committees2,000  Common Shares
    1,136  Deferred Share Units

After the meeting, the standing Committees of the
Board will include the following Directors:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | Audit Committee: Ms. Cohen, Mr. Dupuis,
    Dr. Forward and Mr. Wells,                                 
|
| |  | Human Resources Committee: Mr. Cockwell,
    Mr. Dupuis, Mr. Flatt, Dr. Forward and
    Dr. Northey,   
|
| |  | Corporate Governance Committee: Ms. Cohen,
    Mr. Harding, Dr. Northey and Mr. Wells,                 
|
| |  | Environment Health and Safety Committee:
    Mr. Dupuis, Dr. Forward, Mr. Gammiero and
    Dr. Northey,
|
| |  | Pension Committee: Ms. Cohen,
    Mr. Flatt, Mr. Gammiero and Mr. Wells.                               

Share Ownership

Nexfor believes the Directors can better
represent shareholder interests if they are shareholders
themselves. As such, in January, 2004, Nexfors Board
passed a resolution requiring all Directors to hold shares or
deferred share units equal in value to at least three times
their annual retainer. For new Directors, this minimum share
ownership position must be achieved within five years of joining
the Nexfor Board. Existing Directors will have five years to
accumulate the minimum share ownership requirement. Directors
are encouraged to accumulate the minimum share ownership in a
systematic manner over the five year accumulation period. As
discussed in greater detail on page 16, Directors may elect
to take part or all of their annual compensation in deferred
share units. Deferred share units are credited at the fair
market value of Nexfor Common Shares and receive dividend
equivalents.

Share ownership of Directors is provided under
Annual Meeting Business  Election of
Directors. The total direct and indirect share holdings
(including deferred share units) of Directors, Director nominees
and Named Executive Officers in the Corporation totalled
4,498,992 shares at May 3, 2004.

Common Shares Owned (Direct and Indirect
Ownership)

|                                                                     |  |              |         | 
|-------------------------------------------------------------------- |  | ------------ | ------- | 
|Name                                                                 |  | Total Shares
|                                                                     |  |             
|Dominic Gammiero (President & CEO)                                   |  |              | 322,245 | 
|John Tremayne (Executive Vice President & CFO)                       |  |              | 139,227 | 
|Bert Martin (Executive Vice President, Paper)                        |  |              | Nil     | 
|Barrie Shineton (Executive Vice President, Wood
    Products)        |  |              | Nil     | 
|Glen McMillan (Vice President, Controller &
    Corporate Secretary) |  |              | 10,759  | 

13



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##### 



Information on the Board of
Directors

Board Mandate

The Nexfor Board recognizes that in order to
attain its objective of enhancing shareholder value in a manner
that recognizes the concerns of other stakeholders in the
Corporation, including its employees, suppliers, customers and
the communities in which it operates, the Corporation must have
sound corporate governance structures and policies. The Board
and the Corporate Governance Committee regularly review the
terms of reference of the Board and each of the committees of
the Board (the Committees), and the role of the
Chairman and CEO, to ensure that the Corporation complies with,
or exceeds, all applicable corporate governance rules and
standards. The Corporations corporate governance practices
are Exhibit J to this Circular and can be viewed on the
Corporations website at www.nexfor.com.

Pursuant to its terms of reference, the Board is
responsible for supervising the business and affairs of the
Corporation, which are conducted by its officers and employees
under the direction of the Chief Executive Officer. The Board
discharges this responsibility directly at regularly scheduled
and special meetings of the Board and indirectly through
Committees composed of non-management Directors. The
Boards full terms of reference are Exhibit K to this
Circular. The terms of reference of the Board and each of its
Committees can be viewed on the Corporations website at
www.nexfor.com.

Under the rules of the Toronto Stock Exchange
(TSX), the Corporation is required to disclose its
approach to corporate governance, with reference to each of the
TSX guidelines. The Corporations specific disclosure
relative to these guidelines is Exhibit M to this Circular.

The Nexfor Board has approved, and acts in
accordance with, the Companys Code of Business Conduct
(the Code). All employees with supervisory
responsibilities, members of the management team, and each
Director have signed the Code. A copy of this Code can be found
on the Corporations website at www.nexfor.com.

Board Composition

The Nexfor Board currently consists of 13
Directors elected by the shareholders. It is proposed that the
Board be reduced to 11 Directors in consideration of the
Arrangement. The size of the Board allows for an appropriate mix
of experience and skills on the Board, and ensures that the
majority of Directors will be unrelated Directors
under the TSX definition.

The Board reviewed the relationships between each
of its Director nominees and the Corporation and has determined
that the proposed list of Director nominees fairly represents
the share ownership interests in the Corporation and the
requirements for Director independence of both Canadian and US
securities regulators.

In reaching this conclusion, the Board considers
that, if the Arrangement is approved, Messrs. Shineton,
Gammiero and Macdonald will be related Directors and the
remaining Directors will be independent Directors.
Mr. Shineton will be President and CEO of the Corporation,
Mr. Gammiero will hold that position until the Effective
Date and Mr. Macdonald held that position until October,
1999. While Mr. Gammiero will no longer be an officer of
the Corporation after the Effective Date, he will still be
considered related as the former CEO of the Corporation. Three
of the remaining eight Director nominees, Messrs. Cockwell,
Flatt and Harding (the Brascan Directors), are
officers of Brascan Corporation and/or its subsidiaries. Brascan
has affiliated companies that supply electric power to two of
the Corporations operations under long-term contracts. In
addition, the Corporation manages a paper mill owned by an
affiliate of Brascan. The supply contracts with Brascan
affiliates and the arrangement under which the Corporation
manages the Brascan owned paper mill were approved by special
Committees of the Board. Each of these Committees was comprised
solely of Directors who were neither Brascan Directors nor
related Directors. The Board considers that these contracts with
Brascan affiliates are not an interest or a business or other
relationship which could, or could reasonably be perceived to,
materially interfere with the Brascan Directors ability to
act with a view to the best interests of the Corporation, other
than interests and relationships arising from shareholding.
Should the Arrangement Resolution be approved, these
relationships will be between Fraser Papers and Brascan
affiliates. The Board also considers that three Directors (27%
of all Directors, 38% of independent Directors) fairly reflect
the relative investment of Brascan and other shareholders in the
Corporation.

Two other Director nominees, Ms. Cohen and
Mr. Dupuis are trustees of Great Lakes Hydro Income Fund,
in which Brascan owns a 50% indirect interest. The Great Lakes
Hydro Income Fund supplies electrical power to the
Corporations pulp and paper mills in Quebec and New
Hampshire. The Board does not consider that this relationship

14



---



##### 



could, or could reasonably be perceived to,
materially interfere with these Directors ability to act
with a view to the best interests of the Corporation. As noted
above, these relationships will be between Great Lakes Hydro
Income Fund and Fraser Papers if the Arrangement Resolution is
passed. The remaining Director nominees, Dr. Forward,
Dr. Northey and Mr. Wells have, in the view of the
Board, no material relationships or interests which could
interfere with their independence as Directors.


Board and Committee Meetings

The Nexfor Board conducts much of its business
through Committees established by the Board. There are currently
five standing Committees of the Board. These are the Audit,
Corporate Governance, Environment, Health and Safety, Human
Resources and Pension Committees. In addition, from time to
time, the Board has established special Committees to assist the
Board in respect of certain issues.

A summary of responsibilities for each Committee
is Exhibit J to this Circular. The terms of reference of
the Board and the Audit Committee are Exhibits K
and L, respectively. The terms of reference of all
Committees and the Board are available on the Corporations
website at www.nexfor.com.

It is the policy of the Board that all Board
meetings and Committee meetings should include a session without
the presence of management and related Directors. In the case of
the Audit Committee, each meeting includes a session with only
the external auditors and the Committee. The portion of Board
meetings where management and related Directors are not in
attendance is chaired by Mr. Harding, the
Corporations Lead Director.

All Board members have an open invitation to
attend any Committee meeting.

Meeting Attendance

Historically, the Corporation has had excellent
attendance at all of its Board and Committee meetings. The
attendance of each Board member for all Board and Committee
meetings in 2003 is detailed below.

|                      |  |       |        |       |  |            |        |                 |  |           |        |         |  |  |        |     |  |  |        |     |  |  |        |    
|--------------------- |  | ----- | ------ | ----- |  | ---------- | ------ | --------------- |  | --------- | ------ | ------- |  |  | ------ | --- |  |  | ------ | --- |  |  | ------ | ---
|                      |  |       |        |       |  | Corporate  |        | Environment     |  | Human     |        |        
|Name  Director       |  | Board |        | Audit |  | Governance |        | Health & Safety |  | Resources |        | Pension
|                      |  |       |        |       |  |            |        |                 |  |           |        |        
|J.W. Bud Bird         |  |       | 7 of 7 |       |  |            | 5 of 5 | (1)             |  |           |        |         |  |  |        |     |  |  |        |     |  |  | 2 of 2 |    
|John G. Bryden (2)    |  |       | 3 of 3 |       |  |            | 2 of 2 |                 |  |           |        |         |  |  |        |     |  |  |        |     |  |  | 1 of 1 |    
|Jack L. Cockwell      |  |       | 7 of 7 |       |  |            |        |                 |  |           |        |         |  |  |        |     |  |  | 2 of 2 | (1) |  |  |        |    
|Dian Cohen            |  |       | 6 of 7 |       |  |            |        |                 |  |           | 3 of 3 | (1)     |  |  | 2 of 2 |     |  |  |        |     |  |  | 1 of 2 |    
|Pierre Dupuis         |  |       | 6 of 7 |       |  |            | 5 of 5 |                 |  |           |        |         |  |  |        |     |  |  | 2 of 2 |     |  |  |        |    
|J. Bruce Flatt        |  |       | 7 of 7 |       |  |            |        |                 |  |           |        |         |  |  | 2 of 2 |     |  |  |        |     |  |  |        |    
|Gordon E. Forward     |  |       | 7 of 7 |       |  |            | 5 of 5 |                 |  |           |        |         |  |  | 2 of 2 |     |  |  | 2 of 2 |     |  |  |        |    
|Dominic Gammiero (5)  |  |       | 7 of 7 |       |  |            |        |                 |  |           |        |         |  |  |        |     |  |  |        |     |  |  |        |    
|Robert J. Harding     |  |       | 6 of 7 |       |  |            |        |                 |  |           | 3 of 3 |         |  |  |        |     |  |  | 2 of 2 |     |  |  |        |    
|Aldéa Landry (3)      |  |       | 4 of 4 |       |  |            |        |                 |  |           |        |         |  |  | 2 of 2 |     |  |  |        |     |  |  | 1 of 1 |    
|K. Linn Macdonald (5) |  |       | 7 of 7 |       |  |            |        |                 |  |           |        |         |  |  |        |     |  |  |        |     |  |  |        |    
|Margot Northey        |  |       | 7 of 7 |       |  |            |        |                 |  |           | 3 of 3 |         |  |  | 2 of 2 | (1) |  |  | 2 of 2 |     |  |  |        |    
|Timothy R. Price      |  |       | 7 of 7 |       |  |            |        |                 |  |           |        |         |  |  |        |     |  |  |        |     |  |  | 2 of 2 | (1)
|Don S. Wells (4)      |  |       | 4 of 4 |       |  |            | 3 of 3 |                 |  |           | 3 of 3 |         |  |  | 2 of 2 |     |  |  |        |     |  |  |        |    






|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Denotes Chairman of the Committee                                                                    
|   
|(2) | Mr. Bryden left the Board, April 24,
    2003                                                        
|   
|(3) | Ms. Landry joined the Board, April 24,
    2003 and attended two Board meetings as a Director nominee
|   
|(4) | Mr. Wells joined the Board, April 24,
    2003 and attended one Board meeting as a Director nominee  
|   
|(5) | As related Directors, neither Mr. Gammiero
    nor Mr. Macdonald are members of any Committees       

15



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##### 



Board Evaluation Systems

The Board evaluates itself annually to ensure it
is functioning effectively and in the best interests of
shareholders. The evaluation includes a detailed questionnaire
completed by each Director and one-on-one interviews with the
Chairman. The Chairman reviews the results of the evaluation
with the Corporate Governance Committee and the Board. These
evaluations assess the Board in four specific areas:



| |   |                                 
| | - | --------------------------------
| |  | Overall Board governance        
|
| |  | Managing management             
|
| |  | Strategy and Company performance
|
| |  | Board effectiveness             

In 2003, this evaluation determined that the
Board operates effectively.

In addition to the Board, each Committee of the
Board evaluates its performance annually. These evaluations
focus on each Committees successes in meeting its terms of
reference as well as its overall effectiveness as a committee.
In 2003, each of the Committees of the Board evaluated its
performance as effective.

The performance of individual Board members is
also reviewed by his or her peers. This review is conducted by
the Chairman and presented to the Corporate Governance Committee
for its consideration.

As part of the Board, Committee and individual
Director evaluation processes, all opportunities to improve are
implemented as identified.

Retirement

In general, Directors do not stand for election
after their 70th birthday. However, in order to ensure
appropriate Director succession, the Board can retain up to
three Directors who are 70 years of age or older.

Compensation of Directors

Each Director who is not an employee of the
Corporation is entitled to be paid an annual retainer of CAD
$14,000. In addition, each Director who is a member of a Board
Committee receives an annual retainer of CAD $2,000 for each
Committee membership, provided that the Committee holds at least
one regularly scheduled meeting during the year. The Chairman of
each Board Committee receives an additional annual retainer of
CAD $2,000. Each Director who is not an employee of the
Corporation also receives a fee of CAD $1,500 for each meeting
of the Board of Directors attended (exclusive of any meeting
held immediately following an annual meeting of shareholders),
and a fee of CAD $1,000 for each Committee meeting attended.

Mr. Macdonald, as Chairman of the Board, is
paid an annual retainer of CAD $100,000, inclusive of
Directors fees.

Eligible Directors can, at their option, elect to
receive all or part of their compensation in Nexfor deferred
share units. Deferred share units are credited at the fair
market value of Nexfor Common Shares and receive dividend
equivalents.

In 2003, the Board amended the Nexfor Stock
Option Plan to prohibit the granting of stock options to
unrelated Directors.

16



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##### 



2003  Actual Director Fees Paid to
Directors

and


Percentage Taken in Deferred Share Units
(DSU)


|                      |  |             |         |         |  |  |     | 
|--------------------- |  | ----------- | ------- | ------- |  |  | --- | 
|Name  Director       |  |             |         |        
|                      |  | Actual Fees |         | % Taken
|                      |  | Earned      |         | in DSU 
|                      |  |             |         |        
|                      |  | ($CAD)      |         |        
|J.W. Bud Bird         |  | $           | 37,500  |         |  |  | 100 | 
|Jack L. Cockwell (1)  |  |             | Nil     |         |  |  | N/A | 
|Dian Cohen            |  | $           | 32,500  |         |  |  | 68  | 
|Pierre Dupuis         |  | $           | 30,000  |         |  |  | 60  | 
|J. Bruce Flatt (1)    |  |             | Nil     |         |  |  | N/A | 
|Gordon E. Forward     |  | $           | 36,500  |         |  |  | 100 | 
|Dominic Gammiero      |  |             | Nil     |         |  |  | N/A | 
|Robert J. Harding (1) |  |             | Nil     |         |  |  | N/A | 
|Aldéa Landry          |  | $           | 15,500  |         |  |  | 58  | 
|K. Linn Macdonald     |  | $           | 100,000 |         |  |  |    | 
|Margot Northey        |  | $           | 36,500  |         |  |  |    | 
|Timothy R. Price (1)  |  |             | Nil     |         |  |  | N/A | 
|Don S. Wells          |  | $           | 18,500  |         |  |  | 49  | 






|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Messrs. Cockwell, Flatt, Harding and Price,
    as representatives of Brascan, received no compensation for
    their roles on the Board and Committees of the Corporation. An
    aggregate payment of CAD $116,500 was made to Brascan for their
    services.

In January, 2004, the Board approved a change to
Directors compensation, effective after the annual and
special meeting on June 22, 2004. Under the new plan, each
Director who is not an employee of the Corporation is entitled
to an annual retainer fee of CAD $40,000. The Chairman of the
Board will continue to receive a total of CAD $100,000. The
Chairman of the Audit Committee will receive an additional
annual retainer of CAD $5,000. The Chairman of all other Board
Committees will receive an additional annual retainer of CAD
$3,000. There will be no fees payable for Committee membership
or meeting attendance.

Pursuant to the share ownership requirements for
Directors described under Share Ownership above,
Directors will be required to own three times the annual
retainer fee (approximately CAD $120,000) worth of Nexfor/
Norbord shares or deferred share units based on these changes to
Directors compensation.

17



---



##### 



REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Nexfor Board is
comprised of four Directors: J.W. Bud Bird, Pierre Dupuis,
Gordon Forward and Don S. Wells. Each member of
Nexfors Audit Committee is an unrelated director, as
defined by the TSX rules, and an independent director under the
standards established by Canadian securities regulatory
authorities in Multilateral Instrument 52-110. In addition,
Mr. Wells is considered a financial expert according to the
definitions set out by the Securities Exchange Commission under
the Sarbanes-Oxley Act of 2002.

The Audit Committees responsibilities are
described in Exhibit J of this document. The Audit
Committee held five meetings during 2003. A written copy of its
Terms of Reference is Exhibit L to this Circular.

The Committee has reviewed and discussed the
Corporations audited financial statements with management,
which has primary responsibility for the preparation of the
financial statements. Ernst & Young LLP, the
Corporations independent auditor for 2003, is responsible
for expressing an opinion on the agreement of the
Corporations audited financial statements with generally
accepted accounting principles. The Committee has reviewed with
Ernst & Young LLP the matters that are required to be
discussed, including financial statement disclosures, the
quality of the Corporations financial reporting, and
significant accounting policies.

The Committee also concluded that Ernst &
Young LLPs scope of non-audit services (as described under
Annual Meeting Business  Auditor
Independence) does not compromise their independence.

Based on the reviews, considerations and
discussions outlined above, the Audit Committee recommended to
the Board of Directors, and the Board of Directors approved the
audited financial statements of the Corporation and authorized
their inclusion in the Corporations annual report for the
year ended December 31, 2003. The audit Committee also
recommended to the Board, subject to shareholder approval, that
Ernst & Young LLP be appointed independent auditors for the
Corporation in 2004.

This report has been prepared by the Audit
Committee:

|                         |  |                  
|------------------------ |  | -----------------
|J.W. Bud Bird (Chairman) |  | Gordon E. Forward
|Pierre Dupuis            |  | Don S. Wells     

18



---



##### 



HUMAN RESOURCES COMMITTEES REPORT ON
EXECUTIVE COMPENSATION

The Corporations executive compensation
program is administered by its Human Resources Committee
(H.R. Committee). As part of its mandate, the H.R.
Committee administers the appointment and remuneration of the
Corporations officers, including the Named Executive
Officers. For the President and Chief Executive Officer, the
H.R. Committee makes compensation recommendations to be approved
by the Board and for all other officers, the H.R. Committee
approves the compensation levels. The H.R. Committee is also
responsible for reviewing the design and general competitiveness
of the Corporations compensation and benefit programs. The
H.R. Committee met twice in 2003.

Members of the H.R. Committee during 2003 were
Mr. Cockwell (Chairman), Mr. Harding,
Dr. Forward, Mr. Dupuis and Dr. Northey. All
members of the H.R. Committee served for the entire year.

Mr. Gammiero, the President and Chief
Executive Officer of the Corporation, is not a member of the
H.R. Committee. He makes recommendations to the H.R. Committee
with respect to executive compensation policy and with respect
to the compensation paid to senior officers of the Corporation,
other than himself. Mr. Gammiero did not participate in
H.R. Committee meetings when his compensation was discussed or
determined.

Report on Executive Compensation

Through its total compensation program for
executives, the Corporation aims to attract, retain and motivate
top quality people at the executive level. Performance
incentives that are tied directly to increases in shareholder
value are essential components of the program.

With respect to general philosophy, the H.R.
Committee believes that senior executive incentive compensation
should be driven primarily by performance relative to the
established plans and strategy of the business. The H.R.
Committee focuses on rewarding performance, and not on
entitlement or seniority.

The Corporations compensation policies are
designed to motivate management to maximize the long-term value
of the Corporations assets and business operations and to
provide an overall competitive compensation package with a high
proportion for the most senior executives weighted to variable
compensation tied to the Corporations performance. In the
case of the Corporations CEO, this is achieved by
maintaining base salary and cash bonus awards below the median
base salary level in the industry in return for an opportunity
to participate at a higher level in the growth in value of the
Corporations shares.

The Corporation retains the services of external
consultants to assist the Committee in establishing appropriate
levels of base salary and incentive compensation for executive
officers of the Corporation. The individual components of
executive compensation and the H.R. Committees approach to
each are as follows:

Base Salary

Base salaries of the Corporations
executives are reviewed annually to ensure that they reflect the
contribution of each executive. The Corporation believes that
base salaries should be based on the median level of salaries
paid to similar positions at comparable Canadian forest products
companies adjusted for size based on sales volumes. The base
salary for the Corporations CEO is also adjusted to
reflect a higher weighting to variable compensation as described
below.

Annual Incentive Plan

The Corporation has an annual incentive plan that
generates cash incentives for company officers (including the
Named Executive Officers) based on corporate and individual
performance. Target awards, expressed as a percentage of base
salary, have been established for each officer position at
approximately the median level of annual incentive compensation
plans administered by other Canadian forest products companies.

The incentive awards for Messrs. Martin and
Shineton are based on three factors:



| |     |                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------
| | (a) | one-third on individual performance measured
    against established objectives and including contribution to
    overall results;
|
| | (b) | one-third on corporate performance based on a
    Return on Capital Employed (ROCE) calculation; and                              
|
| | (c) | one-third on subsidiary performance based on a
    ROCE calculation.                                                              

19



---



##### 



The incentive plan for all other officers,
including the President and Chief Executive Officer, is based on
two factors:



| |     |                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------
| | (a) | one-third on individual performance measured
    against established objectives and including contribution to
    overall results; and
|
| | (b) | two-thirds on corporate performance based on ROCE
    calculation.                                                                    

ROCE targets and individual objectives are
reviewed with the Committee at the beginning of each year and
awards are approved by the Committee based on the performance of
each individual officer.

Long Term Incentives

Stock Option Plan

The Corporation has had a Stock Option Plan since
1991. The Nexfor Stock Option Plan is designed to focus
executive attention on the long term interests of the
Corporation and growth in shareholder value.

Options are granted periodically to executives
and senior managers and may be exercised at the option price for
a period of up to 10 years. Options are subject to vesting
at the annual rate of 20% per year, beginning on the first
anniversary from the date of grant.

In 2003, the Committee determined that for a
12-month period following each exercise of stock options granted
after January 29, 2003, the Named Executive Officers would
hold Nexfor Common Shares with a value equivalent to the
after-tax gain realized through the exercise of the options.

To determine the size of grants, the H.R.
Committee takes into consideration data provided by external
consultants on competitive market practices within Canadian
forest industry firms and a wider grouping of industrial
companies.

On January 30, 2003, options to purchase a
total of 437,500 shares were granted to 38 executives and
senior managers at the market price of CAD $8.25 per share.
On April 23, 2003 a further 636,875 shares were granted to
two executives at the market price of CAD $7.73 per share
in conjunction with the discontinuance of loans related to the
Share Purchase Plan. The options granted on April 23, 2003
are not subject to a 12-month hold period as these grants
related to share ownership which existed prior to
January 29, 2003.

On January 29, 2004, options to purchase a
total of 538,000 shares were granted to 59 executives and
senior managers (of which 305,000 options were granted to
insiders) at the market price of CAD $11.24, subject to
receipt of shareholder approval of an increase in the number of
shares issuable under the Nexfor Stock Option Plan. The increase
required is 142,525 shares and the approval for this increase is
part of the Stock Option Plans Resolution.

Share Purchase Plan

On April 23, 2003, the Nexfor Board passed a
resolution to discontinue the practice of issuing loans to
executives for the purchase of Common Shares of the Corporation.
Consistent with this new policy, outstanding loans to
Mr. Gammiero in the amount of CAD $3,500,000, and
Mr. Tremayne in the amount of CAD $548,250 were repaid
in full in June 2003. There are no longer any outstanding loans
under the Share Purchase Plan. In conjunction with the repayment
of these loans, 636,875 options were issued to
Messrs. Gammiero and Tremayne at the market price of
CAD $7.73 per share.

Compensation of President and Chief Executive
Officer

Mr. Gammiero was appointed President and
Chief Executive Officer of the Corporation on October 22,
1999. Mr. Gammiero will assume the role of President
and Chief Executive Officer of Fraser Papers on the Effective
Date of the Arrangement and will relinquish this role with
Nexfor. Mr. Gammieros base salary was reviewed
annually and was set below the median level for comparable
companies within the forest products industry based on data
provided by the Corporations external compensation
consultants. Mr. Gammieros below market base salary
was offset by an enhanced opportunity to participate at a higher
level in the growth in value of the Corporations shares.

20



---



##### 



Mr. Gammiero participated in the Annual
Incentive Plan for executive officers. The H.R. Committee has
established a target award of 60% of annual base salary payable
based on a ROCE calculation and upon fulfillment of established
individual performance criteria. These individual performance
criteria include:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | The strategic positioning of the Corporation for
    profitable growth and success;                          
|
| |  | The leadership of the organization; and                                                                      
|
| |  | The management of succession plans to provide
    continuity of senior management, including that of the CEO.

In 2003, Mr. Gammiero was awarded an
incentive payment commensurate with the achievement of corporate
and individual objectives. The Committees assessment of
Mr. Gammieros performance included the following:



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Strong financial performance resulting in
    achievement of Return on Capital Employed of 24% and Return on
    Equity of 15% compared with targets of 19% and 12% respectively;
|
| |  | Reduction of balance sheet leverage and
    maintenance of investment grade credit ratings;                                                                                      
|
| |  | Continued strengthening of the Corporations
    positioning in North American panelboard markets;                                                                               
|
| |  | Achievement of significant productivity
    improvement at the Corporations Edmundston/ Madawaska
    paper operations;                                                         
|
| |  | Improved operating performance of Nexfor UK
    operations; and                                                                                                                  
|
| |  | Unsatisfactory financial performance of the Paper
    segment.                                                                                                                   

In January 2003, Mr. Gammiero was granted an
option on 150,000 Common Shares under the Nexfor Stock Option
Plan at the market price of CAD $8.25 per share. Consistent
with the Boards decision to discontinue the practice of
issuing loans to executives, Mr. Gammiero no longer
participates in the Share Purchase Plan and all outstanding
loans were repaid in full. In April 2003, Mr. Gammiero was
granted an option on 561,875 Common Shares under the Nexfor
Stock Option Plan at the market price of CAD $7.73 per
share to replace the incentive opportunity foregone with
termination of the Share Purchase Plan. In January 2004,
Mr. Gammiero was granted an option on 150,000 Common Shares
under the Nexfor Stock Option Plan at the market price of
CAD $11.24 per share.

The awards to Mr. Gammiero under the Nexfor
Stock Option Plan are consistent with the compensation
philosophy of the Corporation, which is to tie a significant
portion of the Chief Executive Officers compensation to
corporate performance and the achievement of growth in
shareholder value. In accordance with this philosophy, on
March 10, 2004, the Nexfor Board approved an amendment to
the outstanding options held by Mr. Gammiero to remove
their vesting requirements, on the understanding that
Mr. Gammiero will exercise a portion of the options and use
the after-tax proceeds from the sale of the shares received to
exercise the remaining options. Only one-third of the shares
received by Mr. Gammiero on the exercise of the remaining
options may be sold per year. This increase in the number of
Nexfor Common Shares held by Mr. Gammiero is to further
align his interests with the shareholders of Nexfor and, after
the Arrangement, the shareholders of Fraser Papers.

This report has been prepared by the Human
Resources Committee:

|                                                                    |  |                                     
|------------------------------------------------------------------- |  | ------------------------------------
|Jack L. Cockwell (Chairman)
    Gordon E. Forward
    Pierre Dupuis |  | Robert J. Harding
    Margot Northey

Executive Compensation Disclosure

The following table, presented in accordance with
the regulations to the Securities Act (Ontario), sets
forth all compensation paid or payable in respect of each of the
executive officers named (collectively, the Named
Executive Officers) for services rendered during the
financial years ended December 31, 2003, 2002, and 2001.

21



---



##### 



Summary Compensation Table

|                             |  |      |      |                     |  |                               |              |                 |  |           |              |              |  |  |                |  |  |  |         |  |  |  |              | 
|---------------------------- |  | ---- | ---- | ------------------- |  | ----------------------------- | ------------ | --------------- |  | --------- | ------------ | ------------ |  |  | -------------- |  |  |  | ------- |  |  |  | ------------ | 
|                             |  |      |      |                     |  |                              
|                             |  |      |      | Annual Compensation |  | Long Term Compensation Awards
|                             |  |      |      |                     |  |                              
|                             |  |      |      |                     |  | Securities Under              |              |                
|                             |  |      |      |                     |  | Other Annual                  |              | Options/SARs    |  | All Other
|Name and Principal Position  |  | Year |      | Salary              |  | Bonus                         |              | Compensation(6) |  | Granted   |              | Compensation
|                             |  |      |      |                     |  |                               |              |                 |  |           |              |             
|                             |  |      |      | ($)                 |  | ($)                           |              | ($)             |  | (#)       |              | ($)         
|D. Gammiero (1)              |  |      | 2003 |                     |  |                               | CAD $425,000 |                 |  |           | CAD $439,450 |              |  |  | CAD $931       |  |  |  | 711,875 |  |  |  | CAD $125,000 | 
|President and                |  |      | 2002 |                     |  |                               | CAD $425,000 |                 |  |           | CAD $153,000 |              |  |  | CAD $1,232     |  |  |  | 250,000 |  |  |  |             | 
|Chief Executive Officer      |  |      | 2001 |                     |  |                               | CAD $422,917 |                 |  |           | CAD $168,428 |              |  |  | CAD $1,531     |  |  |  | 250,000 |  |  |  |             | 
|B. Martin (2)                |  |      | 2003 |                     |  |                               | $299,167     |                 |  |           |             |              |  |  |               |  |  |  |        |  |  |  | $ 79,845     | 
|Executive Vice President,    |  |      | 2002 |                     |  |                               | $289,167     |                 |  |           | $ 66,600     |              |  |  |               |  |  |  | 78,000  |  |  |  | $ 18,267     | 
|Paper                        |  |      | 2001 |                     |  |                               | $278,333     |                 |  |           | $ 63,350     |              |  |  |               |  |  |  | 80,000  |  |  |  | $ 17,505     | 
|J. Tremayne (3)              |  |      | 2003 |                     |  |                               | CAD $269,167 |                 |  |           | CAD $191,520 |              |  |  |               |  |  |  | 150,000 |  |  |  |             | 
|Executive Vice President &   |  |      | 2002 |                     |  |                               | CAD $151,667 |                 |  |           | CAD $36,400  |              |  |  |               |  |  |  | 80,000  |  |  |  |             | 
|Chief Financial Officer      |  |      | 2001 |                     |  |                               |             |                 |  |           |             |              |  |  |               |  |  |  |        |  |  |  |             | 
|B. Shineton (4)              |  |      | 2003 |                     |  |                               | £ 159,583    |                 |  |           | £ 99,51      |              |  |  | 5      £ 1,812 |  |  |  |        |  |  |  | £ 151,451    | 
|Executive Vice President,    |  |      | 2002 |                     |  |                               | £ 154,430    |                 |  |           | £ 51,30      |              |  |  | 0      £ 2,000 |  |  |  | 78,000  |  |  |  | £ 40,129     | 
|Wood Products                |  |      | 2001 |                     |  |                               | £ 149,583    |                 |  |           | £ 24,87      |              |  |  | 3      £ 2,812 |  |  |  | 80,000  |  |  |  | £ 45,284     | 
|G. McMillan (5)              |  |      | 2003 |                     |  |                               | CAD $174,167 |                 |  |           | CAD $93,960  |              |  |  |               |  |  |  |        |  |  |  | CAD $25,000  | 
|Vice President, Controller & |  |      | 2002 |                     |  |                               | CAD $154,167 |                 |  |           | CAD $28,700  |              |  |  |               |  |  |  | 21,000  |  |  |  |             | 
|Corporate Secretary          |  |      | 2001 |                     |  |                               | CAD $144,167 |                 |  |           | CAD $25,756  |              |  |  |               |  |  |  | 21,000  |  |  |  |             | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Gammiero was appointed President and
    Chief Executive Officer in October 1999. All Other
    Compensation represents cash received in lieu of an
    additional 100,000 Nexfor stock options.                                                                                                                                                                                                       
|   
|(2) | Mr. Martin was appointed Executive Vice
    President, Paper in June 2003. All Other
    Compensation includes $61,238 received in lieu of 75,000
    Nexfor stock options and matching contributions by the
    Corporation to Mr. Martins 401(k) savings plan.                                                                                                                                          
|   
|(3) | Mr. Tremayne joined Nexfor Inc. as Senior
    Vice President & Chief Financial Officer in June 2002 and
    was appointed Executive Vice President in June 2003.                                                                                                                                                                                                                                             
|   
|(4) | Mr. Shineton was appointed Executive Vice
    President, Wood Products in June 2003. All Other
    Compensation includes £40,939 received in lieu of
    75,000 Nexfor stock options, relocation expenses, employer
    contributions to the Nexfor UK Defined Contribution Plan and
    contributions to Mr. Shinetons retirement account in
    respect of his duties as a senior officer of Nexfor Inc.
|   
|(5) | Mr. McMillan was appointed Controller in
    April, 1999, Vice President in April 2002 and Corporate
    Secretary in April 2003. All Other Compensation
    represents cash received in lieu of 20,000 Nexfor stock options.                                                                                                                                                                              
|   
|(6) | The value of perquisites and benefits for each
    Named Executive Officer is less than the lesser of $50,000 and
    10% of total annual salary and bonus. The amounts quoted in this
    column represent the dollar value of imputed interest benefits
    relating to housing loans.                                                                                                                     

The following table sets forth individual grants
of stock options during the financial year ended
December 31, 2003 to the Named Executive Officers:

Option Grants During the Financial Year Ended
December 31, 2003

|             |  |               |         |                 |  |               |    |                        |  |                 |      |  |  |   |      |  |  |  |               | 
|------------ |  | ------------- | ------- | --------------- |  | ------------- | -- | ---------------------- |  | --------------- | ---- |  |  | - | ---- |  |  |  | ------------- | 
|             |  |               |         | % of Total      |  |               |    | Market Value of Shares |  |                
|             |  | Securities    |         | Options Granted |  | Exercise or   |    | Underlying Options at  |  |                
|             |  | Under Options |         | to Employees in |  | Base Price    |    | Date of Grant          |  |                
|Name         |  | Granted       |         | 2003            |  | (CAD $/Share) |    | (CAD $/Share)          |  | Expiration Date
|             |  |               |         |                 |  |               |    |                        |  |                
|Mr. Gammiero |  |               | 150,000 |                 |  |               | 14 | %                      |  | $               | 8.25 |  |  | $ | 8.25 |  |  |  | Jan. 30, 2013 | 
|             |  |               | 561,875 |                 |  |               | 52 | %                      |  | $               | 7.73 |  |  | $ | 7.73 |  |  |  | Apr. 23, 2013 | 
|Mr. Martin   |  |               |        |                 |  |               |   |                        |  |                 |     |  |  |   |     |  |  |  |              | 
|Mr. Tremayne |  |               | 75,000  |                 |  |               | 7  | %                      |  | $               | 8.25 |  |  | $ | 8.25 |  |  |  | Jan. 30, 2013 | 
|             |  |               | 75,000  |                 |  |               | 7  | %                      |  | $               | 7.73 |  |  | $ | 7.73 |  |  |  | Apr. 23, 2013 | 
|Mr. Shineton |  |               |        |                 |  |               |   |                        |  |                 |     |  |  |   |     |  |  |  |              | 
|Mr. McMillan |  |               |        |                 |  |               |   |                        |  |                 |     |  |  |   |     |  |  |  |              | 






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All options were granted under the Nexfor Stock
    Option Plan and entitle each Named Executive Officer to purchase
    Common Shares of the Corporation. The exercise price is the
    market price of the Common Shares on the date of the grant.
    Mr. Tremaynes options are subject to vesting at the
    annual rate of 20% beginning on the first anniversary from the
    date of grant. As to the options expiring January 30, 2013,
    for a 12-month period following each exercise of these options,
    each Named Executive Officer must hold Nexfor Common Shares with
    a value equivalent to the after-tax gain realized through the
    exercise of the options.

22



---



##### 



The following table sets forth details of each
exercise of stock options during the financial year ended
December 31, 2003 by the Named Executive Officers and the
financial year-end value of unexercised options on an aggregate
basis:

Aggregate Option Exercises During the
Financial Year Ended

December 31, 2003


And Financial Year-End Option Values


|             |  |             |         |             |  |                     |           |                      |  |             |         |               |  |  |           |  |  |  |         |  |  |  |           | 
|------------ |  | ----------- | ------- | ----------- |  | ------------------- | --------- | -------------------- |  | ----------- | ------- | ------------- |  |  | --------- |  |  |  | ------- |  |  |  | --------- | 
|             |  |             |         |             |  |                     |           |                      |  |            
|             |  |             |         |             |  |                     |           | Value of Unexercised
|             |  |             |         |             |  | Unexercised Options |           | In-The-Money Options
|             |  | Shares      |         | Aggregate   |  | at FY-End           |           | at FY-End(2)        
|             |  | Acquired on |         | Value       |  |                     |           |                     
|Name         |  | Exercise    |         | Realized(1) |  | Exercisable         |           | Unexercisable        |  | Exercisable |         | Unexercisable
|             |  |             |         |             |  |                     |           |                      |  |             |         |              
|             |  | (#)         |         | (CAD $)     |  | (#)                 |           | (#)                  |  | (CAD $)     |         | (CAD $)      
|Mr. Gammiero |  |             | 415,000 |             |  |                     | 1,292,130 |                      |  |             | 123,000 |               |  |  | 1,189,875 |  |  |  | 286,560 |  |  |  | 3,723,710 | 
|Mr. Martin   |  |             | 135,400 |             |  |                     | 364,886   |                      |  |             |        |               |  |  | 135,600   |  |  |  |        |  |  |  | 442,464   | 
|Mr. Tremayne |  |             |        |             |  |                     |          |                      |  |             | 16,000  |               |  |  | 214,000   |  |  |  | 40,000  |  |  |  | 589,000   | 
|Mr. Shineton |  |             |        |             |  |                     |          |                      |  |             | 76,400  |               |  |  | 129,600   |  |  |  | 237,016 |  |  |  | 414,144   | 
|Mr. McMillan |  |             | 27,800  |             |  |                     | 33,128    |                      |  |             | 13,200  |               |  |  | 40,500    |  |  |  | 55,528  |  |  |  | 124,992   | 






|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Determined on basis of market value at date of
    exercise.                                                             
|   
|(2) | The closing price of Nexfor Inc. Common Shares on
    the Toronto Stock Exchange on December 31, 2003 was CAD
    $10.85.

Pension Arrangements

Mr. Gammiero, Mr. Tremayne and
Mr. McMillan participate in the Retirement Annuity Plan for
Canadian salaried employees. The following table shows the total
annual retirement benefits payable under such retirement plan to
participants in the specified compensation and years of service
categories assuming retirement at age 65:

Pension Plan Table

|                     |  |                  |        |    |  |    |        |    |  |   |         |  |  |   |         | 
|-------------------- |  | ---------------- | ------ | -- |  | -- | ------ | -- |  | - | ------- |  |  | - | ------- | 
|                     |  |                 
|                     |  | Years of Service
|                     |  |                 
|Remuneration (CAD $) |  | 20               |        | 25 |  | 30 |        | 35
|                     |  |                  |        |    |  |    |        |   
|$150,000             |  | $                | 49,700 |    |  | $  | 62,125 |    |  | $ | 74,575  |  |  | $ | 87,000  | 
|$175,000             |  | $                | 58,450 |    |  | $  | 73,075 |    |  | $ | 87,700  |  |  | $ | 102,300 | 
|$200,000             |  | $                | 67,200 |    |  | $  | 84,000 |    |  | $ | 100,825 |  |  | $ | 117,625 | 
|$225,000 and above   |  | $                | 75,950 |    |  | $  | 94,950 |    |  | $ | 113,950 |  |  | $ | 132,925 | 

Remuneration for the purposes of such pension
plan includes base salary only. The pension benefit is based on
1.75% per year of service of the average of the best
60 months salary minus an adjustment for Canada
Pension Plan benefits. Pension benefits are reduced for
retirement earlier than age 65.

To limit the Corporations retirement
benefit liability to employees under the plan, a remuneration
level of CAD $225,000 has been established as the maximum
average remuneration eligible for pension calculations. This
maximum is to be reviewed periodically in both general
application and application to individuals.

At age 65, Mr. Gammiero, Mr. Tremayne
and Mr. McMillan will have attained 22 years,
26 years and 34 years of credited service,
respectively. These pension benefits are payable for life
guaranteed for 5 years. Upon death, payments continue to
the surviving spouse reducing to 66 2/3% (basic option) at
the end of the five year guarantee.

The pension arrangements for Mr. Martin
provide for a benefit based on participation in the Fraser
Papers Inc. Pension Equity Plan, the Fraser Papers Inc.
Supplemental Executive Retirement Plan and the Nexfor Inc.
Fraser Operations Salaried Pension Plan. At age 65
Mr. Martin will have attained 44 years of credited
service under these plans. The estimated annual pension benefit
payable under these plans to Mr. Martin at normal
retirement age (65) is US $188,993.

Five Year Total Shareholder Return
Comparison

The following graph assumes that CAD $100
was invested on December 31, 1998 in Nexfor Inc.s
Common Shares, the TSX Paper & Forest Index, the S&P/TSX
Composite Index and the S&P/TSX Canadian Materials Index
respectively.

23



---



##### 



Cumulative Value of CAD $100 Investment
Assuming Reinvestment of Dividends(1)

CUMMULATIVE VALUE GRAPH

|                                 |  |             |        |             |  |             |        |             |  |             |        |             |  |   |        |  |  |   |        |  |  |   |        | 
|-------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                 |  | Dec. 31 98 |        | Dec. 31 99 |  | Dec. 31 00 |        | Dec. 31 01 |  | Dec. 31 02 |        | Dec. 31 03
|                                 |  |             |        |             |  |             |        |             |  |             |        |            
|Nexfor                           |  | $           | 100.00 |             |  | $           | 145.94 |             |  | $           | 129.92 |             |  | $ | 145.02 |  |  | $ | 167.27 |  |  | $ | 229.75 | 
|TSX Paper & Forest Index (2)     |  | $           | 100.00 |             |  | $           | 149.52 |             |  | $           | 140.99 |             |  | $ | 148.07 |  |  | $ | 152.69 |  |  | $ | 149.70 | 
|S&P/TSX Composite Index          |  | $           | 100.00 |             |  | $           | 131.71 |             |  | $           | 141.47 |             |  | $ | 123.69 |  |  | $ | 108.30 |  |  | $ | 137.25 | 
|S&P/TSX Canadian Materials Index |  | $           | 100.00 |             |  | $           | 114.33 |             |  | $           | 106.04 |             |  | $ | 117.38 |  |  | $ | 125.60 |  |  | $ | 160.20 | 






|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | All amounts in CAD $.                                                                                
|   
|(2) | In May 2003, the TSX Paper & Forest Index was
    integrated in the S&P/TSX Canadian Materials Index.

Directors and Officers Liability
Insurance

The Corporation maintains directors and
officers liability insurance coverage through a primary
and excess policy covering Brascan Corporation and certain
subsidiary and associated companies, which has a combined annual
aggregate policy limit of CAD $50 million, subject to
a corporate deductible of CAD $1 million per loss.
Generally, under this insurance coverage, the Corporation is
reimbursed for indemnity payments made to its Directors or
officers as required or permitted by law for losses, including
legal costs, incurred by officers and Directors in their
capacity as such. This policy also provides coverage directly to
individual Directors and officers without any deductible if they
are not indemnified by the Corporation. The insurance coverage
for Directors and officers has customary exclusions, including
libel and slander, and those acts determined to be uninsurable
under law, deliberately fraudulent or dishonest, or to have
resulted in personal profit or advantage. The policies have
one-year terms and have an annual aggregate premium of
CAD $90,000, which is payable by the Corporation.

Auditor Independence

Provision Of Non-Audit Services By The
Auditor

Ernst & Young LLP and its respective
affiliates (collectively Ernst & Young) are
the auditors of the Corporation. From time to time
Ernst & Young also provides other non-audit services to
the Corporation and its subsidiaries. It is the
Corporations policy not to engage its auditors to provide
services in connection with financial information systems design
and implementation or other services that may impair the
objectivity of the auditors. The Corporation has implemented a
procedure to ensure that any engagement of the auditors for
non-audit services receives prior clearance by the Audit
Committee. In approving any such engagement, the Audit Committee
will consider whether the provision of such non-audit services
is compatible with maintaining Ernst & Youngs
independence.

24



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##### 



Fees Paid To The Auditor

The table below summarizes the fees paid to Ernst
& Young:

|                         |  |      |           |      |  |   |           | 
|------------------------ |  | ---- | --------- | ---- |  | - | --------- | 
|Services                 |  | 2003 |           | 2002
|                         |  |      |           |     
|Audit services           |  | $    | 635,000   |      |  | $ | 509,000   | 
|Audit related services   |  |      | 237,000   |      |  |   | 308,000   | 
|Taxation services        |  |      | 369,000   |      |  |   | 317,000   | 
|Other non-audit services |  |      | 64,000    |      |  |   | 121,000   | 
|                         |  |      |           |      |  |   |           | 
|Total for all services   |  | $    | 1,305,000 |      |  | $ | 1,255,000 | 
|                         |  |      |           |      |  |   |           | 

Details of the services performed by Ernst &
Young are provided below:

Audit Services

Audit services include the annual financial
statement audit of the Corporation and certain of its
subsidiaries. The 2003 fees include the review of the
Corporations unaudited interim financial statements.

Audit Related Services

Audit-related services include audits of the
Corporations pension plans, special purpose non-statutory
audits of divisions of the Corporation, comfort letters
associated with regulatory filings and internal control reviews.

Taxation Services

Taxation services include tax advisory and
compliance services.

Other Non-Audit Services

Non-audit services include translation services,
compensation consulting and other business advisory services.

Consideration of Independence

Ernst & Young has advised the Audit
Committee that it considers itself to be independent of the
Corporation, and the Audit Committee has confirmed that it
considers Ernst & Young to be independent.

Appointment of Auditors

The people named in the proxy form enclosed with
the Notice of Meeting intend to vote for the appointment of
Ernst & Young LLP, Toronto, as auditors of the
Corporation at a remuneration to be fixed by the Directors.

25



---



##### 



PART III

THE ARRANGEMENT

Nexfor is an international forest products
company with operating assets in Canada, the United States and
the United Kingdom. Nexfor has businesses in three main areas:
Panels, Paper and Timber. In Panels, Nexfor manufactures and
markets OSB, MDF, particleboard, hardwood plywood, I-joists
and other panel products and markets lumber for the Paper
business. In Paper, Nexfor produces and markets uncoated
freesheet papers, uncoated groundwood papers, lightweight coated
groundwood papers and bleached hardwood kraft pulp and produces
lumber. In Timber, Nexfor manages freehold and licensed
timberlands in New Brunswick and Maine.

Under the Arrangement, Nexfor will distribute its
Paper and Timber businesses to the Nexfor Common Shareholders.
This distribution will be accomplished by combining the Paper
and Timber businesses into a separate, publicly traded
corporation, Fraser Papers, and distributing the Fraser Papers
Common Shares to the Nexfor Common Shareholders of record at the
close of business on the Distribution Record Date. For every
Nexfor Common Share held of record at the close of business in
Toronto on the Distribution Record Date, after giving effect to
the Arrangement, a Nexfor Common Shareholder will hold 1 Norbord
Common Share and 1/5 of a Fraser Papers Common Share. Fractional
interests in Fraser Papers Common Shares will be summed and sold
and a holder will receive a cheque for its proportionate
interest in the sale proceeds.

The Arrangement will not require any Nexfor
Common Shareholder to make any payment and will generally be
effected on a tax-deferred basis in Canada for Nexfor Common
Shareholders who hold their shares as capital property. See
Income Tax Considerations  Certain Canadian
Federal Income Tax Considerations. Nexfor Common
Shareholders who are subject to U.S. federal income
taxation should see Income Tax Considerations 
Certain U.S. Federal Income Tax Considerations.

Reasons for the Arrangement

In 1998, the Nexfor Board and management
concluded that shareholder value would best be maximized by
focusing on growth in the Panels business and increasing the
percentage of specialty papers in the Paper business. Over the
following five years, the percentage of Nexfors net assets
employed in the Panels business increased from less than 30% to
in excess of 55% at December 31, 2003.

In April 2003, a strategic review of
Nexfors businesses by Nexfor management identified the
distinctive nature of each of Nexfors businesses. The
Panels and Paper businesses are not complementary and provide
limited synergies to one another. The Nexfor Board and
management have been considering ways to reorganize
Nexfors operations in order to continue to maximize
shareholder value.

Over the past year, Nexfors financial
position has improved as a result of strong operating cash flow
and the sale of non-core assets. Nexfor management concluded
that shareholder value would be maximized and each business
would benefit from separating the businesses. This conclusion
was reached, in part, for the following reasons:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management  Each of the two businesses
    has a different business cycle, serves different marketplaces
    and customer bases, is subject to different competitive forces
    and must be managed with different short-term and long-term
    strategies. Separating Nexfors businesses into separate
    public companies, each with its own board of directors, will
    allow the management of each company to react directly to the
    competitive forces in its own market and pursue short-term and
    long-term strategies that are appropriate to its industry.
|
| |  | Capital  Each of the public companies
    will have direct access to public and private capital markets
    and will be able to issue debt and equity to fund growth and
    finance acquisitions. In addition, the management of each
    company will be able to evaluate its own growth opportunities
    and organize its capital structure according to its own industry.                                                                                                                                                                                               
|
| |  | Investor Understanding  Debt and
    equity investors and analysts will be able to more easily follow
    and accurately value the businesses on a stand-alone basis
    against competitors, benchmarks and performance criteria
    specific to each industry, thereby enhancing the likelihood that
    each company will achieve appropriate market recognition.                                                                                                                                                                                                         
|
| |  | Employees  Each company will be able
    to establish equity based compensation programs that should
    enable it to attract, motivate and retain key employees.                                                                                                                                                                                                                                                                                                                                                                                                            

26



---



##### 



Nexfor is now in a position to distribute the
Paper and Timber businesses to the Nexfor Common Shareholders
without putting undue pressure on its finances.

On March 10, 2004, the Nexfor Board agreed
that the separation of the two businesses at this time should be
strategically and financially beneficial to both businesses and
would maximize shareholder value for the Nexfor Common
Shareholders without being prejudicial to Nexfor Preferred
Shareholders. Accordingly, the Nexfor Board authorized the
distribution of Fraser Papers to the Nexfor Common Shareholders.
Nexfor issued a press release on March 11, 2004 announcing
this decision.

On April 21, 2004, the Nexfor Board met to
consider the reorganization of Nexfor and the organization of
Fraser Papers, including their proposed directors, officers and
capitalization. The Nexfor Board approved the Plan of
Arrangement, the Arrangement Agreement and the transactions
contemplated thereby and this Circular. The new board of
directors of Fraser Papers met on the same day to approve the
Arrangement Agreement and to authorize the organization of
Fraser Papers effective, as to certain matters, upon completion
of the Arrangement.

Arrangement Agreement and Plan of
Arrangement

The following description of the Arrangement
Agreement is qualified in its entirety by reference to the full
text of the Arrangement Agreement, a copy of which is
Exhibit E to this Circular, and the Plan of Arrangement, a
copy of which is Appendix A to the Arrangement Agreement,
each of which should be read carefully in its
entirety.

Nexfor, Fraser Papers and the subsidiaries that
presently conduct the Paper and Timber businesses, FP (CAD) and
FP (US), have entered into the Arrangement Agreement which
provides for, among other things, the terms of the Plan of
Arrangement, the conditions to its completion, actions to be
taken prior to the Effective Date and indemnities between the
companies after the Effective Date, all as described below.

Pursuant to the Arrangement Agreement, each of
the parties has agreed to use commercially reasonable efforts to
complete the transactions contemplated in the Arrangement
Agreement. However, the Nexfor Board may decide at any time
before or after the annual and special meeting, but prior to the
Effective Date, not to proceed with the Arrangement without any
further action on the part of the Nexfor Shareholders or the
Court. The Nexfor Board considers it appropriate to retain the
flexibility not to proceed with the Arrangement should some
event occur after the meeting and prior to the Effective Date
which, in the option of the Nexfor Board, makes it inadvisable
to complete the Arrangement. The Arrangement Agreement and
Arrangement Resolution authorize such action.

The Arrangement Agreement and Arrangement
Resolution also provide that the Plan of Arrangement may be
amended by the Nexfor Board before or after the meeting without
further notice to the Nexfor Shareholders. The Nexfor Board has
no present intention to amend the Plan of Arrangement. However,
it is possible that the failure to be in a position to implement
appropriate new financing arrangements or market or other
conditions could make it advisable to amend the Plan of
Arrangement. In addition, it is also possible that, due to
discussions with the CCRA in respect of the Canadian Federal Tax
Ruling or other governmental authorities in relation to any
other Tax Rulings or other considerations, the Nexfor Board may
determine that it is appropriate that amendments be made. Any
amendment made to the Plan of Arrangement after the meeting must
be approved by the Court.

Pursuant to the Arrangement Agreement, each of
the parties has agreed to indemnify and hold harmless each other
against any loss suffered or incurred resulting from a breach of
a representation, warranty or covenant including that each party
will not take any action, omit to take any action or enter into
any transaction that could adversely impact the Tax Rulings
including government opinions and the assumptions upon which
they were made. For example, with respect to Canadian taxation,
in addition to various transactions that the respective parties
are prohibited from undertaking prior to the implementation of
the Arrangement, after the implementation of the Arrangement, no
party will be able to dispose of or exchange more than 10% of
its assets, or, among other things, undergo an acquisition of
control without severe adverse consequences where such
disposition or control acquisition is, or is deemed to be, for
Canadian tax purposes, part of a series of transactions or
events that includes the Arrangement, except in limited
circumstances.

27



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Effects of the Arrangement

Pre-Arrangement Organizational
Structure

The following diagram sets out an abbreviated
organizational structure of Nexfor and its operating
subsidiaries before the Arrangement.

(NEXFOR COMMON SHAREHOLDERS CHART)

Post-Arrangement Organizational
Structures

The following diagram sets out an abbreviated
organization structure of Nexfor/ Norbord and Fraser Papers
after giving effect to the Arrangement.

(NEXFOR COMMON SHAREHOLDERS CHART)

28



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Details of the Arrangement

The steps to effect the Arrangement will occur on
the Effective Date by operation of law without any further
actions by the Nexfor Shareholders. These steps are set out in
detail in the Plan of Arrangement. In summary, the Plan of
Arrangement provides that:



| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Nexfor Common Shareholders (other than Dissenting
    Shareholders) will exchange Nexfor Common Shares for Nexfor
    Convertible Shares and Nexfor Non-Voting Shares;                                                                  
|
| |  | the holders of Nexfor Stock Options will dispose
    of those options for Replacement Stock Options;                                                                                                                                    
|
| |  | the number of deferred stock units credited to
    the account of non-employee directors of Nexfor will be adjusted
    so their aggregate value is not reduced by the Arrangement;                                                     
|
| |  | former Nexfor Common Shareholders (other than
    Dissenting Shareholders) will exchange the Nexfor Non-Voting
    Shares for Fraser Papers Convertible Shares;                                                                         
|
| |  | Nexfor will transfer the Papers and Timber
    businesses to Fraser Papers by what is referred to as a
    butterfly reorganization;                                                                                                  
|
| |  | the Nexfor Convertible Shares will be converted
    into Common Shares of Nexfor on a one-for-one basis and the
    Fraser Papers Convertible Shares will be converted into Fraser
    Papers Common Shares on a five-for-one basis; and
|
| |  | Nexfor will change its name to Norbord Inc.                                                                                                                                                                                             

Upon the Arrangement becoming effective, each
former holder of Nexfor Common Shares (other than Dissenting
Shareholders) of record at the close of business in Toronto on
the Distribution Record Date will hold, for each Nexfor Common
Share, 1 Norbord Common Share, 1/5 of a Fraser Papers
Common Share and cash for any fractional interest in a Fraser
Papers Common Share.

Treatment of Fractional Interests

Under the Arrangement, a Nexfor Common
Shareholder will not be entitled to be registered on the books
of Fraser Papers in respect of a fraction of a Fraser Papers
Common Share. Fractional interests in Fraser Papers Common
Shares will be summed and the total will be rounded up to the
nearest whole number and issued to the Transfer Agent. The
Transfer Agent will sell them on the TSX and divide the proceeds
(other than cash representing the rounded up amount, which will
be paid to Fraser Papers) among the persons otherwise entitled
to fractions by forwarding cheques representing their
proportional interests in the proceeds to such persons.

Treatment of Certain Outstanding
Securities

Nexfor Preferred Shares

At May 3, 2004, 2.4 million Nexfor
Preferred Shares were outstanding. The Nexfor Preferred Shares
pay a quarterly dividend at the rate of 100% of the Canadian
prime rate times the issue price of CAD $25. This rate is
subject to adjustment based on the trading price of the shares,
i.e., if the trading price of the shares is greater than CAD
$25.25 the rate may decrease and if the trading price is less
than CAD $24.75 the rate may increase. Under no circumstances
can the dividend rate be greater than 100% of the Canadian prime
rate. The number and terms of the Nexfor Preferred Shares are
not changed by the Arrangement. They will continue as
outstanding securities of Norbord.

Following the announcement of the Arrangement,
Dominion Bond Rating Service and Standard and Poors, the
two agencies that provide credit ratings on the Nexfor Preferred
Shares, confirmed their ratings on the shares at Pfd-3 and P-3
(High). Nexfor believes that it will continue to have adequate
financial resources to pay the dividend on the shares and that
sufficient assets will exist within Norbord to redeem the shares.

Dividend Reinvestment Plan

Participants in Nexfors Dividend
Reinvestment Plan (DRIP) will participate in the
Arrangement and receive Norbord Common Shares and Fraser Papers
Common Shares in exchange for their Nexfor Common Shares on the
same basis as other Nexfor Common Shareholders. Accordingly,
Nexfor Common Shares resulting from the reinvestment of cash
dividends (including the dividend payable on June 21, 2004
to shareholders of record on June 1, 2004) will be combined
with a holders Nexfor Common Shares of record at the close
of business in Toronto on the Distribution Record Date to
calculate the entitlement of the holder to receive Norbord
Common Shares and Fraser

29



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##### 



Papers Common Shares. Fractional interests in
Fraser Papers Common Shares will be summed and sold and a holder
will receive a cheque for its proportionate interest in the sale
proceeds. See Treatment of Fractional Interests and
Distribution of Share Certificates.


Employee Share Savings Plan

Participants in Nexfors Employee Share
Savings Plan (the ESSP) who will remain as employees
of Norbord following the Effective Date will participate in the
Arrangement on the same basis as other holders of Nexfor Common
Shares. The Fraser Papers Common Shares received by such
participants will, at the option of each participant, be
distributed to the participant or sold with the proceeds of such
sale distributed to the participant.

Participants in the ESSP who will be employees of
Fraser Papers will be entitled to continue participation in the
ESSP up to the Effective Date and to participate in the
Arrangement on the same terms as other holders of Nexfor Common
Shares. On the Effective Date, such employees will be treated,
for purposes of the ESSP, as having terminated their employment
with Nexfor and will have the option of receiving or selling the
Norbord Common Shares and Fraser Papers Common Shares.

Fractional interests in Fraser Papers Common
Shares to which participants in the ESSP at the close of
business on the Distribution Record Date would otherwise be
entitled will be treated in the manner described under
Treatment of Fractional Interests.

Stock Option Plan

Under the terms of the Nexfor Stock Option Plan,
in the event of a transaction like the Arrangement, the Nexfor
Board has the authority to determine, in its sole discretion,
the manner in which all unexercised options will be treated and
otherwise make provision to protect the rights of participants.
In connection with the Arrangement, the Nexfor Board has
determined to adjust the exercise price of each outstanding
option downward to reflect the decline in the fair market value
of the Nexfor Common Shares as a result of the Arrangement.

The adjusted exercise price will be determined in
accordance with the following formula and rounded up to the
nearest whole cent:

A = B - (C - D)

where:



| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| | A | means the adjusted exercise price of a
    Replacement Stock Option (subject to a minimum of $0.01)



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| | B | means the original exercise price per share of
    the Nexfor Stock Option.                                                  
|
| | C | means the weighted average price of a Nexfor
    Common Share on the TSX for 10 trading days prior to the
    Effective Date.



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| | D | means the weighted average price of a Norbord
    Common Share on the TSX for 10  trading days after the
    Effective Date.

Outstanding options will be cancelled and
replaced with Replacement Stock Options exercisable after the
Effective Date into the same number of Norbord Common Shares at
the adjusted exercise price and otherwise having the same terms
and conditions as the outstanding options so replaced.

30



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##### 



Stock Exchange Listings, Trading Prices and
Dividends

The Nexfor Common Shares are listed on the TSX.
The following table sets out the market price range and volumes
of trading of Nexfor Common Shares on the TSX during the periods
indicated.

|     |                |         |  |         |  |            |  |       |  |  |  |      | 
|---- | -------------- | ------- |  | ------- |  | ---------- |  | ----- |  |  |  | ---- | 
|     |                | High    |  | Low     |  | Volume    
|     |                |         |  |         |  |           
|     |                | (CAD $) |  | (CAD $) |  | (millions)
|2002 |                |         |  |         |  |            |  |       |  |  |  |     
|     | First Quarter  |         |  | 8.93    |  |            |  | 7.36  |  |  |  | 18.3 | 
|     | Second Quarter |         |  | 9.70    |  |            |  | 8.81  |  |  |  | 14.6 | 
|     | Third Quarter  |         |  | 9.24    |  |            |  | 7.75  |  |  |  | 11.1 | 
|     | Fourth Quarter |         |  | 8.69    |  |            |  | 7.13  |  |  |  | 12.5 | 
|2003 |                |         |  |         |  |            |  |       |  |  |  |     
|     | First Quarter  |         |  | 8.60    |  |            |  | 7.01  |  |  |  | 7.3  | 
|     | Second Quarter |         |  | 8.68    |  |            |  | 7.41  |  |  |  | 8.2  | 
|     | Third Quarter  |         |  | 10.22   |  |            |  | 8.43  |  |  |  | 17.1 | 
|     | Fourth Quarter |         |  | 11.24   |  |            |  | 9.42  |  |  |  | 21.7 | 
|2004 |                |         |  |         |  |            |  |       |  |  |  |     
|     | January        |         |  | 11.88   |  |            |  | 10.30 |  |  |  | 6.0  | 
|     | February       |         |  | 14.75   |  |            |  | 11.06 |  |  |  | 7.9  | 
|     | March          |         |  | 15.60   |  |            |  | 13.30 |  |  |  | 11.3 | 
|     | April          |         |  | 15.58   |  |            |  | 14.56 |  |  |  | 7.6  | 
|     | May 1 to 3     |         |  | 15.16   |  |            |  | 14.91 |  |  |  | 0.4  | 

On March 10, 2004, the last trading day
before Nexfor announced that the Nexfor Board had approved the
proposed Arrangement, the closing price of the Nexfor Common
Shares on the TSX was CAD $13.95 per share. On May 3, 2004,
the closing price of the Nexfor Common Shares on the TSX was CAD
$15.05 per share.

The Nexfor Preferred Shares are listed on the
TSX. The following table sets out the market price range and
volumes of trading of Nexfor Preferred Shares on the TSX during
the periods indicated:

|     |                |         |  |         |  |        |  |       |  |  |  |         | 
|---- | -------------- | ------- |  | ------- |  | ------ |  | ----- |  |  |  | ------- | 
|     |                | High    |  | Low     |  | Volume
|     |                |         |  |         |  |       
|     |                | (CAD $) |  | (CAD $) |  |       
|2002 |                |         |  |         |  |        |  |       |  |  |  |        
|     | First Quarter  |         |  | 25.00   |  |        |  | 23.50 |  |  |  | 82,258  | 
|     | Second Quarter |         |  | 24.55   |  |        |  | 24.40 |  |  |  | 88,232  | 
|     | Third Quarter  |         |  | 24.60   |  |        |  | 24.50 |  |  |  | 13,086  | 
|     | Fourth Quarter |         |  | 24.50   |  |        |  | 24.20 |  |  |  | 219,926 | 
|2003 |                |         |  |         |  |        |  |       |  |  |  |        
|     | First Quarter  |         |  | 25.00   |  |        |  | 24.30 |  |  |  | 110,861 | 
|     | Second Quarter |         |  | 25.00   |  |        |  | 24.95 |  |  |  | 148,343 | 
|     | Third Quarter  |         |  | 25.00   |  |        |  | 24.80 |  |  |  | 15,169  | 
|     | Fourth Quarter |         |  | 25.10   |  |        |  | 24.50 |  |  |  | 179,500 | 
|2004 |                |         |  |         |  |        |  |       |  |  |  |        
|     | January        |         |  | 25.00   |  |        |  | 25.00 |  |  |  | 100     | 
|     | February       |         |  |        |  |        |  |      |  |  |  | 0       | 
|     | March          |         |  |        |  |        |  |      |  |  |  | 0       | 
|     | April          |         |  | 25.00   |  |        |  | 25.00 |  |  |  | 119,007 | 
|     | May 1 to 3     |         |  |        |  |        |  |      |  |  |  | 0       | 

On May 3, 2004, the closing price of Nexfor
Preferred Shares on the TSX was CAD $25 per share.

The TSX has conditionally approved the listing of
the new Common Shares of each of the Norbord and Fraser Papers,
subject to the filing of the usual documentation. The listing of
the Nexfor Preferred Shares is not affected by the Arrangement.

31



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Nexfor does not have a stated dividend policy in
respect of the Nexfor Common Shares but has historically paid
dividends on a quarterly basis. Dividends on the Nexfor
Preferred Shares are paid quarterly in accordance with the terms
of these shares. The per share totals for the two years and four
months ended April 30, 2004 are as follows:

|                        |  |                   |       |      |  |       |       |  |  |       |       | 
|----------------------- |  | ----------------- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                        |  | Four Months ended |       |      |  |      
|                        |  | April 30, 2004    |       | 2003 |  | 2002 
|                        |  |                   |       |      |  |      
|Nexfor Preferred Shares |  | CAD $             | 0.265 |      |  | CAD $ | 1.173 |  |  | CAD $ | 1.048 | 
|Nexfor Common Shares    |  | CAD $             | 0.10  |      |  | CAD $ | 0.40  |  |  | CAD $ | 0.40  | 

On April 21, 2004, the Nexfor Board declared
a dividend of CAD $0.10 per share payable on
June 21, 2004 to holders of Nexfor Common Shares of record
on June 1, 2004.

The board of directors of each of Norbord and
Fraser Papers will establish its dividend policy based on the
companys financial position, financing requirements for
growth, cash flow and other factors considered relevant. See
Dividend Policy in the information concerning each
company in Parts IV and V of this Circular.

Qualification for Trading Common
Shares

Canada

The issuance of the Norbord Common Shares and
Fraser Papers Common Shares pursuant to the Arrangement will be
exempt from the registration and prospectus requirements of
applicable Canadian securities legislation. Nexfor has applied
for and expects to receive prior to the annual and special
meeting all required rulings or orders from Canadian securities
regulatory authorities to permit the Norbord Common Shares and
Fraser Papers Common Shares to be resold without restriction,
subject to the conditions that no unusual effort is made to
prepare the market for the resale or create a demand for the
shares and no extraordinary commission or consideration is paid
in respect of the resale and to customary restrictions
applicable to distributions of securities held by control
persons and persons in special relationships to the
relevant company.

U.S.

Norbord Common Shares and Fraser Papers Common
Shares issued to a Nexfor Common Shareholder pursuant to the
Arrangement may be resold in the U.S. without restriction
under the U.S. Securities Act of 1933 except for
Common Shares issued to any person who was an affiliate of
Nexfor or Fraser Papers prior to consummation of the
Arrangement. For these purposes, an affiliate is any
person that directly or indirectly controls, or is controlled by
or is under common control with such company, and the term
control means the direct or indirect possession of
the power to direct or cause the direction of the management and
policies of another, whether through the ownership of voting
securities, by control or otherwise. Holders who may be
affiliates for these purposes should consult their own legal
advisors prior to the sale of the Norbord Common Shares or
Fraser Papers Common Shares in the U.S.

Eligibility for Investment

Eligibility of each of the Norbord Common Shares
and the Fraser Papers Common Shares for investment by purchasers
to whom any of the following statutes apply is, in certain
cases, governed by criteria which such purchasers are required
to establish as policies or guidelines pursuant to the
applicable statute (and, where applicable, the regulations
thereunder) and is subject to the prudent investment standards
and general investment provisions provided therein:

|                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Insurance Companies Act(Canada)Trust and Loan Companies Act(Canada)Pension Benefits Standards Act, 1985(Canada)Loan and Trust Corporations Act(Ontario)Pension Benefits Act(Ontario)Trustee Act(Ontario)Supplemental Pension Plans Act(Québec)An Act respecting insurance(Québec) for
    insurers
    other than a guarantee fund corporation |  | An Act respecting trust companies and savings
    companies(Québec) for a trust
    company investing its own funds and deposits it receives and a
    savings company, as defined therein, which invests its fundsLoan and Trust Corporations Act(Alberta)Insurance Act(Alberta)Financial Institutions Act(British Columbia)The Trustee Act(Manitoba)The Insurance Act(Manitoba)

Assuming the Norbord Common Shares and Fraser
Papers Common Shares are and continue to be listed on the TSX,
such shares will be qualified investments under the Tax Act for
a trust governed by a registered retirement

32



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##### 



savings plan, a registered retirement income
fund, a registered education savings plan or a deferred profit
sharing plan. Based in part on a certificate of an officer of
Fraser Papers as to certain factual matters, such shares also
should not be foreign property for purposes of Part XI of
the Tax Act when issued pursuant to the Plan of Arrangement.


Rulings and Approvals Necessary for the
Arrangement

Tax Rulings

The obligations of the parties to the Arrangement
Agreement to complete the Arrangement are conditional upon the
receipt of the Canadian Federal Tax Ruling, in form and
substance satisfactory to Nexfor, confirming, among other
things, that, based on the provisions of the Tax Act and the Tax
Proposals (as at the date of issue of the ruling), the proposed
Arrangement and related transactions will be treated for
purposes of the Tax Act as resulting in a butterfly
reorganization with no material Canadian federal income tax
payable by any of Nexfor, its subsidiaries or their affiliates
or, in general, Nexfor Common Shareholders who hold their shares
as capital property. Prior to mailing this Circular, Nexfor
requested the Canadian Federal Tax Ruling and anticipates that
it will be received prior to the annual and special meeting. A
similar condition will exist in respect of any other Tax Rulings.

Other Regulatory Approvals

Certain steps of the Arrangement may be
considered related party transactions within the meaning of
Rule 61-501 of the Ontario Securities Commission and
Policy Q-27 of the Autorité des marches financiers du
Québec. However, the minority approval and formal valuation
requirements of Rule 61-501 and Policy Q-27 do not
apply to these transactions or an exemption from these
requirements is available.

Shareholder Approval

The Interim Order provides that, for the
Arrangement to be implemented, the Arrangement Resolution must
be passed, with or without variation, by at least 66 2/3%
of the votes cast on the resolution by the Nexfor Common
Shareholders and Nexfor Optionholders, voting together, and the
Nexfor Preferred Shareholders, voting separately, present in
person or represented by proxy at the annual and special
meeting. Brascan has advised that the Nexfor shares owned or
controlled by it will be voted for the passage of the
Arrangement Resolution.

Court Approval

An Arrangement under the CBCA requires Court
approval. Prior to mailing this Circular, Nexfor obtained the
Interim Order providing for the calling and holding of the
annual and special meeting and certain other procedural matters.
A copy of the Interim Order is Exhibit C to this Circular.

Subject to approval of the Arrangement by the
Nexfor Shareholders, the hearing in respect of the Final Order
is scheduled to take place on June 28, 2004 at
10:00 a.m. (Toronto time) at the Commercial Court,
393 University Avenue, Toronto. All Nexfor Shareholders and
other interested parties who wish to participate or be
represented or to present evidence or arguments at the hearing
for the Final Order may do so, subject to filing a notice of
appearance with the Court on or before 2:00 p.m. (Toronto
time) on June 23, 2004, serving this notice on Nexfor and
satisfying certain other requirements. In hearing the petition
for the Final Order, the Court will consider, among other
things, the fairness and reasonableness of the Arrangement. The
Court may approve the Arrangement either as proposed or as
amended in any manner the Court may direct, subject to
compliance with such terms and conditions, if any, as the Court
thinks fit.

Prior to issuing the Final Order, the Court will
be advised that the Final Order will constitute the basis for an
exemption from the registration requirements of the
U.S. Securities Act of 1933 with respect to the
Norbord Common Shares, the Fraser Papers Common Shares and the
Replacement Stock Options issued pursuant to the Arrangement.

Other Conditions to the Arrangement

In addition to the receipt of the rulings and
approvals noted above, under the Arrangement Agreement the
following conditions must be satisfied before the Arrangement
becomes effective:



| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the TSX will have approved the listing of the
    Common Shares (and Convertible Shares and Non-Voting Shares)
    issued pursuant to the Arrangement, subject to compliance with
    normal listing requirements;                                                                                                                                            
|
| |  | no action will have been instituted and be
    continuing on the Effective Date for an injunction to restrain,
    a declaratory judgment in respect of, or damages on account of
    or relating to, the Arrangement and there will not be in force
    any order or decree restraining or enjoining the consummation of
    the transactions contemplated by

33



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##### 



| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the Arrangement Agreement or the Tax Rulings and
    no cease trading or similar order with respect to any securities
    of Nexfor or Fraser Papers will have been issued and remain
    outstanding;                                                            
|
| |  | no law, regulation or policy will have been
    proposed, enacted, promulgated or applied that interferes or is
    inconsistent with the completion of the Arrangement or the grant
    of the Tax Rulings or their effective application to the
    Arrangement;
|
| |  | in the event that Dissenting Shareholders hold
    more than 0.5% of the outstanding Nexfor Common Shares or Nexfor
    Preferred Shares, Nexfor will have determined to proceed with
    the Arrangement; and                                                    
|
| |  | the Arrangement Agreement will not have been
    terminated as provided therein.                                                                                                                                                                                  

Certain of the conditions described above may be
waived in whole or in part by Nexfor or Fraser Papers, as
applicable.

Upon the foregoing conditions being fulfilled or
waived, it is anticipated that Articles of Arrangement will be
filed with the Director under the CBCA in order that the
Director may issue the Certificate of Arrangement to give effect
to the Arrangement. Simultaneously, the various other documents
necessary to consummate the transactions contemplated under the
Arrangement Agreement will be executed and delivered. Subject to
the foregoing, it is currently anticipated that the Effective
Date will occur on or about July 1, 2004. The Arrangement
Agreement provides that it will terminate without any further
action by the parties if the Effective Date does not occur on or
before December 31, 2004 or such late date as Nexfor may
determine.

In the event that the Arrangement is not approved
by Nexfor Shareholders or the Court, or that the other
conditions precedent to the Arrangement are not fulfilled or
waived, the Arrangement will not proceed.

Risk Factors

The following factors, in conjunction with the
other information included in this Circular (including the
documents incorporated by reference herein), should be carefully
considered by Nexfor Shareholders in evaluating the Arrangement.
See also Risk Factors in the Annual Information Form
of Nexfor incorporated herein by reference and in the
information concerning Fraser Papers in Part V of this
Circular.

Lack of Separate Operating Histories of
Norbord and Fraser Papers

Upon consummation of the Arrangement, Norbord and
Fraser Papers will be independent public companies. Neither
Norbord (as a standalone panelboard business) nor Fraser Papers
has an operating history as a separate public company. The
ability of each of Norbord and Fraser Papers to raise capital,
satisfy its obligations and provide a return to its shareholders
will be dependent upon its future performance. Neither company
will be able to rely on the capital resources and cash flows of
the other.

Leverage Following
Arrangement

Following the Arrangement, Norbord will be more
highly leveraged than Nexfor prior to the Arrangement. As at
March 27, 2004 on a pro forma basis after giving
effect to the Arrangement, Nexfors net debt to total
capitalization would have increased from 28% to 41%. While the
management of Nexfor does not foresee any difficulty in making
scheduled repayments of indebtedness or in financing or
refinancing operations, the ability of Norbord to do so will
depend on its financial and operating performance, which in turn
is subject to prevailing economic conditions and to certain
business, financial and other factors beyond its control.

Trading Prices

There is not currently a public market for the
Fraser Papers Common Shares and there can be no assurance as to
the prices at which trading in such shares will occur after the
Arrangement. Until the Fraser Papers Common Shares are fully
distributed and an orderly market develops, the prices at which
trading in such shares occurs may fluctuate significantly. The
trading price of Norbord Common Shares is expected to be lower
following the Arrangement than the trading price of Nexfor
Common Shares prior thereto, reflecting the disposition of the
Paper and Timber businesses and such price may fluctuate
significantly for a period of time following the Arrangement.
The combined trading prices of Norbord Common Shares and Fraser
Papers Common Shares received pursuant to the Arrangement may be
less than, equal to or greater than the trading price of Nexfor
Common Shares prior to the Arrangement.

34



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##### 



Distribution of Share Certificates

From and including the Effective Date to and
including the Distribution Record Date, share certificates
representing Nexfor Common Shares will represent the Norbord
Common Share and Fraser Papers Common Shares to be issued to the
holder pursuant to the Arrangement. As soon as practicable after
the Distribution Record Date, there will be delivered to each
Nexfor Common Shareholder of record at the close of business in
Toronto on the Distribution Record Date, certificates
representing the Fraser Papers Common Shares to which such
holder is entitled pursuant to the Arrangement and a cheque for
any fractional interest in a Fraser Papers Common Share. The
certificates representing Nexfor Common Shares will represent
the Norbord Common Shares and no new certificates will be issued
for the Norbord Common Shares issued pursuant to the
Arrangement. Accordingly, Nexfor Common Shareholders will not be
required to send in the certificates for their Nexfor Common
Shares in connection with the Arrangement. Similarly,
certificates representing Nexfor Preferred Shares will represent
Norbord Preferred Shares and no new certificates will be issued.
Holders of certificates representing Nexfor Common Shares or
Nexfor Preferred Shares must retain their certificates as
evidence of their ownership of Norbord Common Shares or Norbord
Preferred Shares, as the case may be.

Expenses of the Arrangement

The estimated third party fees, costs and
expenses in connection with the Arrangement, including
regulatory filing fees, legal and accounting fees and printing
and mailing costs, are estimated to be approximately
$3 million plus any payments to Dissenting Shareholders. In
accordance with the Arrangement Agreement, Nexfor will pay these
fees, costs and expenses.

Recommendation of the Nexfor Board

The Nexfor Board having considered, among
other things, the reasons for the Arrangement and the terms of
the Arrangement, has unanimously approved the Arrangement, the
terms of the Arrangement Agreement and the transactions
contemplated thereby and unanimously recommends that Nexfor
Shareholders vote FOR the Arrangement Resolution and Nexfor
Common Shareholders vote FOR the Stock Option Plans Resolution.
All the directors of Nexfor have indicated that they intend to
vote all the Nexfor Common Shares and Nexfor Preferred Shares
held by them in favour of the Arrangement Resolution and all the
Nexfor Common Shares held by them in favour of the Stock Option
Plans Resolution.

Income Tax Considerations

Canadian Tax Ruling
Application

The respective obligations of the parties to the
Arrangement Agreement to complete the Arrangement are
conditional upon the receipt of, among other things, the
Canadian Federal Tax Ruling, which Nexfor has requested, in form
and substance satisfactory to Nexfor. The advance income tax
ruling and opinion process permits a taxpayer to obtain
confirmation in advance as to the federal income tax
consequences of one or more proposed transactions. The principal
purpose of requesting the Canadian Federal Tax Ruling is to
obtain confirmation from the CCRA that the Arrangement will
qualify as a butterfly reorganization, thereby not
imposing any material current Canadian federal income tax on any
of Nexfor, FP (CAD), FP (US), Fraser Papers or their affiliates
or, in general, Nexfor Common Shareholders who hold their shares
as capital property (see Certain Canadian Federal Income
Tax Considerations below). Advance income tax rulings are
issued by the CCRA in respect of provisions of the Tax Act as
enacted as of the date of the ruling and are binding upon the
CCRA provided the material facts presented are accurately stated
and the transactions are implemented as disclosed to the CCRA.
Opinions are provided by the CCRA in respect of Tax Proposals
and are non-binding. It is not certain that any Tax Proposals
will be enacted in the form announced or at all. Similar
policies and procedures apply to any other Tax Rulings that
Nexfor requests from other taxation authorities.

Certain Canadian Federal Income Tax
Considerations

In the opinion of McCarthy Tétrault LLP,
counsel to Nexfor and its affiliates in respect of the
Arrangement and related transactions, the following summaries
fairly present the principal Canadian federal income tax
considerations relating to the Arrangement generally applicable
to (a) Nexfor Common Shareholders and Nexfor Preferred
Shareholders who, at all relevant times and for the purposes of
the Tax Act, hold their Nexfor Common Shares and Nexfor
Preferred Shares, and will hold all other shares discussed in
the following summaries, as capital property and

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deal at arms length with, and are not
affiliated with, Nexfor and Fraser Papers, and (b) certain
Nexfor Optionholders as described below.


Shares generally will constitute capital property
to a holder thereof unless such shares are held in the course of
carrying on a business of buying and selling shares or have been
acquired in a transaction or transactions considered to be an
adventure or concern in the nature of trade. Certain
Canadian-resident Nexfor Shareholders whose shares might not
otherwise qualify as capital property may be entitled to make an
irrevocable election in accordance with subsection 39(4) of
the Tax Act to have such shares, and any Canadian
security (as defined in the Tax Act) owned in the taxation
year in which the election is made and all subsequent taxation
years, deemed to be capital property. Nexfor Shareholders who do
not hold their shares as capital property should consult their
own tax advisors regarding their particular circumstances.

The Tax Act contains certain provisions
applicable to certain financial institutions and provisions
applicable to taxpayers an interest in which is a tax-shelter
investment. The following summaries do not take into account
these provisions. Nexfor Shareholders who are or may be subject
to these provisions should consult their own tax advisors.

These summaries are based upon the current
provisions of the Tax Act and the regulations thereunder as
enacted to the date of this Circular, the Tax Proposals and
counsels understanding of the published administrative
practices and assessing policies of the CCRA in effect as at the
date of this Circular. It is not certain that any of the Tax
Proposals will be enacted in the form announced or at all. These
summaries are not exhaustive of all considerations under the Tax
Act and, except for the Tax Proposals, do not take into account
or anticipate any changes in the law or administrative practices
or assessing policies, whether by judicial, governmental or
legislative action or decision, nor do they take into account
other federal tax legislation or the tax legislation of any
province or territory of Canada, or of any foreign jurisdiction.
Provincial and territorial income tax legislation varies in
Canada and in some cases differs from federal income tax
legislation.

These summaries are of a general nature only
and are not intended to be, and should not be construed to be,
legal, business or tax advice to any particular Nexfor
Shareholder, and no representations with respect to the tax
consequences to any particular Nexfor Shareholder are made.
Nexfor Shareholders should consult their own tax advisors to
determine the tax consequences to them of the Arrangement having
regard to their particular circumstances, including the
application and effect of the income and other tax laws of any
country, province, territory, state or local tax
authority.

Nexfor Shareholders Resident in
Canada

The following portion of the summary generally is
applicable to Nexfor Common Shareholders and Nexfor Preferred
Shareholders who, at all relevant times, are, or are deemed to
be, resident in Canada for purposes of the Tax Act and any
applicable tax treaty or convention.

Nexfor Common Shareholders other than
Dissenting Shareholders

Exchange of Nexfor Common Shares for Nexfor
Convertible Shares and Nexfor Non-Voting Shares

Each Nexfor Common Shareholder (other than a
Dissenting Shareholder) will, in exchange for each Nexfor Common
Share, receive one Nexfor Convertible Share and a fraction of a
Nexfor Non-Voting Share equal to the Transferred Multiple (as
defined in the Plan of Arrangement). A Nexfor Common Shareholder
will not be considered to have received a dividend and will not
realize a capital gain or a capital loss as a result of this
share exchange.

The aggregate cost of the Nexfor Convertible
Shares and Nexfor Non-Voting Shares acquired by a Nexfor Common
Shareholder on this share exchange will be equal to the adjusted
cost base immediately before the share exchange of the Nexfor
Common Shares disposed of by the holder on the share exchange.
The adjusted cost base immediately before the share exchange of
a Nexfor Common Shareholders Nexfor Common Shares will be
allocated among the holders Nexfor Convertible Shares and
Nexfor Non-Voting Shares in proportion to the relative fair
market value of such shares immediately after the share
exchange. Nexfor has advised that Nexfor Common Shareholders
will be advised by press release as to Nexfors estimation
of the proportionate allocation. This allocation is not binding
on the CCRA or any particular Nexfor Common Shareholder.
However, it is recommended that the allocations made by Nexfor
Common Shareholders be consistent with that estimated by Nexfor.

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Exchange of Nexfor Non-Voting Shares for Fraser
Papers Convertible Shares

Each Nexfor Common Shareholder (other than a
Dissenting Shareholder) will, for each Nexfor Common Share held
at the commencement of the Arrangement, hold one Nexfor
Convertible Share and a fraction of a Nexfor Non-Voting Share
equal to the Transferred Multiple. Each fraction of a Nexfor
Non-Voting Share held by a Nexfor Common Shareholder then will
be acquired by Fraser Papers in consideration for the issuance
to the particular Nexfor Common Shareholder of one Fraser Papers
Convertible Share.

Except where the Nexfor Common Shareholder
chooses to recognize a capital gain or a capital loss on the
exchange of the Nexfor Non-Voting Shares as described below, a
Nexfor Common Shareholder will not be considered to have
received a dividend and will not realize a capital gain or a
capital loss as a result of this share exchange. The cost of the
Fraser Papers Convertible Shares acquired by a Nexfor Common
Shareholder on this share exchange will be equal to the adjusted
cost base immediately before the share exchange of the Nexfor
Non-Voting Shares disposed of by the holder on the share
exchange.

A Nexfor Common Shareholder may choose to
recognize a capital gain or a capital loss on the exchange of
the Nexfor Non-Voting Shares by including the amount of capital
gain or capital loss, otherwise determined, in computing such
holders income for the taxation year in which such
exchange occurs. A Nexfor Common Shareholder who chooses to
realize a capital gain or a capital loss in this manner will
realize a capital gain (or capital loss) to the extent that such
holders proceeds of disposition, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted
cost base immediately before the share exchange of the
holders Nexfor Non-Voting Shares so exchanged. For the
purpose of computing such capital gain or capital loss, a Nexfor
Common Shareholder will be considered to have disposed of the
Nexfor Non-Voting Shares for proceeds of disposition equal to
the fair market value of the Fraser Papers Convertible Shares
received on the share exchange. The tax treatment of capital
gains and capital losses is discussed below under Taxation
of Capital Gains and Capital Losses.

Conversion of Nexfor Convertible Shares

The Nexfor Convertible Shares issued by Nexfor to
a Nexfor Common Shareholder will be converted into an equivalent
number of Common Shares of Nexfor as part of the Arrangement. A
Nexfor Common Shareholder will not be considered to have
received a dividend and will not realize a capital gain or a
capital loss as a result of this conversion. The cost of the
Common Shares of Nexfor acquired by a Nexfor Common Shareholder
on this conversion will be equal to the adjusted cost base of
the Nexfor Convertible Shares held by the holder immediately
before the conversion.

Conversion of Fraser Papers Convertible Shares

The Fraser Papers Convertible Shares issued by
Fraser Papers to a Nexfor Common Shareholder will be converted
into Common Shares of Fraser Papers on a five-for-one basis as
part of the Arrangement. A Nexfor Common Shareholder will not be
considered to have received a dividend and will not realize a
capital gain or a capital loss as a result of this conversion.
The cost of the Common Shares of Fraser Papers acquired by a
Nexfor Common Shareholder on this conversion will be equal to
the adjusted cost base of the Fraser Papers Convertible Shares
held by the holder immediately before the conversion.

Amalgamation

The Arrangement contemplates that Fraser Papers
will amalgamate with 4229428 Canada Inc. Holders of the Common
Shares of Fraser Papers will not be considered to have received
a dividend and will not realize a capital gain or a capital loss
on such amalgamation. The cost to a Nexfor Common Shareholder of
the Common Shares of Fraser Papers resulting from the
amalgamation will be equal to the adjusted cost base of the
Common Shares of Fraser Papers held by the holder immediately
before the amalgamation.

Receipt of Cash for Fractional Shares

The Arrangement provides that Nexfor Common
Shareholders will not be issued share certificates for any
fractional Common Shares of Fraser Papers issued on the
conversion of the Fraser Papers Convertible Shares. A Nexfor
Common Shareholder will be considered to have received proceeds
of disposition equal to the amount of cash received from the
Transfer Agent for any fractional Common Shares of Fraser
Papers. To the extent such proceeds of disposition of fractional
Common Shares of Fraser Papers exceed (or are less than) the
adjusted cost base thereof immediately

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before the disposition, a capital gain (or a
capital loss) will result. The tax treatment of capital gains
and capital losses is discussed below under Taxation of
Capital Gains and Capital Losses.


Dividends on Common Shares of Norbord or Fraser
Papers (Post-Arrangement)

Dividends received or deemed to be received on
Common Shares of Norbord or Fraser Papers after the Arrangement
will be included in computing the holders income for the
purposes of the Tax Act. Such dividends received or deemed to be
received by an individual (including a trust) will generally be
subject to the gross-up and dividend tax credit rules in the Tax
Act normally applicable to taxable dividends received from
corporations resident in Canada. Dividends received or deemed to
be received on such shares by an individual and certain trusts
may give rise to alternative minimum tax.

Generally, dividends received or deemed to be
received on Common Shares of Norbord or Fraser Papers after the
Arrangement by a holder that is a corporation will be included
in computing the corporations income, but will be
deductible in computing the corporations taxable income,
subject to certain limitations in the Tax Act. A holder of
Common Shares of Norbord or Fraser Papers that is a
private corporation or a subject
corporation (as defined in the Tax Act) generally will be
subject to a refundable tax of 33 1/3% on dividends
received or deemed to be received on such shares to the extent
such dividends are deductible in computing the holders
taxable income. Subsection 55(2) of the Tax Act provides
that where certain corporate holders of shares receive a
dividend or deemed dividend in specified circumstances, all or
part of such dividend may be treated as a capital gain from the
disposition of capital property and not as a dividend. The tax
treatment of capital gains and capital losses is discussed below
under Taxation of Capital Gains and Capital Losses.

Dispositions of Common Shares of Norbord or
Fraser Papers (Post-Arrangement)

A disposition of Common Shares of Norbord or
Fraser Papers after the Arrangement generally will result in a
capital gain (or a capital loss) to the extent the proceeds of
disposition received, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base of
such shares immediately before the disposition. The tax
treatment of capital gains and capital losses is discussed below
under Taxation of Capital Gains and Capital Losses.

Taxation of Capital Gains and Capital Losses

A Nexfor Shareholder will be required to include
in income 50% of the amount of any capital gain (a taxable
capital gain) and generally will be entitled to deduct 50%
of the amount of any capital loss (an allowable capital
loss) against taxable capital gains realized by such
holder in the year of the disposition. Allowable capital losses
in excess of taxable capital gains in a particular year may be
carried back and deducted in any of the three preceding years or
carried forward and deducted in any following year against
taxable capital gains realized in such year to the extent and
under the circumstances described in the Tax Act. In certain
circumstances, a capital loss otherwise arising on the
disposition of shares by a corporation may be reduced by
dividends previously received or deemed to have been received on
such shares or shares for which the particular shares were
issued in exchange. Analogous rules apply to a partnership or
trust of which a corporation, partnership or trust is a member
or beneficiary. Shareholders to whom these rules may be relevant
should consult their own tax advisors.

A Canadian-controlled private
corporation (as defined in the Tax Act) may be liable to
pay, in addition to tax otherwise payable under the Tax Act, a
refundable tax of 6 2/3% of its aggregate investment
income. For this purpose, aggregate investment income will
include taxable capital gains.

Capital gains realized by individuals and certain
trusts may give rise to alternative minimum tax under the Tax
Act.

Nexfor Preferred Shareholders other than
Dissenting Shareholders

A Nexfor Preferred Shareholder (other than a
Dissenting Shareholder) will not experience any Canadian federal
income tax consequences as a result of the Arrangement.

Dissenting Shareholders

A Nexfor Common Shareholder or Nexfor Preferred
Shareholder who dissents in respect of the Arrangement and who
receives payment equal to the fair value of such holders
Nexfor Common Shares or Nexfor Preferred Shares will be
considered to have disposed of the holders shares for
proceeds of disposition equal to the amount received by the
Dissenting Shareholder, less the amount of any interest awarded
by a court.

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A Dissenting Shareholder generally will be deemed
to have received a dividend equal to the amount by which such
proceeds exceed the paid-up capital of such shares, and such
deemed dividend will reduce the proceeds of disposition for
purposes of computing a capital gain (or a capital loss) on the
disposition of such shares. Nexfor has advised that Dissenting
Shareholders will be notified following the Effective Date by
press release of the estimated paid-up capital for purposes of
the Tax Act of a Nexfor Common Share and a Nexfor Preferred
Share as of the Effective Date. The income tax treatment
accorded to any deemed dividend received by a Dissenting
Shareholder will be that normally accorded to taxable dividends
received by such Dissenting Shareholder on shares of a
corporation resident in Canada. The discussion above under
Nexfor Common Shareholders other than Dissenting
Shareholders  Dividends on Common Shares of Norbord
or Fraser Papers (Post-Arrangement) generally is
applicable to dividends deemed to be received by such Dissenting
Shareholders on the repurchase of their shares.

A Dissenting Shareholder will also realize a
capital gain (or a capital loss) to the extent that the proceeds
of disposition for purposes of the Tax Act of such shares, as
reduced by the amount of any deemed dividend as discussed above
and net of any reasonable costs of disposition, exceed (or are
less than) the adjusted cost base of such shares immediately
before the disposition. The tax treatment of capital gains and
capital losses is discussed above under Nexfor Common
Shareholders other than Dissenting Shareholders 
Taxation of Capital Gains and Capital Losses.

Interest awarded by a court to a Dissenting
Shareholder will be included in the Dissenting
Shareholders income for a particular taxation year to the
extent the amount is received or receivable in that year,
depending upon the method regularly followed by the Dissenting
Shareholder in computing income. Where the Dissenting
Shareholder is a corporation, partnership or, subject to certain
exceptions, a trust, the shareholder must include interest in
income for a taxation year to the extent the interest accrues to
it before the end of the taxation year, or becomes receivable or
is received before the end of the year (to the extent not
included in income for a preceding taxation year).

Nexfor Shareholders Not Resident in
Canada

The following portion of the summary generally is
applicable to Nexfor Common Shareholders and Nexfor Preferred
Shareholders who, at all relevant times and for purposes of the
Tax Act and any applicable tax treaty or convention, are not,
and are not deemed to be, resident in Canada and whose Nexfor
Common Shares and any Nexfor Preferred Shares are not
taxable Canadian property (as defined in the Tax Act
and the Tax Proposals). Generally, such shares will not be
taxable Canadian property provided that such Nexfor Shareholder
does not use or hold, and is not deemed to use or hold, such
shares in connection with carrying on a business in Canada and
such Nexfor Shareholder has not, either alone or in combination
with persons with whom such Nexfor Shareholder does not deal at
arms length, owned 25% or more of the issued shares of any
class or series of the capital stock of Nexfor at any time
within 60 months preceding the Effective Date, and provided
the Nexfor Shareholder is not carrying on an insurance business
in Canada and elsewhere.

This summary assumes that the Nexfor Convertible
Shares, the Nexfor Non-Voting Shares and the Fraser Papers
Convertible Shares, issued in connection with the Arrangement,
will be listed on a prescribed stock exchange (including the
TSX) at the time of disposition by a Nexfor Common Shareholder
in accordance with the Arrangement. Under certain of the Tax
Proposals, the Nexfor Non-Voting Shares that will be acquired
under the Arrangement will be deemed, as a result of the
Arrangement transactions, to be listed on a prescribed stock
exchange.

Nexfor Common Shareholders other than
Dissenting Shareholders

The Arrangement

Generally, a Nexfor Common Shareholder (other
than a Dissenting Shareholder) who is not resident in Canada
will not be subject to income tax under the Tax Act as a result
of the Arrangement.

No clearance certificate will be required under
section 116 of the Tax Act in respect of any disposition of
shares occurring pursuant to the Arrangement.

Dividends on Common Shares of Norbord or Fraser
Papers (Post-Arrangement)

Dividends on Common Shares of Norbord or Fraser
Papers that are paid or credited or deemed to be paid or
credited to a non-resident holder will be subject to Canadian
non-resident withholding tax at the rate of 25% of the gross
amount of such dividends. This rate may be reduced under any
applicable tax treaty or convention. In the case of a beneficial
owner of dividends who is a resident of the U.S. for the
purposes of the Canada-United States Income Tax

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Convention, as amended (the Tax
Treaty), the rate of Canadian withholding tax generally
will be reduced to 15% of the gross amount of such dividends.


Dispositions of Common Shares of Norbord or
Fraser Papers (Post-Arrangement)

On a disposition of Common Shares of Norbord or
Fraser Papers after the Arrangement, a non-resident holder will
not be subject to tax under the Tax Act unless, at the time of
disposition, the particular shares are taxable Canadian
property (as defined in the Tax Act and the Tax Proposals)
to the holder.

Generally, Common Shares of Norbord or Fraser
Papers will not be taxable Canadian property to a non-resident
holder at a particular time if such shares are listed on a
prescribed stock exchange (including the TSX) at the particular
time, provided the holder thereof does not use or hold, and is
not deemed to use or hold, such shares in connection with
carrying on a business in Canada and such holder has not, either
alone or together with persons with whom the holder does not
deal at arms length, owned 25% or more of the issued
shares of any class or series of the capital stock of Norbord or
Fraser Papers at any time within 60 months preceding the
particular time, and provided the holder is not carrying on an
insurance business in Canada and elsewhere.

Provided the Common Shares of Norbord or Fraser
Papers are listed on a prescribed stock exchange (including the
TSX) at the time of a disposition of such shares, no clearance
certificate will be required under section 116 of the Tax
Act in respect of a disposition of such shares.

Nexfor Preferred Shareholders other than
Dissenting Shareholders

A Nexfor Preferred Shareholder (other than a
Dissenting Shareholder) who is not resident in Canada will not
experience any Canadian federal income tax consequences as a
result of the Arrangement.

Dissenting Shareholders

A Dissenting Shareholder who is not resident in
Canada and becomes entitled to a payment equal to the fair value
of such Dissenting Shareholders Nexfor Common Shares or
Nexfor Preferred Shares will be considered to have disposed of
such shares for proceeds of disposition equal to the amount
received by the Dissenting Shareholder, less the amount of any
interest awarded by a court.

A Dissenting Shareholder generally will be deemed
to have received a dividend equal to the amount by which such
proceeds exceed the paid-up capital of such shares. Nexfor has
advised that Dissenting Shareholders will be notified following
the Effective Date by press release of the estimated paid-up
capital for purposes of the Tax Act of a Nexfor Common Share and
a Nexfor Preferred Share as of the Effective Date. The
discussion above under Nexfor Shareholders Not Resident in
Canada  Dividends on Common Shares of Norbord or
Fraser Papers (Post-Arrangement) generally is applicable
to dividends deemed to be received by such Dissenting
Shareholders on the repurchase of their shares.

A Dissenting Shareholder generally will not be
subject to income tax under the Tax Act in respect of any
capital gain resulting from such disposition of the
holders Nexfor Common Shares or Nexfor Preferred Shares,
and no clearance certificate will be required under
section 116 of the Tax Act in respect of such disposition
of the holders Nexfor Common Shares or Nexfor Preferred
Shares.

Interest awarded by a court to a Dissenting
Shareholder who is not resident in Canada will be subject to
Canadian non-resident withholding tax at a rate of 25%, subject
to reduction under the provisions of any applicable tax treaty
or convention. Under the Tax Treaty, the withholding rate
generally applicable to interest paid to a resident of the
U.S. for purposes of the Tax Treaty is 10%.

Nexfor Optionholders

The following portion of the summary is
applicable to Nexfor Optionholders who are individuals and who,
at all relevant times and for purposes of the Tax Act, deal at
arms length with, and are not affiliated with, Nexfor and
Fraser Papers and acquired their Nexfor Stock Options by virtue
of their employment with Nexfor or a related corporation.

Nexfor Optionholders other than Dissenting
Shareholders

Pursuant to the Arrangement, each Nexfor
Optionholder (other than a Dissenting Shareholder) will, in
exchange for each Nexfor Stock Option, receive one Replacement
Stock Option. A Nexfor Optionholder will not recognize any
income or gain on this exchange, provided that the net value of
the Replacement Stock Options received by the holder

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on the exchange does not exceed the net value of
the Nexfor Stock Options exchanged by the holder for such
Replacement Stock Options.


Dissenting Shareholders

A Nexfor Optionholder who dissents in respect of
the Arrangement and who receives payment equal to the fair value
of such holders Nexfor Stock Options will be considered to
have disposed of the holders Nexfor Stock Options for
proceeds of disposition equal to the amount received by the
holder, less the amount of any interest awarded by a court.

To the extent that, for purposes of the Tax Act,
the holder is, or is deemed to be, resident in Canada or the
Nexfor Stock Options were in respect of employment in Canada,
such proceeds of disposition will be deemed to be a benefit
received by the holder and generally included in computing the
holders income from employment for the year in which the
Nexfor Stock Options are disposed of. A holder may be entitled
to a deduction in computing taxable income in an amount equal
to  1/2 of the amount of such employment income. Such
deduction generally will be available where the amount payable
pursuant to the Nexfor Stock Options to acquire the Nexfor
Common Shares that are the subject of the Nexfor Stock Options
is not less than the fair market value of such Nexfor Common
Shares on the date such Nexfor Stock Options were granted. Where
a holder of Nexfor Stock Options who is not resident in Canada
would otherwise be subject to tax in Canada on such employment
income, the holder may be entitled to claim an exemption from
Canadian tax in respect of such employment income under the
provisions of an applicable tax treaty or convention.

Interest awarded by a court to a holder who is
resident in Canada will be included in the holders income
for a particular taxation year to the extent the amount is
received or receivable in that year, depending upon the method
regularly followed by the holder in computing income. Interest
awarded by a court to a holder who is not resident in Canada
will be subject to Canadian non-resident withholding tax at a
rate of 25%, subject to reduction under the provisions of any
applicable tax treaty or convention. Under the Tax Treaty, the
withholding rate generally applicable to interest paid to a
resident of the U.S. for purposes of the Tax Treaty is 10%.

Certain U.S. Federal Income Tax
Considerations

The receipt of Fraser Papers Common Shares by a
United States person (i.e., a person subject to
U.S. federal income tax on its entire income without regard
to its source) (a U.S. Holder) may be treated
either as a taxable distribution for U.S. federal income
tax purposes or possibly as a tax-free distribution for
U.S. federal income tax purposes. U.S. Holders of
Fraser Papers Common Shares are urged to consult with their own
tax advisors as to the taxation of the distribution of Fraser
Papers Common Shares to them. There can be no assurance that the
IRS or a court would agree that the distribution of Fraser
Papers Common Shares qualifies as a tax-free distribution and
such qualification may be dependent, in part, on events
subsequent to the distribution which cannot be predicted at this
time and on whether or not Nexfor is a so-called passive foreign
investment company. If the distribution is treated as taxable,
Nexfor believes such a distribution should be taxable at a
maximum rate of 15% for qualifying individual U.S. Holders
provided that Nexfor is not a passive foreign investment
company. U.S. Holders should be aware that Nexfor
reasonably believes that it is not a passive foreign investment
company, and is not likely to become one; however, there can be
no assurance in this regard. If Nexfor were a passive foreign
investment company, consequences to U.S. Holders could be
adverse. A Dissenting Shareholder will have a fully taxable
transaction; however, some aspects of a Dissenting
Shareholders tax treatment are not clear. All
U.S. Holders, and particularly U.S. Holders subject to
special provisions of United States federal income tax law and
dissenting shareholders, are urged to consult their tax advisors
with respect to the United States federal, state and local tax
consequences and the foreign tax consequences of the
Arrangement.

Dissenting Shareholders Rights

Nexfor Shareholders are entitled to dissent from
the Arrangement Resolution in the manner provided in
section 190 of the CBCA, the Interim Order and the Plan of
Arrangement.

Any Nexfor Shareholder who dissents (a
Dissenting Shareholder) from the Arrangement
Resolution will be entitled, in the event the Arrangement
becomes effective, to be paid by Nexfor/ Norbord the fair value
of the Nexfor Common Shares, Nexfor Stock Options or Nexfor
Preferred Shares, as the case may be, (the Dissent
Shares) held by such Dissenting Shareholder determined as
at the close of business on the Business Day immediately
preceding the annual and special meeting. There can be no
assurance that a Dissenting Shareholder will receive
consideration for its

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shares or options of equal value to the
consideration that such Dissenting Shareholder would have
received upon completion of the Arrangement.


A Nexfor Shareholder who wishes to dissent must
provide to Nexfor, at or before the annual and special meeting
(by delivery to the Corporate Secretary of Nexfor at its
registered office located at Suite 500, 1 Toronto Street,
Toronto, Ontario M5C 2W4 or lodging with the Chairman of
the annual and special meeting no later than the commencement of
the meeting), a written objection to the Arrangement Resolution
(a Dissent Notice). The filing of a Dissent Notice
does not deprive a shareholder of the right to vote; however,
the CBCA provides, in effect, that a shareholder who has
submitted a Dissent Notice and who votes in favour of the
Arrangement Resolution will no longer be considered a Dissenting
Shareholder with respect to shares or options voted in favour of
the Arrangement Resolution. The CBCA does not provide, and
Nexfor will not assume, that a vote against the Arrangement
Resolution constitutes a Dissent Notice. There is no right of
partial dissent and, accordingly, a Dissenting Shareholder may
only dissent with respect to all shares of a class or options
held by it on behalf of any one beneficial owner and which are
registered in the name of the Dissenting Shareholder.

Nexfor/ Norbord is required, within 10 days
after adoption of the Arrangement Resolution, to notify each
Dissenting Shareholder that the Arrangement Resolution has been
adopted, but such notice is not required to be sent to any
Nexfor Shareholder who voted for the Arrangement Resolution or
who has withdrawn its Dissent Notice.

A Dissenting Shareholder must, within
20 days after the Dissenting Shareholder receives notice
that the Arrangement Resolution has been adopted or, if the
Dissenting Shareholder does not receive such notice, within
20 days after the Dissenting Shareholder learns that the
Arrangement Resolution has been adopted, send to Nexfor/ Norbord
at Suite 500, 1 Toronto Street, Toronto, Ontario
M5C 2W4, Attention: Corporate Secretary a written notice (a
Payment Demand) containing its name and address, the
number of Dissent Shares in respect of which the Dissenting
Shareholder dissented, and a demand for payment of the fair
value of such shares or options. Within 30 days after a
Payment Demand, the Dissenting Shareholder must send to the
Transfer Agent, at CIBC Mellon Trust Company,
P.O. Box 7010, Adelaide Street, Toronto, Ontario
M5C 2W9, the certificates representing the Dissent Shares
(other than options) in respect of which it dissented. A
Dissenting Shareholder who fails to send the certificates
representing the Dissent Shares in respect of which it dissented
forfeits its right to make a claim under section 190 of the
CBCA. The Transfer Agent will endorse on share certificates
received from a Dissenting Shareholder a notice that the holder
is a Dissenting Shareholder and will forthwith return the share
certificates to the Dissenting Shareholder.

Effective immediately prior to the consummation
of the Arrangement, a Dissenting Shareholder who has properly
filed a Dissent Notice ceases to have any rights as a
shareholder or optionholder, other than the right to be paid the
fair value of its Dissent Shares as determined under
section 190 of the CBCA and the Interim Order, except where:



| |     |                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the Dissenting Shareholder withdraws its Payment
    Demand before Nexfor/ Norbord makes an offer to the Dissenting
    Shareholder;   
|
| | (b) | Nexfor/ Norbord fails to make an offer as
    hereinafter described and the Dissenting Shareholder withdraws
    its Payment Demand; or
|
| | (c) | the Nexfor Board revokes the Arrangement
    Resolution.                                                                               

If (a), (b) or (c) above occurs, Nexfor will
reinstate the Dissenting Shareholders rights as a
shareholder or optionholder.

Nexfor/ Norbord will, not later than seven days
after the later of the Effective Date or the date on which
Nexfor/ Norbord received the Payment Demand of a Dissenting
Shareholder, send to each Dissenting Shareholder who has sent a
Payment Demand to Nexfor/ Norbord a written offer to pay
(Offer to Pay) for its Dissent Shares in an amount
considered by the Board of Directors of Norbord to be the fair
value thereof, accompanied by a statement showing the manner in
which the fair value was determined. Every Offer to Pay, as
between shares of the same class or options, must be on the same
terms. Nexfor/ Norbord must pay for the Dissent Shares of a
Dissenting Shareholder within 10 days after an Offer to Pay
has been accepted by a Dissenting Shareholder, but any such
Offer to Pay lapses if Nexfor/ Norbord does not receive an
acceptance thereof within 30 days after the Offer to Pay
has been made.

If Nexfor/ Norbord fails to make an Offer to Pay
for the Dissent Shares of a Dissenting Shareholder, or if a
Dissenting Shareholder fails to accept an offer that has been
made, Nexfor/ Norbord may, within 50 days after the
Effective Date or within such further period as a court may
allow, apply to a court to fix a fair value for the Dissent
Shares of Dissenting Shareholders. If Nexfor/ Norbord fails to
apply to a court, a Dissenting Shareholder may apply to a

42



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##### 



court for the same purpose within a further
period of 20 days or within such further period as a court
may allow. A Dissenting Shareholder is not required to give
security for costs in such an application.


Upon an application to a court, all Dissenting
Shareholders whose Dissent Shares have not been purchased by
Nexfor/ Norbord will be joined as parties and bound by the
decision of the court, and Nexfor/ Norbord will be required to
notify each affected Dissenting Shareholder of the date, place
and consequences of the application and of its right to appear
and be heard in person or by counsel. Upon any such application
to a court, the court may determine whether any person is a
Dissenting Shareholder who should be joined as a party, and the
court will then fix a fair value of the Dissent Shares of all
Dissenting Shareholders. The final order of a court will be
rendered against Nexfor/ Norbord in favour of each Dissenting
Shareholder and for the amount of the fair value of its Dissent
Shares as fixed by the court. The court may, in its discretion,
allow a reasonable rate of interest on the amount payable to
each Dissenting Shareholder from the Effective Date until the
date of payment.

The above is only a summary of the Dissenting
Shareholder provisions of the CBCA, the Interim Order and the
Plan of Arrangement, which are technical and complex. It is
suggested that any Nexfor Shareholder wishing to avail itself of
its rights under those provisions seek its own legal advice as
failure to comply strictly with the provisions of the CBCA, the
Interim Order and the Plan of Arrangement may prejudice its
rights of dissent. For a general summary of certain Canadian
federal income tax implications for a Dissenting Shareholder,
see Income Tax Considerations  Certain Canadian
Federal Income Tax Considerations.

43



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##### 






PART IV

INFORMATION CONCERNING NEXFOR/
NORBORD

Nexfor Before the Arrangement

Nexfor is an international forest products
company with operating assets in Canada, the United States and
the United Kingdom. Nexfor has three main operating segments:
Panels, Paper and Timber.

Panels

The Panels business comprises the manufacturing,
sales, marketing and distribution of panelboards and related
products used primarily in the construction of new buildings or
the renovation and repair of existing structures. In addition,
the Panels business is responsible for sales and distribution of
lumber produced by the Paper segment. Products are generally
sold to major retail chains, contractor supply yards and
wholesale distributors. Some products are sold directly to
industrial customers for further processing or as components for
other products. The operations comprise 15 mills and
approximately 2,650 employees. In 2003, Panels accounted
for 55% of Nexfors net sales. In 2002, the comparable
percentage was 48%.

Paper

In 2003, the Paper business accounted for 43% of
Nexfors net sales as compared to 50% in 2002. The
principal products manufactured by the Paper business are
uncoated freesheet papers, uncoated groundwood papers,
lightweight coated groundwood papers, bleached hardwood kraft
pulp and lumber. Uncoated freesheet papers include a broad array
of grades such as text and cover, commercial printing and
lightweight opaque papers as well as a number of technical
specialities such as release papers, thermal base stock and
grease-resistant packaging papers. Uncoated groundwood and
coated groundwood papers are generally used in mass circulation
publications such as magazines, catalogues, directories and
advertising inserts in newspapers. The Paper operations comprise
six paper and pulp mills, four integrated sawmills,
17 paper machines, timberlands and approximately
3,650 employees.

Timber

The Timber segment comprises the management of
freehold and licensed timberlands in New Brunswick and Maine. In
addition, the Timber business manages a significant portion of
the Crown-licensed Arrangements on behalf of the Government of
New Brunswick. The Timber business is responsible for providing
roundwood to support the lumber and paper operations of Nexfor
in New Brunswick and Maine. Substantially all of the softwood
fibre harvested by the Timber segment is used by the Paper
segment. Hardwood fibre is sold on the open market. In 2003 and
2002, sales of the Timber segment represented 2% of
Nexfors sales. Nexfor owns approximately 407,000 hectares
of freehold Timber in Maine and New Brunswick. In 2003, the
total harvest from these lands was 1.3 million cubic metres.

Documents Incorporated by Reference

The following documents, filed with the various
securities commissions or similar authorities in Canada, are
specifically incorporated by reference and form an integral part
of this Circular:



| |     |                                                           
| | --- | ----------------------------------------------------------
| | (a) | Annual Information Form of Nexfor dated
    March 3, 2004;



| |     |                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | the comparative Consolidated Financial Statements
    of Nexfor for the fiscal years ended December 31, 2003 and
    2002, and the Auditors Report thereon;



| |     |                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------
| | (c) | Managements Discussion and Analysis of
    Financial Condition and Results of Operations for the year ended
    December 31, 2003;



| |     |                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | First Quarter Report 2004 of Nexfor containing
    Unaudited Consolidated Financial Statements of Nexfor for the
    fiscal quarter ended March 27, 2004 and for the comparative
    period in 2003 and the Managements Discussion and Analysis
    for the periods then ended;



| |     |                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Material Change Report filed February 20,
    2004 relating to the purchase of the 50% partnership interest in
    Northwood Panelboard Company; and

44



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##### 





| |     |                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------
| | (f) | Material Change Report filed March 12, 2004
    relating to the approval by the Nexfor Board of the Arrangement.

Any documents of the type referred to above
(excluding confidential material change reports) filed by Nexfor
with the various provincial securities commissions or similar
authorities in the Provinces of Canada after the date of this
Circular and prior to the annual and special meeting will be
deemed to be incorporated by reference into this Circular.

Any statement contained in a document
incorporated or deemed to be incorporated by reference herein
will be deemed to be modified or superseded for purposes of this
Circular to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes
such statement. The modifying or superseding statement need not
state that it has modified or superseded a prior statement or
include any other information set forth in the document that it
modifies or supersedes. The making of a modifying or superseding
statement will not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light
of the circumstances in which it was made. Any statement so
modified or superseded will not be deemed, except as so modified
or superseded, to constitute a part of this Circular.

Copies of the documents incorporated herein by
reference and this Circular may be obtained without charge, upon
written or oral request, from the Corporate Secretary of Nexfor
at Suite 500, 1 Toronto Street, Toronto, Ontario
M5C 2W4, on Nexfors website at www.nexfor.com or on
Sedar at www.sedar.com.

Norbord After the Arrangement

Corporate Structure

Nexfor is a corporation governed by the CBCA. The
corporate structure of Nexfor continues after giving effect to
the Arrangement but its name will be changed to Norbord Inc. The
registered and principal office of Norbord Inc. will remain at
Suite 500, 1 Toronto Street, Ontario M5C 2W4.

Description of the Business

After giving effect to the Arrangement, Norbord
will operate the Panels business described above and in
the Annual Information Form incorporated herein by reference.

45



---



##### 



Selected Financial
Information

Financial information can be found in
Nexfors Consolidated Financial Statements for the years
ended December 31, 2003 and 2002 and Nexfors Annual
Information Form for the year ended December 31, 2003, both
of which are incorporated herein by reference. Selected
historical information is included below:

Selected Consolidated Financial Information
About Nexfor

|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |       |  
|------------------------------------------------------------------------------------------------------ | ------------------ | ------------------------------------------ | ----- | ------------------------------ | - | ---- | ---- | ---- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                                                                                       |                    |                                            |       |                               
|                                                                                                       |                    | As at and for the                          |       | As at and for the Fiscal Years
|                                                                                                       |                    | Three Months Ended                         |       | Ended December 31,            
|                                                                                                       |                    |                                            |       |                               
|                                                                                                       |                    | March 27,                                  |       | March 29,                      |   |     
|                                                                                                       |                    | 2004                                       |       | 2003                           |   | 2003 |      | 2002 |   | 2001
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |     
|                                                                                                       |                    |                                           
|                                                                                                       |                    | ($ millions, except per share information)
|SELECTED ANNUAL FINANCIAL DATA                                                                         |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Consolidated Statement of Earnings
    Data:                                                           |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Net sales                                                                                              |                    | $                                          | 569   |                                |   | $    | 392  |      |   | $    | 1,939 |       |   | $ | 1,426 |       |   | $ | 1,268 |      
|Earnings from continuing operations before
    interest, taxes, depreciation and restructuring charge: |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|                                                                                                       | Panels             |                                            |       | 157                            |   |      |      | 31   |   |      |       | 375   |   |   |       | 94    |   |   |       | 50    |  
|                                                                                                       | Paper              |                                            |       | (3                             | ) |      |      | (2   | ) |      |       | (26   | ) |   |       | 32    |   |   |       | 45    |  
|                                                                                                       | Timber             |                                            |       | 3                              |   |      |      | 4    |   |      |       | 10    |   |   |       | 10    |   |   |       | 10    |  
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|                                                                                                       |                    |                                            | 157   |                                |   |      | 33   |      |   |      | 359   |       |   |   | 136   |       |   |   | 105   |      
|Restructuring charge                                                                                   |                    |                                            |      |                                |   |      |     |      |   |      | (26   | )     |   |   |      |       |   |   |      |      
|Interest and other income                                                                              |                    |                                            | 1     |                                |   |      | 1    |      |   |      | 5     |       |   |   | 6     |       |   |   | 6     |      
|Interest expense                                                                                       |                    |                                            | (8    | )                              |   |      | (9   | )    |   |      | (37   | )     |   |   | (37   | )     |   |   | (33   | )    
|Depreciation                                                                                           |                    |                                            | (30   | )                              |   |      | (30  | )    |   |      | (124  | )     |   |   | (118  | )     |   |   | (92   | )    
|Income tax (expense) recovery                                                                          |                    |                                            | (39   | )                              |   |      | 6    |      |   |      | (61   | )     |   |   | 20    |       |   |   | 20    |      
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Earnings from continuing operations                                                                    |                    | $                                          | 81    |                                |   | $    | 1    |      |   | $    | 116   |       |   | $ | 7     |       |   | $ | 6     |      
|Gain on sale of discontinued operations                                                                |                    |                                            |      |                                |   |      |     |      |   |      | 12    |       |   |   |      |       |   |   |      |      
|Earnings from discontinued operations                                                                  |                    |                                            |      |                                |   |      |     |      |   |      | (2    | )     |   |   | 6     |       |   |   | 6     |      
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Earnings                                                                                               |                    | $                                          | 81    |                                |   | $    | 1    |      |   | $    | 126   |       |   | $ | 13    |       |   | $ | 12    |      
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Per Share Data:                                                                                        |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Earnings per Common Share   Basic                                                                     |                    | $                                          | 0.54  |                                |   | $    | 0.00 |      |   | $    | 0.85  |       |   | $ | 0.08  |       |   | $ | 0.07  |      
| Diluted                                                                                              |                    | $                                          | 0.54  |                                |   | $    | 0.00 |      |   | $    | 0.85  |       |   | $ | 0.08  |       |   | $ | 0.07  |      
|Consolidated Balance Sheet Data:                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Total assets                                                                                           |                    | $                                          | 2,111 |                                |   |      |      |      |   | $    | 2,042 |       |   | $ | 1,969 |       |   | $ | 1,795 |      
|Total debt and other liabilities                                                                       |                    |                                            | 1,142 |                                |   |      |      |      |   |      | 1,146 |       |   |   | 1,171 |       |   |   | 983   |      
|Total shareholders equity                                                                             |                    |                                            | 969   |                                |   |      |      |      |   |      | 896   |       |   |   | 798   |       |   |   | 812   |      
|Segmented Data:                                                                                        |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|Net sales                                                                                              |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|                                                                                                       | Panels             |                                            | $     | 348                            |   |      | $    | 191  |   |      | $     | 1,064 |   |   | $     | 679   |   |   | $     | 496   |  
|                                                                                                       | Paper              |                                            |       | 209                            |   |      |      | 191  |   |      |       | 839   |   |   |       | 717   |   |   |       | 742   |  
|                                                                                                       | Timber             |                                            |       | 25                             |   |      |      | 20   |   |      |       | 72    |   |   |       | 65    |   |   |       | 60    |  
|                                                                                                       | Intersegment       |                                            |       | (13                            | ) |      |      | (10  | ) |      |       | (36   | ) |   |       | (35   | ) |   |       | (30   | )
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      
|                                                                                                       | Consolidated total |                                            | $     | 569                            |   |      | $    | 392  |   |      | $     | 1,939 |   |   | $     | 1,426 |   |   | $     | 1,268 |  
|                                                                                                       |                    |                                            |       |                                |   |      |      |      |   |      |       |       |   |   |       |       |   |   |       |      

46



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Selected Pro Forma Financial
Information

Pro forma financial statements for Norbord have
been included in Exhibit I.

|                                                 |  |                |       |                   |  |   |       | 
|------------------------------------------------ |  | -------------- | ----- | ----------------- |  | - | ----- | 
|                                                 |  | Quarter Ended  |       | Year Ended       
|                                                 |  | March 27, 2004 |       | December 31, 2003
|                                                 |  | Pro Forma      |       | Pro Forma        
|                                                 |  |                |       |                  
|                                                 |  |               
|                                                 |  | ($ million)   
|Net sales                                        |  | $              | 348   |                   |  | $ | 1,066 | 
|Earnings before interest, taxes and depreciation |  |                | 157   |                   |  |   | 361   | 
|Earnings                                         |  |                | 89    |                   |  |   | 178   | 
|Earnings per share                               |  | $              | 0.60  |                   |  | $ | 1.21  | 
|Total assets                                     |  |                | 1,355 |                   |  |   |       | 
|Total liabilities                                |  |                | 886   |                   |  |   |       | 
|Total shareholders equity                       |  |                | 469   |                   |  |   |       | 

Consolidated Capitalization

The following table sets forth the consolidated
capitalization of Nexfor as at March 27, 2004 and the pro
forma capitalization of Norbord as at March 27, 2004 as
adjusted to give effect to the Arrangement:

|                                        |  |                |       |                      |  |   |      |  
|--------------------------------------- |  | -------------- | ----- | -------------------- |  | - | ---- | -
|                                        |  | Nexfor         |       | Norbord             
|                                        |  | As at          |       | As at March 27, 2004
|                                        |  | March 27, 2004 |       | Pro forma           
|                                        |  |                |       |                     
|                                        |  |               
|                                        |  | ($ million)   
|CAPITAL                                 |  |                |       |                      |  |   |      |  
|Cash                                    |  | $              | (187  | )                    |  | $ | (157 | )
|Long-term debt                          |  |                | 633   |                      |  |   | 632  |  
|Preferred shares                        |  |                | 38    |                      |  |   | 38   |  
|Common shares                           |  |                | 610   |                      |  |   | 110  |  
|Retained earnings                       |  |                | 315   |                      |  |   | 315  |  
|Foreign exchange translation adjustment |  |                | 6     |                      |  |   | 6    |  
|                                        |  |                |       |                      |  |   |      |  
|                                        |  | $              | 1,415 |                      |  | $ | 944  |  
|                                        |  |                |       |                      |  |   |      |  

Stock Option Plan

The Nexfor Stock Option Plan is described under
Annual Meeting Business  Human Resources
Committees Report on Executive Compensation 
Long Term Incentives  Stock Option Plan. In
1997 the number of Common Shares issuable pursuant to the Plan
was fixed at 7 million. Currently there are 3,409,415
Options outstanding and 3,804,890 Common Shares available for
issuance under the Plan. In January 2004 the Nexfor Board
granted an additional 538,000 Options to 59 executives and
senior managers (of which 305,000 Options were granted to
insiders) at the market price of CAD$11.24, subject to
shareholder approval of an increase in the number of shares
issuable under the Plan. The number of shares issuable under the
Plan must be increased by 142,525 shares. The approval of this
increase is part of the Stock Option Plans Resolution.

Under the Arrangement, Nexfor Stock Options are
exchanged for Replacement Stock Options to be issued under a new
Norbord Stock Option Plan. The Nexfor Board conditionally
adopted the new Norbord Stock Option Plan on April 21,
2004. The terms of the new Plan are the same as the existing
Nexfor Stock Option Plan except that the maximum number of
Norbord Common Shares issuable under the new Plan is
10 million, which is approximately 7% of the number of
Norbord Common Shares that will be outstanding on the Effective
Date of the Arrangement. After the issuance of the Replacement
Stock Options under the Arrangement, approximately 6,590,000
Norbord Common Shares will remain for issuance under the new
Plan. In the event that any Nexfor Stock Options are exercised
prior to the Effective Date, a corresponding number of
additional Norbord Common Shares will become available for
issuance under the new Plan.

Under the Norbord Stock Option Plan, the Norbord
board of directors will determine, based on the recommendations
of the Human Resources Committee, which key employees of Norbord
and its subsidiaries are to be granted options. The exercise
price of an Option is the market price of the Common Shares at
the date of the grant. Options can be outstanding for such
period, not exceeding 10 years, as the Norbord board
determines. Options may be granted subject to vesting
requirements. A copy of the form of Norbord Stock Option Plan is
Exhibit N to this Circular.

47



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At the annual and special meeting the Nexfor
Common Shareholders will vote on the passage of the Stock Option
Plans Resolution to approve the issuance of the additional
142,525 Common Shares under the Nexfor Stock Option Plan and to
confirm the Norbord Stock Option Plan and the Fraser Papers
Stock Option Plan. The Stock Option Plans Resolution must be
passed by the affirmation votes of at least a majority of the
votes cast by the Nexfor Common Shareholders thereon at the
meeting. Brascan has advised that the Nexfor Common Shares owned
or controlled by it will be voted for passage of the Stock
Option Plans Resolution.

Dividend Policy

The amounts and timing of dividend payments on
the Norbord Common Shares will be determined from time to time
by the board of directors of Norbord in its discretion having
regard to prevailing economic conditions, the financial
condition of Norbord and its cash requirements.

Directors and Officers

The Directors of Norbord are to be elected at the
annual and special meeting and are detailed under Annual
Meeting Business  Election of Directors. The
officers of Norbord after approval of the Arrangement will be as
follows:

|                                        |  |                                                          |  |                                                                                                                                                                                                                                         
|--------------------------------------- |  | -------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and Municipality of Residence      |  | Office with Company                                      |  | Previous occupation                                                                                                                                                                                                                     
|                                        |  |                                                          |  |                                                                                                                                                                                                                                         
|K. LINN MACDONALD                       |  | Chairman                                                 |  | President and CEO of Nexfor Inc. until 1999.                                                                                                                                                                                            
|                                       
|J. BARRIE SHINETON
    Toronto, Ontario |  | President and
    Chief Executive Officer                |  | President, Norbord Industries Inc.
until 2004; Managing Director of Nexfor Limited
    (UK) from 1999-2003; Senior Vice President, Wood Products of
    International Forest Products Ltd. (lumber and wood products)
    prior thereto.
|                                       
|JOHN TREMAYNE
    Toronto, Ontario      |  | Executive Vice President
    and Chief Financial Officer |  | Treasurer, Brascan Corporation until 2002.                                                                                                                                                                                              
|                                       
|CHARLES B. GORDON
    Toronto, Ontario  |  | Vice President, Corporate Affairs                        |  | Director, Corporate Communications of Norbord Industries until 1999.                                                                                                                                                                    
|                                       
|ROBIN LAMPARD
    Toronto, Ontario      |  | Vice President, Treasurer                                |  | Assistant Treasurer until 2002.                                                                                                                                                                                                         
|                                       
|LYNNE TAYLOR
    Toronto, Ontario       |  | Assistant Corporate Secretary                            |  | Manager, Regulatory Affairs, Nexfor
    2004; Manager, Legal Compliance, KBSH Capital
    Management Inc. 2000-2004; Corporate Law Clerk, Sobeys prior
    thereto.                                                                     
|                                       
|MICHAEL BOTHA
    Toronto, Ontario      |  | Corporate Controller                                     |  | Manager, Corporate Accounting and
    Reporting at Nexfor, 2001-2004; Manager, KPMG LLP
    prior thereto.                                                                                                                              
|                                       
|ALAN POTTER
    Markham, Ontario        |  | Vice President, Technology and Environment               |  | Manager, Composites and Treated Wood Products of Forintek Canada Corp. (research
    consortium) until 1999.                                                                                                                            
|                                       
|BOB KINNEAR
    Stouffville, Ontario    |  | Vice President, Human Resources                          |  | Vice-President, Human Resources
    and Administration, Norbord, 2001-2003;
    Vice-President, Human Resources and Administration, PCI
    Chemicals Canada Inc., prior thereto.                                                       

48



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Post-Arrangement relationship with Fraser
Papers

Norbord will continue to provide certain
administrative services to Fraser Papers for a fee after the
Effective Date. Norbord and Fraser Papers will continue to
jointly operate a research and product development facility with
costs shared proportionally.

As part of the Arrangement, Norbord will take
back a note from Fraser Papers. The final amount of the note
will be determined on the Effective Date and will be equal to
the amount by which the net assets of Fraser Papers exceed
$500 million, excluding any impact on carrying values
relating to discontinued operations. The note will have a term
of 12 months, be extendible for an additional six months at
Fraser Papers option, and will bear interest at
Libor + 3%. On the Effective Date, Norbord will
continue to guarantee certain obligations of Fraser Papers
having a notional value in the range of $70 million to
$90 million. Fraser Papers has committed to use its best
efforts to remove Norbord from these guarantees and has agreed
to provide letters of credit or other acceptable collateral to
secure any guarantees outstanding 18 months after the
Effective Date. Fraser Papers expects to be in a position prior
to the Effective Date to implement a revolving credit facility
with one or more financial institutions totalling
$50 million immediately after the Effective Date. In the
event that this credit facility is not so concluded, Norbord has
agreed to provide a $30 million revolving credit facility
to Fraser Papers for 3 months at market rates of interest.
As security for these ongoing financial commitments to Fraser
Papers, Norbord will have the right, at any time, to require
Fraser Papers to provide a fixed first charge security interest
over Fraser Papers timberlands and manufacturing
facilities.

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PART V

INFORMATION CONCERNING FRASER PAPERS

Following the Arrangement, Fraser Papers will own
all of the assets used primarily in the operation of
Nexfors Paper and Timber businesses. Reference to
Fraser Papers in this section is to the Fraser
Papers division of Nexfor prior to the Arrangement and to Fraser
Papers following the Arrangement. Definitions for certain
technical terms are set out in the Glossary of Terms for
Fraser Papers.

Corporate Structure

Fraser Papers was incorporated with the name
4229401 Canada Inc. under the CBCA on April 19, 2004 for
purposes of the Arrangement.

Under the Arrangement it will amalgamate with
4229428 Canada Inc., and continue under the name Fraser Papers
Inc.

The principal office of Fraser Papers will be at
Suite 600, 1 Toronto Street, Toronto, Ontario M5C 2W4

Description of the Business

Fraser Papers is a specialty paper company with
integrated lumber and timberland operations. Operating six paper
and pulp mills, four sawmills and managing 943,000 hectares of
timberlands in New Brunswick, Quebec, Maine, New Hampshire and
Wisconsin, Fraser Papers believes that it is one of North
Americas largest integrated producers of specialty paper
products. Fraser Papers has been in operation since the late
1800s and currently employs approximately 3,850 people in
the United States and Canada.

Fraser Papers business is comprised of two
segments, Paper and Timber.

Paper Segment

The paper and pulp products produced by Fraser
Papers can be broadly classified as uncoated freesheet or fine
papers, uncoated groundwood papers, coated groundwood papers and
bleached hardwood kraft pulp. In addition, Fraser Papers
produces lumber at its fully-integrated sawmills.

Paper and Pulp

Fine papers include a broad array of grades such
as lightweight opaque papers, text and cover and commercial
printing as well as a number of technical specialties.
Lightweight opaque printing papers are used for financial
printing, reference and religious books and other high-quality
printing jobs that require thin, lightweight papers. Heavier
weight opaque papers are used for trade books. Text and cover
papers are high-value printing and writing papers used for
high-quality graphic printing. Annual reports and high-end
promotional materials are typical end uses, where printability,
distinctiveness and texture are key design elements. Commercial
printing papers are a generic category of fine papers where
longer production runs and less stringent design criteria allow
a lower-cost alternative to text and cover grades. Technical
specialty papers such as release papers, thermal base stock and
grease resistant packaging are sold to converters and are most
often custom-made to meet customer specifications.

Uncoated groundwood and coated groundwood papers
are generally used in mass circulation publications such as
magazines, catalogues, directories and advertising inserts in
newspapers. Groundwood paper demand is sensitive to total
advertising expenditures and the print medias share
thereof.

Fraser Papers paper output also includes a
small volume of paperboard that is used in the manufacture of
boxes and packaging material and a small volume of towel used in
industrial applications.

Market pulp is purchased by paper producers who
lack sufficient internal supply or require pulp of different
qualities to supplement their own production. Market pulps are
generally classified according to their fibre type, the process
used to produce them, and the degree to which they are bleached.
Fraser Papers kraft pulp mills in Thurso, Québec and
Berlin, New Hampshire produce bleached pulp from northern
hardwoods using the sulphate or kraft process. The hardwood pulp
produced by these mills is sold primarily in Canada and the
United States. Recently larger volumes have been shipped to
offshore markets as new paper capacity is being built in Europe
and Asia.

50



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The United States is the largest market for
Fraser Papers paper and pulp, accounting for over 90% of
Paper sales in 2003. Canada is the second largest consuming
country. Fraser Papers sells its paper to printers, converters
and distributors, including merchants and brokers, and has sales
representatives in all major markets in the United States.
Groundwood papers and certain grades of uncoated printing papers
are generally sold to publishers, printers or merchants. Most
text and cover and some higher-valued commercial printing grades
are shipped to Fraser Papers West Chicago distribution
centre where they are converted from rolls into sheets and sold
to paper merchants across North America. Specialty grades such
as thermal, release papers and packaging grades are sold
directly to converters.

The locations of Fraser Papers mills
producing paper and pulp, their approximate annual capacity at
December 31, 2003, together with their annual production in
each of the last two years are as follows:

|                             |                          |              |     |            |  |      |     |     |  |  |     |     | 
|---------------------------- | ------------------------ | ------------ | --- | ---------- |  | ---- | --- | --- |  |  | --- | --- | 
|                             |                          | Annual       |     |           
|                             |                          | Capacity     |     | Production
|                             |                          | December 31, |     |           
|                             |                          | 2003         |     | 2003       |  | 2002
|                             |                          |              |     |            |  |     
|                             |                          |             
|                             |                          | (000 tonnes)
|Uncoated Freesheet           |                          |              |     |            |  |      |     |     |  |  |     |    
|Gorham, New Hampshire (1)    |                          |              | 145 |            |  |      | 106 |     |  |  | 41  |    
|Madawaska, Maine             |                          |              | 250 |            |  |      | 236 |     |  |  | 229 |    
|Park Falls, Wisconsin        |                          |              | 120 |            |  |      | 108 |     |  |  | 110 |    
|                             |                          |              |     |            |  |      |     |     |  |  |     |    
|                             | Total Uncoated Freesheet |              |     | 515        |  |      |     | 450 |  |  |     | 380 | 
|                             |                          |              |     |            |  |      |     |     |  |  |     |    
|Groundwood Papers            |                          |              |     |            |  |      |     |     |  |  |     |    
|Madawaska, Maine             |                          |              | 175 |            |  |      | 175 |     |  |  | 178 |    
|Paperboard                   |                          |              |     |            |  |      |     |     |  |  |     |    
|Edmundston, New Brunswick    |                          |              | 55  |            |  |      | 52  |     |  |  | 51  |    
|Towel                        |                          |              |     |            |  |      |     |     |  |  |     |    
|Gorham, New Hampshire (1)    |                          |              | 35  |            |  |      | 29  |     |  |  | 18  |    
|Pulp                         |                          |              |     |            |  |      |     |     |  |  |     |    
|Berlin, New Hampshire (1)(2) |                          |              | 110 |            |  |      | 85  |     |  |  |    |    
|Thurso, Québec               |                          |              | 245 |            |  |      | 243 |     |  |  | 237 |    
|                             |                          |              |     |            |  |      |     |     |  |  |     |    
|                             | Total Pulp               |              |     | 355        |  |      |     | 328 |  |  |     | 237 | 
|                             |                          |              |     |            |  |      |     |     |  |  |     |    






|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(1) | Mill acquired in May 2002.                                                              
|   
|(2) | Mill commenced operation in April 2003. Annual
    Capacity represents market pulp only.

Fraser Papers operates an integrated pulp and
paper complex which straddles the border between Edmundston, New
Brunswick and Madawaska, Maine. The Edmundston mill produces
bleached sulphite pulp and groundwood pulp which are used at
Madawaska. The Madawaska mill is a flexible production facility
capable of producing a wide variety of specialty and printing
and writing papers on eight paper machines. The largest machine
produces uncoated groundwood papers. Two machines produce base
stock for coating and super-calendering and produce
predominantly lightweight coated groundwood and super-calendered
release papers. The other five machines are specially equipped
to produce lightweight opaque papers and a variety of technical
specialties. Most of the pulp and the steam energy required to
manufacture these papers are supplied by pipeline from the
Edmundston mill.

Approximately 65% of the chips required by the
Edmundston mill are supplied from Fraser Papers sawmills
or under chip-for-log trades with other sawmillers. The other
35% is purchased from independent sawmillers.

In 2002, the Madawaska Maine mill completed
installation of a secondary treatment system in order to meet
and achieve full compliance with environment regulations in the
United States.

The Park Falls, Wisconsin mill operates three
paper machines, a hardwood sulphite mill and a de-inking plant.
The mill in Park Falls is smaller and older than mills that
dominate the commodity segments of the fine paper sector. In
grades such as text and cover, bright coloured and high
brightness papers and commercial printing papers, this is not a
major disadvantage since production runs tend to be small.

In May 2002, Fraser Papers acquired a pulp mill
in Berlin, New Hampshire and a paper mill in Gorham,
New Hampshire. These mills had been idle since August 2001.
The mills are integrated, however, the pulp mill has the ability
to dry pulp for sale in the open market or for transportation to
other Fraser Papers facilities. The paper mill has

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four paper machines that produce fine papers and
one machine producing industrial towel products. The fine paper
grades are complementary to Fraser Papers current
products. These include lightweight opaque papers, trade-book
papers, technical specialties and commercial printing grades.


All five paper machines at Gorham,
New Hampshire were started in 2002. The pulp mill at
Berlin, New Hampshire started up in April 2003. The
acquisition of these facilities provides Fraser Papers with a
high degree of pulp self-sufficiency and production flexibility.

The bleached hardwood kraft pulp mill at Thurso,
Québec produces pulp for sale to affiliates and on the open
market. The mill is well located to serve its major markets in
the United States and Canada. Approximately 53% of the mill
production in 2003 was specialty pulp for use in the manufacture
of high-quality specialty products such as photographic paper
and decorative laminated papers.

In October 2003, Fraser Papers invested
$10 million in convertible preferred shares of Katahdin
Paper Company LLC (Katahdin). Katahdin is owned
by an affiliate of Brascan. The preferred shares pay a
cumulative dividend of 5% and are convertible to common shares
of Katahdin at Fraser Papers option. The shares offer
Fraser Papers the potential to participate in the growth and
financial returns of Katahdin. Fraser Papers has an option to
purchase Katahdin prior to October 28, 2005 for an amount
based on a pre-determined formula. Katahdin restarted two paper
machines in Maine in June 2003. Fraser Papers has managed the
assets since start-up, providing sales, marketing and operating
services in return for a management fee.

Lumber

Fraser Papers owns 4 integrated sawmills and is a
producer of softwood dimension lumber used in construction. The
market for dimension lumber is characterized by intense
competition between producers in all major supply regions.
Competition is based on price, lumber quality and service.
Fraser Papers competes against other North American producers
and, to a lesser extent, foreign producers. For lumber
producers, chips are an important by-product, purchased by pulp
and paper mills. Fraser Papers consumes substantially all of the
chips generated at its New Brunswick and Maine sawmills.

The locations of mills producing lumber, their
approximate annual capacity at December 31, 2003 together
with their annual production in each of the last two calendar
years, are as follows:

|                            |       |              |     |            |  |      |     |     |  |  |     |     | 
|--------------------------- | ----- | ------------ | --- | ---------- |  | ---- | --- | --- |  |  | --- | --- | 
|                            |       | Annual       |     |           
|                            |       | Capacity     |     | Production
|                            |       | December 31, |     |           
|                            |       | 2003         |     | 2003       |  | 2002
|                            |       |              |     |            |  |     
|                            |       |             
|                            |       | (MMfbm)     
|Ashland, Maine              |       |              | 60  |            |  |      | 63  |     |  |  | 74  |    
|Juniper, New Brunswick      |       |              | 160 |            |  |      | 116 |     |  |  | 133 |    
|Masardis, Maine             |       |              | 120 |            |  |      | 119 |     |  |  | 122 |    
|Plaster Rock, New Brunswick |       |              | 120 |            |  |      | 117 |     |  |  | 119 |    
|                            |       |              |     |            |  |      |     |     |  |  |     |    
|                            | Total |              |     | 460        |  |      |     | 415 |  |  |     | 448 | 
|                            |       |              |     |            |  |      |     |     |  |  |     |    

The Plaster Rock sawmill in New Brunswick
produces dimension lumber and specialty board products and
supplies about 25% of the wood chips used by the Edmundston pulp
mill in New Brunswick. More than 75% of the timber for the
sawmill is harvested from land owned or crown-licensed by Fraser
Papers.

The Juniper sawmill in New Brunswick was
modernized in the mid 1990s and produces dimension lumber using
timber from its Crown licence supplemented by open market
purchases. Chips from the New Brunswick sawmills represent about
40% of the chips used by the Edmundston pulp mill.

The sawmills in Maine produce kiln-dried and
green lumber. Approximately 50% of the chips are sold to the
Edmundston pulp mill with the remainder sold to third parties.
The mill obtains a portion of its log requirements from Fraser
Papers timberlands in Maine with the remainder purchased
on the open market.

Timber Segment

The timber segment comprises the management of
approximately 407,000 hectares of freehold timberlands in
New Brunswick and Maine and 536,000 hectares of Crown
licences in New Brunswick. In addition, the Timber business
manages a significant portion of the Crown-licensed Arrangements
on behalf of the Government of New

52



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Brunswick. The timber business is responsible for
providing roundwood to support Fraser Papers pulp and
lumber operations in New Brunswick and Maine. Substantially all
of the softwood fibre harvested by the Timber segment is used by
the Paper segment. Hardwood fibre is sold on the open market.


All forest operations on Crown land are
accountable for their activities on these lands under
Crown-licensed Arrangements. Cutting rights on Crown lands in
Canada are generally granted by licences from the province
owning the resource. These provincial licences generally include
provisions for ground rents, stumpage charges and reforestation.
The provinces have various legislative programs governing
utilization of their forest resources. These programs change
from time to time, resulting in changes in land tenure and
cutting rights. The major tenure agreements with the provinces
are for terms of 20 to 25 years, with renewal provisions.
Provincial regulations specify the harvesting and reforestation
obligations and set the stumpage price. Restrictions on
harvesting have increased over the past several years. Stumpage
charges have also risen sharply over the past five years in
Québec.

Fraser Papers participates in the American Forest
and Paper Associations Sustainable Forestry Initiative
(SFI®) program. To obtain certification, mills must
demonstrate a commitment to forest conservation including sound
management planning and the protection of wildfire habitats and
water quality. During 2002, sawmills in New Brunswick and Maine
became the worlds first lumber manufacturers to be
certified under the SFI program. During 2003, 7 additional
North American operations received SFI forest certification.
This accomplishment means that Fraser Papers now has
8 third party certified manufacturing and woodland
operations.

Description of Share Capital

The authorized capital of Fraser Papers will
consist of an unlimited number of Class A Preferred Shares,
an unlimited number of Class B Preferred Shares, an
unlimited number of Non-Voting Participating Shares and an
unlimited number of Common Shares.

The rights, privileges, restrictions and
conditions attaching to the Fraser Papers shares are the same as
the rights, privileges, restrictions and conditions currently
attaching to the Nexfor shares.

The following is a summary of the principal
attributes of the Common Shares, the Class A Preferred
Shares, the Class B Preferred Shares and the Non-Voting
Participating Shares of Fraser Papers Inc.

Common Shares

The holders of Common Shares are entitled to one
vote per share at all meetings of shareholders. They are
entitled to receive dividends if, as and when declared by the
directors rateably with any holders of the Non-Voting
Participating Shares, subject to the attributes of each series
of Non-Voting Participating Shares. In the event of any
liquidation, dissolution or winding up, subject to the rights of
holders of Class A Preferred Shares and any Class B
Preferred Shares, the holders of Common Shares are entitled to
participate rateably with any holders of Non-Voting
Participating Shares in any distribution of the assets of Fraser
Papers, subject to the attributes of each series of Non-Voting
Participating Shares.

Class A Preferred Shares

The Class A Preferred Shares are issuable in
series. The directors of Fraser Papers are empowered to fix the
number of shares in and the designation and attributes of each
series, which may include voting rights. The Class A
Preferred Shares will be entitled to priority over the
Class B Preferred Shares, the Non-voting Participating
Shares and the Common Shares with respect to the payment of
dividends and the distribution of assets of Fraser Papers in the
event of any liquidation, dissolution or winding up of Fraser
Papers.

Class B Preferred Shares

The Class B Preferred Shares are issuable in
series. The directors of Fraser Papers are empowered to fix the
number of shares in and the designation and attributes of each
series, which may include voting rights. The Class B
Preferred Shares are entitled to priority over the Non-Voting
Participating Shares and the Common Shares with respect to the
payment of dividends and the distribution of assets of Fraser
Papers in the event of any liquidation, dissolution or winding
up of Fraser Papers.

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Non-Voting Participating
Shares

The Non-Voting Participating Shares are issuable
in series. The directors of Fraser Papers are empowered to fix
the number of shares in and the designation and attributes of
each series, which may include a preferential dividend or a
priority in any distribution of assets of Fraser Papers. Subject
thereto, the holders of Non-Voting Participating Shares are
entitled to receive dividends if, as and when declared by the
directors rateably with the holders of Common Shares and, in the
event of any liquidation, dissolution or winding up, subject to
the rights of the holders of Class A Preferred Shares and
any Class B Preferred Shares, to participate rateably with
the holders of Common Shares in any distribution of the assets
of Fraser Papers.

Selected Financial Information

The following tables include selected historical
financial data for the Fraser Papers Division of Nexfor for the
years ended December 31, 2003, 2002 and 2001 and the three
months ended March 27, 2004 and March 29, 2003.

The historical financial data relates to the
Fraser Papers businesses as they were operated by Nexfor prior
to the Arrangement, and therefore some of the expenses are based
upon allocations made by Nexfor. For example, allocations have
been made with respect to personnel, space, estimates of time
spent to provide services and other appropriate bases. Nexfor
believes that allocations were made on a reasonable basis and
that no material change to Fraser Papers costs would be expected
had its business been operated as a stand-alone entity.

This selected financial data should be read along
with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
audited combined financial statements of the Fraser Papers
division of Nexfor and the related notes included elsewhere in
this Circular.

|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |     | 
|--------------------------------------------------------------------------- | ---------- | ------------------ | --- | ------------------------------- |  | ---- | --- | ---- |  | ---- | ----- | --- |  | - | ----- | --- |  | - | ----- | --- | 
|                                                                            |            |                    |     |                                
|                                                                            |            | As at and for the  |     | As at and for the              
|                                                                            |            | Three Months Ended |     | Fiscal Years Ended December 31,
|                                                                            |            |                    |     |                                
|                                                                            |            | March 27,          |     | March 29,                       |  |     
|                                                                            |            | 2004               |     | 2003                            |  | 2003 |     | 2002 |  | 2001
|                                                                            |            |                    |     |                                 |  |      |     |      |  |     
|                                                                            |            |                   
|                                                                            |            | ($ millions)      
|SELECTED ANNUAL FINANCIAL DATA                                              |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Net sales                                                                   |            | $                  | 221 |                                 |  | $    | 200 |      |  | $    | 873   |     |  | $ | 747   |     |  | $ | 771   |    
|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Earnings before interest, taxes, depreciation and
    restructuring charge: |            |                    |    |                                 |  |      | 11  |      |  |      | (2    | )   |  |   | 46    |     |  |   | 47    |    
|Restructuring charge                                                        |            |                    |    |                                 |  |      |    |      |  |      | (26   | )   |  |   |      |     |  |   |      |    
|Interest income                                                             |            |                    |    |                                 |  |      |    |      |  |      | 1     |     |  |   |      |     |  |   | 1     |    
|Fees on sale of accounts receivable                                         |            |                    | (1  | )                               |  |      | (1  | )    |  |      | (6    | )   |  |   | (5    | )   |  |   | (5    | )  
|Interest                                                                    |            |                    | (3  | )                               |  |      | (3  | )    |  |      | (11   | )   |  |   | (9    | )   |  |   | (12   | )  
|Depreciation expense                                                        |            |                    | (11 | )                               |  |      | (13 | )    |  |      | (49   | )   |  |   | (48   | )   |  |   | (49   | )  
|Income tax recovery (expense)                                               |            |                    | 1   |                                 |  |      | (1  | )    |  |      | 1     |     |  |   | 2     |     |  |   | (5    | )  
|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Loss                                                                        |            |                    | (14 | )                               |  |      | (7  | )    |  |      | (92   | )   |  |   | (14   | )   |  |   | (23   | )  
|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Balance Sheet Data:                                                         |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Total assets                                                                |            | $                  | 754 |                                 |  |      |     |      |  | $    | 763   |     |  | $ | 761   |     |  |   |       |    
|Total debt and other liabilities                                            |            |                    | 218 |                                 |  |      |     |      |  |      | 212   |     |  |   | 196   |     |  |   |       |    
|Nexfors net investment                                                     |            |                    | 536 |                                 |  |      |     |      |  |      | 551   |     |  |   | 565   |     |  |   |       |    
|Shipments:                                                                  |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Paper (000 tonnes)                                                          |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|                                                                            | Fine       |                    |     | 115                             |  |      |     | 105  |  |      |       | 445 |  |   |       | 369 |  |   |       | 362 | 
|                                                                            | Groundwood |                    |     | 39                              |  |      |     | 42   |  |      |       | 175 |  |   |       | 178 |  |   |       | 186 | 
|                                                                            | Paperboard |                    |     | 12                              |  |      |     | 13   |  |      |       | 52  |  |   |       | 52  |  |   |       | 51  | 
|                                                                            | Towel      |                    |     | 8                               |  |      |     | 7    |  |      |       | 29  |  |   |       | 17  |  |   |       |    | 
|                                                                            | Pulp       |                    |     | 69                              |  |      |     | 62   |  |      |       | 329 |  |   |       | 230 |  |   |       | 229 | 
|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Total Paper                                                                 |            |                    | 243 |                                 |  |      | 229 |      |  |      | 1030  |     |  |   | 846   |     |  |   | 828   |    
|Lumber (MMfbm)                                                              |            |                    | 91  |                                 |  |      | 100 |      |  |      | 420   |     |  |   | 441   |     |  |   | 416   |    
|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    
|Timber (000s m3)                                                           |            |                    | 813 |                                 |  |      | 767 |      |  |      | 2,663 |     |  |   | 2,680 |     |  |   | 2,493 |    
|                                                                            |            |                    |     |                                 |  |      |     |      |  |      |       |     |  |   |       |     |  |   |       |    

54



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Selected Pro Forma Financial
Information

Pro Forma Capitalization

The following table sets out the capitalization
as at March 27, 2004 of the Fraser Papers Division of
Nexfor before giving effect to the Arrangement and of Fraser
Papers Inc. after giving effect to the Arrangement:

|                        |                      |              |     |                |  |   |     |     | 
|----------------------- | -------------------- | ------------ | --- | -------------- |  | - | --- | --- | 
|                        |                      | As at        |     | As at         
|                        |                      | March 27,    |     | March 27, 2004
|                        |                      | 2004         |     | Pro Forma     
|                        |                      |              |     |               
|                        |                      |             
|                        |                      | ($ millions)
|CAPITAL                 |                      |              |     |                |  |   |     |    
|Cash                    |                      | $            | (1  | )              |  | $ | (30 | )  
|Bank advances           |                      |              | 4   |                |  |   |    |    
|Long-term debt          |                      |              | 1   |                |  |   | 91  |    
|Nexfors net investment |                      |              | 536 |                |  |   |    |    
|Common shares           |                      |              |    |                |  |   | 500 |    
|                        |                      |              |     |                |  |   |     |    
|                        | Total Capitalization |              | $   | 540            |  |   | $   | 561 | 
|                        |                      |              |     |                |  |   |     |    

Managements Discussion and
Analysis

The Managements Discussion and Analysis
(MD&A) provides a review of the significant developments
that impacted Fraser Papers performance. Factors that
could impact future operations are also discussed. Such comments
will be affected by, and may involve, known and unknown risks
and uncertainties that may cause the actual results of Fraser
Papers to be materially different from those expressed or
implied. These risks and uncertainties are discussed in this
MD&A, and in other filings made from time to time with
applicable securities and regulatory authorities. To enhance
reader understanding, certain three-year historical financial
and statistical information is presented. Fraser Papers
significant accounting policies and other financial disclosures
are contained in the audited combined financial statements and
accompanying notes, which are included as Exhibit F to this
Circular. All financial references in the MD&A are stated in
US dollars unless otherwise noted.

Throughout this discussion Fraser
Papers refers to the Fraser Papers division of Nexfor Inc.
as it has been carved out under the Plan of Arrangement.
Nexfor refers to Nexfor Inc., Fraser Papers
parent company prior to and during the periods covered in this
MD&A.

EBITDA, EBITDA margin, operating earnings,
ROCE, net debt and free cash flow are non-GAAP measures
described in the Definitions section on pages 67 and 68.
Non-GAAP measures do not have any standardized meaning
prescribed by generally accepted accounting principles
(GAAP) and are therefore unlikely to be comparable to
similar measures presented by other companies. There are no
directly comparable GAAP measures to any of these measures.
However, a quantitative reconciliation of each non-GAAP measure
to the nearest comparable GAAP measure is provided at the end of
the MD&A.

Overview

Strategy

Fraser Papers is a specialty paper company with
integrated lumber and timberland operations. Operating six paper
and pulp mills, four sawmills and managing 943,000 hectares of
timberlands, Fraser Papers believes that it is one of North
Americas largest integrated producers of specialty paper
products.

Since conducting a comprehensive strategic review
of its businesses in 1998, Fraser Papers has repositioned itself
to become principally a competitive specialty paper business.
Actions to further this objective in 2003 and 2002 included:



| |       |                                                                                                                                                               
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Implementing a productivity improvement plan at
    East Paper  the integrated paper and pulp complex at
    Edmundston, New Brunswick, and Madawaska, Maine;
|
| | (ii)  | Acquiring the paper and pulp facility in Northern
    New Hampshire;                                                                                          
|
| | (iii) | Growing the technical specialty business; and                                                                                                                 
|
| | (iv)  | Assuming the management of Katahdin Paper Company
    LLC in Maine on a fee basis.                                                                            

55



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Business Profile

Fraser Papers employed approximately 3,650 people
at December 31, 2003, at manufacturing facilities in the
United States and Canada. The geographical breakdown of
property, plant and equipment at year-end 2003 was 56% US
and 44% Canada. Principal manufacturing facilities include
six paper and pulp mills and four sawmills.

The annual production capacity of these
facilities at December 31, 2003, was:



| |       |                                               
| | ----- | ----------------------------------------------
| | (i)   | 780,000 tonnes of paper, paperboard and towel;
|
| | (ii)  | 355,000 tonnes of market pulp; and            
|
| | (iii) | 460 million board feet of lumber.             

Fraser Papers manages 943,000 hectares of
timberland in Maine and New Brunswick, of which 407,000 hectares
are owned. Fraser Papers is also the beneficiary of crown rights
in Québec. Fraser Papers also purchases timber, chips and
other wood residues on the open market.

Restructuring Charge

In April 2003, Fraser Papers announced a
productivity improvement plan at the East Paper operations. The
plan involved a 20% reduction in the workforce over a 12-month
period through a combination of voluntary retirements and
layoffs. About 75% of the workforce reduction was implemented by
the end of 2003. A charge of $26 million was recorded in
2003 consisting of severance, early retirement, consulting and
training costs of $20 million and non-cash pension and
non-pension post-retirement benefits-related charges of
$6 million.

The restructuring plan projects annual savings of
about $21 million. Savings in 2003 amounted to
$9 million. In the fourth quarter of 2003, work-hours per
ton of paper produced were reduced by 16% from 2002 levels. In
the first quarter of 2004, the plan achieved the expected 20%
improvement in work-hours per ton resulting in annualized
savings of $16 million.

Margin Improvement

The margin improvement program (MIP) remains
the cornerstone of Fraser Papers efforts to control
the controllables. Measured at constant prices and
exchange rates, MIP realized a $4 million improvement over
2002. In 2002, Fraser Papers realized $8 million in
improvements over 2001. While Fraser Papers realized
improvements in volume, mix and cost, these MIP savings were
substantially offset by weak markets for many of its products
and increases in energy costs.

Softwood Lumber Duties

Effective May 22, 2002, the US International
Trade Commission imposed an 18.8% countervailing duty
(CVD) and an 8.4% antidumping duty (ADD) on Canadian
lumber exported to the US. Fraser Papers two mills in New
Brunswick are subject only to the ADD. Fraser Papers paid
$7 million in duties from May 22, 2002, through
December 31, 2003, $4 million in 2003.

The Government of Canada has challenged the
duties, launching appeals with various trade bodies.
Notwithstanding the rates established in the investigations, the
final liability for the assessment of CVD and ADD will not be
determined until the appeal process is complete or a negotiated
settlement is reached.

Interest

All of Fraser Papers debt requirements
during 2003 and 2002 were managed by Nexfor and all interest
payments were made to a wholly-owned affiliate of Nexfor. Upon
approval of the Arrangement, Fraser Papers will have debt owing
to Norbord Inc. and is expected to have arranged for a
credit facility with one or more financial institutions, as
described elsewhere in this Circular.

Fees on Sale of Accounts Receivable

Fraser Papers sells a portion of third party
trade accounts receivables to a wholly-owned affiliate of
Nexfor. Prior to the Arrangement, Fraser Papers will cease its
participation in the receivables program.

56



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Financial Summary

Quarter ended March 27, 2004 compared to
March 29, 2003

Operating Results

Losses for the first quarter of 2004 were
$14 million, compared to $7 million in the same period of
2003. The weaker results were due to weak paper markets in
general, and a weak pricing environment for hardwood kraft pulp.
While lumber pricing strengthened year over year, the
improvement was not sufficient to offset the weakness in paper
and pulp.

Net sales of $221 million in the first
quarter of 2004 were $21 million or 10% higher than the
first quarter of 2003. Paper sales accounted for $19 million of
the increase.

EBITDA was break even in the first quarter of
2004, down from $11 million in the same period in 2003.
Paper generated negative EBITDA of $3 million, Timber
contributed $3 million.

|                                      |  |         |     |         |  |  |     | 
|------------------------------------- |  | ------- | --- | ------- |  |  | --- | 
|Production (000 tonnes except lumber) |  | Q1 2004 |     | Q1 2003
|                                      |  |         |     |        
|Uncoated freesheet                    |  |         | 116 |         |  |  | 110 | 
|Uncoated groundwood paper             |  |         | 26  |         |  |  | 25  | 
|Coated groundwood paper               |  |         | 16  |         |  |  | 18  | 
|Paperboard                            |  |         | 13  |         |  |  | 13  | 
|Towel                                 |  |         | 7   |         |  |  | 7   | 
|Pulp                                  |  |         | 72  |         |  |  | 57  | 
|Lumber (MMfbm)                        |  |         | 103 |         |  |  | 105 | 

Segments Results

Paper

The Paper segment comprises 17 paper
machines at four locations, two market pulp facilities, and four
sawmills. Products include uncoated freesheet, groundwood paper,
paperboard, towel, hardwood pulp and softwood lumber. Paper
accounted for 95% of Fraser Papers net sales in both the
first quarter of 2004 and 2003.

Paper operations recorded a $10 million
reduction in EBITDA in the first quarter compared to the first
quarter of 2003. The reduction was driven by weak paper markets
in general and a weak pricing environment for hardwood pulp.
While demand is starting to improve, paper prices remain
considerably below their long-term averages.

Downtime was taken in the first quarter of 2004
at the Thurso pulp mill to bring production into line with
market demand. The downtime totalled 14,000 tonnes in the first
quarter compared to 36,000 tonnes of downtime in the fourth
quarter of 2003.

U.S. uncoated freesheet demand improved in the
first quarter, reflecting general economic growth. Average
benchmark 50 lb. offset uncoated freesheet prices were in line
with the fourth quarter of 2003, despite an increase of
$30 per ton on March 1. Approximately two-thirds of
Fraser Papers total paper capacity is in the uncoated
freesheet grades.

Hardwood pulp list prices in North America
increased $25 per tonne March 1 to $530, up $10 from
year-end. Norscan producer inventories ended March at
1.78 million tonnes, above the 1.5 million tonnes
considered to reflect a balanced market.

Lumber prices (Eastern Boston
SPF 2 x 4) averaged $408 per MFBM in the first
quarter of 2004, up 15% from the fourth quarter of 2003 and 41%
ahead of the first quarter of 2003. Lumber markets have improved
in response to brisk housing demand.

Since May 22, 2002, Fraser Papers has been
posting cash deposits for anti-dumping duties at a rate of 8.4%
on shipments of softwood lumber to the U.S. from its two New
Brunswick sawmills. Duties paid to date totalled $8 million
($1 million in the first quarter of 2004).

Timber

The Timber segment includes freehold lands in
Maine (97,000 hectares) and New Brunswick (310,000 hectares) and
Crown licences in New Brunswick (536,000 hectares). Employment
levels are seasonal with about 170 employees at year-end.
Approximately 50% of the segments sales are directed to
third parties, the remainder is consumed

57



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internally. Substantially all of the softwood
fibre harvested is used internally to support the paper and
lumber operations while the hardwood fibre is sold on the open
market. Timber accounted for 5% of Frasers net sales in
both the first quarter of 2004 and 2003.


Logging activity is seasonal, the first and
fourth quarters traditionally being the most profitable.
Shipments totalled 813,000 cubic metres in the first quarter of
2004, up 6% over the first quarter of 2003.

Year ended December 31, 2003 compared to
December 31, 2002

Operating results

During 2003, Fraser Papers lost $92 million,
a significant deterioration from the $14 million loss in
2002. During 2003, Fraser Papers results were adversely
impacted by a $26 million restructuring charge and
continuing difficult market conditions in the paper industry.

Cash utilized by operating activities, including
changes in non-cash working capital, totalled $59 million
in 2003 compared to cash generated of $52 million in 2002.
After capital expenditures, free cash flow was negative
$76 million compared to positive $24 million in 2002.
The substantial decrease was driven by lower earnings resulting
from depressed paper markets and cash payments under the East
Paper restructuring.

Cash totalled $16 million at
December 31, 2003, compared to $3 million at year-end
2002. All cash is held in conjunction with a cash pooling
arrangement with Nexfor. At the end of 2003, Fraser Papers was
financed by Nexfor.

Net Sales

Net sales increased $126 million in 2003,
due primarily to a full years impact from the
Berlin-Gorham acquisition that was completed during 2002.

Paper sales revenue increased $122 million
or 17% over 2002 levels. The paper and pulp complex at
Berlin-Gorham, New Hampshire, acquired May 31, 2002,
generated third-party net sales of $132 million in 2003
compared to $15 million in 2002. Net operating results in
2002 were capitalized until November while the paper mill was
starting up. The pulp mill at Berlin restarted April 2003.

Net sales from the Timber segment were up
$7 million or 11% over 2002 despite a 1% decline in
shipments.

EBITDA

EBITDA was negative $2 million compared to
positive $46 million in 2002. Depreciation expense
increased $1 million in 2003 to $49 million.

Paper posted EBITDA of negative $13 million
in 2003, down $49 million from 2002. The 2003 result
excludes a $26 million restructuring charge at East Paper.
Results continue to be adversely impacted by difficult market
conditions. Weak demand is affecting most grades of paper,
hardwood pulp and softwood lumber. Downtime was taken in the
fourth quarter of 2003, curtailing 36,000 tonnes of paper and
pulp production.

Timber results maintained consistency
year-over-year.

Segment Results

Paper

Paper accounted for 96% of Fraser Papers
net sales in both 2003 and 2002.

Markets

The year 2003 was a challenging one for North
American paper producers. There was little improvement in
pricing, and downtime, machine shutdowns and financial
restructuring remained principal concerns. A similar situation
occurred across the industry in 2002 and 2001.

Market demand for US paper and paperboard was
affected by various conditions including an eroding
manufacturing base in North America, slow economic growth in the
first half of the year, minimal job creation and sluggish media
advertising. In addition, US producers have been impacted by
imports from Asia and Europe.

Price increases in 2003 were few and far between.
Small increases were announced and captured in the groundwood
segments. The increases were driven largely to recoup some of
the exchange losses suffered on the value

58



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##### 



of the Canadian dollar and the Euro. Demand
improved for both coated and uncoated groundwood grades,
although much of the improvement was absorbed by a surge in
imports.


Attempted price increases on uncoated freesheet
failed. US uncoated freesheet demand declined for the fourth
consecutive year in 2003, reflecting the impact of electronic
substitution and white collar unemployment. Electronic
substitution has affected uncoated freesheet demand more than
any other segment of printing and writing papers. The growth in
use of plain paper fax machines and small office printers has
slowed dramatically as e-mail deliveries and the electronic
storage of documents have become more widely accepted.

Reported transaction prices for commodity
uncoated freesheet, No. 3 Offset 50-pound rolls, declined
from $660 per ton in January to $575 by year-end, averaging $622
for the year 2003  the lowest in nine years. The
benchmark price for coated groundwood, No. 5 34-pound,
averaged $826 in 2003, up 2% from 2002.

Prices for technical specialty grades were
relatively stable in 2003 despite difficult economic conditions.
Fraser Papers technical specialty business grew 9% in 2003
to 136,000 tonnes, benefiting from growth in packaging, thermal
transfer label and super-calendered release markets. New product
development and superior quality characteristics continue to
contribute to Fraser Papers success in these grades.

Pulp markets tightened through the first half of
2003 as list prices for northern bleached hardwood kraft rose
from $470 per tonne in January to $560 April 1. The price hikes
were supported by weather-related fibre shortages in the US
South, increased demand in Asia, a stronger Euro and declining
producer inventories. The market started to soften during the
slow summer months due to weak paper demand and new offshore
hardwood capacity coming online. Oversupply kept the market
generally in decline through the third and fourth quarters. The
demand/ supply fundamentals for hardwood pulp were weaker than
for softwood grades due to new eucalyptus capacity in South
America. Fraser Papers two market pulp mills produce
hardwood pulp. Norscan producer inventories ended December at
1.84 million tonnes, the highest year-end total since 1996
and well above the 1.5 million tonne level considered to
reflect a balanced market.

Lumber prices (Eastern Boston SPF 2x4)
averaged $289 per Mfbm in the first half of 2003, the lowest
first half average since 1991. Extensive mill closures and
downtime were experienced throughout the industry. Prices
rebounded to average $355 per Mfbm in the second half of 2003
driven by strong demand, with housing starts well above typical
seasonal peaks, and reduced supply from shutdowns taken in the
first half. Prices averaged $322 for the full year, $3 higher
than the 2002 average. North American consumption of softwood
lumber increased 4% in 2003 to a new record, exceeding
70 billion feet.

Operations

|                                      |  |      |     |      |  |      |     |  |  |  |     | 
|------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|Production (000 tonnes except lumber) |  | 2003 |     | 2002 |  | 2001
|                                      |  |      |     |      |  |     
|Uncoated freesheet                    |  |      | 450 |      |  |      | 380 |  |  |  | 352 | 
|Uncoated groundwood paper             |  |      | 102 |      |  |      | 96  |  |  |  | 97  | 
|Coated groundwood paper               |  |      | 73  |      |  |      | 82  |  |  |  | 89  | 
|Paperboard                            |  |      | 52  |      |  |      | 51  |  |  |  | 51  | 
|Towel                                 |  |      | 29  |      |  |      | 18  |  |  |  |    | 
|Pulp                                  |  |      | 328 |      |  |      | 237 |  |  |  | 224 | 
|Lumber (MMfbm)                        |  |      | 415 |      |  |      | 448 |  |  |  | 416 | 

EBITDA from the Paper segment declined
$49 million year-over-year from a $36 million profit
in 2002 to a $13 million loss in 2003. The 2003 results
exclude the $26 million restructuring charge for
productivity improvements at East Paper. Factors contributing to
the EBITDA decline include market-related downtime, appreciation
of the Canadian dollar and higher costs.

East Paper operated well in a difficult market
environment setting annual average daily production records in
paperboard, sulphite pulp and paper. EBITDA results were down
sharply from 2002, impacted by the weakness in uncoated
freesheet markets and a 4% increase in cash costs of production.
Production costs were impacted by the stronger Canadian dollar
as pulp, power and steam are fed to the US mill from the
Edmundston, New Brunswick operation. The East Paper productivity
project is on schedule with 75% of the workforce reductions
accomplished. A new six-year labour agreement at Madawaska,
Maine signed in November will improve work flexibility with more
job sharing.

59



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Production from the Midwest was down 2% from 2002
due to market downtime taken in the fourth quarter. Shipments
were down 4% and average selling prices declined 5% from 2002.
Cash costs were up 2% primarily due to higher natural gas
prices. Higher costs from purchased fibre were completely offset
by increased pulp and deink production.

The paper mill at Gorham, New Hampshire increased
total production of fine paper and towel by 129%, running an
average of four machines for the entire year. The facility,
which started up in June 2002, has five machines. On average,
only three machines were operating at any one time in 2002.

Production at the Thurso, Quebec, hardwood pulp
mill averaged a record 682 tonnes per day, up 2% from 2002. Cash
production costs increased 2% due to higher costs for wood,
chemicals and energy. Shipments from Thurso to Fraser
Papers paper mills decreased from 75,000 tonnes in 2002 to
53,000 tonnes in 2003 due to the start-up of the pulp mill at
Berlin, New Hampshire.

The mill at Berlin started up in early April 2003
following the completion of quality and production improvements.
The mill had been shut for 18 months. Production totalled
140,000 tonnes  approximately 40% was delivered via
pipeline to the paper machines at Gorham, 10% shipped to Fraser
Papers other paper mills and 50% sold to third parties.

The sawmills in New Brunswick and Maine are
integrated with the Paper operations, supplying approximately
65% of the chips required annually by the pulp mill at
Edmundston. As such, the sawmills continued to operate through
most of 2003 despite cash losses from weak lumber prices. Lumber
production decreased 33 MMfbm or 7% in 2003. The sawmill at
Juniper, New Brunswick was shut for four weeks effective
December 8, 2003, due to weak markets, the stronger
Canadian dollar and US duties. Both sawmills in New Brunswick
took downtime in the second quarter due to weak markets and
surplus chip inventories. Production from the sawmills in Maine
was 14 MMfbm lower than in 2002. A night shift had been
added at the Ashland, Maine, mill from May through December in
2002.

Duties paid in 2003 totalled $4 million
compared to $3 million in 2002.

Timber

Timber accounted for 4% of Fraser Papers
total net sales in both 2003 and 2002.

Markets

The log supply to sawmills in Maine and New
Brunswick tightened in 2003 due to inclement weather and reduced
contractor capacity. Average prices increased 8%.

Operations

EBITDA for Timber was $11 million in 2003 as
compared to $10 million in 2002. Total shipments of
2.7 million cubic metres in 2003 were 1% below 2002.

Year ended December 31, 2002 compared to
December 31, 2001

Operating results

2002 was another difficult year for the paper
industry. Fraser Papers recorded a loss of $14 million
compared to a loss of $23 million in 2001. Weak economic
activity contributed to weaker pricing for many of Fraser
Papers products.

Cash flow from operations, including changes in
non-cash working capital, totalled $52 million in 2002
compared to $61 million in 2001. Improvements in working
capital have contributed $53 million in the past two years.

Cash totalled $3 million at
December 31, 2002 compared to nil at the end of 2001. All
cash is held in conjunction with a cash pooling arrangement with
Nexfor. At the end of 2002, Fraser Papers had no committed bank
lines and was financed by Nexfor.

Net Sales

Net sales decreased 3% or $24 million in
2002, primarily due to a significant deterioration in pricing
for groundwood papers and the closure of the West Carrollton
mill in the first quarter of 2001, partly offset by stronger
timber sales.

Groundwood paper sales were down
$26 million, impacted by a slowdown in advertising and
catalogue activity, an influx of European imports and
substitution pressures from alternate grades. Pulp sales to
third parties declined

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$12 million, as more of the hardwood kraft
from the Thurso, Quebec mill was used internally at the new
paper mill in Gorham.


EBITDA

Paper posted EBITDA of $36 million in 2002,
down $1 million from 2001. Lower prices for groundwood
paper due to weak demand were partly offset by improved results
for lumber. The 2002 lumber results include an expense for
duties on softwood lumber of $6 million, excluding the
reversal of prior year accruals, compared to $3 million in
2001. The 2001 accrual of $3 million was reversed in 2002.
During start-up, operating losses were capitalized at the New
Hampshire complex.

EBITDA for the Timber segment remained consistent
with 2001.

Segment Results

Paper

Paper accounted for 96% of Fraser Papers
net sales in both 2002 and 2001.

Markets

In 2002, the North American paper industry failed
to recover from the economic decline experienced in the previous
year. As a result of weak demand, producers curtailed capacity.
Imports were a significant competitive factor due to a strong US
dollar. According to the American Forest & Paper Association
(AF&PA), US paper and board producers permanently shut
3 million tons of capacity in 2002, up 4% from 2001. In
addition, another 1.2 million tons of capacity were idled
indefinitely; a 30% increase from the prior year.

US printing and writing paper capacity decreased
4% in 2002 to 28.5 million tons. The AF&PA forecasts
2003 US printing and writing capacity to fall below
28 million tons, the lowest level since 1996.

The AF&PA estimates overall U.S. paper and
board production totalled 89.5 million tons in 2002, a drop
of 5.1 million tons from 2000. Printing and writing paper
production was down 2.4 million tons over the two years.

With inconsistent demand in nearly every segment
of the market, there were few price increases, and those that
were implemented had to be phased in over two to three months.
The hardest hit sector was publication papers. US magazine
advertising pages declined 22% causing demand to plummet and
putting intense pressure on newsprint, uncoated groundwood and
coated groundwood paper grades. The price of lightweight coated
groundwood fell to near 20-year lows.

Reported transaction prices for the benchmark
coated groundwood No.5 34 lb. grade averaged $811 per ton
in 2002, down 14% from 2001 and 21% from 2000. The price for
commodity uncoated freesheet, No.3 Offset 50 lb. rolls,
averaged $658 per ton in 2002, down 5% from 2001 and
10% from 2000.

Specialty paper markets continued to be less
susceptible to swings in economic conditions.

2002 began with very weak pulp conditions as the
widely watched North American and Scandinavian (Norscan)
producer inventories peaked at 1.87 million tonnes in
January. The pulp market is generally viewed to be in balance at
the 1.5 million tonne level. List prices for northern
bleached hardwood kraft pulp bottomed at
$430 per tonne in the first quarter due to poor paper
markets and overcapacity in pulp. The second quarter featured
strong shipments and seasonally-related maintenance downtime as
Norscan inventories dropped to a two-year low in June at
1.34 million tonnes. Price increases were implemented
monthly through the spring and early summer boosting prices to
$490 per tonne effective July 1. Conditions
weakened in the latter part of the year with the less than
robust performance of printing and writing papers, especially in
Europe, which remains the single largest consumer of purchased
pulp. Hardwood list prices declined $20 in November to $470.
Norscan inventories ended 2002 at 1.63 million tonnes,
after a 56,000 tonne decline in December.

Transaction prices for hardwood pulp, delivered
into US markets, averaged $447 per tonne in 2002, down
$45 from the prior year average. Prices had fallen steadily
during 2001 due to a decline in paper demand fuelled by a large
drop in advertising expenditures.

Lumber prices, as measured by Eastern
Boston SPF, averaged $294 per Mfbm in the second
half of 2002, down $50 from the first half average. For the full
year, lumber prices averaged $319 per Mfbm, off 3%
from 2001. At year-end 2002, the Eastern Boston price was in the
$270 range.

61



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The trade dispute between Canadian and US
softwood lumber producers undercut normal market forces. The
duties have not had the expected effect in the marketplace as
prices declined, rather than increased. In response, a number of
mills have taken extended downtime.

Operations

|                                      |  |      |     |      |  |      |     |  |  |  |     | 
|------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|Production (000 tonnes except lumber) |  | 2002 |     | 2001 |  | 2000
|                                      |  |      |     |      |  |     
|Uncoated freesheet                    |  |      | 380 |      |  |      | 352 |  |  |  | 432 | 
|Uncoated groundwood paper             |  |      | 96  |      |  |      | 97  |  |  |  | 98  | 
|Coated groundwood paper               |  |      | 82  |      |  |      | 89  |  |  |  | 80  | 
|Paperboard                            |  |      | 51  |      |  |      | 51  |  |  |  | 53  | 
|Towel                                 |  |      | 18  |      |  |      |    |  |  |  |    | 
|Pulp                                  |  |      | 237 |      |  |      | 224 |  |  |  | 238 | 
|Lumber (MMfbm)                        |  |      | 448 |      |  |      | 416 |  |  |  | 316 | 

Fraser Papers lightweight opaque business
grew in 2002 with financial, pharmaceutical, and Bible papers up
12%, 10% and 22% respectively. Fraser Papers believes it is the
leading supplier of Bible papers in North America. Shipments of
coated one-side packaging paper rose 40%, benefiting from market
leadership in quality and service for stain resistant grades.
Text and cover sales grew 4% in a declining market.

Production at the Madawaska, Maine paper mill
totalled 407,000 tonnes in 2002, down 3,000 tonnes
from 2001. No market-related downtime was required as the mill
continued to benefit from its lighter weight offerings and
capability to match product mix with market demand.

Earnings were hit hard by the deterioration in
groundwood paper markets. Average prices for Fraser Papers
coated and uncoated groundwood paper fell 15% and 14%
respectively from 2001.

The Midwest paper operations continued to show
expected improvement. Specialty grades represented 62% of the
Midwests shipments in 2002 compared to 47% in 2001.
Production from the Midwest declined 18,000 tonnes from
2001. The mill at West Carrollton, Ohio had produced
15,000 tonnes in 2001 prior to its permanent shut in March.
EBITDA for the Midwest was $2 million in 2002, a
$5 million improvement over 2001 and $12 million
higher than 2000.

The paper mill at Gorham produced
41,000 tonnes of fine paper and 18,000 tonnes of
industrial towel for the seven-month period of ownership,
achieving commercial production at the end of October. Start-up
operating losses of $12 million were capitalized. In
addition, working capital requirements totalled $9 million,
and $4 million was invested in capital projects. The
landfill facility was sold in December for $10 million.

Production at the Thurso hardwood mill averaged
667 tonnes per day, up 2% from 2001. Cash production
costs declined 1% despite higher costs for fibre and oil.

Specialty pulp sales increased 24% in 2002 to
108,000 tonnes, reducing exposure to the more volatile
commodity grades. Shipments from Thurso to Fraser Papers
paper mills increased from 41,000 tonnes in 2001 to
75,000 tonnes in 2002. About 50% of the increase reflects
shipments to the new paper mill at Gorham.

Lumber production increased 32 MMfbm or 8%
in 2002. The Maine sawmills produced a record 196 MMfbm in
2002, up 12% from the previous high in 2000. The production
increase was due mainly to the addition of a night shift at the
Ashland mill from May through December. The sawmill at Plaster
Rock, New Brunswick also set a new high.

Timber

Timber accounted for 4% of Fraser Papers
total net sales in both 2002 and 2001.

Changes in Accounting Policy

The Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3110  Asset
Retirement Obligationswas adopted by Fraser Papers
effective January 1, 2004. Section 3110 requires the
recognition of all legal obligations associated with the
retirement of a tangible long-lived asset on a retroactive
basis. Adoption of this new standard resulted in a liability of
$5 million for Fraser Papers and no material earnings
impact in 2004 or 2003.

During the fourth quarter of 2002, the
US dollar became the functional currency of Fraser
Papers Canadian operations as a result of the increase in
US dollar-denominated expenditures of those operations as
compared to prior

62



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##### 



years. Concurrent with this change in functional
currency, Fraser Papers adopted the US dollar as its
reporting currency. Under GAAP, the change in reporting currency
was effected using the translation of convenience method whereby
all historical financial transactions and balances were
translated into US dollars using the exchange rate in
effect on the date of changing the reporting currency. The
exchange rate used to translate historical balances and
transactions was CAD $1.00 = US $0.638.


Significant Accounting Policies and
Estimates

Revenue Recognition

Net sales are recognized when the risks of
ownership pass to the purchaser. This is generally when goods
are shipped.

Sales are governed by contract or by standard
industry terms. Revenue is not recognized prior to the
completion of those terms. The majority of product is shipped
via third-party transport on a freight-on-board shipping basis.
In all cases, product is subject to quality testing to ensure it
meets applicable standards prior to shipment.

Property, Plant and Equipment

Property, plant and equipment are recorded at
cost and are depreciated on a straight-line basis. The rates of
depreciation are intended to fully depreciate manufacturing and
non-manufacturing assets over the following periods, which
approximate their useful lives:

|                                                           |  |               
|---------------------------------------------------------- |  | --------------
|Buildings                                                  |  | 20 to 40 years
|Sawmills and lumber production equipment                   |  | 10 to 15 years
|Paper and pulp mill machinery and production
    equipment |  | 20 years      
|Logging machinery and equipment                            |  | 4 to 10 years 

These periods are assessed from time to time to
ensure that they continue to approximate the useful lives of the
related assets.

Financial Instruments

Fraser Papers uses derivative financial
instruments solely for the purpose of managing its foreign
exchange and commodity price exposures. These activities are
governed by Board-approved financial policies that cover risk
identification, tolerance, measurement and reporting. Derivative
transactions are executed only with approved counterparties.
Derivative contracts that are deemed to be highly effective in
offsetting changes in the fair value or cash flows of hedged
items are designated as hedges of specific exposures and,
accordingly, all gains and losses on these instruments are
recognized in the same manner as the item being hedged.

Liquidity and Capital
Resources

Cash provided by operating activities, before net
changes in non-cash working capital balances, totalled negative
$58 million in 2003, positive $34 million in 2002 and
positive $26 million in 2001. The lower cash flow in 2003
corresponds primarily to the decrease in EBITDA. An increase in
non-cash working capital used $1 million in 2003 versus
generating $18 million in 2002 and $35 million in
2001. The increase in working capital in 2003 reflects primarily
the start-up of the pulp mill at Berlin-Gorham. Free cash flow
amounted to negative $76 million in 2003, positive
$24 million in 2002 and positive $26 million in 2001.

During 2003, 2002 and 2001, Fraser Papers was
financed by its parent company, Nexfor.

|                                     |  |       |     |           |  |                        |    |        |  |       |    |  |  |   |    |  |  |   |    | 
|------------------------------------ |  | ----- | --- | --------- |  | ---------------------- | -- | ------ |  | ----- | -- |  |  | - | -- |  |  | - | -- | 
|                                     |  |       |     |           |  |                       
|                                     |  |       |     |           |  | Payments Due by Period
|                                     |  |       |     |           |  |                       
|                                     |  |       |     |           |  | One                   |    | Four  |  | After
|Contractual Obligations ($ millions) |  |       |     | Less than |  | Three                  |    | Five   |  | Five 
|As at December 31, 2003              |  | Total |     | One Year  |  | Years                  |    | Years  |  | Years
|                                     |  |       |     |           |  |                        |    |        |  |      
|Operating leases                     |  | $     | 85  |           |  | $                      | 11 |        |  | $     | 22 |  |  | $ | 16 |  |  | $ | 36 | 
|Purchase obligations                 |  |       | 46  |           |  |                        | 22 |        |  |       | 24 |  |  |   |   |  |  |   |   | 
|Long-term debt                       |  |       | 1   |           |  |                        |   |        |  |       | 1  |  |  |   |   |  |  |   |   | 
|                                     |  |       |     |           |  |                        |    |        |  |       |    |  |  |   |    |  |  |   |    | 
|Total contractual obligations        |  | $     | 132 |           |  | $                      | 33 |        |  | $     | 47 |  |  | $ | 16 |  |  | $ | 36 | 
|                                     |  |       |     |           |  |                        |    |        |  |       |    |  |  |   |    |  |  |   |    | 






|      |                                                                                                                                                                                      
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: | The above table does not include obligations
    under the pension and post-retirement benefits plans. These
    obligations are discussed under Defined Benefit Pension
    Plans.

63



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##### 



Capital Investments

Capital investments totalled $1 million in
the first quarter of 2004. Fraser Papers 2004 capital
investments are expected to total $15 million, about 30% of
depreciation, and will be funded with cash generated from
operations. All of the expected 2004 spending will be for
sustaining capital  maintenance and environmental.

Capital investments totalled $17 million in
2003, down from $28 million in 2002 and $35 million in
2001. Expenditures on Paper accounted for 82% of the total
spending in 2003, 89% in 2002 and 100% in 2001.

Defined Benefit Pension Plans

Fraser Papers obligations under its defined
benefit pension plans are determined periodically through
actuarial valuations, which are the basis for calculating
pension expense. At December 31, 2003, defined benefit
pension plan assets were $346 million (2002 
$261 million) while the accrued benefit obligations were
$464 million (2002  $373 million), yielding
an unfunded liability of $118 million (2002 
$112 million). The funded status of Fraser Papers
defined benefit pension plans has improved from 70% to 75%, as
strong asset returns more than offset lower discount rates, the
strengthening Canadian dollar and the early retirement window
offered as part of the productivity improvement plan at East
Paper.

Defined benefit pension expense for the year was
$28 million (2002  $8 million,
2001  $3 million) and defined benefit employer
contributions were $26 million (2002 
$13 million). Fraser Papers defined benefit pension
plans are funded in accordance with all applicable regulatory
requirements. Fraser Papers anticipates 2004 net pension expense
and employer contributions will be significantly lower than
2003, primarily because 2003 included one-time charges of
$12 million and funding of $8 million related to the
productivity improvement plan at East Paper.

The assumed return on assets is 8% and is based
on managements best estimate of the long-term expected
rate of return on plan assets, including consideration of asset
mix, equity risk premium and active investment management
premium. The discount rate is 6.00% or 6.25% depending on the
plan, and is based on the market yield of high-quality corporate
bonds of similar duration to the pension plan liabilities.
Sensitivity to a 1% decrease in these two key assumptions is
estimated as follows:

|                 |  |                         |                      |                 |  |  |                     | 
|---------------- |  | ----------------------- | -------------------- | --------------- |  |  | ------------------- | 
|                 |  | Impact on Dec. 31, 2003 |                      | Impact on 2003 
|                 |  | Unfunded Liability      |                      | Pension Expense
|                 |  |                         |                      |                
|Return on assets |  |                         | none                 |                 |  |  | $3 million increase | 
|Discount rate    |  |                         | $49 million increase |                 |  |  | $2 million increase | 

Significant changes in assumptions, driven by
changes in financial markets, asset performance different from
the assumed rate of return, significant new plan enhancements,
acquisitions, divestitures, changes in the regulatory
environment, and the measurement uncertainty incorporated into
the actuarial valuation process could materially affect Fraser
Papers future plan assets, accrued benefit obligations,
pension expense and pension contributions.

Transactions with Related
Parties

Nexfor provides a number of services for Fraser
Papers, including managing their treasury operations and
providing taxation support. The fees associated with these
services are less than $1 million per year.

Fraser Papers sells all of its lumber through
Nexfor and Nexfor acts as the collection agent for Fraser
Papers. Total fees paid to Nexfor for these services in 2003
were $1 million (2002  $1 million,
2001  $1 million).

Fraser Papers purchases certain of its
electricity from related parties. These parties are related by
virtue of being under common significant influence. During 2003,
Fraser Papers purchased $9 million (2002 
$9 million, 2001  $6 million) of
electricity from these related parties in Quebec and New
Hampshire. Included in accounts payable and accrued liabilities
is $1 million (2002  $1 million) owing to
these related parties.

In the fourth quarter of 2003, Fraser Papers
invested $10 million in convertible preferred shares of
Katahdin Paper Company LLC (Katahdin). Katahdin is
owned by an affiliate of Brascan. The preferred shares pay a
cumulative dividend of 5% and are convertible to common shares
of Katahdin at Fraser Papers option. The shares offer
Fraser Papers the potential to participate in the growth and
financial returns of Katahdin. Fraser Papers has an option to
purchase Katahdin prior to October 28, 2005 for an amount
based on a pre-determined formula. Katahdin restarted two

64



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##### 



paper machines in Maine in June 2003. Fraser
Papers has managed the assets since start-up, providing sales,
marketing and operating services in return for a management fee.
During 2003, Fraser Papers received $2 million in
management fees.


Labour Relations

Negotiations were completed in December 2003 with
the Paper, Allied-Industrial, Chemical and Energy Workers
International Union on a new six-year contract at the paper mill
at Madawaska. The new agreement, expiring November 30,
2009, provides for wage and benefit increases of $7 million
over the term of the contract. The total cost of the package
should be offset by productivity gains as the new contract
provides for greater flexibility and more job sharing.

Three collective agreements covering
approximately 1,100 employees are scheduled for renewal in 2004
at the pulp mills in Quebec and New Brunswick and the paper mill
in Wisconsin. All three contracts expire in the last half of
2004.

Approximately 70% of Fraser Papers
3,850 employees are unionized.

Risks and Uncertainties

Fraser Papers is exposed to a number of risks in
the normal course of its business that have the potential to
affect the operating performance of the Company. Major risks are
discussed below.

Price Sensitivities

Fraser Papers earnings are sensitive to
changes in world economic conditions, primarily in North America
and Europe. Forest products markets are competitive and cyclical
in nature and prices for many products are sensitive to
variations in supply and demand.

Based on operating at capacity, the following
table shows the approximate annualized impact on after-tax
earnings of changes in product prices.

|                   |  |             |              |              |  |                  |    |  |  |   |       | 
|------------------ |  | ----------- | ------------ | ------------ |  | ---------------- | -- |  |  | - | ----- | 
|                   |  |             |              | Impact on    |  | Average         
|                   |  | Sensitivity |              | Earnings     |  | Mill Nets       
|                   |  | Factor      |              | ($ millions) |  | 4th Quarter 2003
|                   |  |             |              |              |  |                 
|Uncoated freesheet |  | $           | 50 per tonne |              |  |                  | 17 |  |  | $ | 1,016 | 
|Groundwood paper   |  | $           | 50 per tonne |              |  |                  | 6  |  |  | $ | 743   | 
|Market pulp (1)    |  | $           | 25 per tonne |              |  |                  | 1  |  |  | $ | 389   | 
|Lumber             |  | $           | 10 per Mfbm  |              |  |                  | 3  |  |  | $ | 256   | 






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Pulp sensitivity net of purchases and reflects
    129,000-tonnes which have been hedged.

Fraser Papers is exposed to commodity price risk
on both inputs (e.g., energy and fibre) and outputs (e.g.,
uncoated freesheet and lumber), and monitors market developments
in all commodity prices to which it is materially exposed. No
liquid futures markets exist for the majority of Fraser
Papers commodity inputs and outputs but, where possible,
Fraser Papers will hedge a portion of its commodity price
exposure up to Board-approved limits in order to reduce the
potential negative impact of rising commodity input prices and
falling commodity output prices. Should Fraser Papers decide to
hedge any of this exposure, it will hedge physically with
suppliers and customers and, if unfeasible, purchase financial
hedges where liquid markets exist.

At March 27, 2004, Fraser Papers had
contracts outstanding to sell pulp at an average price of
$570 per tonne. The contracts are designated as hedges of a
portion of future market pulp sales, as follows:

|                       |  |      |        |      |  |      |        |   |  |  |        |  
|---------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                       |  | 2004 |        | 2005 |  | 2006
|                       |  |      |        |      |  |     
|Hedged volume (tonnes) |  |      | 50,000 |      |  |      | 60,000 |   |  |  | 24,000 |  
|Exposure hedged        |  |      | 25     | %    |  |      | 25     | % |  |  | 10     | %

In addition, Fraser Papers had hedged
approximately 90% of its expected natural gas consumption
through March 2004 and 50% from April 2004 through March 2005 by
locking in the price directly with its suppliers. Most of Fraser
Papers electricity consumption is at regulated prices.

65



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Competition

The paper industry is a highly competitive
business environment in which companies compete, to a large
degree, on the basis of price. Fraser Papers principal
market is in the US where it competes with North American and,
in some instances, foreign producers. Certain competitors may
have lower-cost facilities than Fraser Papers. Fraser
Papers ability to compete in these and other markets is
dependent on a variety of factors such as manufacturing costs,
continued free access to markets, customer service, product
quality and currency exchange rates.

Foreign Exchange

Fraser Papers competes within North American
markets where product prices are significantly influenced by
US dollar exchange rates. Fraser Papers exposure to
foreign exchange rate fluctuations changed in the fourth quarter
of 2002 given the change in functional currency of the Canadian
operations and the concurrent adoption of the US dollar as
Fraser Papers reporting currency.

Fraser Papers foreign exchange exposure
arises from the following sources:



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | Net Canadian dollar-denominated monetary assets
    and liabilities, and                                                              
|
| |  | Committed or anticipated foreign currency
    transactions, primarily Canadian dollar costs in Fraser
    Papers Canadian operations.

Fraser Papers policy is to hedge all
significant balance sheet foreign exchange exposures. The
Company may hedge a portion of net foreign currency cash flows
for periods up to three years in order to reduce the potential
negative effect of a strengthening Canadian dollar versus the US
dollar.

In 2003, Fraser Papers was negatively impacted by
the strengthening Canadian dollar, realizing an average exchange
rate, relative to the US dollar, of US $0.700
(2002  US $0.637) on its CAD $325 million
Canadian dollar costs. This rate includes the effect of
CAD $80 million (2002  CAD
$45 million) of Canadian dollar cost hedges at an average
rate of US $0.637 (2002  US $0.641).

There were no Canadian dollar cost hedges
outstanding at December 31, 2003. Each US one-cent
change in the value of the Canadian dollar will impact
annualized after-tax earnings by approximately $3 million
in 2004.

Environmental Issues

Fraser Papers operations are subject to a
wide range of general and industry-specific environmental laws
and regulations relating to air emissions, wastewater
discharges, solid and hazardous waste management, plant and
wildlife protection, and site remediation.

In keeping with our goal of certifying all mills
to the most appropriate standard in the regions where they
operate, Fraser Papers had 8 woodlands operations and mill sites
certified to the third-party Sustainable Forestry
Initiative® (SFI) standard as at December 31,
2003. To obtain certification, the mills demonstrated a
commitment to forest conservation  including sound
management planning and the protection of wildlife habitats and
water quality.

The Canadian government has continued to consult
stakeholder groups to define an appropriate framework to meet
its Kyoto treaty commitment to reduce greenhouse gases. Fraser
Papers has participated in a Forest Products Association of
Canada (FPAC) consultative committee to define attainable
reductions for 2004 to 2012. In November 2003, FPAC signed a
non-binding Memorandum of Understanding (MOU) with the
Canadian government committing the Canadian paper and pulp
sector to a 15% greenhouse gas intensity reduction over the
assumed increase in emissions due to usual business growth.
Discussions will continue through 2004 to define a concrete plan
with more specific sector targets. However, under the terms of
the MOU, we do not expect that Fraser Papers will have to make
significant capital investments.

The American Forest and Paper Association has
made a recommendation to the US government that the US paper and
pulp sector will commit to a 12% reduction in greenhouse gas
emissions intensity in the 2000 to 2012 period. Fraser
Papers operations will be able to comply.

Timber Resources

Fraser Papers manages 943,000 hectares of forest
land in Maine and New Brunswick. In Quebec, Fraser Papers is the
beneficiary of government timberlands supplying approximately
300,000 cubic metres of fibre. Approximately 2.8 million
cubic metres of logs were harvested in 2003 for Fraser
Papers own operations and trade to other parties.

66



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##### 



Almost 9 million seedlings were planted on
owned and managed woodlands in 2003 to supplement natural
regeneration.


The Crown licences require the payment of
stumpage fees for timber harvested and compliance with specified
rehabilitation and silvicultural management practices. The
licences cover periods ranging from 20 to 25 years and are
renewed or extended every 5 years. They can be revoked or
cancelled for non-performance. The licences also contain terms
and conditions that could, under limited circumstances, result
in a reduction of annual allowable timber that may be harvested
by Fraser Papers without any compensation.

Aboriginal Land Claims

In July 1998, a lawsuit was launched by the Cree
Nation in Northern Quebec against the federal and provincial
governments and forest product companies operating in the
region, including Fraser Papers parent Nexfor. The lawsuit
claimed that forestry on Aboriginal lands threatened the
traditional Cree way of life protected under the James Bay and
Northern Quebec Agreement signed in 1974.

The case was resolved February 7, 2002,
outside of court with an agreement between the Cree Nation and
the Quebec government. The Agreement encompassed the management
of all natural resources. Most of the changes to the Forestry
Code resulting from this Agreement are now known. However, their
impact cannot be fully measured until the Ministry of Natural
Resources, Parks and Wildlife approves or modifies the five-year
forest management plans submitted in December 2003 by Nexfor and
the other harvest licence holders. The Agreement will affect the
timber allocations and harvesting costs for Fraser Papers
operations in Quebec.

Outlook for 2004

US demand for printing and writing papers is
forecast to grow in 2004 as an improved economy takes hold. GDP
growth, forecast at 4%, will correlate with improved business
profits, which in turn should increase spending on print
advertising. Direct mail advertising will get a boost from
legislation enacted by the Federal Communications Commission
that restricts telemarketing and from the postal service
assurances of no rate increases through 2006.

Imports from Europe and Asia will continue but
should become less of a factor due to a weaker US dollar, and
improving overseas demand.

Price increase projections for 2004 are guarded.
Groundwood grades appear to be better positioned for price
increases than uncoated freesheet. Inventories will be tightly
managed and downtime taken if required.

The outlook for Fraser Papers technical
specialty paper grades is encouraging. The key products
(packaging, thermal and super-calendered release) are well
positioned for growth as a direct result of high-quality, strong
customer relations and the qualification of certain grades with
new customers.

Pulp markets similarly remain weak with
supply/demand imbalance most prevalent in hardwood pulp. Any
pulp pricing improvement is currently being driven by Asian
buying and the weaker US dollar, not underlying demand. For
sustainable pulp price increases, markets will need some
recovery in paper demand.

Lumber markets will continue to be affected by
the softwood trade dispute and oversupply. Despite various
proposals over the past two years, the framework for a
negotiated settlement remains elusive. Resolution of the dispute
in 2004 could act as a significant positive catalyst for the
lumber sector.

Definitions

EBITDAis earnings
from continuing operations before interest, taxes, depreciation
and amortization. As there is no generally accepted method of
calculating EBITDA, the measures as calculated by Fraser Papers
may not be comparable to similarly titled measures reported by
other companies. EBITDA is presented as a useful indicator of a
companys ability to meet debt service and capital
expenditure requirements. Fraser Papers interprets EBITDA trends
as an indicator of relative operating performance.

EBITDA margin (%)is
EBITDA as a percentage of net sales.

Operating earningsis earnings before interest and taxes.

ROCE(return on
capital employed) is EBITDA divided by capital employed.

Net debtis
long-term debt including the current portion and bank advances
less cash.

67



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Free cash flowis
defined as cash provided by operating activities including the
net change in non-cash working capital balances less total
capital investments (additions to property, plant and equipment).

Capital employedis
the sum of property, plant and equipment, operating working
capital (accounts receivable plus inventory less accounts
payable) and other assets.

Net debt/ total capitalizationis net debt divided by capital
employed.

EBITDA

|                                         |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|---------------------------------------- |  | ------------- | --- | ---------------------- |  | ---- | -- | ---- |  | ---- | --- | - |  | - | --- | - |  | - | --- | -
|                                         |  |               |     |                       
|                                         |  | Quarter Ended |     | Year Ended December 31
|                                         |  |               |     |                       
|                                         |  | March 27,     |     | March 29,              |  |     
|                                         |  | 2004          |     | 2003                   |  | 2003 |    | 2002 |  | 2001
|                                         |  |               |     |                        |  |      |    |      |  |     
|                                         |  |              
|                                         |  | ($ millions) 
|Earnings                                 |  | $             | (14 | )                      |  | $    | (7 | )    |  | $    | (92 | ) |  | $ | (14 | ) |  | $ | (23 | )
|Add: Interest expense                    |  |               | 3   |                        |  |      | 3  |      |  |      | 11  |   |  |   | 9   |   |  |   | 12  |  
|Less: Interest income                    |  |               |    |                        |  |      |   |      |  |      | (1  | ) |  |   |    |   |  |   | (1  | )
|Add: Fees on sale of accounts receivable |  |               | 1   |                        |  |      | 1  |      |  |      | 6   |   |  |   | 5   |   |  |   | 5   |  
|Add: Income tax                          |  |               | (1  | )                      |  |      | 1  |      |  |      | (1  | ) |  |   | (2  | ) |  |   | 5   |  
|Add: Depreciation                        |  |               | 11  |                        |  |      | 13 |      |  |      | 49  |   |  |   | 48  |   |  |   | 49  |  
|                                         |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|EBITDA                                   |  |               |    |                        |  |      | 11 |      |  |      | (28 | ) |  |   | 46  |   |  |   | 47  |  
|Restructuring charge                     |  |               |    |                        |  |      |   |      |  |      | 26  |   |  |   |    |   |  |   |    |  
|                                         |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|EBITDA excluding restructuring charge    |  |               |    |                        |  |      | 11 |      |  | $    | (2  | ) |  | $ | 46  |   |  | $ | 47  |  
|                                         |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  

Operating Earnings

|                                                  |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|------------------------------------------------- |  | ------------- | --- | ---------------------- |  | ---- | -- | ---- |  | ---- | --- | - |  | - | --- | - |  | - | --- | -
|                                                  |  |               |     |                       
|                                                  |  | Quarter Ended |     | Year Ended December 31
|                                                  |  |               |     |                       
|                                                  |  | March 27,     |     | March 29,              |  |     
|                                                  |  | 2004          |     | 2003                   |  | 2003 |    | 2002 |  | 2001
|                                                  |  |               |     |                        |  |      |    |      |  |     
|                                                  |  |              
|                                                  |  | ($ millions) 
|Earnings                                          |  |               | (14 | )                      |  |      | (7 | )    |  | $    | (92 | ) |  | $ | (14 | ) |  | $ | (23 | )
|Add: Interest expense                             |  |               | 3   |                        |  |      | 3  |      |  |      | 11  |   |  |   | 9   |   |  |   | 12  |  
|Less: Interest income                             |  |               |    |                        |  |      |   |      |  |      | (1  | ) |  |   |    |   |  |   | (1  | )
|Add: Fees on sale of accounts receivable          |  |               | 1   |                        |  |      | 1  |      |  |      | 6   |   |  |   | 5   |   |  |   | 5   |  
|Add: Income tax                                   |  |               | (1  | )                      |  |      | 1  |      |  |      | (1  | ) |  |   | (2  | ) |  |   | 5   |  
|                                                  |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|Operating earnings                                |  |               | (11 | )                      |  |      | (2 | )    |  |      | (77 | ) |  |   | (2  | ) |  |   | (2  | )
|Restructuring charge                              |  |               |    |                        |  |      |   |      |  |      | 26  |   |  |   |    |   |  |   |    |  
|                                                  |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|Operating earnings excluding restructuring charge |  |               | (11 | )                      |  |      | (2 | )    |  | $    | (51 | ) |  | $ | (2  | ) |  | $ | (2  | )
|                                                  |  |               |     |                        |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  

Capital Employed

|                                         |  |                |      |             |  |      |      |   |  |   |      |  
|---------------------------------------- |  | -------------- | ---- | ----------- |  | ---- | ---- | - |  | - | ---- | -
|                                         |  |                |      |            
|                                         |  |                |      | Year Ended 
|                                         |  |                |      | December 31
|                                         |  | Quarter Ended  |      |            
|                                         |  | March 27, 2004 |      | 2003        |  | 2002
|                                         |  |                |      |             |  |     
|                                         |  |               
|                                         |  | ($ millions)  
|Property, plant and equipment            |  | $              | 519  |             |  | $    | 528  |   |  | $ | 563  |  
|Accounts receivable                      |  |                | 57   |             |  |      | 64   |   |  |   | 59   |  
|Inventory                                |  |                | 141  |             |  |      | 115  |   |  |   | 110  |  
|Accounts payable and accrued liabilities |  |                | (124 | )           |  |      | (125 | ) |  |   | (115 | )
|Other assets                             |  |                | 25   |             |  |      | 29   |   |  |   | 15   |  
|                                         |  |                |      |             |  |      |      |   |  |   |      |  
|Capital employed                         |  | $              | 618  |             |  | $    | 611  |   |  | $ | 632  |  
|                                         |  |                |      |             |  |      |      |   |  |   |      |  

68



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Net Debt

|                                  |  |                |    |             |  |      |     |   |  |   |    |  
|--------------------------------- |  | -------------- | -- | ----------- |  | ---- | --- | - |  | - | -- | -
|                                  |  |                |    |            
|                                  |  |                |    | Year Ended 
|                                  |  |                |    | December 31
|                                  |  | Quarter Ended  |    |            
|                                  |  | March 27, 2004 |    | 2003        |  | 2002
|                                  |  |                |    |             |  |     
|                                  |  |               
|                                  |  | ($ millions)  
|Long-term debt                    |  | $              | 1  |             |  | $    | 1   |   |  | $ | 1  |  
|Current portion of long-term debt |  |                |   |             |  |      |    |   |  |   |   |  
|Bank advances                     |  |                | 4  |             |  |      |    |   |  |   |   |  
|Cash                              |  |                | (1 | )           |  |      | (16 | ) |  |   | (3 | )
|                                  |  |                |    |             |  |      |     |   |  |   |    |  
|Net debt                          |  | $              | 4  |             |  | $    | (15 | ) |  | $ | (2 | )
|                                  |  |                |    |             |  |      |     |   |  |   |    |  

Free Cash Flow

|                                      |  |               |     |             |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|------------------------------------- |  | ------------- | --- | ----------- |  | ---- | -- | ---- |  | ---- | --- | - |  | - | --- | - |  | - | --- | -
|                                      |  |               |     |             |  |     
|                                      |  |               |     | Year Ended 
|                                      |  | Quarter Ended |     | December 31
|                                      |  |               |     |            
|                                      |  | March 27,     |     | March 29,   |  |     
|                                      |  | 2004          |     | 2003        |  | 2003 |    | 2002 |  | 2001
|                                      |  |               |     |             |  |      |    |      |  |     
|                                      |  |              
|                                      |  | ($ millions) 
|Cash provided by operating activities |  | $             | (15 | )           |  | $    | (6 | )    |  | $    | (59 | ) |  | $ | 52  |   |  | $ | 61  |  
|Capital investments                   |  |               | (1  | )           |  |      | (3 | )    |  |      | (17 | ) |  |   | (28 | ) |  |   | (35 | )
|                                      |  |               |     |             |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  
|Free cash flow                        |  | $             | (16 | )           |  | $    | (9 | )    |  | $    | (76 | ) |  | $ | 24  |   |  | $ | 26  |  
|                                      |  |               |     |             |  |      |    |      |  |      |     |   |  |   |     |   |  |   |     |  

Principal Shareholder

To the knowledge of the directors and officers of
Fraser Papers, the only person who will beneficially own,
directly or indirectly, or exercise control or direction over
securities of Fraser Papers carrying more than 10% of the voting
rights attaching to all outstanding voting securities of Fraser
Papers after giving effect to the Arrangement is Brascan
Corporation or its wholly-owned affiliates which, as at
May 3, 2004 owned beneficially and was the registered
holder of 63,804,885 Nexfor Common Shares, representing
approximately 43% of the total number of outstanding Nexfor
Common Shares, and 1,801,000 Nexfor Preferred Shares. Brascan
Corporations 63,804,885 Nexfor Common Shares will result
in Brascan Corporation owning 12,760,971 Fraser Papers Common
Shares or approximately 43% of the total number of outstanding
Fraser Papers shares pursuant to the Plan of Arrangement.
Brascan Corporation will not receive any additional shares of
Fraser Papers or other consideration as a result of holding
Nexfor Preferred Shares.

Directors and Officers

Directors

The directors of Fraser Papers are set out below
and each one has been a director since its inception. They hold
office until the first annual meeting of shareholders or until
their successors are elected or approved. Fraser Papers
Board does not have an executive committee. Members of the
Boards committees are noted.

|                                                  |  |                                                                                                                                                                                               
|------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and Municipality of Residence                |  | Principal Occupation                                                                                                                                                                          
|                                                  |  |                                                                                                                                                                                               
|JACK L. COCKWELL (2) Toronto, Ontario             |  | Group Chairman, Brascan Corporation since
    February 2002; President and Chief Executive Officer of Brascan
    prior thereto.                                                              
|                                                 
|ROBERT J. HARDING (4)(5) Toronto, Ontario         |  | Chairman of Brascan Corporation.                                                                                                                                                              
|                                                 
|J. BRUCE FLATT (2) Toronto, Ontario               |  | President and Chief Executive Officer of Brascan
    Corporation since February 2002; President and Chief Executive
    Officer of Brookfield Properties Inc. (real estate) prior
    thereto.
|                                                 
|ALDÉA LANDRY (1)(3)(4) Moncton, New
    Brunswick |  | President, LANDAL Inc. (consultancy)                                                                                                                                                          

69



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|                                                             |  |                                                                                                                      
|------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------
|Name and Municipality of Residence                           |  | Principal Occupation                                                                                                 
|                                                             |  |                                                                                                                      
|PAUL E. GAGNÉ (1)(2)(5) Senneville,
    Quebec               |  | Company Director and Consultant                                                                                      
|                                                            
|DOMINIC GAMMIERO Toronto, Ontario                            |  | President and Chief Executive Officer of Nexfor
    Inc. since 1999; Chief Operating Officer of Nexfor prior thereto.
|                                                            
|DIAN COHEN (1)(4)(5) Hatley, Quebec                          |  | President of DC Productions Limited (economic
    communications and management consulting)                          
|                                                            
|MARGOT NORTHEY (1)(2)(3) North Saanich,
    British Columbia |  | Company Director since 2002; Dean, Queens
    University School of Business prior thereto.                          
|                                                            
|SAM POLLOCK (3)(5) Toronto, Ontario                          |  | Managing Partner, Brascan Financial Corporation                                                                      






|    |                                                   
|--- | --------------------------------------------------
|(1) | Member of Audit Committee                         
|   
|(2) | Member of Human Resources Committee               
|   
|(3) | Member of Environment, Health and Safety Committee
|   
|(4) | Member of Corporate Governance Committee          
|   
|(5) | Member of Pension Committee                       

Brascan Corporation owns approximately 43% of the
outstanding common shares of Nexfor and will be a
significant shareholder of Fraser Papers within the
meaning of the Toronto Stock Exchange Corporate Governance
Guidelines. The Board considers that 4 of the unrelated
directors (50%) do not have any interest in, or relationship
with, the significant shareholder or any of its affiliates and
thus the Board considers that its membership will fairly reflect
the investment of the minority shareholders in Fraser Papers.

Officers

|                                   |  |                                                            |  |                                                                                                                                                                                                                         
|---------------------------------- |  | ---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and Municipality of Residence |  | Office with Company                                        |  | Previous occupation                                                                                                                                                                                                     
|                                   |  |                                                            |  |                                                                                                                                                                                                                         
|DOMINIC GAMMIERO Toronto, Ontario  |  | President and Chief Executive Officer                      |  | President and Chief Executive Officer
    of Nexfor Inc. 1999  2004; Chief Operating Officer of
    Nexfor Inc. prior thereto.                                                                                         
|                                  
|BERT MARTIN Stamford, Connecticut  |  | Chief Operating Officer                                    |  | President of Fraser Papers Inc.                                                                                                                                                                                         
|                                  
|GLEN MCMILLAN Toronto, Ontario     |  | Chief Administrative Officer                               |  | Vice President, Controller and Corporate
    Secretary of Nexfor Inc. 1999  2004; Assistant
    Controller of Nexfor Inc. prior thereto.                                                                               
|                                  
|PIERRE MCNEIL Toronto, Ontario     |  | Senior Vice President, Human Resources                     |  | Site director (Cowie), Nexfor Ltd. from 2002 to
    2004; Vice President, Industrial Panels at Norbord Industries
    prior thereto.                                                                                    
|                                  
|BEN VAUGHAN Toronto, Ontario       |  | Senior Vice President, Finance & Corporate
    Development |  | Vice-President, Merchant Banking, Brascan
    Financial Corporation 2002  2004; Chief Financial
    Officer, CyberSight, 2001; Chief Financial Officer, CANOE
    (media) in 2000; and Controller, CANOE prior thereto.

70



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##### 



Executive Compensation

The following table, presented in accordance with
the regulations to the Securities Act(Ontario), sets
forth all compensation paid or payable from Nexfor or its
affiliates in respect of each of the executive officers named
(collectively, the Named Executive Officers) for
services rendered during the financial years ended
December 31, 2003, 2002, and 2001.

Summary Compensation Table

|                                      |  |      |      |                     |  |                     |              |                 |  |           |              |              |  |         |            |  |  |       |         |  |  |          |              | 
|------------------------------------- |  | ---- | ---- | ------------------- |  | ------------------- | ------------ | --------------- |  | --------- | ------------ | ------------ |  | ------- | ---------- |  |  | ----- | ------- |  |  | -------- | ------------ | 
|                                      |  |      |      |                     |  |                     |              |                 |  |          
|                                      |  |      |      |                     |  | Long Term          
|                                      |  |      |      | Annual Compensation |  | Compensation Awards
|                                      |  |      |      |                     |  |                    
|                                      |  |      |      |                     |  | Securities Under    |              |                
|                                      |  |      |      |                     |  | Other Annual        |              | Options/SARs    |  | All Other
|Name and Principal Position           |  | Year |      | Salary              |  | Bonus               |              | Compensation(6) |  | Granted   |              | Compensation
|                                      |  |      |      |                     |  |                     |              |                 |  |           |              |             
|                                      |  |      |      | ($)                 |  | ($)                 |              | ($)             |  | (#)       |              | ($)         
|D. Gammiero (1)                       |  |      | 2003 |                     |  |                     | CAD $425,000 |                 |  |           | CAD $439,450 |              |  |         | CAD $931   |  |  |       | 711,875 |  |  |          | CAD $125,000 | 
|President and Chief Executive Officer |  |      | 2002 |                     |  |                     | CAD $425,000 |                 |  |           | CAD $153,000 |              |  |         | CAD $1,232 |  |  |       | 250,000 |  |  |          |             | 
|                                      |  |      | 2001 |                     |  |                     | CAD $422,917 |                 |  |           | CAD $168,428 |              |  |         | CAD $1,531 |  |  |       | 250,000 |  |  |          |             | 
|B. Martin (2)                         |  |      | 2003 |                     |  |                     | $299,167     |                 |  |           |             |              |  |         |           |  |  |       |        |  |  |          | $ 79,845     | 
|Chief Operating Officer               |  |      | 2002 |                     |  |                     | $289,167     |                 |  |           | $ 66,600     |              |  |         |           |  |  |       | 78,000  |  |  |          | $ 18,267     | 
|                                      |  |      | 2001 |                     |  |                     | $278,333     |                 |  |           | $ 63,350     |              |  |         |           |  |  |       | 80,000  |  |  |          | $ 17,505     | 
|G. McMillan (3)                       |  |      | 2003 |                     |  |                     | CAD $174,167 |                 |  |           | CAD $93,960  |              |  |         |           |  |  |       |        |  |  |          | CAD $25,000  | 
|Chief Administrative Officer          |  |      | 2002 |                     |  |                     | CAD $154,167 |                 |  |           | CAD $28,700  |              |  |         |           |  |  |       | 21,000  |  |  |          |             | 
|                                      |  |      | 2001 |                     |  |                     | CAD $144,167 |                 |  |           | CAD $25,756  |              |  |         |           |  |  |       | 21,000  |  |  |          |             | 
|P. McNeil (4)                         |  |      | 2003 |                     |  |                     | £ 86,911     |                 |  | £ 28,175  |              |              |  | £ 1,148 |            |  |  | 7,000 |         |  |  | £16,655  |             
|SVP Human Resources                   |  |      | 2002 |                     |  |                     | £85,000      |                 |  | £ 24,126  |              |              |  | £ 1,254 |            |  |  | 7,500 |         |  |  | £ 13,473 |             
|                                      |  |      | 2001 |                     |  |                     | £ 69,443     |                 |  | £ 17,663  |              |              |  | £ 224   |            |  |  | 7,500 |         |  |  | £ 4,029  |             
|B. Vaughan (5)                        |  |      | 2003 |                     |  |                     |             |                 |  |           |             |              |  |         |           |  |  |       |        |  |  |          |             | 
|SVP Finance & Corporate Development   |  |      | 2002 |                     |  |                     |             |                 |  |           |             |              |  |         |           |  |  |       |        |  |  |          |             | 
|                                      |  |      | 2001 |                     |  |                     |             |                 |  |           |             |              |  |         |           |  |  |       |        |  |  |          |             | 






|    |                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Gammiero was appointed President and
    Chief Executive Officer of Fraser Papers Inc. on
    April 21, 2004, prior thereto he was President and Chief
    Executive Officer of Nexfor Inc. All Other
    Compensation represents cash received in lieu of an
    additional 100,000 Nexfor stock options.                                                              
|   
|(2) | Mr. Martin was appointed Chief Operating
    Officer of Fraser Papers on April 21, 2004, prior thereto
    he was Executive Vice President, Paper of Nexfor Inc. since
    June 2003. All Other Compensation includes $61,238
    received in lieu of 75,000 Nexfor stock options and
    matching contributions by the Corporation to
    Mr. Martins 401(k) savings plan.
|   
|(3) | Mr. McMillan was appointed Chief
    Administrative Officer of Fraser Papers on April 21, 2004,
    prior thereto he was Vice-President, Controller and Corporate
    Secretary of Nexfor Inc. All Other Compensation
    represents cash received in lieu of 20,000 Nexfor stock
    options.                                                                              
|   
|(4) | Mr. McNeil was appointed Senior Vice
    President Human Resources of Fraser Papers on April 21,
    2004, prior thereto he was Site Director, at the Nexfor UK
    Cowie operation. All Other Compensation represents
    employer contributions to the Nexfor UK Defined
    Contribution Plan.                                                                           
|   
|(5) | Mr. Vaughan was appointed Senior Vice
    President Finance & Corporate Development of Fraser
    Papers on April 21, 2004.                                                                                                                                                                                                                                                   
|   
|(6) | The value of perquisites and benefits for each
    Named Executive Officer is less than the lesser of $50,000 and
    10% of total annual salary and bonus. The amounts quoted in this
    column represent the dollar value of imputed interest benefits
    relating to housing loans.                                                                                      

71



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##### 



The following table sets forth individual grants
of stock options under the Nexfor Stock Option Plan during the
financial year ended December 31, 2003 to the Named
Executive Officers:

Option Grants During the Financial Year Ended
December 31, 2003

|             |  |                  |         |                    |  |               |    |                   |  |            |      |  |  |   |      |  |  |  |               | 
|------------ |  | ---------------- | ------- | ------------------ |  | ------------- | -- | ----------------- |  | ---------- | ---- |  |  | - | ---- |  |  |  | ------------- | 
|             |  |                  |         |                    |  |               |    | Market Value of   |  |           
|             |  |                  |         | % of Total         |  |               |    | Shares Underlying |  |           
|             |  |                  |         | Options Granted to |  | Exercise or   |    | Options at        |  |           
|             |  | Securities Under |         | Employees in       |  | Base Price    |    | Date of Grant     |  | Expiration
|Name         |  | Options Granted  |         | 2003               |  | (CAD $/Share) |    | (CAD $/Share)     |  | Date      
|             |  |                  |         |                    |  |               |    |                   |  |           
|Mr. Gammiero |  |                  | 150,000 |                    |  |               | 14 | %                 |  | $          | 8.25 |  |  | $ | 8.25 |  |  |  | Jan. 30, 2013 | 
|             |  |                  | 561,875 |                    |  |               | 52 | %                 |  | $          | 7.73 |  |  | $ | 7.73 |  |  |  | Apr. 23, 2013 | 
|Mr. Martin   |  |                  |        |                    |  |               |   |                   |  |            |     |  |  |   |     |  |  |  |              | 
|Mr. McMillan |  |                  |        |                    |  |               |   |                   |  |            |     |  |  |   |     |  |  |  |              | 
|Mr. McNeil   |  |                  | 7,000   |                    |  |               | 1  | %                 |  | $          | 8.25 |  |  | $ | 8.25 |  |  |  | Jan. 30, 2013 | 
|Mr. Vaughan  |  |                  |        |                    |  |               |   |                   |  |            |     |  |  |   |     |  |  |  |              | 






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All options were granted under the Nexfor Stock
    Option Plan and entitle each Named Executive Officer to purchase
    Nexfor Common Shares. The exercise price is the market price of
    the Common Shares on the date of the grant.
    Mr. McNeils options are subject to vesting at the
    annual rate of 20% beginning on the first anniversary from the
    date of grant. As to Mr. Gammieros options expiring
    on January 30, 2013, for a 12-month period following each
    exercise of these options, he must hold Nexfor Common Shares
    with a value equivalent to the after-tax gain realized through
    the exercise of the options.

The following table sets forth details of each
exercise of Nexfor Stock Options during the financial year ended
December 31, 2003 by the Named Executive Officers and the
financial year-end value of unexercised Nexfor Stock Options on
an aggregate basis:

Aggregate Option Exercises During the
Financial Year Ended December 31, 2003

And Financial Year-End Option Values


|             |  |                 |         |                 |  |                     |           |                      |  |             |         |               |  |  |           |  |  |  |         |  |  |  |           | 
|------------ |  | --------------- | ------- | --------------- |  | ------------------- | --------- | -------------------- |  | ----------- | ------- | ------------- |  |  | --------- |  |  |  | ------- |  |  |  | --------- | 
|             |  |                 |         |                 |  |                     |           |                      |  |            
|             |  |                 |         |                 |  |                     |           | Value of Unexercised
|             |  |                 |         |                 |  | Unexercised Options |           | In-The-Money        
|             |  |                 |         |                 |  | at FY-End           |           | Options at FY-End(2)
|             |  | Shares Acquired |         | Aggregate Value |  |                     |           |                     
|Name         |  | on Exercise     |         | Realized(1)     |  | Exercisable         |           | Unexercisable        |  | Exercisable |         | Unexercisable
|             |  |                 |         |                 |  |                     |           |                      |  |             |         |              
|             |  | (#)             |         | (CAD $)         |  | (#)                 |           | (#)                  |  | (CAD $)     |         | (CAD $)      
|Mr. Gammiero |  |                 | 415,000 |                 |  |                     | 1,292,130 |                      |  |             | 123,000 |               |  |  | 1,189,875 |  |  |  | 286,560 |  |  |  | 3,723,710 | 
|Mr. Martin   |  |                 | 135,400 |                 |  |                     | 364,886   |                      |  |             |        |               |  |  | 135,600   |  |  |  |        |  |  |  | 442,464   | 
|Mr. McMillan |  |                 | 27,800  |                 |  |                     | 33,128    |                      |  |             | 13,200  |               |  |  | 40,500    |  |  |  | 55,528  |  |  |  | 124,992   | 
|Mr. McNeil   |  |                 |        |                 |  |                     |          |                      |  |             | 23,400  |               |  |  | 21,600    |  |  |  | 73,993  |  |  |  | 66,847    | 
|Mr. Vaughan  |  |                 |        |                 |  |                     |          |                      |  |             |        |               |  |  |          |  |  |  |        |  |  |  |          | 






|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Determined on basis of market value at date of
    exercise.                                                             
|   
|(2) | The closing price of Nexfor Inc. Common
    Shares on the Toronto Stock Exchange on December 31, 2003
    was CAD $10.85.

Pension Arrangements

Mr. Gammiero and Mr. McMillan
participate in the Retirement Annuity Plan for Canadian salaried
employees of Nexfor Inc. Mr. McNeil participates in the
Defined Contribution Plan sponsored by Nexfor UK.
Messrs. Gammiero, McMillan and McNeil will cease to
participate in their current pension plans December 31, 2004.
Messrs. Gammiero, McMillan, McNeil and Vaughan will become
participants in a Defined Contribution Plan to be established
for Canadian salaried employees of Fraser Papers effective
January 1, 2005.

The pension arrangements for Mr. Martin
provide for a benefit based on participation in the Fraser
Papers Inc. Pension Equity Plan, the Fraser Papers Inc.
Supplemental Executive Retirement Plan and the Nexfor Inc.
Fraser Operations Salaried Pension Plan. At age 65
Mr. Martin will have attained 44 years of credited
service under these plans. The estimated annual pension benefit
payable under these plans to Mr. Martin at normal
retirement age (65) is $188,993.

72



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##### 



Stock Option Plan

The board of directors of Fraser Papers has
conditionally adopted a stock option plan as a means of
motivating management to maximize the long-term value of Fraser
Papers assets. The terms of the Fraser Papers Stock Option
Plan are the same as the terms of the Norbord Stock Option Plan,
except that the maximum number of Fraser Papers Common Shares
issuable under the Plan is 2,750,000. A copy of the Norbord
stock option plan is set out as Exhibit N to this Circular.
Confirmation of the Fraser Papers Stock Option Plan is part of
the Stock Option Plans Resolution, which must be passed by a
majority of the votes cast thereon by the Nexfor Common
Shareholders at the annual and special meeting.

Dividend Policy

The amounts and timing of dividend payments on
the Fraser Papers Common Shares will be determined from time to
time by the board of directors of Fraser Papers in its
discretion having regard to prevailing economic conditions, the
financial condition of Fraser Papers and its cash requirements.

Risk Factors

The principal risks to Fraser Papers
business include those that would be generally expected of an
internationally-diverse, capital-intensive manufacturing and
distribution business. They include:

Adverse Industry Operating Conditions and
Cyclical Nature of Business

Fraser Papers financial performance is
principally dependent on the selling prices of its products. The
markets for most of Fraser Papers products are highly
cyclical and are characterized by periods of supply and demand
imbalance during which its product prices have tended to
fluctuate significantly. In addition, since some of Fraser
Papers products are used for construction, seasonal and
annual weather changes can affect demand and sales volume. These
imbalances, which may affect different segments of Fraser
Papers business at different times, are influenced by
numerous factors that are beyond Fraser Papers control and
include: changes in global and regional capacity for a
particular product or group of products; changes in the end-use
of those products or the increased use of substitute products;
and the overall level of economic activity in the regions in
which Fraser Papers conducts business. Fraser Papers and its
competitors have been negatively affected in the past by
declines in product pricing and have periodically taken
market-related production downtime.

Competition

The forest products industry is a highly
competitive business environment in which companies compete, to
a large degree, on the basis of price. Fraser Papers
principal market is in the United States where it competes with
North American and, in some instances, foreign producers.
Certain competitors may have lower-cost facilities than Fraser
Papers. Fraser Papers ability to compete in these and
other markets is dependent on a variety of factors such as
manufacturing costs, continued free access to markets (see
Softwood Lumber Dispute below), customer service,
product quality, and currency exchange rates.

Currency Exposures

Fraser Papers measures transactions and reports
its financial results in US dollars. A portion of the
Companys product prices and manufacturing costs are
influenced by relative currency values (particularly the
Canadian dollar). Significant fluctuations in relative currency
values could negatively affect the cost competitiveness of its
facilities, the value of its foreign investments, the results of
its operations and its financial position. Fraser Papers
policy is to hedge all significant balance sheet exposures as
well as a portion of its net foreign currency denominated cash
flows.

Timber Resources

A significant portion of Fraser Papers
timber requirements in Canada are met through timber supply and
forest management agreements and sustainable forest licences
(Crown Arrangements) with Canadian provincial
Governmental Authorities. These Crown Arrangements, among other
things, require the payment of stumpage fees for timber
harvested and compliance with specified rehabilitation and
silvicultural management practices, cover periods ranging from
20 to 25 years and are renewed or extended every five
years. These Crown Arrangements could be revoked or cancelled
for non-performance. The Crown Arrangements also contain terms
and conditions, which could, under limited circumstances, result
in a reduction of annual allowable timber that may be harvested
by Fraser Papers

73



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##### 



without any compensation. Canadian aboriginal
groups have made claims in respect of land governed by
Governmental Authorities, which could affect a portion of these
Crown Arrangements. Any settlements in respect of these claims
could increase the cost to harvest timber on such land and could
lower the volume of timber available to Fraser Papers. See
Managements Discussion and Analysis 
Risks and Uncertainties  Aboriginal Land Claims.


Fraser Papers also purchases timber, chips and
other wood residues as well as recycled materials on the open
market in competition with other users of such wood resources.

Softwood Lumber Dispute

As a result of the Softwood Lumber Agreement
entered into between the governments of Canada and the United
States effective April 1996, softwood lumber producers in
Québec, Ontario, British Columbia and Alberta were subject
to a fee on any softwood lumber shipped to the United States in
excess of 14.7 billion board feet per annum. This Agreement
expired on March 31, 2001. On April 2, 2001, a
coalition of United States lumber producers (the
US Coalition) brought countervailing duty and
anti dumping proceedings against Canadian produced softwood
lumber. Preliminary findings by the United States government
resulted in the imposition of a preliminary Anti Dumping Duty
(ADD) of 12.58% against Canadian lumber exports to
the United States, and a preliminary Countervailing Duty
(CVD) of 19.31% against manufacturers located in
British Columbia, Alberta, Ontario and Québec. On
May 16, 2002, the United States government confirmed a
final CVD of 18.8% and a final ADD of 8.4% for shipments to the
United States after May 22, 2002. Duties accrued prior to
May 22, 2002 would not be payable and were reversed to
income in 2002. Fraser Papers New Brunswick sawmills are
subject to the ADD only while the sawmills in Maine are not
subject to any duties.

Attempts to negotiate a settlement to the current
trade dispute are ongoing. To-date, the outcome of these
proposals and their impact on the duties is unknown.

Canada is challenging the duties with the World
Trade Organization and under the North America Free Trade
Agreement is challenging various aspects of the rulings and
duties. It is anticipated that Canada will drop the charges
under these tribunals if a negotiated settlement is reached.

Environmental Matters

Fraser Papers businesses are subject to a
wide range of general and industry-specific environmental laws
and regulations, particularly with respect to air emissions,
wastewater discharges, solid waste management and site
remediation. Fraser Papers believes all of its facilities are in
substantial compliance with all regulations governing air
emissions, wastewater discharges, waste management and landfill
sites.

Auditors, Transfer Agent and
Registrar

The auditors of Fraser Papers are
Ernst & Young LLP, Toronto, Ontario. The transfer agent
and registrar for the Fraser Paper Common Shares is CIBC Mellon
Trust Company at its principal offices located in Toronto,
Ontario.

74



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##### 



Glossary of Terms for Fraser Papers

Chemical
pulp:pulp produced from wood
chips using chemical processes to break the bonds between the
wood fibres

Coated paper:paper coated with clay and treated to impart a smooth glossy
surface

Cogeneration:generation of power in an industrial power plant to produce both
steam and electricity for in-plant use, as well as electricity
for sale to outside utility companies

Deinked pulp:pulp made by processing recycled paper to remove ink and other
contaminants

Dimension
lumber:wood that is milled into
standard sizes for construction uses

fmb:foot-board measure (board
foot)  one square foot of lumber one inch thick

Freehold
land:land that is wholly owned by
Fraser

Groundwood
paper:paper with mechanical pulp
as its major component which differs from newsprint in
brightness, surface characteristics and end uses

Hectare:2.471 acres

Kraft or sulphate
pulp:chemical pulp produced by an
alkaline cooking process using sodium sulphate

Market pulp:pulp sold on the open market between non-affiliated companies

Mechanical
pulp:pulp produced from roundwood
or wood chips by mechanically breaking the bonds between wood
fibres

m3:cubic metre of 35.315 cubic feet

Mfbm (MMfbm):thousand (million) feet board measure

Paperboard:a
thick paper used to produce rigid boxes and a variety of
packaging applications

Release
Paper:paper designed to be easily
removed from sticky surfaces, such as the backing paper for
labels

Roundwood:Wood fibre in log form

Silviculture:the science of forest management

Sludge:waste
material produced through the removal of unwanted sold material
such as ink from waste paper in the deinking process

Sulphite
Pulp:chemical pulp produced by an
acid cooking process using magnesium or calcium bisulphate

Thermal Base
Paper:paper coated with a
heat-sensitive material changes colour when heat is applied in a
thermal printer

Tonne:metric
ton 1000 kilograms or 2,204 pounds

Wood pulp:wood fibres produced from solid wood or wood chips for use in
the production of paper, paperboard and other products

Uncoated Freesheet or fine
paper:paper with bleached
chemical pulp as its major component

75



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##### 






INTEREST OF MANAGEMENT AND OTHERS IN
TRANSACTION

Except as otherwise disclosed in this Circular,
no director or officer of Nexfor, no person who beneficially
owns, directly or indirectly, more than 10% of the Nexfor Common
Shares and no associate or affiliate of the foregoing persons
has any material interest in any transaction within the past
three years or any proposed transaction which has materially
affected or could materially affect Norbord or Fraser Papers or
any of their respective subsidiaries.

None of such persons described above are entitled
to receive any consideration pursuant to this Arrangement other
than their pro-rata entitlements as Nexfor Shareholders as
described in this Circular.




LEGAL MATTERS

McCarthy Tétrault LLP, Canadian legal
counsel to Nexfor, has advised Nexfor with respect to certain
legal matters disclosed in this Circular. As at May 3,
2004, the partners and associates of McCarthy
Tétrault LLP collectively owned beneficially, directly
or indirectly, less than 1% of the Nexfor Common Shares and
Nexfor Preferred Shares.




DIRECTORS APPROVAL

The contents and the sending of this Circular
have been approved by the directors of Nexfor.



| |                 
| | ----------------
| | (McMillan Sig)  
|
| | GLEN MCMILLAN   
| | Toronto, Ontario
| | May 3, 2004     

AUDITORS CONSENT

We have read the Circular of Nexfor Inc. (the
Company) dated May 3, 2004 relating to the
distribution of common shares of Fraser Papers Inc. to the
holders of common shares of the Company. We have complied with
Canadian generally accepted standards for an auditors
involvement with offering documents.

We consent to the inclusion in the
above-mentioned Circular of our report to the Directors of
Nexfor Inc. on the combined balance sheets of Fraser Papers
Division of Nexfor Inc. as at December 31, 2003 and 2002
and the combined statements of operations and Nexfors net
investment and cash flows for each of the years in the three
year period ended December 31, 2003. Our report thereon is
dated April 16, 2004.

We also consent to the incorporation by reference
in the above-mentioned Circular of our report to the
shareholders of Nexfor Inc. on the consolidated balance sheets
of the Company as at December 31, 2003 and 2002 and the
consolidated statements of earnings and retained earnings and
cash flows for the years then ended. Our report thereon is dated
January 20, 2004.

ERNST & YOUNG SIG

Toronto, Canada


|            |                      
|----------- | ---------------------
|May 3, 2004 | Chartered Accountants

76



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##### 






EXHIBIT A

ARRANGEMENT RESOLUTION

RESOLVED as a special resolution that:



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The arrangement (the Arrangement)
    under section 192 of the Canada Business Corporations Actsubstantially as set out in the Plan of Arrangement attached
    as Appendix A to the Arrangement Agreement which is
    Exhibit E to the management proxy circular of Nexfor Inc.
    (the Corporation) dated May 3, 2004 (the
    Circular) is authorized and approved.                                                                                                                                                                            
|  
|2. | The Arrangement Agreement made as of
    April 22, 2004 between the Corporation, Fraser Papers Inc.
    (Canada), Fraser Papers Inc. (US) and 4229401 Canada Inc. which
    is Exhibit E to the Circular is confirmed, ratified and
    approved.                                                                                                                                                                                                                                                                                                         
|  
|3. | Notwithstanding that this resolution has been
    passed by the shareholders and optionholders of the Corporation
    or that the Arrangement has been approved by the Ontario
    Superior Court of Justice, the board of directors of the
    Corporation may amend the Arrangement Agreement or decide not to
    proceed with the Arrangement or revoke this resolution at any
    time prior to the issue of a certificate giving effect to the
    Arrangement without further approval of the shareholders or
    optionholders of the Corporation.
|  
|4. | Each officer of the Corporation is authorized,
    for and on behalf of the Corporation, to execute and deliver
    articles of arrangement and all other documents and to take such
    other actions as the officer determines to be necessary or
    desirable to give effect to this resolution, such determination
    to be conclusively evidenced by the execution and delivery of
    any such document or the taking of any such action.                                                                                                         

A-1



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##### 






EXHIBIT B

STOCK OPTION PLANS RESOLUTION

RESOLVED as an ordinary resolution that:



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The increase in the maximum number of Common
    Shares issuable under the Nexfor Stock Option Plan by 142,525
    Common Shares is approved.                                                                                                                                                                                                                                                                                                                     
|  
|2. | The key employee stock option plan adopted for
    Norbord Inc., as described in the management proxy circular of
    Nexfor Inc. dated May 3, 2004, is confirmed, ratified and
    approved.                                                                                                                                                                                                                                                                     
|  
|3. | The key employee stock option plan adopted for
    Fraser Papers Inc., as described in the management proxy
    circular of Nexfor Inc. dated May 3, 2004, is confirmed,
    ratified and approved.                                                                                                                                                                                                                                                               
|  
|4. | Each officer of Nexfor/Norbord and Fraser Papers
    is authorized, for and on behalf of the corporation of which he
    or she is an officer, to execute and deliver such documents and
    to take such other actions as the officer determines to be
    necessary or desirable to give effect to this resolution, such
    determination to be conclusively evidenced by the execution and
    delivery of any such document or the taking of any such action.

B-1



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##### 






EXHIBIT C

INTERIM ORDER

Court File No. 04-CL-5405

ONTARIO

SUPERIOR COURT OF JUSTICE


(COMMERCIAL LIST)


|                      |   |                  
|--------------------- | - | -----------------
|THE HONOURABLE        | ) | TUESDAY, THE 11TH
|                      | ) |                  
|MR. JUSTICE CUMMING ) | ) | DAY OF MAY, 2004 

IN THE MATTER OF AN APPLICATIONBY NEXFOR INC. relating to a proposed
arrangement involving Nexfor Inc., a corporation governed by the
Canada Business Corporations Act,Fraser Papers Inc., a
corporation governed by the Canada Corporations Act,Fraser Papers Inc., a corporation governed by the laws of
the State of Delaware, and 4229401 Canada Inc., a
corporation governed by the Canada Business Corporations
Act.

APPLICATION UNDERsection 192 of the Canada
Business Corporations Act, R.S.C. 1985, c. C-44,
as amended (the CBCA) and Rules 14.05
(2) and 14.05 (3) (f) of the Rules of Civil
Procedure.

AMENDED INTERIM ORDER

THIS MOTION,made by
the Applicant, Nexfor Inc. (Nexfor) for an Interim
Order for advice and directions under subsection 192(4) of
the Canada Business Corporations Act,R.S.C. 1985,
c. C-44, as amended (the CBCA) in connection
with an arrangement under section 192 of the CBCA was heard
this day at Toronto, Ontario.

ON READINGthe
Notice of Application, the Notice of Motion, the Affidavit of
Glen McMillan, sworn April 28, 2004, and the exhibits
attached to the affidavit (collectively the
Affidavit), and on hearing submissions of counsel
for Nexfor, the Director under the CBCA having been served but
not appearing.

Definitions

1.   THIS COURT ORDERSthat, as used in this Order, unless otherwise defined, terms
beginning with capital letters shall have the respective
meanings set out in the draft management proxy circular of
Nexfor (the Circular), attached as
Exhibit 1 to the Affidavit.

Meeting

2.   THIS COURT ORDERSthat
Nexfor is authorized and directed to call, hold and conduct an
annual and special meeting (the Meeting) of
(a) registered holders of common shares of Nexfor
(Nexfor Common Shares), (b) the holders of
options exercisable for, convertible into or exchangeable for
Nexfor Common Shares, (Nexfor Options) and
(c) registered holders of Nexfor Class A preferred
shares series 1 (Nexfor Preferred Shares) (such
holders of Nexfor Common Shares, Nexfor Options and Nexfor
Preferred Shares are collectively referred to as Nexfor
Securityholders) to be held on June 22, 2004 (the
Meeting Date) at 10:30 a.m., (Toronto time) at
the Design Exchange, 234 Bay Street, Toronto, Ontario or
such other later date and time as such Meeting may be adjourned
or postponed to in accordance with this Order, for, among other
things, the Nexfor Securityholders to consider and, if deemed
advisable, pass with or without variation, a special resolution
(the Arrangement Resolution), which is attached as
Exhibit A to the Circular, approving an arrangement (the
Arrangement) substantially as contemplated in the
Plan of Arrangement attached as Exhibit E to the Circular
(the Plan of Arrangement).

3.   THIS COURT ORDERSthat
the Meeting shall be called, held and conducted in accordance
with the provisions of the CBCA, any applicable securities laws,
rules and regulations, the notice of annual and special meeting
of Nexfor Securityholders which is included in the Circular (the
Notice), and the articles and by-laws of Nexfor,
subject to what may be provided hereafter and subject to any
further order of this Court and the rulings and directions of
the Chair of the Meeting.

C-1



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##### 



Amendments

4.   THIS COURT ORDERSthat
Nexfor is authorized to make, in the manner contemplated by the
Plan of Arrangement, such amendments, revisions or supplements
to the Arrangement as it may determine without any additional
notice to Nexfor Securityholders and the Arrangement as so
amended, revised or supplemented shall be the Arrangement to be
submitted to the Meeting and the subject of the Arrangement
Resolution. THIS COURT ORDERS that after the Meeting, and
subject to the approval of this Honourable Court, Nexfor is
authorized to make, in the manner contemplated by the Plan of
Arrangement, such amendments, revisions or supplements to the
Arrangement as it may determine without any additional notice to
Nexfor Securityholders.

Adjournments and Postponements

5.   THIS COURT ORDERSthat
notwithstanding the provisions of the CBCA and the by-laws of
Nexfor, the Board of Directors of Nexfor by resolution shall be
entitled to adjourn or postpone the Meeting on one or more
occasions without the necessity of first convening the Meeting
or first obtaining any vote of the Nexfor Securityholders, or
any of them, respecting the adjournment or postponement.

6.   THIS COURT ORDERSthat
notice of any such adjournment shall be given by press release,
newspaper advertisement, or by notice sent to the Nexfor
Securityholders by one of the methods specified in
subparagraph 8 or 10 below of this Interim Order, as
determined to be the most appropriate method of communication by
the Board of Directors of Nexfor.

Voting Record Date for Notice

7.   THIS COURT ORDERSthat
the record date (the Voting Record Date) for
determining Nexfor Securityholders entitled to receive the
Notice, the Circular, and the forms of proxy for use by Nexfor
Securityholders and for determining Nexfor Securityholders
entitled to vote at the Meeting shall be 5:00 p.m. (EST) on
May 3, 2004, as previously approved by the Board of
Directors of Nexfor and published by Nexfor.

Notice of Meeting

8.   THIS COURT ORDERS THATthe Notice and Circular (the Meeting Materials),
with such amendments or additional documents as counsel for
Nexfor may advise are necessary or desirable, and as are not
inconsistent with the terms of this Interim Order, shall be sent
to:



| |     |                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Nexfor Securityholders determined as at the
    Voting Record Date, at least 21 days prior to the date of
    the Meeting by one or more of the following methods:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | by mailing the Meeting Materials, by first class
    mail, addressed to the Nexfor Securityholder, at his, her or its
    address as it appears on the applicable security registers of
    Nexfor as at the Voting Record Date or in the case of Nexfor
    Options, in the applicable agreement or instrument evidencing
    that security;                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (ii)  | in the case of non-registered holders of Nexfor
    Common Shares in accordance with the procedures set out in
    National Instrument 54-101 Communications with Beneficial Owners
    of Securities of a Reporting Issuer, by providing multiple
    copies of the Meeting Materials to intermediaries and registered
    nominees;                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (iii) | by delivery, in person or by recognized courier
    service, to the addresses specified in clause 9(a)(i)
    above; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (iv)  | by electronic transmission of the materials, or
    of notice of the availability of the materials on-line for
    review, to any Nexfor Security holder who consents or has
    consented to receiving electronic transmission of such notice,
    in lieu of printed shareholder related materials, by enrolling
    in Nexfors Electronic Delivery Program as described in
    Exhibit 4 attached to the Affidavit, or who
    identifies himself, herself or itself to the satisfaction of
    Nexfor and its transfer agent, CIBC Mellon Trust Company, acting
    through its representatives, who requests such electronic
    transmission and, if required by Nexfor, is prepared to pay the
    charges for such electronic transmission;



| |     |                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------
| | (b) | the directors and auditors of Nexfor by mailing
    the Meeting Materials by first class mail or by personal service
    and,

C-2



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##### 





| |     |                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | The Toronto Stock Exchange Inc. (the
    TSX) and applicable Canadian securities commissions
    and regulators by electronically filing the Meeting Materials
    via the System for Electronic Document Analysis and Retrieval;

and that compliance with this paragraph shall
constitute good and sufficient notice of the Meeting.

9.   THIS COURT ORDERSthat
accidental failure of or omission by Nexfor to give notice to
any one or more Nexfor Securityholders, or any failure or
omission to give such notice as a result of events beyond the
reasonable control of Nexfor (including without limitation any
inability to use postal services) shall not constitute a breach
of the Interim Order or a defect in the calling of the Meeting,
but if any such failure or omission is brought to the attention
of Nexfor, then Nexfor shall use reasonable efforts to rectify
the failure or omission by the method and in the time most
reasonably practicable in the circumstances.

10. THIS COURT ORDERSthat in the
event of an interruption in or cessation of postal services due
to strike or otherwise, communication of the Meeting may be made
by publication in the following newspapers:



| |     |                                          
| | --- | -----------------------------------------
| | (a) | The Globe and Mail, National Edition; and
|
| | (b) | Le Devoir.                               

provided that in such case Nexfor also post such
materials on its website.

Deemed Receipt of Notice

11. THIS COURT ORDERSthat the
Meeting Materials shall be deemed for the purposes of this Order
to have been received,



| |     |                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | in the case of mailing three (3) days after
    delivery thereof to the post office;                                                                                                              
|
| | (b) | in the case of delivery in person, upon receipt
    thereof at the intended recipients address or, in the case
    of delivery by courier, one (1) Business Day after receipt
    by the courier;



| |     |                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| | (c) | in the case of facsimile transmission or
    electronic filing, or posting to a website upon the transmission
    thereof; and



| |     |                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| | (d) | in the case of notice in a newspaper, as
    specified in paragraph 11 above, upon the date of publication of
    such notice.

Updating Meeting Materials

12. THIS COURT ORDERSthat notice of
any amendments, updates or supplements to any of the information
provided in the Meeting Materials may be communicated to Nexfor
Securityholders by press release, newspaper advertisement or by
notice sent to the Nexfor Securityholders by any of the means
set forth in paragraphs 8, or 10 above, as determined to be
the most appropriate method of communication by the Board of
Directors of Nexfor.

Permitted Attendees

13. THIS COURT ORDERSthat the only
persons entitled to attend the Meeting shall be those entitled
to attend under the by-laws of Nexfor, and:



| |     |                                                                       
| | --- | ----------------------------------------------------------------------
| | (a) | Nexfor Securityholders or their duly appointed
    respective proxies;



| |     |                                                             
| | --- | ------------------------------------------------------------
| | (b) | Nexfors directors, officers, auditors and
    advisors; and



| |     |                                                                   
| | --- | ------------------------------------------------------------------
| | (c) | other persons with the permission of the Chair of
    the Meeting;

and that the only persons entitled to vote at the
Meeting, subject to paragraph 2 above, shall be the Nexfor
Securityholders as at the Voting Record Date, or their
respective proxies.


14. THIS COURT ORDERSthat the
accidental omission to give notice of the Meeting, or the
non-receipt of such notice, shall not invalidate any resolution
passed or proceedings taken at the Meeting.

Solicitation of Proxies

15. THIS COURT ORDERSthat Nexfor is
authorized to use the forms of proxy in substantially the form
attached to the Circular subject to Nexfors ability to
insert dates and other relevant information in the final forms
of proxy, and that the use of proxies at the Meeting shall be as
set out in the Circular.

C-3



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##### 



16. THIS COURT ORDERSthat Nexfor is
authorized, at its expense, to solicit proxies directly through
its officers, directors and employees, and through such agents
or representatives as Nexfor may retain for that purpose and by
mail, telephone or such other form of personal or electronic
communication as Nexfor may determine.

17. THIS COURT ORDERSthat Nexfor may
in its discretion waive generally the time limits for the
deposit of proxies by Nexfor Securityholders, if Nexfor deems it
advisable to do so.

Quorum and Voting

18. THIS COURT ORDERSthat the votes
taken at the Meeting shall be taken on the basis of one
(1) vote per Nexfor Common Share held on the Voting Record
Date (subject to paragraph 8 above), and in the case of holders
of Nexfor Options, on the basis of one (1) vote for each
Nexfor Common Share the holder thereof was entitled to receive
upon the valid exercise, conversion or exchange of such Nexfor
Option on the Voting Record Date (subject to paragraph 8 above)
(irrespective, for this purpose, of whether such Nexfor Option
has or has not vested or otherwise in the normal course become
exercisable at such date), and in the case of holders of Nexfor
Preferred Shares on the basis of one (1) vote per Nexfor
Preferred Share held on the Voting Record Date, and that subject
to any further order of this Court, the Arrangement Resolution
shall require, for passage as a resolution approving the
Arrangement,



| |      |                                                                                                                                                                                                                                                                                                                                          
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | approval by the affirmative vote of at least
    two-thirds of the votes cast by the Nexfor Common Shareholders
    and Nexfor Optionholders, voting together as a single class,
    present in person or by proxy and entitled to vote at the
    Meeting (excluding spoiled, illegible and/or defective votes and
    abstentions); and
|
| | (ii) | approval by the affirmative vote of at least
    two-thirds of the votes cast by the Nexfor Preferred
    Shareholders, present in person or by proxy entitled to vote at
    the Meeting.                                                                                                                                               

19. THIS COURT ORDERS that a quorum
at the Meeting will be constituted, for the purposes of
considering and voting on the Arrangement Resolution, by at
least 20 % of the Nexfor Securityholders present in person or
represented by proxy and entitled to vote at such Meeting,
provided that, if no quorum is present within 30 minutes of
the appointed meeting time, the Meeting shall stand adjourned to
be reconvened on a day which is not more than thirty (30) days
later, as determined by the Chair of the Meeting, in the
Chairs sole discretion, and at such reconvened meeting,
those persons present in person or by proxy and entitled to vote
at such meeting will constitute a quorum for the reconvened
meeting. Such vote(s) shall be sufficient to authorize Nexfor to
do all such acts and things as may be necessary or desirable to
give effect to the Arrangement on a basis consistent with what
is provided for in the Circular and no further approval of any
of the Nexfor Securityholders shall be required.

Scrutineers

20. THIS COURT ORDERS that the
scrutineers for the Meeting shall be ADP Investor Communications
(acting through its representatives for that purpose). The
duties of the scrutineers shall extend to:



| |     |                                                                                             
| | --- | --------------------------------------------------------------------------------------------
| | (a) | invigilating and reporting to the Chair on the
    deposit and validity of proxies;         
|
| | (b) | reporting to the Chair on the quorum of the
    Meeting;                                    
|
| | (c) | reporting to the Chair on the polls taken or
    ballots cast, if any, at the Meeting; and  
|
| | (d) | providing to Nexfor and to the Chair written
    reports on matters related to their duties.

Dissent Rights

21. THIS COURT ORDERS that all
registered holders of Nexfor Common Shares, Nexfor Options and
Nexfor Preferred Shares shall be entitled to exercise dissent
rights in respect of the Arrangement Resolution in accordance
with section 190 of the CBCA and to seek fair value (within
the meaning of that term in the CBCA) for their Nexfor Common
Shares, Nexfor Options and Nexfor Preferred Shares provided
that, notwithstanding the provisions of section 190 of the
CBCA, they give written objection to the Plan of Arrangement (a
Dissent Notice) at or before the Meeting by delivery
of such Dissent Notice to the Corporate Secretary for Nexfor at
its registered office located at Suite 500, One Toronto
Street, Toronto, Ontario M5C 2W2 or lodging such Dissent
Notice with the Chairman of the Meeting no later that the
commencement of the Meeting and that they otherwise strictly
comply with the requirements of section 190 of the CBCA.

C-4



---



##### 



22.   THIS COURT ORDERS
that registered Nexfor Common Shareholders, Nexfor Optionholders
and Nexfor Preferred Shareholders who duly exercise such dissent
rights and who:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | are ultimately determined to be entitled to be
    paid fair value for their Nexfor Common Shares, Nexfor Options
    or Nexfor Preferred Shares shall be deemed to have transferred
    such Nexfor Common Shares, Nexfor Options or Nexfor Preferred
    Shares to Nexfor immediately prior to the Effective Time and
    immediately thereafter such Nexfor Common Shares, Nexfor Options
    or Nexfor Preferred Shares shall be deemed to have been
    cancelled and cease to be outstanding, all immediately prior to
    the Effective Time, as defined in the Arrangement Agreement; or
|
| | (b) | are ultimately determined not to be entitled, for
    any reason, to be paid fair value for their Nexfor Common
    Shares, Nexfor Options or Nexfor Preferred Shares, shall be
    deemed to have participated in the Arrangement on the same basis
    as a non-dissenting holder of Nexfor Common Shares, Nexfor
    Options or Nexfor Preferred Shares.                                                                                                                                                                                                                                     

Service and Notice of Sanction
Hearing

23. THIS COURT ORDERSthat Nexfor
shall include in the Meeting Materials, when sent in accordance
with paragraph 8 or accessible in accordance with
paragraph 10 of this Interim Order, a copy of the Notice of
Application herein and the Interim Order (collectively, the
Court Materials), and such Court Materials shall be
deemed to have been received at the times specified in
accordance with paragraph 11 of this Interim Order, whether
such persons reside within Ontario or within another
jurisdiction.

24. THIS COURT ORDERS that the
persons entitled to appear at any hearing to sanction and
approve the Arrangement, and to appear and to be heard thereon,
shall be only:



| |     |                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------
| | (a) | Nexfor;                                                                                                          
|
| | (b) | the Director under the CBCA; and                                                                                 
|
| | (c) | persons who have served and filed a Notice of
    Appearance in accordance with the Rules of Civil
    Procedure.

25. THIS COURT ORDERSthat the
sending or accessibility of the Meeting Materials in the manner
contemplated by paragraphs 8, and/or 10, where
applicable, shall constitute good and sufficient service of the
Court Materials upon all who may wish to appear in this
proceeding and no other form of service need be effected and no
other material need be served on such persons in respect of
these proceedings unless a Notice of Appearance is served in
accordance with the Rules of Civil Procedure on Nexfors
solicitors no less than five (5) days before the hearing of
this Application.

Sanction Hearing

26. THIS COURT ORDERSthat, upon the
approval of the Nexfor Securityholders of the Arrangement, in
the manner set forth in this Interim Order, Nexfor may apply to
this Court for an Order approving the Arrangement (the
Final Order) and that the hearing for approval of
the Arrangement will be on June 28, 2004 at the Commercial
Court, 393 University Ave at 10:00, or as soon thereafter
as the Application can be heard, and that no other form of
service of the Application materials need be made, subject only
to further order or direction of this Court.

Precedence

27. THIS COURT ORDERSthat to the
extent of any inconsistency or discrepancy with respect to the
matters provided for in this Interim Order, between this Interim
Order and the provisions of the CBCA, or the articles or by-laws
of Nexfor or the terms of any instrument creating or governing
Nexfor Common Shares, Nexfor Preferred Shares or Nexfor Options,
this Interim Order shall govern.

Extra-Territorial Assistance

28. THIS COURTseeks and requests the
aid and recognition of any court or any judicial, regulatory or
administrative body in any province of Canada and any judicial,
regulatory or administrative tribunal or other court constituted
pursuant to the Parliament of Canada or the legislature of any
province and any court or any judicial, regulatory or
administrative body of the United States to act in aid of and to
assist this Court in carrying out the terms of this Interim
Order.

C-5



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##### 



Variance

29. THIS COURT ORDERS that Nexfor
shall be entitled, at any time, to apply to this Court to vary
this Interim Order.

May 11/04

| |                                
| | -------------------------------
| | (signed) Peter A. Cumming, J.
| |                                

C-6



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##### 








EXHIBIT D

NOTICE OF APPLICATION

Court File No. 04-CL-5405

ONTARIO

SUPERIOR COURT OF JUSTICE


(COMMERCIAL LIST)


IN THE MATTER OF AN APPLICATIONBY NEXFOR INC. relating to a
proposed arrangement involving Nexfor Inc., a corporation
governed by the Canada Business Corporations Act, Fraser
Papers Inc., a corporation governed by the Canada
Corporations Act, Fraser Papers Inc., a corporation
governed by the laws of the State of Delaware, and
4229401 Canada Inc., a corporation governed by the
Canada Business Corporations Act.

APPLICATION UNDERsection 192 of the Canada
Business Corporations Act, R.S.C. 1985, c. C-44,
as amended (the CBCA) and
Rules 14.05(2) and 14.05(3)(f) of the
Rules of Civil Procedure.

NOTICE OF APPLICATION

TO: THE RESPONDENTS

A LEGAL PROCEEDING HAS BEEN COMMENCEDby the Applicant, NEXFOR INC.The claim made by the Applicant appears on the following
page.

THIS APPLICATIONwill come on for a hearing on
April 30, 2004, at 393 University Avenue, Toronto,
Ontario.

IF YOU WISH TO OPPOSE THIS APPLICATION,to receive notice of any step in the
application or to be served with any documents in the
application you or an Ontario lawyer acting for you must
forthwith prepare a notice of appearance in Form 38A
prescribed by the Rules of Civil Procedure, serve it on the
Applicants lawyer or, where the Applicant does not have a
lawyer, serve it on the Applicant and file it, with proof of
service, in this court office, and you or your lawyer must
appear at the hearing.

IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER
DOCUMENTARY EVIDENCE TO THE COURT OR TO EXAMINE OR CROSS-EXAMINE
WITNESSES ON THE APPLICATION,you or
your lawyer must, in addition to serving your notice of
appearance, serve a copy of the evidence on the Applicants
lawyer or, where the Applicant does not have a lawyer, serve it
on the Applicant, and file it, with proof of service, in the
court office where the application is to be heard as soon as
possible, but at least 2 days before the hearing.

IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT
MAY BE GIVEN IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU.
IF YOU WISH TO OPPOSE THIS APPLICATION BUT ARE UNABLE TO PAY
LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A
LOCAL LEGAL AID OFFICE.

Date: April 23, 2004

|           |                                                                                                                        
|---------- | -----------------------------------------------------------------------------------------------------------------------
|Issued by: | (signed) JD (Joe Doria)
Local Registrar
Address of court office:
393 University Avenue, 10th Floor
Toronto ON M5G 2M2

D-1



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##### 



|        |  |                                     
|------- |  | ------------------------------------
|TO:     |  | Fraser Papers Inc.  USA            
|        |  | Fraser Papers Inc.                  
|        |  | 70 Seaview Avenue                   
|        |  | Stamford, Connecticut 06902         
|       
|AND TO: |  | Fraser Papers Inc. 
    Canada     
|        |  | 1 Toronto Street                    
|        |  | Suite 500                           
|        |  | Toronto, Ontario M5C 2W4            
|       
|AND TO: |  | 4229401 Canada Inc.                 
|        |  | 1 Toronto Street                    
|        |  | Suite 500                           
|        |  | Toronto, Ontario M5C 2W4            
|       
|AND TO: |  | The Director under the              
|        |  | Canada Business Corporations Act    
|        |  | (Corporations Canada)               
|        |  | 9th Floor, Jean Edmonds Towers South
|        |  | 365 Laurier Avenue West             
|        |  | Ottawa ON K1A OC8                   
|        |  | Richard G. Shaw                     
|        |  | Director General                    
|        |  | Tel: (613) 941-2837 (b)             
|        |  | Fax: (613) 941-5783                 
|        |  | Jean Turner                         
|        |  | Manager Arrangements and Exemptions 
|        |  | Tel: (613) 941-5754                 
|        |  | Fax: (613) 941-5783                 

D-2



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##### 



APPLICATION



|   |                                                  
|-- | -------------------------------------------------
|1. | Nexfor Inc. (Nexfor) makes
    application for:



| |     |                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | an interim order (the Interim Order)
    for advice and directions under subsection 192 (4) of the
    Canada Business Corporations Act,R.S.C. 1985,
    c. C-44, as amended (CBCA); and



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | a final order (the Final Order) under
    section 192 of the CBCA approving the plan of arrangement (the
    Arrangement) proposed under the terms of an
    Arrangement Agreement dated April 22, 2004 (the
    Arrangement Agreement), between Nexfor, Fraser
    Papers Inc., a corporation governed by the CBCA, Fraser
    Papers Inc., a corporation governed by the laws of the
    State of Delaware, and 4229401 Canada Inc., a corporation
    governed by the CBCA.



|   |                                     
|-- | ------------------------------------
|2. | The Grounds for the Application are:



| |     |                                                                           
| | --- | --------------------------------------------------------------------------
| | (a) | Nexfor is a corporation incorporated under the
    provisions of the CBCA;



| |     |                                                                                       
| | --- | --------------------------------------------------------------------------------------
| | (b) | the Arrangement is an arrangement
    within the meaning of section 192 of the CBCA;



| |     |                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------
| | (c) | in these circumstances, Nexfor may apply to the
    court for an order approving the Arrangement under
    section 192 of the CBCA;



| |     |                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------
| | (d) | the Arrangement will benefit, is in the best
    interests of, and is fair and reasonable to the securityholders
    of Nexfor;



| |     |                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | a copy of the Notice of Application and Interim
    Order, once issued, will be sent to all securityholders of
    Nexfor, in accordance with the Interim Order contemplated herein;



| |     |                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | (f) | all statutory and other pre-conditions to the
    approval of the Arrangement will have been satisfied prior to
    the hearing of the application;



| |     |                                                                                            
| | --- | -------------------------------------------------------------------------------------------
| | (g) | section 192 of the CBCA;                                                                   
|
| | (h) | Rules 14.05 (2), 14.05 (3) (f), 16.08 and 17.02
    and 38 of the Rules of Civil Procedure.



|   |                                                                                       
|-- | --------------------------------------------------------------------------------------
|3. | The following documentary evidence will be used
    at the hearing of the application:



| |     |                                                                                    
| | --- | -----------------------------------------------------------------------------------
| | (a) | the Affidavit of Glen McMillan, and Exhibits
    referred thereto, to be sworn; and



| |     |                                                                         
| | --- | ------------------------------------------------------------------------
| | (b) | such further and other evidence as this
    Honourable Court may permit.



|   |                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | Nexfor relies on Rules 17.02(n) and 17.02(0)
    of the Rules of Civil Procedure with respect to the
    service of this Notice of Application outside of Ontario. All
    Nexfor Common Shareholders, Nexfor Optionholders and Nexfor
    Preferred Shareholders voting on the approval of the Arrangement
    are proper parties to this Application and some of these
    shareholders reside in Ontario.

April 23, 2004

| |                                                   
| | --------------------------------------------------
| | McCarthy Tétrault LLP                             
| | Suite 4700 Toronto Dominion Bank Tower            
| | Toronto-Dominion Centre                           
| | Toronto, ON M5K 1E6                               
|
| | Harry Underwood- Law Society No. LSUC#:
    20806C
| | Tel. (416) 601-7911                               
| | Gina E. Papageorgiou- Law Society No. 32408R      
| | Tel. (416) 601-7781                               
| | Fax (416) 868-0673                                
| | Solicitors for the Applicant, Nexfor Inc.         

D-3



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##### 






EXHIBIT E

ARRANGEMENT AGREEMENT AND

PLAN OF ARRANGEMENT


ARRANGEMENT AGREEMENT

THIS AGREEMENT is made as of April 22, 2004

BETWEEN



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | NEXFOR INC., a
    corporation governed by the Canada Business Corporations
    Act (Nexfor and, after the Effective Time,
    Norbord)
|
| | -and -                                                                                                                                     
|
| | FRASER PAPERS INC.,
    a corporation governed by the Canada Business Corporations
    Act (FP (CAD)),                                   
|
| | -and -                                                                                                                                     
|
| | FRASER PAPERS INC.,
    a corporation governed by the laws of the State Delaware
    (FP (US)),                                          
|
| | -and -                                                                                                                                     
|
| | 4229401 CANADA INC.,
    a corporation governed by the Canada Business Corporations
    Act (Fraser Papers).                             

WHEREAS Nexfor holds, directly or indirectly,
interests in the panels, paper and timber businesses;

AND WHEREAS FP (US), a subsidiary of Nexfor,
holds Nexfors interests in the paper and timber businesses
in the United States and FP (CAD), a subsidiary of Nexfor,
operates Nexfors interests in the paper and timber
businesses in Canada;

AND WHEREAS Nexfor wishes to distribute its
interests in the paper and timber businesses to the Nexfor
Common Shareholders;

AND WHEREAS Fraser Papers has been incorporated
in order to acquire Nexfors interests in the paper and
timber businesses and for its shares to be distributed to the
Nexfor Common Shareholders under the Arrangement;

NOW THEREFORE, in consideration of the premises
and the covenants and agreements herein contained, the Parties
agree as follows:

ARTICLE 1 
INTERPRETATION

1.01 Definitions

In this Agreement, other than Appendix A:

Affiliate in respect of any
person means any person that, directly or through one or more
intermediaries, controls or is controlled by or is under common
control with such person and, for the purpose of this
definition, control means, in the case of a
corporation, the ownership of shares carrying at least a
majority of the votes in respect of the election of the
directors of the corporation and, in any other case, the de
jure control of the person. When used in relation to a
Business, Affiliate means, for periods both before
and after the Effective Date, Affiliates as determined after
giving effect to the Arrangement, other than with respect to FP
(US) which is engaged in the Fraser Papers Business before but
not after the Effective Time.

Agreement means this
arrangement agreement, including its recitals and
Appendix A, as amended from time to time.

E-1



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##### 



Applicable Law means
(i) any applicable domestic or foreign law including any
statute, subordinate legislation or treaty and (ii) any
applicable guideline, directive, rule, standard, requirement,
policy, order, judgment, injunction, award or decree of a
Governmental Authority having the force of law.

Arrangement means the proposed
arrangement under the provisions of section 192 of the CBCA
on the terms set forth in the Plan of Arrangement.

Articles of Arrangement means
the articles of arrangement in respect of the Arrangement to be
sent to the Director under the CBCA.

Business Day means a day other
than a Saturday, Sunday or statutory holiday in Ontario.

CBCA means the Canada
Business Corporations Act.

CCRA means the Canada Customs
and Revenue Agency.

Circular means the management
proxy circular to be sent to the Nexfor Shareholders in
connection with the Meeting.

Claim means any act, omission
or state of facts, or any demand, action, suit, proceeding,
claim, assessment, judgment, settlement or other compromise
relating thereto, that may give rise to a right of
indemnification under Article 6.

Common Shares means the
voting, equity shares of a corporation that are designated in
the articles of a corporation as common shares.

Court means the Ontario
Superior Court of Justice.

Direct Claim means any Claim
by an Indemnified Person against an Indemnifier.

Dissenting Shareholder means a
Nexfor Shareholder who exercises its dissent rights described in
Article 3 of the Plan of Arrangement.

Effective Date means the
effective date of the Arrangement, being the date shown on the
certificate of arrangement to be issued by the Director under
the CBCA giving effect to the Arrangement.

Effective Time means the
earliest moment on the Effective Date.

Encumbrances means mortgages,
charges, pledges, liens, hypothecs, security interests,
encumbrances, adverse claims and rights of third parties to
acquire or restrict the use of property.

Fraser Papers Business means
the manufacturing, sales, marketing and distribution of papers,
pulp, lumber and timber and the management of timberlands
carried on by FP (CAD), FP (US) and their Affiliates
and includes all the assets and liabilities pertaining thereto
or otherwise held by any of them immediately prior to the
Effective Time.

Final Order means the order of
the Court approving the Arrangement.

Governmental Authority means
any domestic or foreign legislative, executive, judicial or
administrative body or person having or purporting to have
jurisdiction in the relevant circumstances.

Indemnified Person means each
person entitled to indemnification under Article 6.

Indemnifier means any Party
who is obligated to provide indemnification under Article 6.

Indemnity Payment means any
amount required to be paid by an Indemnifier pursuant to
Article 6.

Interim Order means the
interim order to be issued by the Court on April 30, 2004
in connection with the Arrangement.

Loss means any loss,
liability, damage, cost, expense, charge, fine, penalty or
assessment of whatever nature or kind, including Taxes, the
reasonable out-of-pocket costs and expenses of any action, suit,
proceeding, demand, assessment, judgment, settlement or
compromise relating thereto, fines and penalties and reasonable
legal fees (on a solicitor and its own client basis) and
expenses incurred in connection therewith, excluding loss of
profits and consequential damages.

Material Adverse Effect means,
in respect of any corporation, any change, event or occurrence
that has, or would have, a material and adverse effect upon the
business, assets, liabilities, capitalization, financial
condition or results of operations of that corporation including
its Affiliates considered as a whole after giving effect to the
Arrangement.

E-2



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##### 



material fact has the meaning
attributed thereto in the Securities Act (Ontario).

Meeting means the annual and
special meeting of Nexfor Shareholders to be held on
June 22, 2004, and any adjournment or postponement thereof.

misrepresentation means an
untrue statement of a material fact, or an omission to state a
material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of circumstances
in which it was made.

Nexfor Common Shareholders
means the holders of Nexfor Common Shares.

Nexfor Common Shares means the
outstanding Common Shares of Nexfor.

Nexfor Optionholders means the
holders of Nexfor Stock Options.

Nexfor Preferred Shareholders
means the holders of Nexfor Preferred Shares.

Nexfor Preferred Shares means
the outstanding Class A Preferred Shares, Series 1 of
Nexfor.

Nexfor Shareholders means,
collectively, the Nexfor Common Shareholders, Nexfor
Optionholders and the Nexfor Preferred Shareholders.

Nexfor Stock Option means an
outstanding option to acquire Nexfor Common Shares granted by
Nexfor pursuant to the Nexfor Stock Option Plan.

Norbord Business means the
manufacturing, sales, marketing and distribution of panelboard
and related products used primarily in the construction of new
buildings or the renovation and repair of existing structures
carried on by Norbord Industries Inc. and its Affiliates and
includes all the assets and liabilities pertaining thereto or
otherwise held by any of them immediately prior to the Effective
Time.

Party means a party to this
Agreement.

Plan of Arrangement means the
plan of arrangement set out as Appendix A, as amended from
time to time.

Pre-Arrangement Transactions
means the transactions referred to under the headings
Preliminary Transactions and Pre-butterfly
Transactions in the Ruling Application dated April 8,
2004 to the CCRA, including any amendments made thereto.

Prime Rate means the floating
rate of interest established from time to time by Royal Bank of
Canada (the Bank) (and reported to the Bank of
Canada) as the reference rate of interest the Bank will use to
determine rates of interest payable by its borrowers on Canadian
dollar commercial loans made by the Bank to such borrowers in
Canada and designated by the Bank as its prime rate.

Provincial Revenue Authorities
means the applicable department or other division of the
provincial or territorial Government in each province or
territory of Canada in which Nexfor has applied for an advance
tax ruling in respect of the Arrangement that is charged with
the responsibility for the administration of provincial or
territorial taxation statutes.

Regulatory Fees means fees
paid or payable to any Governmental Authority to make filings or
applications or obtain rulings, orders or listings necessary or
desirable in connection with the Arrangement.

Representatives means,
collectively, the directors, officers, employees and agents of a
Party at any time and their respective heirs, executors,
administrators and other legal representatives.

Rulings Applications means all
the letter or email submissions made to the CCRA or any
Provincial Revenue Authority concerning the subject matter
hereof prior to the date of this Agreement, and all such letter
or email submissions made on or after the date hereof and prior
to the Effective Date provided that any such letter or email
submission has been made available to each applicable Party and
such Party has had an opportunity to correct any factual
inaccuracies in a timely manner.

Specified Corporation has the
meaning assigned by subsection 55(1) of the Tax Act.

Stock Option Plans means,
collectively, the Stock Option Plan adopted by Nexfor (referred
to as the Replacement Stock Option Plan in the Plan of
Arrangement) and the Stock Option Plan adopted by Fraser Papers.

Tax Act means the Income
Tax Act (Canada).

E-3



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##### 



Taxes includes all applicable
present and future income taxes, capital taxes, stamp taxes,
charges to tax, withholdings, sales and use taxes, value added
taxes and goods and services taxes and all penalties, interest
and other payments on or in respect thereof.

Tax Gross-Up means, with
respect to any particular Indemnity Payment, such additional
amount as is necessary to place the Indemnified Person in the
same after-tax position as it would have been in had such
Indemnity Payment been received tax-free. The Tax Gross-Up
amount will be calculated by using the applicable combined
federal and provincial/ territorial income tax rate and/ or the
foreign tax rate applicable to the Indemnified Person and,
except as provided in Section 6.09, without regard to any
losses, credits, refunds or deductions that the Indemnified
Person may have that could affect the amount of tax payable on
any such Indemnity Payment.

Tax Rulings means the advance
income tax rulings and opinions anticipated to be received from
the CCRA in May or June, 2004 and any amendments thereto to be
received from the CCRA in form and substance satisfactory to
Nexfor acting reasonably, confirming the Canadian federal income
tax consequences of certain aspects of the Arrangement, and
related transactions including: any comfort letters anticipated
to be received from the Department of Finance in May or June,
2004 and any amendments thereto, all in form and substance
satisfactory to Nexfor, acting reasonably; any advance income
tax rulings and opinions anticipated to be received from
Provincial Revenue Authorities in May or June, 2004 and any
amendments thereto to be received from Provincial Revenue
Authorities in form and substance satisfactory to Nexfor, acting
reasonably; any opinion anticipated to be received by Nexfor or
any of the other Parties from Canadian or U.S. tax counsel
in lieu of or in addition to a Canadian or provincial/
territorial or U.S. federal advance income tax ruling or
private letter ruling; and any material facts and assumptions
upon which such Tax Rulings are made.

Third Party Claims means any
claim asserted against an Indemnified Person that is paid or
payable to or claimed by any person who is not a Party.

Transaction Costs means all
reasonable out-of-pocket costs and expenses relating to the
Arrangement and the transactions contemplated in this Agreement,
including accounting and legal fees and expenses, costs relating
to the preparation, printing and distribution of the Circular
and the calling and holding of and solicitation of proxies for
the Meeting, any payments made to Dissenting Shareholders and
the costs of obtaining the Tax Rulings, but specifically
excludes costs, expenses and payment obligations incurred in
connection with an obligation to indemnify in Article 6.

1.02 Appendix

Appendix A  Plan of Arrangement
is attached to this Agreement and forms part hereof.

1.03 Construction

In this Agreement, unless otherwise expressly
stated or the context otherwise requires:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the division of this Agreement into Articles and
    Sections and the use of headings are for convenience of
    reference only and do not affect the construction or
    interpretation hereof;                                                                                                                                                                                                   
|
| | (b) | the words hereunder,
    hereof and similar expressions refer to this
    Agreement and not to any particular Article or Section and
    references to Articles and Sections and
    Appendix are to Articles and Sections of and the
    Appendix to this Agreement;                                                                                                                    
|
| | (c) | words importing the singular include the plural
    and vice versa, words importing any gender include all
    genders and words importing persons include individuals,
    corporations, limited and unlimited liability companies, general
    and limited partnerships, associations, trusts, unincorporated
    organizations, joint ventures, Governmental Authorities and
    other entities;
|
| | (d) | the word including means
    including without limiting the generality of the
    foregoing;                                                                                                                                                                                                                                                                                                   
|
| | (e) | a reference to any statute is to that statute as
    now enacted or as the statute may from time to time be amended,
    re-enacted or replaced and includes any regulation made
    thereunder;                                                                                                                                                                                                   
|
| | (f) | if any date on which any action is required to be
    taken under this Agreement is not a Business Day, such action
    will be required to be taken on the next succeeding Business
    Day; and                                                                                                                                                                                                  
|
| | (g) | a reference to the knowledge of a Party means the
    knowledge of the officers of such Party.                                                                                                                                                                                                                                                                                                     

E-4



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ARTICLE 2  THE
ARRANGEMENT

2.01 Arrangement

As soon as reasonably practicable, the Parties
will:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | apply to the Court pursuant to
    subsection 192(3) of the CBCA for an order approving the
    Arrangement and, in connection with such application, each of
    the Parties will, subject to obtaining the approvals as
    contemplated in the Interim Order and as may be directed by the
    Court in the Interim Order, take all steps necessary or
    desirable to submit the Arrangement to the Court and apply for
    the Final Order; and
|
| | (b) | subject to the satisfaction or waiver of the
    conditions set forth in Article 5, deliver to the Director
    under the CBCA Articles of Arrangement and such other documents
    as may be required to give effect to the Arrangement.                                                                                                                                                                                                            

2.02 Effective Date and Effective
Time

The Arrangement will become effective on the
Effective Date and the steps to be carried out pursuant to the
Plan of Arrangement will become effective commencing at the
Effective Time immediately after one another in the order set
out therein or as otherwise specified in the Plan of Arrangement.

ARTICLE 3  REPRESENTATIONS AND
WARRANTIES

3.01 Mutual Representations and
Warranties

Each Party represents and warrants to and in
favour of each other Party that:



| |     |                                                                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | it is duly incorporated or amalgamated and is
    validly existing under the laws of its governing jurisdiction
    and has the corporate power and authority to enter into this
    Agreement and, subject to obtaining the requisite approvals
    contemplated hereby, to perform its obligations hereunder;
|
| | (b) | except as previously disclosed in the Circular or
    in writing to the other Parties, the execution and delivery of
    this Agreement by it and the completion by it of the
    transactions contemplated herein and in the Rulings Applications
    do not and will not:                                    



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | result in the breach of, or violate any term or
    provision of, its articles or by-laws;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (ii)  | conflict with, result in the breach of,
    constitute a default under, or accelerate or permit the
    acceleration of the performance required by, any agreement,
    instrument, licence, permit or authority to which it is a party
    or by which it is bound, or to which any assets of such Party is
    subject, or result in the creation of any Encumbrance upon any
    of its assets under any such agreement or instrument, or give to
    others any interest or right, including rights of purchase,
    termination, cancellation or acceleration, under any such
    agreement, instrument, licence, permit or authority, which in
    any case would have a Material Adverse Effect on it; or
|
| | (iii) | violate any provision of any Applicable Law or
    any judicial or administrative award, judgment, order or decree
    applicable and known to it, the breach of which would have a
    Material Adverse Effect on it;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | except as previously disclosed in the Circular or
    in writing to the other Parties and, to such Partys
    knowledge, there are no actions, proceedings or investigations
    commenced, contemplated or threatened against or affecting it,
    at law or in equity, by any third party or before or by any
    Governmental Authority nor are there any existing facts or
    conditions that may reasonably be expected to form a proper
    basis for any action, suit, proceeding or investigation, that,
    in any case, would prevent or hinder the consummation of the
    transactions contemplated by this Agreement or the Rulings
    Applications;
|
| | (d) | no dissolution, winding up, bankruptcy,
    liquidation or similar proceeding has been commenced or is
    pending or, to such Partys knowledge, is proposed in
    respect of it, except as contemplated by the Plan of Arrangement
    or the Rulings Applications; and                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (e) | the execution and delivery of this Agreement and
    the completion of the transactions contemplated herein and in
    the Rulings Applications have been duly approved by its board of
    directors and this Agreement constitutes a valid and binding
    obligation of such Party enforceable against it in accordance
    with its terms, subject to bankruptcy, insolvency and other laws
    affecting the enforcement of creditors rights generally and                                                                                                                                                                                                    

E-5



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##### 



| |  |                                                                                                                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------
| |  | to general principles of equity and limitations
    upon the enforcement of indemnification for fines or penalties
    imposed by law.

3.02 Representations and Warranties of
Nexfor

Nexfor represents and warrants to and in favour
of each other Party that:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the authorized capital of Nexfor consists of an
    unlimited number of Nexfor Common Shares, an unlimited number of
    Class A Preferred Shares, including the Nexfor Preferred
    Shares, an unlimited number of Class B Preferred Shares,
    and an unlimited number of Non-Voting Participating Shares, of
    which, as of April 22, 2004, 149,088,664 Nexfor Common
    Shares and 2.4 million Nexfor Preferred Shares were
    outstanding;
|
| | (b) | no person holds any securities convertible into
    Nexfor Common Shares or any other shares of Nexfor or has any
    agreement, warrant, option or any other right capable of
    becoming an agreement, warrant or option for the purchase or
    other acquisition of any unissued shares of Nexfor, other than:                                                                                                                                  



| |       |                                                                                                                                                                                                                                
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | participants in the Nexfor Stock Option Plan,
    Dividend Reinvestment Plan or Deferred Stock Unit Plan for
    Non-Employee Directors, pursuant to the terms thereof;                                                        
|
| | (ii)  | the holders of Nexfor Stock Options; as of
    April 22, 2004 there were 3,733,555 Nexfor Stock
    Options outstanding under the Nexfor Stock Option Plan and
    538,000 Options granted subject to shareholder approval; and
|
| | (iii) | as contemplated by this Agreement or the Rulings
    Applications;                                                                                                                                                             



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Nexfor owns, directly or indirectly, all the
    outstanding Common Shares of FP (CAD) and FP (US) with good and
    marketable title thereto, free and clear of all Encumbrances;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (d) | the facts and other information relating to
    Nexfor (excluding, for greater certainty, facts and other
    information relating to FP (CAD), FP (US) and the Fraser Papers
    Business) and the Norbord Business in the Rulings Applications,
    and all statements in reference to Nexfor and the Norbord
    Business made to the CCRA or the Provincial Revenue Authorities
    in the Rulings Applications are accurate in all material
    respects and, to its knowledge, there has been no omission by
    Nexfor to state a material fact or to provide other material
    information relating to Nexfor or the Norbord Business to the
    CCRA or the Provincial Revenue Authorities that would be
    relevant to the grant of any of the Tax Rulings; and
|
| | (e) | the facts and other information relating to
    Nexfor (excluding, for greater certainty, facts and other
    information relating to FP (CAD), FP (US) and the Fraser Papers
    Business) and the Norbord Business contained in the Circular
    contain no misrepresentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

3.03 Representations and Warranties of
FP (CAD)

FP (CAD) represents and warrants to and in favour
of each other Party that:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the authorized capital of FP (CAD) consists of an
    unlimited number of Common Shares, of which 1,000 are
    outstanding;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (b) | no person holds any securities convertible into
    Common Shares of FP (CAD) or any other shares of FP (CAD) or has
    any agreement, warrant, option or any other right capable of
    becoming an agreement, warrant or option for the purchase or
    other acquisition of any unissued shares of FP (CAD) except as
    contemplated by this Agreement or the Rulings Applications;                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (c) | the facts and other information relating to FP
    (CAD) and the Fraser Papers Business in Canada in the Rulings
    Applications and all statements in reference to FP (CAD), the
    Fraser Papers Business in Canada and (with respect to matters
    within FP (CAD)s knowledge) Fraser Papers made to the CCRA
    or the Provincial Revenue Authorities in the Rulings
    Applications are accurate in all material respects and, to its
    knowledge, there has been no omission by FP (CAD) to state a
    material fact or to provide other material information relating
    to FP (CAD), the Fraser Papers Business in Canada or (with
    respect to matters within FP (CAD)s knowledge) Fraser
    Papers to the CCRA or the Provincial Revenue Authorities that
    would be relevant to the grant of any of the Tax Rulings; and
|
| | (d) | the facts and other information relating to FP
    (CAD), the Fraser Papers Business in Canada and (with respect to
    matters within FP (CAD)s knowledge) Fraser Papers
    contained in the Circular contain no misrepresentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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##### 



3.04 Representations and Warranties of
FP (US)

FP (US) represents and warrants to and in favour
of each other Party that:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the authorized capital of FP (US) consists of
    3,000 Common Shares, of which 1,030 are outstanding;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (b) | no person holds any securities convertible into
    Common Shares of FP (US) or any other shares of FP (US) or has
    any agreement, warrant, option or any other right capable of
    becoming an agreement, warrant or option for the purchase or
    other acquisition of any unissued shares of FP (US) other than
    as contemplated by this Agreement or the Rulings Applications;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (c) | the facts and other information relating to FP
    (US) and the Fraser Papers Business in the United States in the
    Rulings Applications and all statements in reference to FP (US),
    the Fraser Papers Business in the United States and (with
    respect to matters within FP (US)s knowledge) Fraser
    Papers made to the CCRA or the Provincial Revenue Authorities in
    the Rulings Applications are accurate in all material respects
    and, to its knowledge, there has been no omission by FP (US) to
    state a material fact or to provide other material information
    relating to FP (US), the Fraser Papers Business in the United
    States or (with respect to matters within FP (US)s
    knowledge) Fraser Papers to the CCRA or the Provincial Revenue
    Authorities that would be relevant to the grant of any of the
    Tax Rulings; and
|
| | (d) | the facts and other information relating to FP
    (US), the Fraser Papers Business in the United States and (with
    respect to matters within FP (US)s knowledge) Fraser
    Papers contained in the Circular contain no misrepresentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

3.05 Representations and Warranties of
Fraser Papers

Fraser Papers represents and warrants to and in
favour of each other Party that:



| |     |                                                                                                                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | it is incorporated under the CBCA;                                                                                                                                                                                                                                                                                        
|
| | (b) | the authorized capital of Fraser Papers consists
    of an unlimited number of Common Shares, an unlimited number of
    Convertible Shares, an unlimited number of Class A
    Preferred Shares, an unlimited number of Class B Preferred
    Shares, and an unlimited number of Non-Voting Participating
    Shares; and
|
| | (c) | it has assets of $1, no liabilities and it has
    carried on no business or undertaken any activity other than
    relating to, and contemplated by, the Plan of Arrangement or the
    Rulings Applications.                                                                                                            

3.06 Survival of Representations and
Warranties

The representations and warranties in this
Agreement will survive the Effective Date and continue in effect
for the period specified in Section 7.03.

ARTICLE 4 
COVENANTS

4.01 General Covenants

Each of the Parties will:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | use all commercially reasonable efforts and do
    all things reasonably required of it to cause the Arrangement to
    become effective on or before December 31, 2004, or on such
    later date as Nexfor may determine;                                                                                                                                                                                                  
|
| | (b) | do and perform all such acts and things, and
    execute and deliver all such agreements, assurances, notices and
    other documents and instruments as may reasonably be required to
    facilitate the carrying out of the intent and purpose of this
    Agreement;                                                                                                                                                      
|
| | (c) | cooperate with and assist each other Party in
    dealing with transitional matters relating to or arising from
    the Pre-Arrangement Transactions, the Arrangement or this
    Agreement; and                                                                                                                                                                                                                             
|
| | (d) | prior to the Effective Date, cooperate in
    amending the Rulings Applications, applying for such amendments
    to the Tax Rulings and making such amendments to this Agreement
    as may be necessary to obtain the Tax Rulings or to implement
    the Plan of Arrangement or as may be desired by Nexfor to enable
    it to carry out transactions deemed advantageous by it for the
    separation of its businesses.

4.02 Covenants of Nexfor

Nexfor will:

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##### 





| |     |                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | not perform any act or enter into any transaction
    that could interfere or could be inconsistent with the
    completion of any Pre-Arrangement Transaction or the Arrangement
    or the grant of the Tax Rulings or their effective application
    to the Arrangement, except as provided in Section 4.05(2);
|
| | (b) | as soon as practicable, convene the Meeting;                                                                                                                                                                                                                                                                       
|
| | (c) | in a timely and expeditious manner:                                                                                                                                                                                                                                                                                



| |       |                                                                                                                                                                                                                                                                                                 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | carry out the terms of the Interim Order;                                                                                                                                                                                                                                                       
|
| | (ii)  | file the Circular in all jurisdictions where the
    same is required to be filed and mail the same as ordered by the
    Interim Order and in accordance with all Applicable Laws, and
    solicit proxies to be voted at the Meeting in favour of the
    Arrangement and related matters; and
|
| | (iii) | conduct the Meeting in accordance with the
    Interim Order, the by-laws of Nexfor, as applicable, and as
    otherwise required by Applicable Laws;                                                                                                                                           



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | in a timely and expeditious manner, prepare (in
    consultation with the other Parties) and file any mutually
    agreed (or otherwise required by Applicable Laws) amendments or
    supplements to the Circular with respect to the Meeting and give
    notice of the same as required by the Interim Order in all
    jurisdictions where the same is required;                                                                                                                                                                                                                                                              
|
| | (e) | subject to the approval of the Arrangement at the
    Meeting in accordance with the provisions of the Interim Order,
    forthwith proceed with and diligently prosecute an application
    for the Final Order;                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (f) | subject to the receipt of the Final Order and the
    satisfaction or waiver of the conditions precedent in favour of
    Nexfor set out in Article 5, file Articles of Arrangement
    and the Final Order with the Director under the CBCA in order
    for the Arrangement to become effective;                                                                                                                                                                                                                                                                                                                                
|
| | (g) | assist and cooperate in the preparation and
    filing with all applicable securities commissions or similar
    securities regulatory authorities in Canada and the United
    States of all necessary applications to seek exemptions, if
    required, from the prospectus, registration and other
    requirements of the applicable securities laws of jurisdictions
    in Canada and the United States for the issue of Common Shares
    of Nexfor (i.e., Norbord) and Fraser Papers and other exemptions
    that are necessary or desirable in connection with the
    Pre-Arrangement Transactions and the Arrangement;
|
| | (h) | perform the obligations required to be performed
    by Nexfor under the Plan of Arrangement and do all such other
    acts and things as may be necessary or desirable and are within
    its power and control in order to carry out and give effect to
    the Pre-Arrangement Transactions and the Arrangement and any
    transactions necessary for the effectiveness of the Tax Rulings,
    including using all commercially reasonable efforts to obtain:                                                                                                                                                                



| |       |                                                                                                                                                                                                                                                                       
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the approval of Nexfor Shareholders required for
    the implementation of the Arrangement;                                                                                                                                                                           
|
| | (ii)  | the approval of Nexfor Common Shareholders
    required for the confirmation of the Stock Option Plans;                                                                                                                                                               
|
| | (iii) | the approval of the listing of the Common Shares
    (and Convertible Shares and Non-Voting Shares) to be issued
    under the Arrangement on the Toronto Stock Exchange;                                                                                             
|
| | (iv)  | such other consents, orders, rulings or approvals
    and assurances as its counsel may advise are necessary or
    desirable for the implementation of the Pre-Arrangement
    Transactions and the Arrangement, including those referred to in
    Section 5.01; and
|
| | (v)   | satisfaction of the other conditions precedent
    referred to in Sections 5.01 and 5.02.                                                                                                                                                                             

4.03 Covenants of FP (CAD) and FP
(US)

Each of FP (CAD) and FP (US) will:



| |     |                                                                                                                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | not perform any act or enter into any transaction
    that could interfere or could be inconsistent with the
    completion of any Pre-Arrangement Transaction or the Arrangement
    or the grant of the Tax Rulings or their effective application
    to the Arrangement, except as provided in Section 4.05(2);
    and
|
| | (b) | perform the obligations required to be performed
    by it under the Plan of Arrangement and do all such other acts
    and things as may be necessary or desirable and are within its
    power and control in order to carry out                                                                                         

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##### 



| |  |                                                                                                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | and give effect to the Pre-Arrangement
    Transactions and the Arrangement and any transactions necessary
    for the effectiveness of the Tax Rulings, including using all
    commercially reasonable efforts to obtain:



| |       |                                                                                                                                                                                                                                                                 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the Final Order;                                                                                                                                                                                                                                                
|
| | (ii)  | such other consents, rulings, orders, approvals
    and assurances as counsel may advise are necessary or desirable
    for the implementation of the Pre-Arrangement Transactions and
    the Arrangement, including those referred to in
    Section 5.01; and
|
| | (iii) | satisfaction of the other conditions precedent
    referred to in Sections 5.01 and 5.02.                                                                                                                                                                       

4.04 Covenants of Fraser Papers

Fraser Papers will:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | not perform any act or enter into any transaction
    that could interfere or could be inconsistent with the
    completion of any Pre-Arrangement Transaction or the Arrangement
    or the grant of the Tax Rulings or their effective application
    to the Arrangement, except as provided in Section 4.05(2);
    and                                                                                                                                   
|
| | (b) | perform the obligations required to be performed
    by it under the Plan of Arrangement and do all such other acts
    and things as may be necessary or desirable and are within its
    power and control in order to carry out and give effect to the
    Pre-Arrangement Transactions and the Arrangement and any
    transactions necessary for the effectiveness of the Tax Rulings,
    including using all commercially reasonable efforts to obtain:



| |       |                                                                                                                                                                                                                                                                 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the Final Order;                                                                                                                                                                                                                                                
|
| | (ii)  | the approval of the listing of its Common Shares
    (and Convertible Shares) on the Toronto Stock Exchange;                                                                                                                                                    
|
| | (iii) | such other consents, rulings, orders, approvals
    and assurances as counsel may advise are necessary or desirable
    for the implementation of the Pre-Arrangement Transactions and
    the Arrangement, including those referred to in
    Section 5.01; and
|
| | (iv)  | satisfaction of the other conditions precedent
    referred to in Sections 5.01 and 5.02.                                                                                                                                                                       

4.05 Tax-Related Covenants

(1) Each Party covenants that
(i) neither it nor any successor thereto will engage in any
transaction or permit any transaction within its control to
occur that would cause Nexfor to cease to be a Specified
Corporation on or prior to the Effective Date except as
contemplated herein or in the Rulings Applications and
(ii) it and any successor thereto will fulfil, and will
cause any person controlled by it after the Effective Date to
fulfil, all representations or undertakings provided by it to
the CCRA or Provincial Revenue Authorities in connection with
the Tax Rulings and contained in the Rulings Applications.

(2) Each Party covenants that it will not
take any action, omit to take any action or enter into any
transaction that could cause the Arrangement or any related
transaction to be taxed in a manner inconsistent with that
provided for in the Tax Rulings without obtaining a
supplementary tax ruling or an opinion of a nationally
recognized accounting firm or law firm that such actions,
omissions or transactions will not have such effect in respect
of the Tax Rulings or the obtaining thereof.

(3) Each Party will in a timely manner file
its tax returns and section 85 elections pursuant to the
Tax Act and make adjustments to its capital accounts in
accordance with the terms of the Plan of Arrangement following
the Effective Date.

(4) Each Party will cooperate in the
preparation and filing, in the form and within the time limits
prescribed in the Tax Act, of all elections under the Tax Act as
contemplated in the Tax Rulings, the Plan of Arrangement and
this Agreement (and any similar elections that may be required
under applicable provincial, territorial or foreign
legislation). Where an agreed amount is to be included in any
such election, such amount will be within the range contemplated
by the Tax Act (or applicable provincial, territorial or foreign
legislation) and will be the amount contemplated by the Tax
Rulings, the Plan of Arrangement and this Agreement, it being
the intention of the Parties that each transfer will take place
on an income tax-deferred basis.

4.06 Costs and Expenses

Nexfor will pay all Transaction Costs and
Regulatory Fees.

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##### 



4.07 Stock Options

Norbord will distribute stock options under its
Stock Option Plan in conformity with the Plan of Arrangement and
the Rulings Applications.

ARTICLE 5 
CONDITIONS

5.01 Conditions Precedent

The obligations of Nexfor to complete the
transactions contemplated by this Agreement and to file Articles
of Arrangement to give effect to the Arrangement are subject to
satisfaction of the following conditions:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the Arrangement, either without amendment or with
    amendments approved by the board of directors of Nexfor, will
    have been approved at the Meeting in accordance with the Interim
    Order;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (b) | the Final Order will have been obtained in form
    and substance satisfactory to Nexfor;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (c) | all material consents, orders, rulings, approvals
    and assurances, including regulatory and judicial approvals and
    orders, necessary or desirable for the completion of the
    Pre-Arrangement Transactions and the transactions provided for
    in this Agreement and the Tax Rulings will have been obtained or
    received from the persons, authorities or bodies having
    jurisdiction in the circumstances, including exemption orders,
    rulings, no action letters and registrations pursuant to the
    securities legislation of the provinces of Canada and of the
    United States of America and the states thereof to permit the
    Common Shares of Norbord and Fraser Papers to be issued without
    a prospectus and without the participation of a registered
    dealer pursuant to the Arrangement or pursuant to the terms of
    options or other rights to purchase or exchange granted pursuant
    to the Arrangement and to be freely tradeable in each such
    jurisdiction promptly following the Effective Date and other
    exemptions that are necessary or desirable in connection with
    the Pre-Arrangement Transactions and the Arrangement;
|
| | (d) | no action will have been instituted and be
    continuing on the Effective Date for an injunction to restrain,
    a declaratory judgment in respect of, or damages on account of
    or relating to, the Pre-Arrangement Transaction or the
    Arrangement and there will not be in force any order or decree
    restraining or enjoining the consummation of the transactions
    contemplated by this Agreement or the Rulings Applications and
    no cease trading or similar order with respect to any securities
    of any of the Parties will have been issued and remain
    outstanding;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (e) | none of the consents, orders, rulings, approvals
    or assurances required for the implementation of the
    Pre-Arrangement Transaction or the Arrangement will contain
    terms or conditions or require undertakings or security deemed
    unsatisfactory or unacceptable by Nexfor, acting reasonably;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (f) | no law, regulation or policy will have been
    proposed, enacted, promulgated or applied that interferes or is
    inconsistent with the completion of any Pre-Arrangement
    Transaction or the Arrangement or the grant of the Tax Rulings
    or their effective application to the Arrangement;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (g) | the Tax Rulings, in form and substance
    satisfactory to Nexfor, will have been received and remain in
    full force and effect and all of the transactions referred to in
    the Tax Rulings as occurring on or prior to the Effective Date
    will have occurred and all conditions or terms of the Tax
    Rulings will have been satisfied;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (h) | in the event that Dissenting Shareholders have
    exercised their dissent rights in respect of more than 0.5% of
    the outstanding Nexfor Common Shares or Nexfor Preferred Shares,
    Nexfor will have determined to proceed with the Arrangement;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (i) | the Toronto Stock Exchange will have approved the
    listing of the Common Shares (and Convertible Shares and
    Non-Voting Shares) of Norbord and the Common Shares (and
    Convertible Shares) of Fraser Papers to be issued pursuant to
    the Arrangement, subject to compliance with the normal listing
    requirements of such exchange; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (j) | this Agreement will not have been terminated
    pursuant to the provisions of Article 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

5.02 Conditions to Obligations of Each
Party

The obligation of each Party to complete the
transactions contemplated by this Agreement is further subject
to the conditions (which may be waived by such Party without
prejudice to its right to rely on any other condition in its

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##### 



favour) that (i) the covenants of each other
Party to be performed on or before the Effective Date pursuant
to the terms of this Agreement will have been duly performed and
(ii) except as set forth in this Agreement, the Plan of
Arrangement or the Rulings Applications, the representations and
warranties of each other Party will be true and correct in all
material respects as at the Effective Date, with the same effect
as if such representations and warranties had been made at, and
as of, such time and each such Party will receive a certificate,
dated immediately prior to the Effective Time, of the chief
financial officer of each other Party confirming the matters in
(i) and (ii). It is understood that the representation and
warranty of a Party as to there being no misrepresentation in
the Circular will not apply (i) to any facts and
information added thereto after the date hereof unless such
facts or information have been made available to the applicable
Party and such Party has had an opportunity to correct any
factual inaccuracies in a timely manner or (ii) to any
facts and information arising after the date of the Circular
that are beyond the control of a Party or are permitted by
Section 4.02(h), 4.03(b) or 4.04(b), as applicable, and, in
any case, are disclosed to the public.


5.03 Merger of Conditions

The conditions set out in Section 5.01,
other than paragraph (g) thereof, and Section 5.02
will be conclusively deemed to have been satisfied, waived or
released on the filing by Nexfor of Articles of Arrangement
under the CBCA to give effect to the Plan of Arrangement.

ARTICLE 6 
INDEMNITIES

6.01 Indemnity by Nexfor

Nexfor will indemnify and hold harmless Fraser
Papers and its Affiliates after the Effective Date and their
respective Representatives against any Loss suffered or incurred
by any such Indemnified Person resulting from:



| |     |                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | a breach of a representation or warranty herein
    or pursuant hereto by Nexfor as if made without any
    qualification as to the knowledge of Nexfor;                                                                              
|
| | (b) | a breach of a covenant herein or pursuant hereto
    by Nexfor; and                                                                                                                                                                   
|
| | (c) | any Claim relating to Nexfor (excluding, for
    greater certainty, FP (CAD), FP (US) before the Effective Date
    and the Fraser Papers Business) or the Norbord Business, whether
    arising prior to or after the Effective Time.

6.02 Indemnity by Fraser Papers

Fraser Papers will indemnify and hold harmless
Nexfor and its Affiliates after the Effective Date and their
respective Representatives against any Loss suffered or incurred
by any such Indemnified Person resulting from:



| |     |                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | a breach of a representation or warranty herein
    or pursuant hereto by FP (CAD), FP (US) or Fraser Papers as if
    made without any qualification as to the knowledge of FP (CAD),
    FP (US) or Fraser Papers;                                                                          
|
| | (b) | a breach of a covenant herein or pursuant hereto
    by FP (CAD), FP (US) or Fraser Papers; and                                                                                                                                                                                               
|
| | (c) | any Claim relating to FP (US) arising prior to
    the Effective Time and any Claim relating to FP (CAD) or Fraser
    Papers (excluding, for greater certainty, Nexfor and the Norbord
    Business) or the Fraser Papers Business, whether arising prior
    to or after the Effective Time.

6.03 Trustee

Each Party hereby appoints each other Party as
the trustee for such other Partys Representatives of the
covenants of such Party with respect to such persons herein and
each other Party accepts such appointment.

6.04 Notice of Third Party
Claims

(1) If an Indemnified Person receives notice
of the commencement or assertion of any Third Party Claim, the
Indemnified Person must notify the Indemnifier within a
reasonable time thereafter, but in any event, no later than
30 days after receipt of such notice of such Third Party
Claim. Such notice to the Indemnifier must describe the Third
Party Claim in reasonable detail and indicate, to the extent
reasonably practicable, the estimated amount of the Loss that
has been or may be sustained by the Indemnified Person. The
Indemnifier will then have a period of 30 days (the
Notice Period) within which to satisfy such Third
Party Claim or, failing that, to give notice to the Indemnified
Person that it intends to dispute such Third Party Claim and
participate in or assume the defence thereof, which notice must
be accompanied by reasonable particulars in writing of the basis
of such dispute.

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(2) If an Indemnified Person has reason to
believe that a person may be investigating the possibility of
asserting a Third Party Claim, it must notify the Indemnifier as
soon as reasonably practicable and provide reasonable details of
the circumstances thereof. The Indemnified Person and the
Indemnifier will seek to cooperate with a view to satisfying the
person who may assert the Third Party Claim that there is no
reasonable basis therefor.

6.05 Defence of Third Party
Claims

If an Indemnifier elects to assume the defence of
any Third Party Claim, the Indemnifier must at all times act
reasonably and in good faith in pursuing such defence, keep the
Indemnified Persons fully informed as to the progress and status
of such defence of the Third Party Claim and provide copies to
the Indemnified Persons of all material documents, records and
other materials relating to such defence of the Third Party
Claim. The Indemnifier must provide the Indemnified Persons with
drafts of documents that the Indemnifier proposes to send or
file in advance of the sending of or filing of the same and the
Indemnified Persons will have the reasonable opportunity to
provide comments thereon to the Indemnifier; provided, however,
that it will not result in any undue delay. The Indemnifier
agrees to pay all of its own expenses of participating in or
assuming such defence. The Indemnified Persons will cooperate in
good faith in the defence of each Third Party Claim, even if the
defence has been assumed by the Indemnifier, and may participate
in such defence assisted by counsel of their choice and at their
own expense, except in those circumstances in which the
Indemnified Persons believe in good faith that there are
material issues between the Indemnifier and the Indemnified
Persons or there are defences available to the Indemnified
Persons that are not available to the Indemnifier, in either of
which cases the Indemnified Persons may participate in such
defence assisted by counsel of their choice at the expense of
the Indemnifier to the extent such expenses are reasonable.
Neither the Indemnifier nor the Indemnified Persons will enter
into any compromise or settlement of any Third Party Claim
without obtaining the prior written consent of the other of
them, such consent not to be unreasonably withheld or delayed.
If the Indemnifier wishes to settle a Third Party Claim in an
amount acceptable to the third party claimant, but the
Indemnified Persons do not wish so to settle, the Indemnifier
will be required to indemnify the Indemnified Persons only up to
the lesser of the amount for which the Indemnifier would have
settled the Third Party Claim and the amount which the
Indemnified Persons were or will be required to pay such third
party in connection with such Third Party Claim. If the
Indemnified Persons have not received notice within the Notice
Period that the Indemnifier has elected to assume the defence of
a Third Party Claim or if the Indemnifier, having elected to
assume the defence of any Third Party Claim, fails to take
reasonable steps necessary to defend diligently such Third Party
Claim within 30 days after receiving notice from the
Indemnified Persons that the Indemnified Persons bona
fide believe on reasonable grounds that the Indemnifier has
failed to take such steps (with such grounds to be specified in
reasonable detail), the Indemnified Persons may, at their
option, elect to settle or compromise the Third Party Claim or
assume such defence, assisted by counsel of their choosing, and
the Indemnifier will be liable for all reasonable costs and
expenses paid or incurred in connection therewith and any Loss
suffered or incurred by the Indemnified Persons with respect to
such Third Party Claim.

6.06 Direct Claims

Any Direct Claim must be asserted by providing
notice to the Indemnifier within a reasonable time after the
Indemnified Person becomes aware of such Direct Claim, but in
any event not later than 60 days after the Indemnified
Person becomes aware of such Direct Claim. The Indemnifier will
then have a period of 30 days within which to satisfy such
Direct Claim or, failing that, to give notice to the Indemnified
Person that it intends to dispute such Direct Claim, which
notice must be accompanied by reasonable particulars in writing
of the basis of such dispute.

6.07 Failure to Give Timely
Notice

The failure to give timely notice as provided in
this Article 6 will not affect the rights or obligations of
any Party except and only to the extent that, as a result of
such failure, the Party that was entitled to receive such notice
suffered damage or was otherwise prejudiced.

6.08 Reduction in Subrogation

If at any time subsequent to the making of any
Indemnity Payment, the amount of the indemnified loss is reduced
pursuant to any claim, recovery, settlement or payment by or
against any other person (a Recovery), such that,
taking the Recovery into account, the amount of the Indemnity
Payment in respect of the Loss exceeds the amount of the Loss,
the Indemnified Person must promptly repay to the Indemnifier
the amount of the excess (the Excess) (less any
costs, expenses (including Taxes) or premiums incurred in
connection therewith) together with interest (a) from the
date of payment of the Indemnity Payment in respect of which the
repayment is being made to but excluding the earlier

E-12



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##### 



of the date of repayment of the Excess and the
date that is 60 days after the Excess arises, but only to
the extent that the Recovery giving rise to the Excess included
interest, at the rate applied to the amount of the Recovery and
(b) from and including the date that is 60 days after
the Excess arises to but excluding the date of repayment of the
Excess, at the Prime Rate. Notwithstanding the foregoing
provisions of this Section, no payment must be made hereunder to
the extent the Indemnified Person is entitled to an Indemnity
Payment hereunder that remains unpaid. Upon making a full
Indemnity Payment, the Indemnifier will, to the extent of such
Indemnity Payment, be subrogated to all rights of the
Indemnified Person against any third party in respect of the
Loss to which the Indemnity Payment relates. Until the
Indemnified Person recovers full payment of its Loss, any and
all claims of the Indemnifier against such third party on
account of such Indemnity Payment will be postponed and
subordinated in right of payment to the Indemnified
Persons rights against such third party.


6.09 Tax Effect

If any Indemnity Payment received by an
Indemnified Person would constitute income for tax purposes to
such Indemnified Person, the Indemnifier will pay a Tax Gross-Up
to the Indemnified Person at the same time and on the same
terms, as to interest and otherwise, as the Indemnity Payment.
The amount of any Loss for which indemnification is provided
will be adjusted to take into account any tax benefit realizable
by the Indemnified Person or any of its Affiliates by reason of
the Loss for which indemnification is so provided or the
circumstances giving rise to such Loss. For purposes of this
Section, any tax benefit will be taken into account at such time
as it is received by the Indemnified Person or its Affiliate.
Notwithstanding the foregoing provisions of this Section, if an
Indemnity Payment would otherwise be included in the Indemnified
Persons income, the Indemnified Person covenants and
agrees to make all such elections and take such actions as are
available, acting reasonably, to minimize or eliminate Taxes
with respect to the Indemnity Payment.

6.10 Payment and Interest

All Losses (other than Taxes) will bear interest
at a rate per annum, calculated and payable monthly, equal to
the Prime Rate per annum from and including the date the
Indemnified Person disbursed funds or suffered or incurred a
Loss to but excluding the day of payment by the Indemnifier to
the Indemnified Person, with interest on overdue interest at the
same rate. All Losses that are Taxes will bear interest at a
rate per annum, calculated and payable monthly, equal to the
Prime Rate from and including the date the Indemnified Person
paid such Taxes to but excluding the day of payment by the
Indemnifier to the Indemnified Person of the Indemnity Payment
in respect of such Taxes, with interest on overdue interest at
the same rate.

6.11 Judgment Currency

(1)   If for the purpose of
obtaining or enforcing judgment against the Indemnifier in any
court in any jurisdiction, it becomes necessary to convert into
any other currency (the Judgment Currency) an amount
due in Canadian dollars under this Agreement, the conversion
will be made at the rate of exchange prevailing on the Business
Day immediately preceding:



| |     |                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the date of actual payment of the amount due, in
    the case of any proceeding in the courts of the Province of
    Ontario or in the courts of any other jurisdiction that will
    give effect to such conversion being made on such date; or
|
| | (b) | the date on which the judgment is given, in the
    case of any proceeding in the courts of any other jurisdiction
    (the Judgment Conversion Date).                                                                                        

(2) If, in the case of any proceeding in the
court of any jurisdiction referred to in
Section 6.11(1)(b), there is a change in the rate of
exchange prevailing between the Judgment Conversion Date and the
date of actual payment of the amount due, the Indemnifier must
pay such additional amount (if any, but in any event not a
lesser amount) as may be necessary to ensure that the amount
paid in the Judgment Currency, when converted at the rate of
exchange prevailing on the date of payment, will produce the
amount of Canadian dollars which could have been purchased with
the amount of Judgment Currency stipulated in the judgment or
judicial order at the rate of exchange prevailing on the
Judgment Conversion Date.

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##### 



ARTICLE 7  AMENDMENT AND
TERMINATION

7.01 Amendment

This Agreement may, at any time and from time to
time before and after the holding of the Meeting but not later
than the Effective Date, be amended by written agreement of the
Parties without, subject to Applicable Law, further notice to or
authorization on the part of the Nexfor Shareholders. Without
limiting the generality of the foregoing, any such amendment may:



| |     |                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | change the time for performance of any of the
    obligations or acts of the Parties;                                                                                                                               
|
| | (b) | waive any inaccuracies or modify any
    representation contained herein or in any document to be
    delivered pursuant hereto;                                                                                    
|
| | (c) | waive compliance with or modify any of the
    covenants herein contained or waive or modify performance of any
    of the obligations of the Parties; or                                                           
|
| | (d) | make such alterations in this Agreement
    (including the Plan of Arrangement) as the Parties may consider
    necessary or desirable in connection with the Tax Rulings, the
    Interim Order or the Final Order.

7.02 Termination

This Agreement may, at any time before or after
the holding of the Meeting but prior to the issue under the CBCA
of a certificate of arrangement giving effect to the
Arrangement, be terminated by Nexfor at any time without
approval of the Nexfor Shareholders. This Agreement will
terminate without any further action by the Parties if the
Effective Date has not occurred on or before December 31,
2004 or such later date as Nexfor may determine.

7.03 Continuance

If this Agreement is not terminated pursuant to
the provisions of Section 7.02, this Agreement will
continue in effect for a period of six years after the Effective
Date except that:



| |     |                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | any representation, warranty, covenant or
    indemnity relating to the Rulings Applications, the Tax Rulings
    or their effectiveness will continue indefinitely; and
|
| | (b) | the provisions of Section 6.01(c) and
    6.02(c) will continue indefinitely.                                                                                           

ARTICLE 8  GENERAL

8.01 Notices

Any demand, notice or other communication to be
given in connection with this Agreement must be given in writing
and delivered personally or by courier or by facsimile addressed
to the recipient as follows:

To Nexfor:

Suite 500

1 Toronto Street


Toronto, Ontario


M5C 2W4


Attention: Chief Financial Officer

Fax No.:  416-643-8827


To FP (CAD), FP (US) or Fraser Papers:

Suite 600

1 Toronto Street


Toronto, Ontario


M5C 2W4


Attention: Chief Administrative Officer

Fax No.:  416-643-8859


E-14



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##### 



or other such address that a Party may, from time
to time, advise the other Parties hereto by notice in writing
given in accordance with the foregoing. Date of receipt of any
such notice will be deemed to be the date of actual delivery
thereof or, if given by facsimile, on the day of transmittal
thereof if given during the normal business hours of the
recipient with written confirmation of receipt by fax and verbal
confirmation of same and on the next Business Day, if not given
during such hours.

8.02 Time of Essence

Time is of the essence of this Agreement.

8.03 Further Assurances

Each of the Parties will from time to time
execute and deliver all such further documents and instruments
and do all acts and things as any other Party may, either before
or after the Effective Date, reasonably require to effectively
carry out or better evidence or perfect the full intent and
meaning of this Agreement.

8.04 Assignment

No Party may assign its rights or obligations
under this Agreement or the Arrangement without the prior
written consent of the other Parties, provided that no such
consent will be required for any Party to assign its rights and
obligations under this Agreement and the Arrangement to a
corporate successor to such Party or to a purchaser of all or
substantially all of the assets of such Party.

8.05 Binding Effect

This Agreement will be binding upon and enure to
the benefit of the Parties hereto and their respective
successors and permitted assigns and specific references to
successors elsewhere in this Agreement will not be
construed to be in derogation of the foregoing. Nothing in this
Agreement, express or implied, is intended or will be construed
to confer upon any person other than the Parties and their
successors and permitted assigns any right, remedy or claim
under or by reason of this Agreement.

8.06 Waiver

Any waiver or release of any of the provisions of
this Agreement, to be effective, must be in writing executed by
the Party granting the same.

8.07 Entire Agreement

This Agreement together with the agreements and
other documents herein or therein referred to constitute the
entire agreement between the Parties with respect to the subject
matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or
written, between the Parties with respect thereto.

8.08 Governing Law

This Agreement will be governed by and construed
in accordance with the laws of the Province of Ontario and the
laws of Canada applicable therein and will be treated in all
respects as an Ontario contract.

8.09 Counterparts

This Agreement and any amendment or restatement
thereof may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which taken
together will be deemed to constitute the same instrument.

8.10 Attornment

For the purpose of all legal proceedings this
Agreement will be deemed to have been performed in the Province
of Ontario and the courts of the Province of Ontario will have
non-exclusive jurisdiction to entertain any action arising under
this Agreement. Each Party hereby attorns to the non-exclusive
jurisdiction of the courts of the Province of Ontario.

8.11 Facsimiles

Delivery of an executed signature page to this
Agreement by any Party by facsimile will be as effective as
delivery of a manually executed copy of the Agreement by such
Party.

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##### 



IN WITNESS WHEREOF the Parties have executed this
Agreement.



| |            
| | -----------
| | NEXFOR INC.



| |     |                           
| | --- | --------------------------
| | By: | (Signed) Barrie Shineton

| |                                                   
| | --------------------------------------------------
| |                                                   
| | Name: Barrie Shineton                             
| | Title: Executive Vice President, Wood
    Products



| |     |                         
| | --- | ------------------------
| | By: | (Signed) John Tremayne

| |                    
| | -------------------
| |                    
| | Name: John Tremayne

| |        |                             
| | ------ | ----------------------------
| | Title: | Executive Vice President and

| |                         
| | ------------------------
| | Chief Financial Officer 
|
| | FRASER PAPERS INC. (CAD)



| |     |                            
| | --- | ---------------------------
| | By: | (Signed) Dominic Gammiero

| |                       
| | ----------------------
| |                       
| | Name: Dominic Gammiero
| | Title: Chairman       



| |     |                         
| | --- | ------------------------
| | By: | (Signed) Glen McMillan

| |                        
| | -----------------------
| |                        
| | Name: Glen McMillan    
| | Title: Director        
|
| | FRASER PAPERS INC. (US)



| |     |                            
| | --- | ---------------------------
| | By: | (Signed) Dominic Gammiero

| |                       
| | ----------------------
| |                       
| | Name: Dominic Gammiero
| | Title: Chairman       



| |     |                         
| | --- | ------------------------
| | By: | (Signed) Glen McMillan

| |                    
| | -------------------
| |                    
| | Name: Glen McMillan
| | Title: Director    
|
| | 4229401 CANADA INC.



| |     |                            
| | --- | ---------------------------
| | By: | (Signed) Dominic Gammiero

| |                                             
| | --------------------------------------------
| |                                             
| | Name: Dominic Gammiero                      
| | Title: President and Chief Executive Officer



| |     |                         
| | --- | ------------------------
| | By: | (Signed) Glen McMillan

| |                    
| | -------------------
| |                    
| | Name: Glen McMillan

| |        |                          
| | ------ | -------------------------
| | Title: | Senior Vice President and

| |                             
| | ----------------------------
| | Chief Administrative Officer

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##### 



APPENDIX A

PLAN OF ARRANGEMENT UNDER SECTION 192
OF

THE CANADA BUSINESS CORPORATIONS
ACT


ARTICLE 1 
INTERPRETATION

1.01 Definitions

In this Plan of Arrangement, other than the
Schedules:

Arrangement means the
arrangement under the provisions of section 192 of the CBCA
on the terms and conditions set forth in this Plan of
Arrangement.

Arrangement Agreement means
the arrangement agreement made as of April 22, 2004 between
Nexfor, Fraser Papers Inc. (CAD), Fraser Papers Inc.
(US) and Fraser Papers and any amendments made thereto.

Butterfly Proportion means the
fraction A/B where A is the net fair market value of the assets
to be transferred by Nexfor to Fraser Papers Subco pursuant to
Section 2.01(1)(f) and B is the net fair market value of
all property owned by Nexfor immediately before such transfer,
determined in each case immediately before such transfer.

CBCA means the Canada
Business Corporations Act.

Common Shares means the
voting, equity shares of a corporation that are designated in
the articles of the corporation as common shares.

Dissent Rights means the
rights of a Nexfor Shareholder to dissent in respect of the
Arrangement pursuant to the procedures set forth in
section 190 of the CBCA, the Interim Order and
Section 3.01.

Dissenting Shareholder means a
Nexfor Shareholder who exercises its Dissent Rights.

Distribution Record Date means
the fourth Trading Day on the TSX following the Effective Date
or such other date as Nexfor may select.

DSUs means deferred share
units credited to the account of a participant under the
Deferred Stock Unit Plan for Non-Employee Directors of Nexfor.

Effective Date means the
effective date of the Arrangement, being the date shown on the
certificate of arrangement to be issued by the Director under
the CBCA giving effect to the Arrangement.

Effective Time means the
earliest moment on the Effective Date.

Encumbrances means mortgages,
charges, pledges, liens, hypothecs, security interests,
encumbrances, adverse claims and rights of third parties to
acquire or restrict the use of property.

Fraser Papers means 4229401
Canada Inc., a corporation incorporated under the CBCA in order
to facilitate the Arrangement, whose name is changed to Fraser
Papers Inc. under Section 2.01(2)(e).

Fraser Papers Common Shares
means the Common Shares that Fraser Papers is authorized to
issue.

Fraser Papers Convertible
Shares means the non-voting, convertible, equity
shares that Fraser Papers is authorized to issue.

Fraser Papers Newco means
4229428 Canada Inc., a corporation incorporated under the CBCA
in order to facilitate the Arrangement.

Fraser Papers Subco means
4229410 Canada Inc., a corporation incorporated under the CBCA
as a wholly-owned subsidiary of Fraser Papers in order to
facilitate the Arrangement.

Fraser Papers Subco Note has
the meaning set out in Section 2.01(1)(h).

Listing Time means the time,
after the Effective Time, when the Nexfor Convertible Shares and
Nexfor Common Shares and the Fraser Papers Convertible Shares
and Fraser Papers Common Shares are unconditionally listed on
the TSX.

Nexfor means Nexfor Inc., a
corporation governed by the CBCA, whose name is changed to
Norbord Inc. (Norbord) under
Section 2.01(2)(b).

Nexfor Common Shares means the
outstanding Common Shares of Nexfor.

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Nexfor Common Shareholders
means the holders of Nexfor Common Shares, excluding any
Dissenting Shareholders who held Nexfor Common Shares that are
cancelled pursuant to Section 3.01(2)(a).

Nexfor Convertible Shares
means the voting, convertible, equity shares that Nexfor is
authorized to issue under Section 2.01(1)(a).

Nexfor Non-Voting Shares means
the non-voting, equity shares that Nexfor is authorized to issue
under Section 2.01(1)(a).

Nexfor Note has the meaning
set out in Section 2.01(1)(g).

Nexfor Optionholders means the
holders of Nexfor Stock Options.

Nexfor Preferred Shareholders
means the holders of Nexfor Preferred Shares.

Nexfor Preferred Shares means
the outstanding Class A Preferred Shares, Series 1 of
Nexfor.

Nexfor Shareholders means,
collectively, Nexfor Common Shareholders, Nexfor Optionholders
and Nexfor Preferred Shareholders.

Nexfor Stock Option means an
outstanding option to acquire a Nexfor Common Share granted by
Nexfor pursuant to the Nexfor Stock Option Plan.

Nexfor Stock Option Plan means
the existing Nexfor Stock Option Plan.

Plan of Arrangement means this
plan of arrangement, including its Schedules, as it may be
amended in accordance with the terms of the Arrangement
Agreement.

PUC means paid-up capital as
defined in subsection 89(1) of the Tax Act.

Replacement Stock Option means
a stock option issued by Nexfor pursuant to the Replacement
Stock Option Plan. The exercise price per share of a Replacement
Stock Option issued pursuant to Section 2.01(1)(c) in
exchange for a Nexfor Stock Option will be the amount (rounded
up to the nearest whole cent) determined by applying the
formula: A = B - (C - D) where A is the
exercise price of the Replacement Stock Option (subject to a
minimum of $0.01 per share), B is the original exercise price
per share of the Nexfor Stock Option, C is the Trading Price of
a Nexfor Common Share before the Effective Date, and D is the
Trading Price of a Common Share of Norbord after the Effective
Date.

Replacement Stock Option Plan
means the stock option plan adopted by Nexfor to replace the
Nexfor Stock Option Plan.

Tax Act means the Income
Tax Act (Canada).

Trading Day means a day, other
than a Saturday or a Sunday, when the TSX is open for trading.

Trading Price means the
weighted average trading price of the Nexfor (Norbord) Common
Shares on the TSX for 10 Trading Days in relation to a
specified date.

Transfer Agent means CIBC
Mellon Trust Company.

|                                                         |  |     |  |                                       
|-------------------------------------------------------- |  | --- |  | --------------------------------------
|Transferred Multiple means the
    following fraction: |  | A   |  | where A is the Transferred Proportion.
|                                                         |  |     |  |                                       
|                                                         |  | 1-A |  |                                       

Transferred Proportion means
the amount determined (expressed as a fraction) by applying the
formula: A x C/B where A is the Butterfly Proportion,
B is the fair market value of all the Nexfor Convertible Shares
and Nexfor Non-Voting Shares issued and outstanding immediately
before the transfer of assets by Nexfor to Fraser Papers Subco
pursuant to Section 2.01(1)(f) and C is the fair market
value of all shares of all classes of Nexfor issued and
outstanding immediately before such transfer, determined in each
case immediately before such transfer.

TSX means the Toronto Stock
Exchange.

1.02Construction

In this Plan of Arrangement, unless otherwise
expressly stated or the context otherwise requires:



| |     |                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the division of this Plan of Arrangement into
    Articles and Sections and the use of headings are for
    convenience of reference only and do not affect the construction
    or interpretation hereof;

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##### 





| |     |                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | the words hereunder,
    hereof and similar expressions refer to this Plan of
    Arrangement and not to any particular Article, Section or
    Schedule and references to Articles, Sections,
    and Schedules are to Articles and Sections of and
    Schedules to this Plan of Arrangement;                                                                                           
|
| | (c) | words importing the singular include the plural
    and vice versa, words importing any gender include all
    genders and words importing persons include individuals,
    corporations, limited and unlimited liability companies, general
    and limited partnerships, associations, trusts, unincorporated
    organizations, joint ventures, governmental authorities and
    other entities;
|
| | (d) | the word including means
    including without limiting the generality of the
    foregoing; and                                                                                                                                                                                                                                                                                               
|
| | (e) | a reference to any statute is to that statute as
    now enacted or as the statute may from time to time be amended,
    re-enacted or replaced and includes any regulation made
    thereunder.                                                                                                                                                                                                   

1.03Schedules

The following are the Schedules to this Plan of
Arrangement:

Schedule A  Share Conditions
attaching to Nexfor Convertible Shares and Nexfor Non-Voting
Shares

Schedule B  Terms of Amalgamation
of Fraser Papers

Schedule C  By-law No. 1 of
Fraser Papers

ARTICLE 2  THE
ARRANGEMENT

2.01The Arrangement

(1) Commencing at the Effective Time, the events
and transactions set out in Sections 2.01(1)(a) to
(j) will occur and be deemed to occur in the order set out
below or as otherwise provided below, without any further act or
formality, and with each event or transaction occurring and
being deemed to occur immediately after the occurrence of the
immediately preceding event or transaction or as otherwise
provided below.

Amendment
of Articles of Nexfor



| |     |                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The articles of Nexfor will be amended to create
    and authorize the issuance of (in addition to the shares that it
    is authorized to issue immediately before this amendment):



| |      |                                                          
| | ---- | ---------------------------------------------------------
| | (i)  | an unlimited number of Nexfor Convertible Shares;
    and
|
| | (ii) | an unlimited number of Nexfor Non-Voting Shares          

and to provide that the rights, privileges,
restrictions and conditions attaching to each class of shares
are as set out in Schedule A.

Exchange
of Nexfor Common Shares



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Each Nexfor Common Shareholder will transfer to
    Nexfor, with good and marketable title free from Encumbrances,
    all its Nexfor Common Shares. As the sole consideration for each
    Nexfor Common Share so transferred, Nexfor will issue to that
    former Nexfor Common Shareholder 1 Nexfor Convertible Share and
    a fraction of a Nexfor Non-Voting Share equal to the Transferred
    Multiple. The Nexfor Non-Voting Shares so issued will be listed
    on the TSX upon issuance but will not be posted for trading. In
    connection with this exchange:



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | no election under section 85 of the Tax Act
    will be filed;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (ii) | a portion of the amount in the stated capital
    account maintained by Nexfor for the Nexfor Common Shares equal
    to the product of multiplying A x B where A is
    (1-Transferred Proportion) and B is the PUC of the Nexfor Common
    Shares (excluding any Nexfor Common Shares held by Dissenting
    Shareholders) so exchanged immediately before the exchange will
    be deducted from that account and added to the stated capital
    account maintained by Nexfor for the Nexfor Convertible Shares
    and a portion of the amount in the stated capital account
    maintained by Nexfor for the Nexfor Common Shares equal to the
    product of multiplying A x B where A is the
    Transferred Proportion and B is the PUC of the Nexfor Common
    Shares (excluding any Nexfor Common Shares held by Dissenting

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| |       |                                                                                                                                                                                                             
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       | Shareholders) so exchanged immediately before the
    exchange will be deducted from that account and added to the
    stated capital account maintained by Nexfor for the Nexfor
    Non-Voting Shares; and
|
| | (iii) | the Nexfor Common Shares so exchanged will be
    cancelled.                                                                                                                                                

Issue
of Replacement Stock Options



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Concurrently with the transfers under
    Section 2.01(1)(b), each holder of a Nexfor Stock Option
    will transfer his or her Nexfor Stock Options to Nexfor in
    consideration for the issuance by Nexfor to the transferor of
    the same number of Replacement Stock Options. All the Nexfor
    Stock Options will be cancelled, provided that no Replacement
    Stock Option may be exercisable until after the Arrangement has
    been effected.

Adjustment
of DSUs



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | Concurrently with the transfers under
    Section 2.01(1)(b), the number of DSUs credited to the
    account of a participant under the Deferred Stock Unit Plan for
    Non-Employee Directors will be adjusted by applying the formula:
    A = B x C/D where A is the number of DSUs
    credited to an account after the Effective Time, B is the number
    of DSUs credited to the same account prior to the Effective
    Time, C is the Trading Price of a Nexfor Common Share
    before the Effective Date and D is the Trading Price of a
    Nexfor Common Share after the Effective Date.

Exchange
of Nexfor Non-Voting Shares



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Each holder of Nexfor Non-Voting Shares will
    transfer to Fraser Papers, with good and marketable title free
    from Encumbrances, all such Nexfor Non-Voting Shares. As the
    sole consideration for each Nexfor Non-Voting Share so
    transferred, Fraser Papers will issue to that holder 1 Fraser
    Papers Convertible Share for each Transferred Multiple of a
    Nexfor Non-Voting Share. In connection with this exchange,
    Fraser Papers will add to the stated capital account maintained
    by Fraser Papers for the Fraser Papers Convertible Shares an
    amount up to but not exceeding (i) in respect of those
    shares issued in an exchange in respect of which an election
    under subsection 85(1) of the Tax Act has been made, the
    agreed amount in such election, and (ii) in respect of the
    issuance of all other shares, the PUC of the Nexfor Non-Voting
    Shares for which the Fraser Papers Convertible Shares were
    issued.

Transfer
by Nexfor of Common Shares of Fraser Papers Newco to Fraser
Papers Subco



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (f) | Nexfor will transfer all the outstanding Common
    Shares of Fraser Papers Newco to Fraser Papers Subco. As the
    sole consideration for this transfer, Fraser Papers Subco will
    issue to Nexfor 100,000,000 of its Common Shares. In addition,
    Fraser Papers Subco will agree to jointly elect with Nexfor to
    have the provisions of subsection 85(1) of the Tax Act and
    the corresponding provisions of any applicable provincial and
    territorial legislation apply to this transfer with the agreed
    amount in the election being equal to the lesser of the cost
    amount (as defined in subsection 248(1) of the Tax Act and
    the corresponding provisions of any applicable provincial and
    territorial legislation) to Nexfor of the Common Shares of
    Fraser Papers Newco transferred to Fraser Papers Subco and the
    fair market value of such Common Shares of Fraser Papers Newco.
    Fraser Papers Subco will add to the stated capital account
    maintained by it for its Common Shares an amount up to but not
    exceeding the agreed amount in its election under
    subsection 85(1) of the Tax Act in respect of the transfer
    to it of the Common Shares of Fraser Papers Newco.

Nexfor
Purchase of Nexfor Non-Voting Shares



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (g) | Nexfor will purchase for cancellation all the
    Nexfor Non-Voting Shares held by Fraser Papers and will issue to
    Fraser Papers, as the sole consideration therefor, a demand
    promissory note (the Nexfor Note) in a principal
    amount equal to the aggregate fair market value of such Nexfor
    Non-Voting Shares and without interest. Fraser Papers will
    accept the Nexfor Note in full and absolute payment,
    satisfaction and discharge of the purchase price of such Nexfor
    Non-Voting Shares, with the risk of the Nexfor Note being
    dishonoured.

Fraser
Papers Subco Purchase of its Common Shares



| |     |                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (h) | Fraser Papers Subco will purchase for
    cancellation all the Common Shares of Fraser Papers Subco held
    by Nexfor and will issue to Nexfor, as the sole consideration
    therefor, a demand promissory note (the Fraser

E-20



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Papers Subco Note) in a principal amount
    equal to the aggregate fair market value of such Common Shares
    and without interest. Nexfor will accept the Fraser Papers Subco
    Note in full and absolute payment, satisfaction and discharge of
    the purchase price of such Common Shares of Fraser Papers Subco,
    with the risk of the Fraser Papers Subco Note being dishonoured.

Winding
up of Fraser Papers Subco



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | Fraser Papers Subco will commence winding up in
    accordance with subsection 88(1) of the Tax Act and
    section 210 of the CBCA and, in connection with the winding
    up, will transfer and assign all its property to Fraser Papers,
    including all of Fraser Papers Subcos right, title and
    interest in and to the Common Shares of Fraser Papers Newco, and
    all the liabilities of Fraser Papers Subco, including the
    liability of Fraser Papers Subco under the Fraser Papers Subco
    Note, will be assumed by Fraser Papers. Fraser Papers will have
    a power of attorney coupled with an interest to do all acts as
    may be desirable in connection with the winding up including the
    execution and filing in the name of Fraser Papers Subco of any
    elections with federal or provincial tax authorities as may be
    appropriate.

Set
Offs



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (j) | Nexfor will pay the principal amount of the
    Nexfor Note by transferring to Fraser Papers the Fraser Papers
    Subco Note, which Note will be accepted by Fraser Papers in full
    and absolute payment, satisfaction and discharge of
    Nexfors obligations under the Nexfor Note. Simultaneously,
    Fraser Papers will pay the principal amount of the Fraser Papers
    Subco Note by transferring to Nexfor the Nexfor Note which will
    be accepted by Nexfor in full and absolute payment, satisfaction
    and discharge of Fraser Papers obligations under the
    Fraser Papers Subco Note. Both the Fraser Papers Subco Note and
    the Nexfor Note will be cancelled.

(2) Commencing at the Listing Time, the events
and transactions set out in Sections 2.01(2)(a) to
(e) will occur and be deemed to occur in the order set out
below, without any further act or formality, and with each event
or transaction occurring and being deemed to occur immediately
after the occurrence of the immediately preceding event or
transaction.

Conversion
of Nexfor Convertible Shares



| |     |                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Nexfor Convertible Shares will be converted
    into issued Common Shares of Nexfor on a one-for-one basis and
    the amount in the stated capital account maintained by Nexfor
    for the Nexfor Convertible Shares will be deducted from that
    account and added to the stated capital account maintained by
    Nexfor for its Common Shares.

Amendment
and Restatement of Articles of Nexfor



| |     |                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | The articles of Nexfor will be amended to remove
    the Nexfor Convertible Shares and Nexfor Non-Voting Shares from
    the authorized capital of Nexfor. The name of Nexfor will be
    changed to Norbord Inc. The articles of Norbord will then be
    restated and the restated articles of Norbord will be filed with
    the Director under the CBCA pursuant to section 180 thereof.

Conversion
of Fraser Papers Convertible Shares



| |     |                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | The Fraser Papers Convertible Shares will be
    converted into Fraser Papers Common Shares on a five-for-one
    basis and the amount in the stated capital account maintained by
    Fraser Papers for the Fraser Papers Convertible Shares will be
    deducted from that account and added to the stated capital
    account maintained by Fraser Papers for the Fraser Papers Common
    Shares.

Amalgamation
of Fraser Papers and Fraser Papers Newco



| |     |                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | Fraser Papers and Fraser Papers Newco
    (hereinafter sometimes referred to in this
    Section 2.01(2)(d) as predecessor corporations)
    will be amalgamated on the terms set out in Schedule B as
    if the amalgamation were carried out pursuant to
    subsection 184(1) of the CBCA in such manner that, on and
    by virtue of the amalgamation:



| |     |                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | all the property (except any amounts receivable
    from any predecessor corporation or shares of any predecessor
    corporation) of the predecessor corporations held immediately
    before the amalgamation will become the property of Fraser
    Papers;

E-21



---



##### 





| |       |                                                                                                                                                                                                                                         
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | all the liabilities and obligations (except any
    amount payable to any predecessor corporation) of the
    predecessor corporations immediately before the amalgamation
    will become liabilities and obligations of Fraser Papers;
|
| | (iii) | all the shares of Fraser Papers Newco will be
    cancelled without any repayment of capital;                                                                                                                                           
|
| | (iv)  | the articles of the amalgamated corporation will
    be same as the articles of Fraser Papers; and                                                                                                                                      
|
| | (v)   | no securities will be issued by Fraser Papers in
    connection with the amalgamation and the stated capital of the
    amalgamated corporation will be the same as the stated capital
    of Fraser Papers.                            

Amendment
and Restatement of Articles of Fraser Papers



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | The articles of Fraser Papers will be amended to
    remove all the Fraser Papers Convertible Shares from the
    authorized capital of Fraser Papers. The name of Fraser Papers
    will be changed to Fraser Papers Inc. The articles of Fraser
    Papers will then be restated and the restated articles of Fraser
    Papers will be filed with the Director under the CBCA pursuant
    to section 180 thereof. By-law No. 1 of Fraser Papers,
    as set out in Schedule C, will be confirmed by its
    shareholders.

ARTICLE 3  RIGHTS OF
DISSENT

3.01 Rights of Dissent

(1) Nexfor Shareholders may exercise Dissent
Rights in connection with the Arrangement pursuant to and in the
manner set out in section 190 of the CBCA as modified by
the Interim Order and this Section 3.01.

(2) Dissenting Shareholders who:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | are ultimately entitled to be paid fair value for
    their Nexfor Common Shares, Nexfor Stock Options or Nexfor
    Preferred Shares will be deemed to have transferred such shares
    or options to Nexfor and these shares and options will be
    cancelled immediately prior to the Effective Time; or                                                                                                                                                                                                                                                                                                                                                              
|
| | (b) | are ultimately not entitled to be paid fair value
    for their shares or options will be deemed to have participated
    in the Arrangement on the same basis as, (i) in the case of
    a Nexfor Common Shareholder, any non-dissenting holder of Nexfor
    Common Shares, (ii) in the case of a Nexfor Optionholder,
    any non-dissenting holder of Nexfor Stock Options or
    (iii) in the case of a Nexfor Preferred Shareholder, any
    non-dissenting holder of Nexfor Preferred Shares, in each case
    as at and from the Effective Time and will be treated in the
    same manner as such a holder, on the basis set out in this Plan
    of Arrangement.

ARTICLE 4  CERTIFICATES

4.01 Entitlement to Share
Certificates

(1) From and after the Effective Date,
certificates that prior to the Effective Date represented Nexfor
Common Shares will represent the same number of Common Shares of
Norbord after the Effective Date and accordingly no new
certificates representing such shares will be issued.

(2) Certificates representing Fraser Papers
Common Shares will be mailed as soon as practicable to those
persons whose names appear on the register of holders of Nexfor
Common Shares at the close of business (Toronto time) on the
Distribution Record Date.

(3) No certificates will be issued for
shares that are issued and subsequently cancelled or converted
under this Plan of Arrangement.

4.02 Fractional Shares

No certificates or scrip representing fractional
interests of less than one whole share in Fraser Papers will be
issued (after conversion of the Fraser Papers Convertible
Shares). Instead any fractional interests to which former Nexfor
Common Shareholders would otherwise be entitled will be summed
and the total will be rounded up to the nearest whole number and
issued to the Transfer Agent. The Transfer Agent will sell them
on the TSX and divide the proceeds (other than cash representing
the rounded up amount, which will be paid to Fraser Papers)
among the persons otherwise entitled to fractions by forwarding
cheques representing their proportional interests in the
proceeds to such persons.

E-22



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##### 



SCHEDULE A

NEXFOR NEW SHARE CONDITIONS



|   |                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------
|1. | The rights, privileges, restrictions and
    conditions attaching to the Convertible Shares are as follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Payment of
    Dividends:The holders of the
    Convertible Shares will be entitled to receive dividends if, as
    and when declared by the board out of the assets of the
    Corporation properly applicable to the payment of dividends in
    such amounts and payable in such manner as the board may from
    time to time determine. However, the Convertible Shares, the
    Non-Voting Shares and the Common Shares will participate equally
    as to dividends and all dividends which the board may at any
    time determine to declare and pay on the Convertible Shares, the
    Non-Voting Shares and the Common Shares will be declared and
    paid in equal or equivalent amounts per share on all the
    Convertible Shares, Non-Voting Shares and Common Shares at the
    time outstanding without preference or distinction.
|
| | (b) | Participation upon Liquidation, Dissolution or
    Winding Up:In the event of the
    liquidation, dissolution or winding up of the Corporation or
    other distribution of assets of the Corporation among its
    shareholders for the purpose of winding up its affairs, the
    holders of the Convertible Shares will, subject to the rights of
    the holders of any other class of shares of the Corporation
    entitled to receive the assets of the Corporation upon such a
    distribution in priority to or rateably with the holders of
    Common Shares, be entitled to participate rateably with the
    Non-Voting Shares and Common Shares in any distribution of the
    assets of the Corporation.                                                                                                                            
|
| | (c) | Conversion
    Privilege:Each issued Convertible
    Share may at any time be converted, at the option of the holder,
    into 1 Common Share. All Common Shares resulting from any
    conversion of issued Convertible Shares into Common Shares will
    be deemed to be fully paid and non-assessable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (d) | Voting Rights:The
    holders of the Convertible Shares will be entitled to receive
    notice of and to attend all meetings of the shareholders of the
    Corporation and to 1 vote in respect of each Convertible
    Share held at all such meetings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



|   |                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------
|2. | The rights, privileges, restrictions and
    conditions attaching to the Non-Voting Shares are as follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Payment of
    Dividends:The holders of the
    Non-Voting Shares will be entitled to receive dividends if, as
    and when declared by the board out of the assets of the
    Corporation properly applicable to the payment of dividends in
    such amounts and payable in such manner as the board may from
    time to time determine. However, the Non-Voting Shares and the
    Common shares will participate equally as to dividends and all
    dividends which the board may at any time determine to declare
    and pay on the Non-Voting Shares and Common Shares will be
    declared and paid in equal or equivalent amounts per share on
    all the Non-Voting Shares and Common Shares at the time
    outstanding without preference or distinction.
|
| | (b) | Participation upon Liquidation, Dissolution or
    Winding Up:In the event of the
    liquidation, dissolution or winding up of the Corporation or
    other distribution of assets of the Corporation among its
    shareholders for the purpose of winding up its affairs, the
    holders of the Non-Voting Shares will, subject to the rights of
    the holders of any other class of shares of the Corporation
    entitled to receive the assets of the Corporation upon such a
    distribution in priority to or rateably with the holders of the
    Non-Voting Shares, be entitled to participate rateably with the
    Common Shares in any distribution of the assets of the
    Corporation.                                                              
|
| | (c) | Voting Rights:The
    holders of the Non-Voting Shares will not be entitled to receive
    notice of or to attend any meeting of the shareholders of the
    Corporation and will not be entitled to vote at any such meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

E-23



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##### 



SCHEDULE B

LOGO

E-24



---



##### 



SCHEDULE 1

The Corporation is authorized to issue an
unlimited number of Class A Preferred Shares, an unlimited
number of Class B Preferred Shares, an unlimited number of
Non-Voting Participating Shares, an unlimited number of
Convertible Shares and an unlimited number of Common Shares.



|   |                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------
|1. | The rights, privileges, restrictions and
    conditions attaching to the Class A Preferred Shares are as
    follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Series:The
    Class A Preferred Shares may at any time or from to time be
    issued in one or more series. Subject to the following
    provisions, the board of directors of the Corporation (the
    board) may by resolution fix from time to time
    before the issue thereof the number of shares in, and determine
    the designation, rights, privileges, restrictions and conditions
    attaching to the shares of, each series of Class A
    Preferred Shares.                                                                                                          
|
| | (b) | Idem:The
    Class A Preferred Shares will be entitled to priority over
    the Class B Preferred Shares, the Non-Voting Participating
    Shares, the Convertible Shares and the Common Shares and all
    other shares ranking junior to the Class A Preferred Shares
    with respect to the payment of dividends and the distribution of
    assets of the Corporation in the event of any liquidation,
    dissolution or winding up of the Corporation or other
    distribution of assets of the Corporation among its shareholders
    for the purpose of winding up its affairs.
|
| | (c) | Voting Rights:Except as may otherwise be provided in the rights, privileges,
    restrictions and conditions attaching to any series of
    Class A Preferred Shares, the holders of the Class A
    Preferred Shares will not be entitled to receive notice of or to
    attend any meeting of the shareholders of the Corporation and
    will not be entitled to vote at any such meeting.                                                                                                                                                                                            



|   |                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------
|2. | The rights, privileges, restrictions and
    conditions attaching to the Class B Preferred Shares are as
    follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Series:The
    Class B Preferred Shares may at any time or from time to
    time be issued in one or more series. Subject to the following
    provisions, the board may by resolution fix from time to time
    before the issue thereof the number of shares in, and determine
    the designation, rights, privileges, restrictions and conditions
    attaching to the shares of, each series of Class B
    Preferred Shares.                                                                                                                     
|
| | (b) | Idem:The
    Class B Preferred Shares will be entitled to priority over
    the Non-Voting Participating Shares, the Convertible Shares and
    the Common Shares and all other shares ranking junior to the
    Class B Preferred Shares with respect to the payment of
    dividends and the distribution of assets of the Corporation in
    the event of any liquidation, dissolution or winding up of the
    Corporation or other distribution of assets of the Corporation
    among its shareholders for the purpose of winding up its affairs.
|
| | (c) | Voting Rights:Except as may otherwise be provided in the rights, privileges,
    restrictions and conditions attaching to any series of
    Class B Preferred Shares, the holders of the Class B
    Preferred Shares will not be entitled to receive notice of or to
    attend any meeting of the shareholders of the Corporation and
    will not be entitled to vote at any such meeting.                                                                                                                                                          



|   |                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------
|3. | The rights, privileges, restrictions and
    conditions attaching to the Non-Voting Participating Shares are
    as follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Series:The
    Non-Voting Participating Shares may at any time or from time to
    time be issued in one or more series. Subject to the following
    provisions, the board may by resolution fix from time to time
    before the issue thereof the number of shares in, and determine
    the designation, rights, privileges, restrictions and conditions
    attaching to the shares of, each series of Non-Voting
    Participating Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (b) | Payment of
    Dividends:In addition to any rights
    to preferential dividends as may be provided for in the rights,
    privileges, restrictions and conditions attaching to any series
    of Non-Voting Participating Shares, the holders of the
    Non-Voting Participating Shares will be entitled to receive
    dividends if, as and when declared by the board out of the
    assets of the Corporation properly applicable to the payment of
    dividends in such amounts and payable in such manner as the
    board may from time to time determine. However, the Non-Voting
    Participating Shares, the Convertible Shares and the Common
    Shares will, subject to any rights to preferential dividends
    hereinbefore referred to, participate equally as to dividends
    and, subject to any such rights, all dividends which the board
    may at any time determine to declare and pay on the Non-Voting
    Participating Shares, the Convertible Shares and the Common
    Shares will be declared and paid in equal or equivalent amounts
    per share on all of the Non-Voting Participating Shares,
    Convertible Shares and Common Shares at the time outstanding
    without preference or distinction.
|
| | (c) | Participation upon Liquidation, dissolution or
    Winding Up:In the event of the
    liquidation, dissolution or winding up of the Corporation or
    other distribution of assets of the Corporation among its
    shareholders for the purpose of winding up its affairs, the
    holders of the Non-Voting Participating Shares will, in addition
    to any rights to priority in the distribution of assets of the
    Corporation as may be provided for in the rights, privileges,
    restrictions and conditions attaching to any series of
    Non-Voting Participating Shares but subject                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

E-25



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##### 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | to the rights of the holders of any other class
    of shares of the Corporation entitled to receive the assets of
    the Corporation upon such a distribution in priority to or
    rateably with the holders of the Non-Voting Participating
    Shares, be entitled to participate rateably with the holders of
    the Convertible Shares and the Common Shares in any distribution
    of the assets of the Corporation.
|
| | (d) | Voting Rights:The
    holders of the Non-Voting Participating Shares will not be
    entitled to receive notice of or to attend any meeting of the
    shareholders of the Corporation and will not be entitled to vote
    at any such meeting.                                                                                                                                                                              
|
| | (e) | Subdivision, Consolidation, Reclassification
    or Other Change:None of the
    Non-Voting Participating Shares, Convertible Shares or Common
    Shares will be subdivided, consolidated or otherwise changed
    unless contemporaneously therewith the other said class of
    shares is subdivided, consolidated or otherwise changed in the
    same proportion and in the same manner.                                 



|   |                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------
|4. | The rights, privilege, restrictions and
    conditions attaching to the Convertible Shares are as follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Payment of
    Dividends:The holders of the
    Convertible Shares will be entitled to receive dividends if, as
    and when declared by the board out of the assets of the
    Corporation properly applicable to the payment of dividends in
    such amounts and payable in such manner as the board may from
    time to time determine. However, the Convertible Shares and the
    Common Shares will participate equally as to dividends and all
    dividends which the board may at any time determine to declare
    and pay on the Convertible Shares and the Common Shares will be
    declared and paid in equal or equivalent amounts per share on
    all of the Convertible Shares and Common Shares at the time
    outstanding without preference or distinction.
|
| | (b) | Participation upon Liquidation, Dissolution or
    Winding Up:In the event of the
    liquidation, dissolution or winding up of the Corporation or
    other distribution of assets of the Corporation among its
    shareholders for the purpose of winding up its affairs, the
    holders of the Convertible Shares will, subject to the rights of
    the holders of any other class of shares of the Corporation
    entitled to receive the assets of the Corporation upon such a
    distribution in priority to or rateably with the holders of the
    Convertible Shares, be entitled to participate rateably with the
    Common Shares in any distribution of the assets of the
    Corporation.                                                                       
|
| | (c) | Conversion
    Privilege:Each issued Convertible
    Share may at any time be converted, at the option of the holder,
    into one-fifth of a Common Share. All Common Shares resulting
    from any conversion of issued Convertible Shares into Common
    Shares will be deemed to be fully paid and non-assessable.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (d) | Voting Rights:The
    holders of the Convertible Shares will not be entitled to
    receive notice of or to attend any meeting of the shareholders
    of the Corporation and will not be entitled to vote any such
    meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



|   |                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------
|5. | The rights, privileges, restrictions and
    conditions attaching to the Common Shares are as follows:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Payment of
    Dividends:The holders of the Common
    Shares will be entitled to receive dividends if, as and when
    declared by the board out of the assets of the Corporation
    properly applicable to the payment of dividends in such amounts
    and payable in such manner as the board may from time to time
    determine. Subject to the rights of the holders of any other
    class of shares of the Corporation entitled to receive dividends
    in priority to or rateably with the holders of the Common
    Shares, the board may in its sole discretion declare dividends
    on the Common Shares to the exclusion of any other class of
    shares of the Corporation.
|
| | (b) | Participation upon Liquidation, Dissolution or
    Winding Up:In the event of the
    liquidation, dissolution or winding up of the Corporation or
    other distribution of assets of the Corporation among its
    shareholders for the purpose of winding up its affairs, the
    holders of the Common Shares will, subject to the rights of the
    holders of any other class of shares of the Corporation entitled
    to receive the assets of the Corporation upon such a
    distribution in priority to or rateably with the holders of the
    Common Shares, be entitled to participate rateably in any
    distribution of the assets of the Corporation.                       
|
| | (c) | Voting Rights:The
    holders of the Common Shares will be entitled to receive notice
    of and to attend all meetings of the shareholders of the
    Corporation and to 1 vote in respect of each Common Share
    held at all such meetings.                                                                                                                                                                                                                                                                                                                                                                                                                                               

E-26



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##### 



SCHEDULE C

BY-LAW NO. 1

A by-law relating generally to

the transaction of the business


and affairs of


FRASER PAPERS INC.


DIRECTORS

1.   Calling of and notice of
meetings Meetings of the board will be held on such day and
at such time and place as the Chair of the Board or the
President of the Corporation or any two directors may determine.
Notice of meetings of the board will be given to each director
not less than 48 hours before the time when the meeting is
to be held. Each newly elected board may without notice hold its
first meeting for the purposes of organization and the
appointment of officers immediately following the meeting of
shareholders at which such board was elected.

2.   Votes to govern At all
meetings of the board every question will be decided by a
majority of the votes cast on the question; and in case of an
equality of votes the chair of the meeting will be entitled to a
second or casting vote.

3.   Interest of directors and
officers generally in contracts No director or officer will
be disqualified by his or her office from contracting with the
Corporation nor will any contract or arrangement entered into by
or on behalf of the Corporation with any director or officer or
in which any director or officer is in any way interested be
liable to be voided nor will any director or officer so
contracting or being so interested be liable to account to the
Corporation for any profit realized by any such contract or
arrangement by reason of such director or officer holding that
office or of the fiduciary relationship thereby established
provided that, in each case, the director or officer has
complied with the provisions of the Canada Business
Corporations Act.

SHAREHOLDERS MEETINGS

4.   Quorum At any meeting
of shareholders a quorum will be 2 persons present in
person or by means of a telephonic, electronic or other
communication facility that permits all participants to
communicate adequately with each other during the meeting and
each entitled to vote at the meeting.

5.   Meetings by telephonic or
electronic means A meeting of the shareholders may be held
by means of a telephonic, electronic or other communication
facility that permits all participants to communicate adequately
with each other during the meeting.

6.   Postponement or
cancellation of meetings A meeting of shareholders may be
postponed or cancelled by the board at any time prior to the
date of the meeting.

7.   Procedures at meetings
The board may determine the procedures to be followed at any
meeting of shareholders including, without limitation, the rules
of order. Subject to the foregoing, the chair of a meeting may
determine the procedures of the meeting in all respects.

INDEMNIFICATION

8.   Indemnification of
directors and officers The Corporation will indemnify a
director or officer of the Corporation, a former director or
officer of the Corporation or another individual who acts or
acted at the Corporations request as a director or
officer, or in a similar capacity, of another entity, and his or
her heirs and legal representatives to the extent permitted by
the Canada Business Corporations Act.

9.   Indemnity of others
Except as otherwise required by the Canada Business
Corporations Act and subject to paragraph 8, the
Corporation may from time to time indemnify and save harmless
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he or she is or was an
employee or agent of the Corporation, or is or was serving at
the request of the Corporation as an employee, agent of or
participant in another entity against expenses (including legal
fees), judgments, fines and any amount actually and reasonably
incurred by him or her in connection with such action, suit or
proceeding if he or she acted honestly and in good faith with a
view to the best interests of the Corporation or, as the case
may be, to the

E-27



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##### 



best interests of the other entity for which he
or she served at the Corporations request and, with
respect to any criminal or administrative action or proceeding
that is enforced by a monetary penalty, had reasonable grounds
for believing that his or her conduct was lawful. The
termination of any action, suit or proceeding by judgment,
order, settlement or conviction will not, of itself, create a
presumption that the person did not act honestly and in good
faith with a view to the best interests of the Corporation or
other entity and, with respect to any criminal or administrative
action or proceeding that is enforced by a monetary penalty, had
no reasonable grounds for believing that his or her conduct was
lawful.


10. Right of indemnity not exclusive
The provisions for indemnification contained in the by-laws of
the Corporation will not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled
under any agreement, vote of shareholders or directors or
otherwise, both as to action in his or her official capacity and
as to action in another capacity, and will continue as to a
person who has ceased to be a director, officer, employee or
agent and will inure to the benefit of that persons heirs
and legal representatives.

11. No liability of directors or officers
for certain matters To the extent permitted by law, no
director or officer for the time being of the Corporation will
be liable for the acts, receipts, neglects or defaults of any
other director or officer or employee or for joining in any
receipt or act for conformity or for any loss, damage or expense
happening to the Corporation through the insufficiency or
deficiency of title to any property acquired by the Corporation
or for or on behalf of the Corporation or for the insufficiency
or deficiency of any security in or upon which any of the moneys
of or belonging to the Corporation will be placed out or
invested or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person, firm or body corporate
with whom or which any moneys, securities or other assets
belonging to the Corporation will be lodged or deposited or for
any loss, conversion, misapplication or misappropriation of or
any damage resulting from any dealings with any moneys,
securities or other assets belonging to the Corporation or for
any other loss, damage or misfortune whatever which may happen
in the execution of the duties of his or her respective office
or trust or in relation thereto unless the same will happen by
or through his or her failure to act honestly and in good faith
with a view to the best interests of the Corporation and in
connection therewith to exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable
circumstances. If any director or officer of the Corporation is
employed by or performs services for the Corporation otherwise
than as a director or officer or is a member of a firm or a
shareholder, director or officer of a body corporate which is
employed by or performs services for the Corporation, the fact
that the person is a director or officer of the Corporation will
not disentitle such director or officer or such firm or body
corporate, as the case may be, from receiving proper
remuneration for such services.

BANKING ARRANGEMENTS, CONTRACTS,
ETC.

12. Banking arrangements The banking
business of the Corporation, or any part thereof, will be
transacted with such banks, trust companies or other financial
institutions as the board may designate, appoint or authorize
from time to time and all such banking business, or any part
thereof, will be transacted on the Corporations behalf by
one or more officers or other persons as the board may
designate, direct or authorize from time to time.

13. Execution of instruments
Contracts, documents or instruments in writing requiring
execution by the Corporation will be signed by hand by any two
officers of the Corporation (whether under the corporate seal of
the Corporation, if any, or otherwise) and all contracts,
documents or instruments in writing so signed will be binding
upon the Corporation without any further authorization or
formality. The board is authorized from time to time by
resolution



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | to appoint any officer or any other person on
    behalf of the Corporation to sign by hand (whether under the
    corporate seal of the Corporation, if any, or otherwise) and
    deliver either contracts, documents or instruments in writing
    generally or to sign either by hand or by facsimile or
    mechanical signature or otherwise (whether under the corporate
    seal of the Corporation, if any, or otherwise) and deliver
    specific contracts, documents or instruments in writing, and              
|
| | (b) | to delegate to any two officers of the
    Corporation the powers to designate, direct or authorize from
    time to time in writing one or more officers or other persons on
    the Corporations behalf to sign either by hand or by
    facsimile or mechanical signature or otherwise (whether under
    the corporate seal of the Corporation, if any, or otherwise) and
    deliver contracts, documents or instruments in writing of such
    type and on such terms and conditions as such two officers see
    fit.

E-28



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##### 



Contracts, documents or instruments in writing
that are to be signed by hand may be signed electronically. The
term contracts, documents or instruments in writing
as used in this by-law includes without limitation deeds,
mortgages, charges, conveyances, powers of attorney, transfers
and assignments of property of all kinds (including specifically
but without limitation transfers and assignments of shares,
warrants, bonds, debentures or other securities), proxies for
shares or other securities and all paper writings.

MISCELLANEOUS

14. Invalidity of any provisions of this
by-law The invalidity or unenforceability of any provision
of this by-law will not affect the validity or enforceability of
the remaining provisions of this by-law.

15. Omissions and errors The
accidental omission to give any notice to any shareholder,
director, officer or auditor or the non-receipt of any notice by
any shareholder, director, officer or auditor or any error in
any notice not affecting its substance will not invalidate any
action taken at any meeting to which the notice related or
otherwise founded on the notice.

INTERPRETATION

16. Interpretation In this by-law and
all other by-laws of the Corporation words importing the
singular number only include the plural and vice versa; words
importing any gender include all genders; words importing
persons include individuals, corporations, limited and unlimited
liability companies, general and limited partnerships,
associations, trusts, unincorporated organizations, joint
ventures and governmental authorities; board means
the board of directors of the Corporation; Canada
Business Corporations Act means Canada Business
Corporations Act, R.S.C. l985, c. C-44 as from time to
time amended, re-enacted or replaced; terms that are not
otherwise defined in this by-law have the meanings attributed to
them in the Canada Business Corporations Act; and
meeting of shareholders means an annual meeting of
shareholders or a special meeting of shareholders.

E-29



---



##### 






EXHIBIT F

COMBINED FINANCIAL STATEMENTS

OF


FRASER PAPERS DIVISION


OF


NEXFOR INC.


DECEMBER 31, 2003

F-1



---



##### 



Auditors Report

To the Directors of Nexfor Inc.

We have audited the combined balance sheets of
the Fraser Papers division of Nexfor Inc. as at
December 31, 2003 and 2002 and the combined statements of
operations and Nexfors net investment and cash flows for
each of the years in the three year period ended
December 31, 2003. These financial statements are the
responsibility of management of Nexfor Inc. 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. 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 of
Nexfor Inc., as well as evaluating the overall financial
statement presentation.

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

ERNST & YOUNG SIG

Toronto, Canada


|               |                      
|-------------- | ---------------------
|April 16, 2004 | Chartered Accountants

F-2



---



##### 



Fraser Papers Division of Nexfor
Inc.

Combined Balance Sheets

As at December 31


(US$ millions)


|                                            |                                          |      |     |      |  |   |     |     | 
|------------------------------------------- | ---------------------------------------- | ---- | --- | ---- |  | - | --- | --- | 
|                                            |                                          | 2003 |     | 2002
|                                            |                                          |      |     |     
|Assets                                      |                                          |      |     |      |  |   |     |    
|Current assets:                             |                                          |      |     |      |  |   |     |    
|                                            | Cash                                     |      | $   | 16   |  |   | $   | 3   | 
|                                            | Accounts receivable (note 3)             |      |     | 64   |  |   |     | 59  | 
|                                            | Inventory (note 4)                       |      |     | 115  |  |   |     | 110 | 
|                                            | Future income taxes (note 9)             |      |     | 11   |  |   |     | 11  | 
|                                            |                                          |      |     |      |  |   |     |    
|                                            |                                          |      | 206 |      |  |   | 183 |    
|Property, plant and equipment (note 5)      |                                          |      |     |      |  |   |     |    
|                                            | Paper                                    |      |     | 475  |  |   |     | 511 | 
|                                            | Timber                                   |      |     | 53   |  |   |     | 52  | 
|Other assets                                |                                          |      | 29  |      |  |   | 15  |    
|                                            |                                          |      |     |      |  |   |     |    
|                                            |                                          | $    | 763 |      |  | $ | 761 |    
|                                            |                                          |      |     |      |  |   |     |    
|Liabilities and Nexfors Net
    Investment |                                          |      |     |      |  |   |     |    
|Current liabilities:                        |                                          |      |     |      |  |   |     |    
|                                            | Accounts payable and accrued liabilities |      | $   | 125  |  |   | $   | 115 | 
|Long-term debt (note 6)                     |                                          |      | 1   |      |  |   | 1   |    
|Other liabilities (notes 7 and 8)           |                                          |      | 59  |      |  |   | 50  |    
|Future income taxes (note 9)                |                                          |      | 27  |      |  |   | 30  |    
|Nexfors net investment                     |                                          |      | 551 |      |  |   | 565 |    
|                                            |                                          |      |     |      |  |   |     |    
|                                            |                                          | $    | 763 |      |  | $ | 761 |    
|                                            |                                          |      |     |      |  |   |     |    

|                                              |  |                                                                        
|--------------------------------------------- |  | -----------------------------------------------------------------------
|On behalf of the Board:                      
|                                             
|(MacDonald Sig)K. LINN MACDONALD
    Chairman |  | (MacDonald Sig)DOMINIC GAMMIERO
    President & Chief Executive Officer

(See accompanying notes)

F-3



---



##### 



Fraser Papers Division of Nexfor
Inc.

Combined Statements of Operations and
Nexfors Net Investment

Years ended December 31


(US$ millions)


|                                                                            |        |      |     |      |   |      |     |    |  |   |     |    | 
|--------------------------------------------------------------------------- | ------ | ---- | --- | ---- | - | ---- | --- | -- |  | - | --- | -- | 
|                                                                            |        | 2003 |     | 2002 |   | 2001
|                                                                            |        |      |     |      |   |     
|Net sales                                                                   |        | $    | 873 |      |   | $    | 747 |    |  | $ | 771 |   
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   
|Earnings before interest, taxes, depreciation and
    restructuring charge: |        |      |     |      |   |      |     |    |  |   |     |   
|                                                                            | Paper  |      |     | (13  | ) |      |     | 36 |  |   |     | 37 | 
|                                                                            | Timber |      |     | 11   |   |      |     | 10 |  |   |     | 10 | 
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   
|                                                                            |        |      | (2  | )    |   |      | 46  |    |  |   | 47  |   
|Restructuring charge (note 10)                                              |        |      | (26 | )    |   |      |    |    |  |   |    |   
|Interest income                                                             |        |      | 1   |      |   |      |    |    |  |   | 1   |   
|Fees on sale of accounts receivable (note 3)                                |        |      | (6  | )    |   |      | (5  | )  |  |   | (5  | ) 
|Interest expense (note 11)                                                  |        |      | (11 | )    |   |      | (9  | )  |  |   | (12 | ) 
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   
|Earnings before depreciation and taxes                                      |        |      | (44 | )    |   |      | 32  |    |  |   | 31  |   
|Depreciation                                                                |        |      | (49 | )    |   |      | (48 | )  |  |   | (49 | ) 
|Income tax recovery (expense) (note 9)                                      |        |      | 1   |      |   |      | 2   |    |  |   | (5  | ) 
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   
|Loss                                                                        |        | $    | (92 | )    |   | $    | (14 | )  |  | $ | (23 | ) 
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   
|Nexfors net investment                                                     |        |      |     |      |   |      |     |    |  |   |     |   
|Balance, beginning of year                                                  |        | $    | 565 |      |   | $    | 584 |    |  | $ | 619 |   
|Loss                                                                        |        |      | (92 | )    |   |      | (14 | )  |  |   | (23 | ) 
|Net contribution by (distribution to) Nexfor                                |        |      | 78  |      |   |      | (5  | )  |  |   | (12 | ) 
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   
|Balance, end of year                                                        |        | $    | 551 |      |   | $    | 565 |    |  | $ | 584 |   
|                                                                            |        |      |     |      |   |      |     |    |  |   |     |   

(See accompanying notes)

F-4



---



##### 



Fraser Papers Division of Nexfor
Inc.

Combined Statements of Cash Flows

Years ended December 31


(US$ millions)


|                                                              |                              |      |     |      |   |      |     |     |   |   |     |     |  
|------------------------------------------------------------- | ---------------------------- | ---- | --- | ---- | - | ---- | --- | --- | - | - | --- | --- | -
|                                                              |                              | 2003 |     | 2002 |   | 2001
|                                                              |                              |      |     |      |   |     
|Cash provided by (used for):                                  |                              |      |     |      |   |      |     |     |   |   |     |    
|Operating Activities                                          |                              |      |     |      |   |      |     |     |   |   |     |    
|Loss                                                          |                              | $    | (92 | )    |   | $    | (14 | )   |   | $ | (23 | )  
|Items not affecting cash:                                     |                              |      |     |      |   |      |     |     |   |   |     |    
|                                                              | Depreciation                 |      |     | 49   |   |      |     | 48  |   |   |     | 49  |  
|                                                              | Future income taxes (note 9) |      |     | (3   | ) |      |     | (4  | ) |   |     | 3   |  
|Other items                                                   |                              |      | (12 | )    |   |      | 4   |     |   |   | (3  | )  
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|                                                              |                              |      | (58 | )    |   |      | 34  |     |   |   | 26  |    
|Net change in non-cash working capital balances
    (note 12) |                              |      | (1  | )    |   |      | 18  |     |   |   | 35  |    
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|                                                              |                              |      | (59 | )    |   |      | 52  |     |   |   | 61  |    
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|Investing Activities                                          |                              |      |     |      |   |      |     |     |   |   |     |    
|Capital investments                                           |                              |      |     |      |   |      |     |     |   |   |     |    
|                                                              | Paper                        |      |     | (14  | ) |      |     | (25 | ) |   |     | (35 | )
|                                                              | Timber                       |      |     | (3   | ) |      |     | (3  | ) |   |     |    |  
|Other                                                         |                              |      | (7  | )    |   |      | (11 | )   |   |   | (5  | )  
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|                                                              |                              |      | (24 | )    |   |      | (39 | )   |   |   | (40 | )  
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|Financing Activities                                          |                              |      |     |      |   |      |     |     |   |   |     |    
|Contribution by (distribution to) Nexfor                      |                              |      | 96  |      |   |      | 1   |     |   |   | (25 | )  
|Repayment of bank advances                                    |                              |      |    |      |   |      | (10 | )   |   |   |    |    
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|                                                              |                              |      | 96  |      |   |      | (9  | )   |   |   | (25 | )  
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    
|Increase (decrease) in cash                                   |                              | $    | 13  |      |   | $    | 4   |     |   | $ | (4  | )  
|                                                              |                              |      |     |      |   |      |     |     |   |   |     |    

(See accompanying notes)

F-5



---



##### 



Fraser Papers Division of Nexfor
Inc.

Notes to the Combined Financial
Statements

(in millions of US dollars)


In these notes Nexfor means Nexfor
Inc. and all of its consolidated subsidiaries and affiliates,
and Fraser Papers means the Fraser Papers division
of Nexfor Inc. as it has been carved out under the Plan of
Arrangement.

Note 1. Accounting
Policies

Basis of Presentation

On March 11, 2004, Nexfor announced a
reorganization whereby, among other things and subject to
shareholder and regulatory approval, it would distribute its
interest in its paper, sawmill and timber assets to its
shareholders and establish the business as a separate publicly
traded company. This distribution will proceed by way of an
arrangement under the Canada Business Corporations Act (the
Arrangement). Immediately following the completion
of the Arrangement, the paper, sawmill and timber assets of
Nexfor will be owned by Fraser Papers Inc. or its wholly-owned
subsidiaries.

These combined financial statements present the
combined financial position, results of operations and changes
in Nexfors net investment and cash flows of the Fraser
Papers division of Nexfor which includes Fraser Papers Inc.,
J. Paul Levesque and Sons Inc., Antonio Levesque and Sons
Inc., Fraser N.H., LLC, and the pulp, paper, sawmill and
related timber assets of Nexfor Inc. (collectively Fraser
Papers).

These combined financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles (GAAP) from the books and
records of Fraser Papers. The loss of Fraser Papers includes the
administrative costs associated with managing the Paper and
Timber segments of Nexfor. These include office rents, selling
costs and divisional personnel and travel costs. Certain
expenses in these combined financial statements represent
intercompany allocations for services, such as tax and treasury,
provided by Nexfor.

Income taxes have been recorded at statutory
rates based on income taxes as reported in the combined
statements of operations as though Fraser Papers was a separate
tax paying entity. Income taxes payable in respect of the
components which were not historically separate tax paying legal
entities have been included in Nexfors net investment.
Future income taxes have been presented in the combined balance
sheet for each temporary difference between the financial
reporting and tax bases of the assets and liabilities. In
addition, future tax assets have been recognized to the extent
that they would have been realized as though Fraser Papers was a
separate tax paying entity.

Nexfors net investment in Fraser Papers
includes certain interest-bearing loans which will be repaid at
the time of the Arrangement. Interest expense recorded in the
combined statements of operations includes interest expense
associated with these loans.

As a result of the basis of presentation
described above, the combined statements of operations prior to
the Arrangement may not necessarily be indicative of the
revenues and expenses that would have resulted had Fraser Papers
historically operated as a stand-alone entity.

Use of Estimates

The preparation of financial statements in
conformity with GAAP requires management to make estimates that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the
reported revenues and expenses during a period. Actual results
could differ from those estimates.

Valuation of Inventories

Inventories of raw materials and operating
supplies are valued at the lower of average cost and replacement
cost or net realizable value. Inventories of manufactured
products are valued at the lower of average cost and net
realizable value.

F-6



---



##### 



Property, Plant and Equipment

Property, plant and equipment are recorded at
cost and are depreciated on a straight-line basis. The rates of
depreciation are intended to fully depreciate manufacturing and
non-manufacturing assets over the following periods which
approximate their useful lives:

|                                                           |  |               
|---------------------------------------------------------- |  | --------------
|Buildings                                                  |  | 20 to 40 years
|Sawmills and lumber production equipment                   |  | 10 to 15 years
|Paper and pulp mill machinery and production
    equipment |  | 20 years      
|Logging machinery and equipment                            |  | 4 to 10 years 

Silviculture costs on owned timberlands are
capitalized. Depletion of timber is determined on an appropriate
basis related to log production and included in depreciation.
Interest is capitalized on major capital projects during
construction. Costs, net of revenues, incurred during the
start-up period of major capital projects are deferred as other
assets and amortized over the early productive life of the
project.

Employee Future Benefits

Fraser Papers sponsors various defined benefit
and defined contribution pension plans, which cover
substantially all employees and are funded in accordance with
applicable plan and regulatory requirements. Fraser Papers also
provides a variety of non-pension post-retirement benefits to
eligible retirees, including life insurance, medical and dental
benefits, which are funded on a pay-as-you-go basis.

The obligations associated with the pension and
non-pension benefit plans to eligible employees are actuarially
valued using the projected unit credit method pro rated on
services, managements best estimate assumptions for
expected investment performance, salary escalation, health care
cost trend rates, and a current market discount rate. Plan
assets are measured at fair value. Prior service costs related
to plan amendments and transitional assets are amortized on a
straight-line basis over the estimated average remaining service
lives (EARSL) of the employee groups. The net actuarial gains or
losses in excess of 10% of the greater of the accrued benefit
obligation and the fair value of plan assets are amortized on a
straight-line basis over EARSL.

Revenue Recognition

Net sales are recognized when the risks of
ownership pass to the purchaser. This is generally when goods
are shipped.

Translation of Foreign
Currencies

During the fourth quarter of 2002, the United
States dollar (US dollar) became the functional currency of
Fraser Papers Canadian operations and Fraser Papers
adopted the US dollar as its reporting currency
(note 2).

Prior to the change in reporting currency, the
accounts of Fraser Papers US subsidiaries were translated
into Canadian dollars using the current rate method under which
assets and liabilities are translated at the exchange rate
prevailing at the year-end and revenues and expenses at average
rates during the year. Gains or losses on translation were not
included in the consolidated statements of operations but were
deferred and included in Nexfors net investment. Gains or
losses on foreign currency-denominated balances and transactions
that were designated as hedges of net investments in these
subsidiaries were reported in the same manner as translation
adjustments.

Prior to the change in reporting currency, gains
or losses on forward foreign exchange contracts that served to
hedge future US dollar-denominated net sales were recognized at
their settlement dates and were recorded in net sales.

Subsequent to the change in reporting currency,
Canadian dollar-denominated monetary assets and liabilities of
Fraser Papers are translated at the rate of exchange prevailing
at year-end. Gains or losses on translation of these items are
included in the consolidated statements of operations. Gains or
losses on transactions that hedge these items are also included
in the consolidated statements of operations.

Subsequent to the change in reporting currency,
gains or losses on forward foreign exchange contracts that serve
to hedge future Canadian dollar-denominated costs are recognized
at their settlement dates and are included in cost of sales.

F-7



---



##### 



Financial Instruments

The carrying values of financial instruments
approximate fair value, except where disclosed in these notes.
Fair values disclosed are determined using actual quoted market
prices or, if not available, indicative prices based on similar
publicly traded instruments.

All hedging relationships, risk management
objectives and hedging strategies are formally documented and
periodically assessed as to whether changes in the value of
derivatives are highly effective in offsetting changes in the
fair values or cash flows of hedged items.

Realized and unrealized gains and losses on
derivative financial instruments designated as hedges of
financial risks are treated in the same manner as gains and
losses on the underlying item being hedged.

Note 2. Change in Accounting
Policy

During the fourth quarter of 2002, the US dollar
became the functional currency of Fraser Papers Canadian
operations as a result of the increase in US dollar-denominated
expenditures of those operations as compared to prior years.
Concurrent with this change in functional currency, Fraser
Papers adopted the US dollar as its reporting currency. Under
Canadian GAAP, the change in reporting currency was effected
using the translation of convenience method whereby all
historical financial transactions and balances were translated
into US dollars using the exchange rate in effect on the date of
changing the reporting currency. The exchange rate used to
translate historical balances and transactions was CAD$1.00 =
US$0.6380.

Note 3. Accounts
Receivable

Fraser Papers sells a portion of its third party
trade accounts receivable to a wholly-owned subsidiary of
Nexfor. Accounts receivable includes $15 (2002  $17)
receivable from the wholly-owned subsidiary of Nexfor for third
party trade accounts receivables sold. As at December 31,
2003, the wholly-owned subsidiary of Nexfor had uncollected
receivables it had purchased from Fraser Papers of $62
(2002  $48).

Note 4. Inventory

|                                   |  |      |     |      |  |   |     | 
|---------------------------------- |  | ---- | --- | ---- |  | - | --- | 
|                                   |  | 2003 |     | 2002
|                                   |  |      |     |     
|Raw materials                      |  | $    | 29  |      |  | $ | 25  | 
|Finished goods                     |  |      | 60  |      |  |   | 59  | 
|Operating and maintenance supplies |  |      | 26  |      |  |   | 26  | 
|                                   |  |      |     |      |  |   |     | 
|                                   |  | $    | 115 |      |  | $ | 110 | 
|                                   |  |      |     |      |  |   |     | 

Note 5. Property, Plant and
Equipment

|       |  |      |       |              |  |                |      |      |  |   |     |  |  |   |     | 
|------ |  | ---- | ----- | ------------ |  | -------------- | ---- | ---- |  | - | --- |  |  | - | --- | 
|       |  |      |       |              |  |               
|       |  |      |       |              |  | Net Book Value
|       |  |      |       | Accumulated  |  |               
|       |  | Cost |       | Depreciation |  | 2003           |      | 2002
|       |  |      |       |              |  |                |      |     
|Paper  |  | $    | 1,206 |              |  | $              | (731 | )    |  | $ | 475 |  |  | $ | 511 | 
|Timber |  |      | 86    |              |  |                | (33  | )    |  |   | 53  |  |  |   | 52  | 
|       |  |      |       |              |  |                |      |      |  |   |     |  |  |   |     | 
|       |  | $    | 1,292 |              |  | $              | (764 | )    |  | $ | 528 |  |  | $ | 563 | 
|       |  |      |       |              |  |                |      |      |  |   |     |  |  |   |     | 

Included in property, plant and equipment is
construction in progress of $2 (2002  $6).

Note 6. Long-Term Debt

Long-term debt is non-interest bearing and
matures in 2006. Outstanding principal of $1 will be forgiven on
May 1, 2006 if Fraser Papers continues to fulfill certain
requirements.

F-8



---



##### 



Note 7. Other Liabilities

|                                       |  |      |    |      |  |   |    | 
|-------------------------------------- |  | ---- | -- | ---- |  | - | -- | 
|                                       |  | 2003 |    | 2002
|                                       |  |      |    |     
|Pension plans (note 8)                 |  | $    | 7  |      |  | $ | 6  | 
|Post-retirement benefit plans (note 8) |  |      | 45 |      |  |   | 36 | 
|Other                                  |  |      | 7  |      |  |   | 8  | 
|                                       |  |      |    |      |  |   |    | 
|                                       |  | $    | 59 |      |  | $ | 50 | 
|                                       |  |      |    |      |  |   |    | 

Note 8. Employee Benefit
Plans

Pension Plans

Fraser Papers has a number of pension plans,
participation in which is available to substantially all
employees after periods of up to two years of continuous
service. Hourly employees are generally members of negotiated
plans. Fraser Papers obligations under its defined benefit
pension plans are determined periodically through the
preparation of actuarial valuations. The measurement date for
all defined benefit pension plans is December 31.
Information about these plans is as follows:

|                                                          |                                        |      |      |      |   |   |      |     |  
|--------------------------------------------------------- | -------------------------------------- | ---- | ---- | ---- | - | - | ---- | --- | -
|                                                          |                                        | 2003 |      | 2002
|                                                          |                                        |      |      |     
|Change in Accrued Benefit Obligation During
    the Year: |                                        |      |      |      |   |   |      |    
|Accrued benefit obligation, beginning of year             |                                        | $    | 373  |      |   | $ | 356  |    
|                                                          | Employee contributions                 |      |      | 2    |   |   |      | 2   |  
|                                                          | Current service cost                   |      |      | 7    |   |   |      | 8   |  
|                                                          | Interest on accrued benefit obligation |      |      | 26   |   |   |      | 24  |  
|                                                          | Benefits paid                          |      |      | (29  | ) |   |      | (25 | )
|                                                          | Net actuarial loss                     |      |      | 21   |   |   |      | 7   |  
|                                                          | Restructuring (note 10)                |      |      | 11   |   |   |      |    |  
|                                                          | Foreign currency exchange rate impact  |      |      | 53   |   |   |      | 1   |  
|                                                          |                                        |      |      |      |   |   |      |    
|Accrued benefit obligation, end of year (1)               |                                        | $    | 464  |      |   | $ | 373  |    
|                                                          |                                        |      |      |      |   |   |      |    
|Change in Plan Assets During the
    Year:                |                                        |      |      |      |   |   |      |    
|Plan assets, beginning of year                            |                                        | $    | 261  |      |   | $ | 300  |    
|                                                          | Actual return on plan assets           |      |      | 46   |   |   |      | (30 | )
|                                                          | Employer contributions                 |      |      | 26   |   |   |      | 13  |  
|                                                          | Employee contributions                 |      |      | 2    |   |   |      | 2   |  
|                                                          | Benefits paid                          |      |      | (29  | ) |   |      | (25 | )
|                                                          | Foreign currency exchange rate impact  |      |      | 40   |   |   |      | 1   |  
|                                                          |                                        |      |      |      |   |   |      |    
|Plan assets, end of year (1)                              |                                        | $    | 346  |      |   | $ | 261  |    
|                                                          |                                        |      |      |      |   |   |      |    
|Reconciliation of Funded Status:                          |                                        |      |      |      |   |   |      |    
|Accrued benefit obligation                                |                                        | $    | 464  |      |   | $ | 373  |    
|Plan assets                                               |                                        |      | 346  |      |   |   | 261  |    
|                                                          |                                        |      |      |      |   |   |      |    
|                                                          |                                        |      | (118 | )    |   |   | (112 | )  
|Accrued benefit obligation in excess of plan
    assets   |                                        |      |      |      |   |   |      |    
|                                                          | Unamortized net actuarial loss         |      |      | 115  |   |   |      | 108 |  
|                                                          | Unamortized prior service costs        |      |      | 5    |   |   |      | 6   |  
|                                                          | Unamortized net transitional asset     |      |      | (9   | ) |   |      | (8  | )
|                                                          |                                        |      |      |      |   |   |      |    
|Net accrued benefit liability                             |                                        | $    | (7   | )    |   | $ | (6   | )  
|                                                          |                                        |      |      |      |   |   |      |    






|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes accrued benefit obligations of $464
    (2002  $373) and plan assets of $346
    (2002  $261) related to defined benefit pension plans
    with accrued benefit obligations in excess of plan assets.

F-9



---



##### 



|                                                 |  |      |        |       |  |      |       |        |       |  |  |  |        |       |       |   |  |  |  |  |  |   |       |  
|------------------------------------------------ |  | ---- | ------ | ----- |  | ---- | ----- | ------ | ----- |  |  |  | ------ | ----- | ----- | - |  |  |  |  |  | - | ----- | -
|                                                 |  | 2003 |        | 2002  |  | 2001
|Components of Net Pension Expense:               |  |      |        |       |  |      |       |        |       |  |  |  |        |       |       |   |  |  |  |  |  |   |       |  
|Current service cost                             |  |      |        |       |  | $    | 7     |        |       |  |  |  |        | $     | 8     |   |  |  |  |  |  | $ | 7     |  
|Interest on accrued benefit obligation           |  |      |        |       |  |      | 26    |        |       |  |  |  |        |       | 24    |   |  |  |  |  |  |   | 23    |  
|Expected return on plan assets                   |  |      |        |       |  |      | (23   | )      |       |  |  |  |        |       | (25   | ) |  |  |  |  |  |   | (27   | )
|Amortization of transitional asset               |  |      |        |       |  |      | (1    | )      |       |  |  |  |        |       | (1    | ) |  |  |  |  |  |   | (1    | )
|Amortization of prior service costs              |  |      |        |       |  |      | 1     |        |       |  |  |  |        |       | 1     |   |  |  |  |  |  |   | 1     |  
|Amortization of net actuarial loss               |  |      |        |       |  |      | 6     |        |       |  |  |  |        |       | 1     |   |  |  |  |  |  |   | 1     |  
|Restructuring (note 10)                          |  |      |        |       |  |      | 12    |        |       |  |  |  |        |       |      |   |  |  |  |  |  |   | (1    | )
|                                                 |  |      |        |       |  |      |       |        |       |  |  |  |        |       |       |   |  |  |  |  |  |   |       |  
|Net periodic pension expense                     |  |      |        |       |  | $    | 28    |        |       |  |  |  |        | $     | 8     |   |  |  |  |  |  | $ | 3     |  
|                                                 |  |      |        |       |  |      |       |        |       |  |  |  |        |       |       |   |  |  |  |  |  |   |       |  
|Significant Actuarial Assumptions:               |  |      |        |       |  |      |       |        |       |  |  |  |        |       |       |   |  |  |  |  |  |   |       |  
|Discount rate                                    |  |      | 6.00%- | 6.25% |  |      |       | 6.50%- | 6.75% |  |  |  | 6.50%- | 7.00% |      
|Expected long-term rate of return on plan assets |  |      |        |       |  |      | 8.00% |        |       |  |  |  |        |       | 8.00% |   |  |  |  |  |  |   | 8.00% |  
|Rate of compensation increase                    |  |      | 3.75%- | 4.00% |  |      |       | 3.75%- | 4.00% |  |  |  | 3.75%- | 4.50% |      

Operating costs include $3 (2002  $3)
related to contributions to Fraser Papers defined
contribution pension plans.

Post-retirement Benefit Plans

Fraser Papers funds health care benefits costs on
a pay as you go basis. Fraser Papers obligations under its
post-retirement benefit plans are determined periodically
through actuarial valuations. The measurement date for all
post-retirement benefit plans is December 31. Information
about these plans is as follows:

|                                                          |                                        |      |     |      |   |   |     |    |  
|--------------------------------------------------------- | -------------------------------------- | ---- | --- | ---- | - | - | --- | -- | -
|                                                          |                                        | 2003 |     | 2002
|                                                          |                                        |      |     |     
|Change in Accrued Benefit Obligation During
    the Year: |                                        |      |     |      |   |   |     |   
|Accrued benefit obligation, beginning of year             |                                        | $    | 46  |      |   | $ | 35  |   
|                                                          | Current service cost                   |      |     | 1    |   |   |     | 1  |  
|                                                          | Interest on accrued benefit obligation |      |     | 3    |   |   |     | 2  |  
|                                                          | Benefits paid                          |      |     | (3   | ) |   |     | (2 | )
|                                                          | Net actuarial loss                     |      |     | 11   |   |   |     | 10 |  
|                                                          | Restructuring (note 10)                |      |     | 4    |   |   |     |   |  
|                                                          | Foreign currency exchange rate impact  |      |     | 4    |   |   |     |   |  
|                                                          |                                        |      |     |      |   |   |     |   
|Accrued benefit obligation, end of year                   |                                        | $    | 66  |      |   | $ | 46  |   
|                                                          |                                        |      |     |      |   |   |     |   
|Reconciliation of Funded Status:                          |                                        |      |     |      |   |   |     |   
|Accrued benefit obligation                                |                                        | $    | 66  |      |   | $ | 46  |   
|Plan assets                                               |                                        |      |    |      |   |   |    |   
|                                                          |                                        |      |     |      |   |   |     |   
|                                                          |                                        |      | (66 | )    |   |   | (46 | ) 
|Accrued benefit obligation in excess of plan
    assets   |                                        |      |     |      |   |   |     |   
|                                                          | Unamortized net actuarial loss         |      |     | 20   |   |   |     | 9  |  
|                                                          | Unamortized prior service cost         |      |     | 1    |   |   |     | 1  |  
|                                                          |                                        |      |     |      |   |   |     |   
|Net accrued benefit liability                             |                                        | $    | (45 | )    |   | $ | (36 | ) 
|                                                          |                                        |      |     |      |   |   |     |   

F-10



---



##### 



|                                                  |  |      |         |        |  |      |       |         |        |  |        |       |        |       |   |        |       |  |  |  |  |   |   | 
|------------------------------------------------- |  | ---- | ------- | ------ |  | ---- | ----- | ------- | ------ |  | ------ | ----- | ------ | ----- | - | ------ | ----- |  |  |  |  | - | - | 
|                                                  |  | 2003 |         | 2002   |  | 2001
|Components of Net Pension Expense:                |  |      |         |        |  |      |       |         |        |  |        |       |        |       |   |        |       |  |  |  |  |   |   | 
|Current service cost                              |  |      |         |        |  | $    | 1     |         |        |  |        |       |        | $     | 1 |        |       |  |  |  |  | $ |  | 
|Interest on accrued benefit obligation            |  |      |         |        |  |      | 3     |         |        |  |        |       |        |       | 2 |        |       |  |  |  |  |   | 2 | 
|Amortization of net actuarial loss                |  |      |         |        |  |      | 1     |         |        |  |        |       |        |       |  |        |       |  |  |  |  |   |  | 
|Restructuring (note 10)                           |  |      |         |        |  |      | 4     |         |        |  |        |       |        |       |  |        |       |  |  |  |  |   | 1 | 
|                                                  |  |      |         |        |  |      |       |         |        |  |        |       |        |       |   |        |       |  |  |  |  |   |   | 
|Net periodic pension expense                      |  |      |         |        |  | $    | 9     |         |        |  |        |       |        | $     | 3 |        |       |  |  |  |  | $ | 3 | 
|                                                  |  |      |         |        |  |      |       |         |        |  |        |       |        |       |   |        |       |  |  |  |  |   |   | 
|Significant Actuarial Assumptions:                |  |      |         |        |  |      |       |         |        |  |        |       |        |       |   |        |       |  |  |  |  |   |   | 
|Discount rate                                     |  |      | 6.00%-  | 6.25%  |  |      |       | 6.50%-  | 6.75%  |  |        |       | 6.75%- | 7.25% |  
|Health care cost trend rate  2003                |  |      | 10.00%- | 12.00% |  |      |       | 10.00%- | 10.25% |  |        |       | 7.30%- | 8.00% |  
|Health care cost trend rate  2013
    (ultimate) |  |      |         |        |  |      | 5.00% |         |        |  | 5.00%- | 5.25% |        |       |   | 4.50%- | 5.50% | 

Post-employment Benefits

Operating costs include nil (2002 $1)
related to severance payments, excluding amounts paid under the
restructuring plan (note 10).

Note 9. Income Taxes

Future income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities in the combined financial statements and the
amounts used for income tax purposes.

Significant components of the provision for
(recovery of) income taxes are as follows:

|                                     |  |      |    |      |  |      |    |   |  |   |   | 
|------------------------------------ |  | ---- | -- | ---- |  | ---- | -- | - |  | - | - | 
|                                     |  | 2003 |    | 2002 |  | 2001
|                                     |  |      |    |      |  |     
|Current tax expense                  |  | $    | 2  |      |  | $    | 2  |   |  | $ | 2 | 
|Future income tax expense (recovery) |  |      | (3 | )    |  |      | (4 | ) |  |   | 3 | 
|                                     |  |      |    |      |  |      |    |   |  |   |   | 
|Income tax expense (recovery)        |  | $    | (1 | )    |  | $    | (2 | ) |  | $ | 5 | 
|                                     |  |      |    |      |  |      |    |   |  |   |   | 

The differences between income taxes computed
using statutory tax rates and income tax as recorded are as
follows:

|                                                   |                                        |      |     |      |   |      |     |   |  |   |     |   | 
|-------------------------------------------------- | -------------------------------------- | ---- | --- | ---- | - | ---- | --- | - |  | - | --- | - | 
|                                                   |                                        | 2003 |     | 2002 |   | 2001
|                                                   |                                        |      |     |      |   |     
|Loss before income tax                             |                                        | $    | (93 | )    |   | $    | (16 | ) |  | $ | (18 | )
|                                                   |                                        |      |     |      |   |      |     |   |  |   |     |  
|Tax expense (recovery) at combined statutory rates |                                        |      | (34 | )    |   |      | (6  | ) |  |   | (7  | )
|Effect of:                                         |                                        |      |     |      |   |      |     |   |  |   |     |  
|                                                   | Rate differences on foreign activities |      |     | (2   | ) |      |     |  |  |   |     |  | 
|                                                   | Large corporations tax and other       |      |     | (1   | ) |      |     |  |  |   |     | 3 | 
|                                                   | Change in valuation allowance          |      |     | 36   |   |      |     | 4 |  |   |     | 9 | 
|                                                   |                                        |      |     |      |   |      |     |   |  |   |     |  
|Income tax expense (recovery)                      |                                        | $    | (1  | )    |   | $    | (2  | ) |  | $ | 5   |  
|                                                   |                                        |      |     |      |   |      |     |   |  |   |     |  

F-11



---



##### 



The income tax effects of temporary differences
that give rise to future income taxes are as follows:

|                                  |                                       |      |      |      |   |   |     |     |  
|--------------------------------- | ------------------------------------- | ---- | ---- | ---- | - | - | --- | --- | -
|                                  |                                       | 2003 |      | 2002
|                                  |                                       |      |      |     
|Benefit of tax loss carryforwards |                                       | $    | 147  |      |   | $ | 111 |    
|Investment tax credits            |                                       |      | 20   |      |   |   | 16  |    
|Post-employment benefits          |                                       |      | 20   |      |   |   | 14  |    
|Other future income tax assets    |                                       |      | 7    |      |   |   | 8   |    
|Property, plant and equipment     |                                       |      | (87  | )    |   |   | (81 | )  
|                                  |                                       |      |      |      |   |   |     |    
|Future income taxes               |                                       | $    | 107  |      |   | $ | 68  |    
|Less: Valuation allowance         |                                       |      | (123 | )    |   |   | (87 | )  
|                                  |                                       |      |      |      |   |   |     |    
|Future income taxes, net          |                                       |      | (16  | )    |   |   | (19 | )  
|                                  |                                       |      |      |      |   |   |     |    
|Represented by:                   |                                       |      |      |      |   |   |     |    
|                                  | Current future income tax asset       |      |      | 11   |   |   |     | 11  |  
|                                  | Long-term future income tax liability |      |      | (27  | ) |   |     | (30 | )
|                                  |                                       |      |      |      |   |   |     |    
|                                  |                                       |      | (16  | )    |   |   | (19 | )  
|                                  |                                       |      |      |      |   |   |     |    

No income or income-related taxes were paid
during 2003, 2002 or 2001.

Following completion of the Arrangement, none of
the benefit of tax loss carryforwards, investment tax credits or
the related valuation allowance will remain with Fraser Papers,
or any of its successors.

Note 10.     Restructuring
Charge

During 2003, Fraser Papers implemented a
productivity improvement plan at its paper operations in New
Brunswick and Maine. The productivity plan will reduce the
workforce by 331. The workforce reduction will be completed
early in 2004 through a combination of voluntary retirements and
layoffs. The total cost of the productivity improvement plan is
$26, including severance, early retirement, consulting and
training costs of $20 and non-cash pension and non-pension
post-retirement benefits related charges of $6. $8 of severance,
early retirement, consulting and training costs has been paid to
date.

Note 11.     Interest
Expense

Interest expense consists of amounts paid to
Nexfor on the interest-bearing portion of Nexfors net
investment.

Note 12.     Change
in Non-Cash Working Capital

The net change in non-cash working capital
balances comprise:

|                             |                                          |      |    |      |   |      |    |     |   |   |    |     |  
|---------------------------- | ---------------------------------------- | ---- | -- | ---- | - | ---- | -- | --- | - | - | -- | --- | -
|                             |                                          | 2003 |    | 2002 |   | 2001
|                             |                                          |      |    |      |   |     
|Cash provided by (used for): |                                          |      |    |      |   |      |    |     |   |   |    |    
|                             | Accounts receivable                      |      | $  | (3   | ) |      | $  | 5   |   |   | $  | 16  |  
|                             | Inventory                                |      |    | (5   | ) |      |    | (11 | ) |   |    | 33  |  
|                             | Accounts payable and accrued liabilities |      |    | 7    |   |      |    | 24  |   |   |    | (14 | )
|                             |                                          |      |    |      |   |      |    |     |   |   |    |    
|                             |                                          | $    | (1 | )    |   | $    | 18 |     |   | $ | 35 |    
|                             |                                          |      |    |      |   |      |    |     |   |   |    |    

Note 13.     Commitments
& Contingencies

Countervailing Duty and Antidumping
Duty

The US International Trade Commission (ITC)
has imposed a 18.8% countervail duty (CVD) and an 8.4%
antidumping duty (ADD) on Canadian lumber exported to the US.
Fraser Papers New Brunswick mills are only subject to ADD.
In 2003, the total paid for these duties is $4 (2002 
$3), (2001  nil).

Fraser Papers and other Canadian forest product
companies, the Canadian Federal Government and Canadian
provincial governments categorically deny the
US allegations and strongly disagree with the rulings and
have launched appeals with various trade bodies. Notwithstanding
the rates established in the investigations, the final liability
for the assessment of CVD and ADD will not be determined until
the appeal process is complete or a negotiated settlement is
reached.

F-12



---



##### 



Foreign Exchange Hedges

Fraser Papers has entered into forward foreign
exchange contracts of CAD $124 (2002 
CAD $120), which are designated as a hedge against its net
Canadian dollar-denominated monetary liabilities. The combined
statements of operations include a realized gain of $1
(2002  nil) on matured monetary liability hedges, and
at year end, an unrealized gain of $2 (2002  loss of
$1) on outstanding hedges. These realized and unrealized gains
are offset by realized and unrealized losses on the monetary
liabilities being hedged.

In 2002, Fraser Papers had CAD $80 of
outstanding forward foreign exchange contracts which were
designated as a hedge of the future Canadian dollar-denominated
costs of Fraser Papers. The combined statements of operations
include a realized a gain of $4 in 2003 (2002  nil)
on these Canadian dollar cost hedges. The combined statements of
operations also include a loss of $1 in 2002 (2001 
$7) related to its matured US$ revenue hedges.

Commodity Hedges

Fraser Papers has entered into a pulp swap for
72,000 tonnes, which effectively fixes the selling price on
a portion of the Companys production and is designated as
a hedge of a portion of future pulp sales. This swap matures on
December 31, 2005 and carries a fixed price of $565 per
tonne. The unrealized loss on this hedge is $2 at year end.

Other

Fraser Papers has entered into various
commitments for capital expenditures and the future supply of
operating services and materials. Commitments under operating
leases at December 31, 2003, are: 2004  $11;
2005  $11; 2006  $11; 2007  $9;
2008  $7; and subsequent  $36.

Note 14.     Related
Party Transactions

Nexfor provides certain taxation and treasury
services for Fraser Papers. Total amounts paid to Nexfor for
their services were less than $1 million in each of 2003,
2002 and 2001.

Fraser sells all of its lumber production through
Nexfor. In addition, Nexfor acts as collection agent for Fraser.
Total fees paid to Nexfor for these services were $1, $1, and $1
in each of 2003, 2002 and 2001 respectively. These fees are
included as a reduction of net sales.

Fraser Papers purchases certain of its
electricity from related parties. These parties are related by
virtue of being under common significant influence. During 2003,
Fraser Papers purchased $9 (2002  $9),
(2001  $6) of electricity from these related parties.
Included in accounts payable and accrued liabilities is $1
(2002  $1) owing to these related parties.

Fraser Papers has invested $10 in convertible
term preferred shares of Katahdin Paper Company LLC (Katahdin),
a party related by virtue of being under common significant
influence. The shares are convertible into common shares of
Katahdin at a price based on a pre-determined formula. This
investment is included in other assets.

Fraser Papers has leased certain productive
equipment owned by Katahdin. The amount of the lease payments
are determined with reference to the profits generated by those
assets such that all of the profits earned by Fraser Papers on
those assets, net of a management fee, are remitted to the
lessor as a lease payment. During 2003, Fraser Papers earned $2
(2002  nil) after all lease payments to the lessor.

Note 15.     Segmented
Information

Fraser Papers has two reportable segments:



| |      |                                                                    
| | ---- | -------------------------------------------------------------------
| | (i)  | paper, comprised of the paper, pulp and sawmill
    operations; and
|
| | (ii) | timber, comprised of woodland operations.                          

Fraser Papers operates principally in Canada and
the United States.

F-13



---



##### 



Operating Segments

|                                                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |     | 
|-------------------------------------------------------------------------- | ------------- | ----- | --- | ------ |  | ------- | -- | -------- |  | - | --- | - |  | - | --- | --- | 
|                                                                           |               |       |     |        |  | Inter-  |    | Combined
|                                                                           |               | Paper |     | Timber |  | segment |    | Total   
|                                                                           |               |       |     |        |  |         |    |         
|2003                                                                       |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Net sales                                                                  |               | $     | 837 |        |  | $       | 72 |          |  | $ | (36 | ) |  | $ | 873 |    
|Less: Cost of sales                                                        |               |       | 850 |        |  |         | 61 |          |  |   | (36 | ) |  |   | 875 |    
|                                                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Earnings before interest, taxes, depreciation and
    restructuring charge |               |       | (13 | )      |  |         | 11 |          |  |   |    |   |  |   | (2  | )  
|Depreciation                                                               |               |       | (47 | )      |  |         | (2 | )        |  |   |    |   |  |   | (49 | )  
|Restructuring charge                                                       |               |       | (26 | )      |  |         |   |          |  |   |    |   |  |   | (26 | )  
|                                                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Operating earnings                                                         |               | $     | (86 | )      |  | $       | 9  |          |  | $ |    |   |  | $ | (77 | )  
|                                                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Assets                                                                     |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|                                                                           | Segmented     |       | $   | 672    |  |         | $  | 64       |  |   |     |   |  |   | $   | 736 | 
|                                                                           | Non-Segmented |       |     |        |  |         |    |          |  |   |     |   |  |   |     | 11  | 
|                                                                           | Cash          |       |     |        |  |         |    |          |  |   |     |   |  |   |     | 16  | 
|                                                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Total assets                                                               |               |       |     |        |  |         |    |          |  |   |     |   |  | $ | 763 |    
|                                                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Capital investments                                                        |               | $     | 14  |        |  | $       | 3  |          |  |   |     |   |  | $ | 17  |    

|                                                 |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |     | 
|------------------------------------------------ | ------------- | ----- | --- | ------ |  | ------- | -- | -------- |  | - | --- | - |  | - | --- | --- | 
|                                                 |               |       |     |        |  | Inter-  |    | Combined
|                                                 |               | Paper |     | Timber |  | segment |    | Total   
|                                                 |               |       |     |        |  |         |    |         
|2002                                             |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Net sales                                        |               | $     | 715 |        |  | $       | 65 |          |  | $ | (33 | ) |  | $ | 747 |    
|Less: Cost of sales                              |               |       | 679 |        |  |         | 55 |          |  |   | (33 | ) |  |   | 701 |    
|                                                 |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Earnings before interest, taxes and depreciation |               |       | 36  |        |  |         | 10 |          |  |   |    |   |  |   | 46  |    
|Depreciation                                     |               |       | (47 | )      |  |         | (1 | )        |  |   |    |   |  |   | (48 | )  
|                                                 |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Operating earnings                               |               | $     | (11 | )      |  | $       | 9  |          |  | $ |    |   |  | $ | (2  | )  
|                                                 |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Assets                                           |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|                                                 | Segmented     |       | $   | 685    |  |         | $  | 62       |  |   |     |   |  |   | $   | 747 | 
|                                                 | Non-segmented |       |     |        |  |         |    |          |  |   |     |   |  |   |     | 11  | 
|                                                 | Cash          |       |     |        |  |         |    |          |  |   |     |   |  |   |     | 3   | 
|                                                 |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Total assets                                     |               |       |     |        |  |         |    |          |  |   |     |   |  | $ | 761 |    
|                                                 |               |       |     |        |  |         |    |          |  |   |     |   |  |   |     |    
|Capital investments                              |               | $     | 25  |        |  | $       | 3  |          |  |   |     |   |  | $ | 28  |    

|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|------------------------------------------------ |  | ----- | --- | ------ |  | ------- | -- | -------- |  | - | --- | - |  | - | --- | -
|                                                 |  |       |     |        |  | Inter-  |    | Combined
|                                                 |  | Paper |     | Timber |  | segment |    | Total   
|                                                 |  |       |     |        |  |         |    |         
|2001                                             |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Net sales                                        |  | $     | 740 |        |  | $       | 60 |          |  | $ | (29 | ) |  | $ | 771 |  
|Less: Cost of sales                              |  |       | 703 |        |  |         | 50 |          |  |   | (29 | ) |  |   | 724 |  
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Earnings before interest, taxes and depreciation |  |       | 37  |        |  |         | 10 |          |  |   |    |   |  |   | 47  |  
|Depreciation                                     |  |       | (48 | )      |  |         | (1 | )        |  |   |    |   |  |   | (49 | )
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Operating earnings                               |  | $     | (11 | )      |  | $       | 9  |          |  | $ |    |   |  | $ | (2  | )
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Capital investments                              |  | $     | 35  |        |  | $       |   |          |  |   |     |   |  | $ | 35  |  

F-14



---



##### 



Geographic Segments

Net sales by geographic segment are determined
based on the country of shipment.

|                                      |  |           |     |           |  |      |     |                 |  |      |     |  |  |   |     |  |  |   |     | 
|------------------------------------- |  | --------- | --- | --------- |  | ---- | --- | --------------- |  | ---- | --- |  |  | - | --- |  |  | - | --- | 
|                                      |  |           |     |           |  |      |     |                
|                                      |  |           |     |           |  |      |     | Property, Plant
|                                      |  |           |     | and      
|                                      |  | Net Sales |     | Equipment
|                                      |  |           |     |          
|                                      |  | 2003      |     | 2002      |  | 2001 |     | 2003            |  | 2002
|                                      |  |           |     |           |  |      |     |                 |  |     
|United States                         |  | $         | 683 |           |  | $    | 579 |                 |  | $    | 580 |  |  | $ | 295 |  |  | $ | 309 | 
|Canada(1)                             |  | $         | 190 |           |  | $    | 168 |                 |  | $    | 191 |  |  | $ | 233 |  |  | $ | 254 | 
|                                      |  |           |     |           |  |      |     |                 |  |      |     |  |  |   |     |  |  |   |     | 
|Combined total                        |  | $         | 873 |           |  | $    | 747 |                 |  | $    | 771 |  |  | $ | 528 |  |  | $ | 563 | 
|                                      |  |           |     |           |  |      |     |                 |  |      |     |  |  |   |     |  |  |   |     | 
|(1)Export Sales
    included in total |  | $         | 83  |           |  | $    | 68  |                 |  | $    | 77  |  |  |   |     |  |  |   |     | 

F-15



---



##### 






EXHIBIT G

INTERIM COMBINED FINANCIAL
STATEMENTS

OF


FRASER PAPERS DIVISION


OF


NEXFOR INC.


MARCH 27, 2004

G-1



---



##### 



Fraser Papers Division of Nexfor
Inc.

Interim Combined Balance Sheets

As at


(US$ millions)


|                                            |                                          |           |     |                     |  |   |     |     | 
|------------------------------------------- | ---------------------------------------- | --------- | --- | ------------------- |  | - | --- | --- | 
|(Unaudited)                                 |                                          | March 27, |     | December 31,       
|                                            |                                          | 2004      |     | 2003               
|                                            |                                          |           |     |                    
|                                            |                                          |           |     | (restated  note 2)
|Assets                                      |                                          |           |     |                     |  |   |     |    
|Current assets:                             |                                          |           |     |                     |  |   |     |    
|                                            | Cash                                     |           | $   | 1                   |  |   | $   | 16  | 
|                                            | Accounts receivable (note 3)             |           |     | 57                  |  |   |     | 64  | 
|                                            | Inventory                                |           |     | 141                 |  |   |     | 115 | 
|                                            | Future income taxes                      |           |     | 11                  |  |   |     | 11  | 
|                                            |                                          |           |     |                     |  |   |     |    
|                                            |                                          |           | 210 |                     |  |   | 206 |    
|Property, plant and equipment               |                                          |           |     |                     |  |   |     |    
|                                            | Paper                                    |           |     | 466                 |  |   |     | 476 | 
|                                            | Timber                                   |           |     | 53                  |  |   |     | 53  | 
|Other assets                                |                                          |           | 25  |                     |  |   | 29  |    
|                                            |                                          |           |     |                     |  |   |     |    
|                                            |                                          | $         | 754 |                     |  | $ | 764 |    
|                                            |                                          |           |     |                     |  |   |     |    
|Liabilities and Nexfors Net
    Investment |                                          |           |     |                     |  |   |     |    
|Current liabilities:                        |                                          |           |     |                     |  |   |     |    
|                                            | Bank advances                            |           |     | 4                   |  |   |     |    | 
|                                            | Accounts payable and accrued liabilities |           |     | 124                 |  |   |     | 125 | 
|                                            |                                          |           |     |                     |  |   |     |    
|                                            |                                          |           | 128 |                     |  |   | 125 |    
|Long-term debt                              |                                          |           | 1   |                     |  |   | 1   |    
|Other liabilities                           |                                          |           | 63  |                     |  |   | 64  |    
|Future income taxes                         |                                          |           | 26  |                     |  |   | 26  |    
|Nexfors net investment                     |                                          |           | 536 |                     |  |   | 548 |    
|                                            |                                          |           |     |                     |  |   |     |    
|                                            |                                          | $         | 754 |                     |  | $ | 764 |    
|                                            |                                          |           |     |                     |  |   |     |    

On behalf of the Board of Nexfor Inc.:

|                  |  |                                    
|----------------- |  | -----------------------------------
|K. LINN MACDONALD |  | DOMINIC GAMMIERO                   
|Chairman          |  | President & Chief Executive Officer

(See accompanying notes)

G-2



---



##### 



Fraser Papers Division of Nexfor
Inc.

Interim Combined Statements of Operations and
Nexfors Net Investment

Three Months Ended


(US$ millions)


|                                                   |        |           |     |           |   |   |     |   | 
|-------------------------------------------------- | ------ | --------- | --- | --------- | - | - | --- | - | 
|(Unaudited)                                        |        | March 27, |     | March 29,
|                                                   |        | 2004      |     | 2003     
|                                                   |        |           |     |          
|Net sales                                          |        | $         | 221 |           |   | $ | 200 |  
|                                                   |        |           |     |           |   |   |     |  
|Earnings before interest, taxes and depreciation:  |        |           |     |           |   |   |     |  
|                                                   | Paper  |           |     | (3        | ) |   |     | 7 | 
|                                                   | Timber |           |     | 3         |   |   |     | 4 | 
|                                                   |        |           |     |           |   |   |     |  
|                                                   |        |           |    |           |   |   | 11  |  
|Fees on sale of accounts receivable                |        |           | (1  | )         |   |   | (1  | )
|Interest expense                                   |        |           | (3  | )         |   |   | (3  | )
|                                                   |        |           |     |           |   |   |     |  
|Earnings before depreciation and taxes             |        |           | (4  | )         |   |   | 7   |  
|Depreciation                                       |        |           | (11 | )         |   |   | (13 | )
|Income tax recovery (expense) (note 4)             |        |           | 1   |           |   |   | (1  | )
|                                                   |        |           |     |           |   |   |     |  
|Loss                                               |        | $         | (14 | )         |   | $ | (7  | )
|                                                   |        |           |     |           |   |   |     |  
|Nexfors net investment                            |        |           |     |           |   |   |     |  
|Balance, beginning of period                       |        | $         | 548 |           |   | $ | 565 |  
|Impact of change in accounting policy
    (note 2) |        |           |    |           |   |   | (3  | )
|                                                   |        |           |     |           |   |   |     |  
|Revised balance, beginning of period               |        |           | 548 |           |   |   | 562 |  
|Loss                                               |        |           | (14 | )         |   |   | (7  | )
|Net contribution by Nexfor                         |        |           | 2   |           |   |   | 23  |  
|                                                   |        |           |     |           |   |   |     |  
|Balance, end of period                             |        | $         | 536 |           |   | $ | 578 |  
|                                                   |        |           |     |           |   |   |     |  

(See accompanying notes)

G-3



---



##### 



Fraser Papers Division of Nexfor
Inc.

Interim Combined Statements of Cash
Flows

Three Months Ended


(US$ millions)


|                                                |                              |           |     |           |   |   |    |    |  
|----------------------------------------------- | ---------------------------- | --------- | --- | --------- | - | - | -- | -- | -
|(Unaudited)                                     |                              | March 27, |     | March 29,
|                                                |                              | 2004      |     | 2003     
|                                                |                              |           |     |          
|Cash provided by (used for):                    |                              |           |     |           |   |   |    |   
|Operating Activities                            |                              |           |     |           |   |   |    |   
|Loss                                            |                              | $         | (14 | )         |   | $ | (7 | ) 
|Items not affecting cash:                       |                              |           |     |           |   |   |    |   
|                                                | Depreciation                 |           |     | 11        |   |   |    | 13 |  
|                                                | Future income taxes (note 4) |           |     | (2        | ) |   |    |   |  
|Other items                                     |                              |           | 8   |           |   |   | (5 | ) 
|                                                |                              |           |     |           |   |   |    |   
|                                                |                              |           | 3   |           |   |   | 1  |   
|Net change in non-cash working capital balances |                              |           | (18 | )         |   |   | (7 | ) 
|                                                |                              |           |     |           |   |   |    |   
|                                                |                              |           | (15 | )         |   |   | (6 | ) 
|                                                |                              |           |     |           |   |   |    |   
|Investing Activities                            |                              |           |     |           |   |   |    |   
|Capital investments                             |                              |           |     |           |   |   |    |   
|                                                | Paper                        |           |     | (1        | ) |   |    | (3 | )
|                                                | Timber                       |           |     |          |   |   |    |   |  
|Other                                           |                              |           | 1   |           |   |   | 1  |   
|                                                |                              |           |     |           |   |   |    |   
|                                                |                              |           |    |           |   |   | (2 | ) 
|                                                |                              |           |     |           |   |   |    |   
|Financing Activities                            |                              |           |     |           |   |   |    |   
|Contribution by (distribution to) Nexfor        |                              |           | (4  | )         |   |   | 24 |   
|Bank advances                                   |                              |           | 4   |           |   |   |   |   
|                                                |                              |           |     |           |   |   |    |   
|                                                |                              |           |    |           |   |   | 24 |   
|                                                |                              |           |     |           |   |   |    |   
|Increase (decrease) in cash                     |                              | $         | (15 | )         |   | $ | 16 |   
|                                                |                              |           |     |           |   |   |    |   

(See accompanying notes)

G-4



---



##### 



Fraser Papers Division of Nexfor
Inc.

Notes To The Interim Combined Financial
Statements

(in millions of US dollars)


(unaudited)

Note 1. Basis of
Presentation

These interim combined financial statements have
been prepared in accordance with Canadian generally accepted
accounting principles using the same accounting policies and
methods as the most recent combined audited financial
statements. These interim combined financial statements should
be read in conjunction with the annual combined audited
financial statements for the year ended December 31, 2003.

Note 2. Change in Accounting
Policy

Effective January 1, 2004, Fraser Papers
adopted the new accounting recommendations of the Canadian
Institute of Chartered Accountants for the recognition and
disclosure of obligations associated with the retirement of
tangible long-lived assets. This change in accounting policy has
been effected retroactively with prior periods restated to
reflect the impact of the change. The cumulative effect of the
change was a decrease of $3 in Nexfors 2003 opening net
investment. In addition, as at March 27, 2004 and
December 31, 2003, the change resulted in an increase in
property, plant and equipment of $1, an increase in other
liabilities of $5, and a decrease in future income taxes of $1.
The change in policy did not materially impact earnings in 2004
or 2003.

Fraser Papers asset retirement obligations of $5
relate to closure costs for landfills in the Paper segment.
Revisions to the liability could occur due to changes in the
estimated costs or timing of closures or possible new
regulations affecting these closures. In addition to the asset
retirement obligations discussed above, Fraser Papers may have
other obligations in the event of a permanent plant shutdown.
However, these plant assets have indeterminate lives and,
therefore, the associated asset retirement obligations are not
reasonably estimable and liabilities cannot be established.

Note 3. Accounts
Receivable

Fraser Papers sells a portion of its third party
trade accounts receivable to a wholly-owned subsidiary of
Nexfor. Accounts receivable includes $12 (December 31,
2003  $15) receivable from the wholly-owned
subsidiary of Nexfor for third party trade accounts receivables
sold. As at March 27, 2004, the wholly-owned subsidiary of
Nexfor had uncollected receivables it had purchased from Fraser
Papers of $75 (December 31, 2003  $62).

Note 4. Income Taxes

Interim income tax expense (recovery) is
calculated based on expected annual effective tax rates.

|                                     |  |              |    |        |  |   |   | 
|------------------------------------ |  | ------------ | -- | ------ |  | - | - | 
|                                     |  |             
|                                     |  | Three       
|                                     |  | Months Ended
|                                     |  |             
|                                     |  | Mar 27       |    | Mar 29
|                                     |  | 2004         |    | 2003  
|                                     |  |              |    |       
|Current tax expense                  |  | $            | 1  |        |  | $ | 1 | 
|Future income tax expense (recovery) |  |              | (2 | )      |  |   |  | 
|                                     |  |              |    |        |  |   |   | 
|Income tax expense (recovery)        |  | $            | (1 | )      |  | $ | 1 | 
|                                     |  |              |    |        |  |   |   | 

Note 5. Commitments and
Contingencies

Countervailing Duty and Antidumping
Duty

The US International Trade Commission (ITC) has
imposed a 18.8% countervail duty (CVD) and an 8.4% antidumping
duty (ADD) on Canadian lumber exported to the US. The New
Brunswick mills are only subject to ADD. In 2004, the total paid
for these duties is $1 (2003  $1).

Fraser Papers and other Canadian forest product
companies, the Canadian Federal Government and Canadian
provincial governments categorically deny the US allegations and
strongly disagree with the rulings and have launched appeals
with various trade bodies. Notwithstanding the rates established
in the investigations, the final liability for the

G-5



---



##### 



assessment of CVD and ADD will not be determined
until the appeal process is complete or a negotiated settlement
is reached.


Commodity Hedges

At March 27, 2004, Fraser Papers had pulp
swaps outstanding on 134,000 tonnes of market pulp at an average
price of $570 per tonne. These swaps effectively fix the selling
price on a portion of Fraser Papers pulp production and
are designated as a hedge of a portion of future pulp sales. The
unrealized loss on these hedges is $6. These hedges mature as
follows:

|                       |  |      |        |      |  |      |        |  |  |  |        | 
|---------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                       |  | 2004 |        | 2005 |  | 2006
|                       |  |      |        |      |  |     
|Hedged volume (tonnes) |  |      | 50,000 |      |  |      | 60,000 |  |  |  | 24,000 | 
|Hedged exposure        |  |      | 25%    |      |  |      | 25%    |  |  |  | 10%    | 

Note 6. Segmented Information

Fraser Papers has two reportable segments:



| |     |                                                                     
| | --- | --------------------------------------------------------------------
| | i)  | paper, comprised of the paper, pulp, and sawmill
    operations; and
|
| | ii) | timber, comprised of woodland operations.                           

Fraser Papers operates principally in Canada and
the United States.

|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|------------------------------------------------ |  | ----- | --- | ------ |  | ------- | -- | -------- |  | - | --- | - |  | - | --- | -
|                                                 |  |       |     |        |  | Inter-  |    | Combined
|                                                 |  | Paper |     | Timber |  | segment |    | Total   
|                                                 |  |       |     |        |  |         |    |         
|Three months ended Mar 27, 2004                  |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Net sales                                        |  | $     | 209 |        |  | $       | 25 |          |  | $ | (13 | ) |  | $ | 221 |  
|Less: Cost of sales                              |  |       | 212 |        |  |         | 22 |          |  |   | (13 | ) |  |   | 221 |  
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Earnings before interest, taxes and depreciation |  |       | (3  | )      |  |         | 3  |          |  |   |    |   |  |   |    |  
|Depreciation                                     |  |       | (10 | )      |  |         | (1 | )        |  |   |    |   |  |   | (11 | )
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Operating earnings                               |  | $     | (13 | )      |  | $       | 2  |          |  | $ |    |   |  | $ | (11 | )
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Capital investments                              |  | $     | 1   |        |  | $       |   |          |  |   |     |   |  | $ | 1   |  

|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|------------------------------------------------ |  | ----- | --- | ------ |  | ------- | -- | -------- |  | - | --- | - |  | - | --- | -
|                                                 |  |       |     |        |  | Inter-  |    | Combined
|                                                 |  | Paper |     | Timber |  | segment |    | Total   
|                                                 |  |       |     |        |  |         |    |         
|Three months ended Mar 29, 2003                  |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Net sales                                        |  | $     | 190 |        |  | $       | 20 |          |  | $ | (10 | ) |  | $ | 200 |  
|Less: Cost of sales                              |  |       | 183 |        |  |         | 16 |          |  |   | (10 | ) |  |   | 189 |  
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Earnings before interest, taxes and depreciation |  |       | 7   |        |  |         | 4  |          |  |   |    |   |  |   | 11  |  
|Depreciation                                     |  |       | (12 | )      |  |         | (1 | )        |  |   |    |   |  |   | (13 | )
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Operating earnings                               |  | $     | (5  | )      |  | $       | 3  |          |  | $ |    |   |  | $ | (2  | )
|                                                 |  |       |     |        |  |         |    |          |  |   |     |   |  |   |     |  
|Capital investments                              |  | $     | 3   |        |  | $       |   |          |  |   |     |   |  | $ | 3   |  

G-6



---



##### 






EXHIBIT H

PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS

OF


FRASER PAPERS INC.


MARCH 27, 2004

H-1



---



##### 



Compilation Report

To the Directors of Nexfor Inc.,

We have read the accompanying unaudited pro forma
consolidated balance sheet of Fraser Papers Inc. (the
Company) as at March 27, 2004 and unaudited pro
forma consolidated statements of operations for the three months
then ended and for the year ended December 31, 2003, and
have performed the following procedures:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Compared the figures in the columns captioned
    March 27, 2004 to the unaudited financial
    statements of the Fraser Papers division of Nexfor Inc. (the
    Division) as at March 27, 2004 and for the
    three months then ended, and the column December 31,
    2003 to the audited financial statements of the Division
    for the year ended December 31, 2003, respectively, and
    found them to be in agreement.
|
| | (b) | Made enquiries of certain officials of the
    Company who have responsibility for financial and accounting
    matters about:                                                                                                                                                                                                                                                                                                        



| |      |                                                                                                                                                                       
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | the basis for determination of the pro forma
    adjustments; and                                                                                                     
|
| | (ii) | whether the pro forma consolidated financial
    statements comply as to form in all material respects with
    applicable requirements of National Instrument 44-101.

The officials:



| |       |                                                                                                                                                                           
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | described to us the basis for determination of
    the pro forma adjustments; and                                                                                         
|
| | (iv)  | stated that the pro forma consolidated financial
    statements comply as to form in all material respects with
    applicable requirements of National Instrument 44-101.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Read the notes to the pro forma consolidated
    financial statements, and found them to be consistent with the
    basis described to us for determination of the pro forma
    adjustments.                                                                                                                                                                                                                                                              
|
| | (d) | Recalculated the application of the pro forma
    adjustments to the column captioned March 27,
    2004 as at March 27, 2004 and for the three months
    then ended, and to the column captioned December 31,
    2003 for the year ended December 31, 2003, and found
    the amounts in the columns captioned Pro forma
    Consolidated Balance Sheet and Pro forma
    Consolidated Statement of Operations to be arithmetically
    correct.

A pro forma consolidated financial statement is
based on management assumptions and adjustments which are
inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the
objective of which is the expression of assurance with respect
to managements assumptions, the pro forma adjustments, and
the application of the adjustments to the historical financial
information. Accordingly, we express no such assurance. The
foregoing procedures would not necessarily reveal matters of
significance to the pro forma consolidated financial statements,
and we therefore make no representation about the sufficiency of
the procedures for the purposes of a reader of such statements.

ERNST & YOUNG SIG

Toronto, Canada


|               |                      
|-------------- | ---------------------
|April 30, 2004 | Chartered Accountants

H-2



---



##### 



Fraser Papers Inc.

Pro Forma Consolidated Balance Sheet

As at


(US$ millions)


|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |     |     | 
|------------------------------------------------------------------- | ---------------------------------------- | ------------------- | --- | ----------- | --- | -------- | ---- | ------------- | -- |  | ------ | ------ | --- | - | --- | --- | --- | 
|                                                                    |                                          |                     |     |             |     |          |      | Pro Forma    
|(unaudited)                                                         |                                          | March 27,           |     | Pro Forma   |     | (Note 2) |      | Consolidated 
|                                                                    |                                          | 2004                |     | Adjustments |     | Ref      |      | Balance Sheet
|                                                                    |                                          |                     |     |             |     |          |      |              
|Assets                                                              |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|Current assets:                                                     |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    |                                          | Cash                |     | $           | 1   |          |      | $             | 29 |  |        |        | [a] |   |     | $   | 30  | 
|                                                                    |                                          | Accounts receivable |     |             | 57  |          |      |               | 63 |  |        |        | [c] |   |     |     | 120 | 
|                                                                    |                                          | Inventory           |     |             | 141 |          |      |               |    |  |        |        |     |   |     |     | 141 | 
|                                                                    |                                          | Future income taxes |     |             | 11  |          |      |               |    |  |        |        |     |   |     |     | 11  | 
|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    |                                          |                     | 210 |             |     |          | 92   |               |    |  |        |        |     |   | 302 |    
|Property, plant and equipment                                       |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    |                                          | Paper               |     |             | 466 |          |      |               |    |  |        |        |     |   |     |     | 466 | 
|                                                                    |                                          | Timber              |     |             | 53  |          |      |               |    |  |        |        |     |   |     |     | 53  | 
|Other assets                                                        |                                          |                     | 25  |             |     |          |      |               |    |  |        |        |     |   | 25  |    
|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    |                                          | $                   | 754 |             |     | $        | 92   |               |    |  |        |        |     | $ | 846 |    
|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|Liabilities and Nexfors Net Investment
    or Shareholders Equity
|Current liabilities:                                                |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    | Bank advances                            |                     | $   | 4           |     |          | $    | (4            | )  |  |        | [a][d] |     |   | $   |    |    
|                                                                    | Accounts payable and accrued liabilities |                     |     | 124         |     |          |      |               |    |  |        |        |     |   |     | 124 |    
|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    |                                          |                     | 128 |             |     |          | (4   | )             |    |  |        |        |     |   | 124 |    
|Long-term debt                                                      |                                          |                     | 1   |             |     |          | 90   |               |    |  | [a]    |        |     |   | 91  |    
|Other liabilities                                                   |                                          |                     | 63  |             |     |          |      |               |    |  |        |        |     |   | 63  |    
|Future income taxes                                                 |                                          |                     | 26  |             |     |          | 42   |               |    |  | [a][e] |        |     |   | 68  |    
|Nexfors net investment                                             |                                          |                     | 536 |             |     |          | (536 | )             |    |  | [a][d] |        |     |   |    |    
|Shareholders equity                                                |                                          |                     |     |             |     |          | 500  |               |    |  | [a]    |        |     |   | 500 |    
|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    
|                                                                    |                                          | $                   | 754 |             |     | $        | 92   |               |    |  |        |        |     | $ | 846 |    
|                                                                    |                                          |                     |     |             |     |          |      |               |    |  |        |        |     |   |     |    

On behalf of the Board of Nexfor Inc.:

|                  |  |                                    
|----------------- |  | -----------------------------------
|K. LINN MACDONALD |  | DOMINIC GAMMIERO                   
|Chairman          |  | President & Chief Executive Officer

(See accompanying notes)

H-3



---



##### 



Fraser Papers Inc.

Pro Forma Consolidated Statement of
Operations

Three Months Ended


(US$ millions, except per share information)


|                                                                            |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |    |  
|--------------------------------------------------------------------------- | ------ | --------- | --- | ----------- | - | -------- | - | ------------ |  |  | ------ |  |  | -- | ---- | -- | -
|                                                                            |        |           |     |             |   |          |   | Pro Forma   
|                                                                            |        |           |     |             |   |          |   | Consolidated
|(unaudited)                                                                 |        | March 27, |     | Pro Forma   |   | (Note 2) |   | Statement of
|                                                                            |        | 2004      |     | Adjustments |   | Ref      |   | Operations  
|                                                                            |        |           |     |             |   |          |   |             
|Net sales                                                                   |        | $         | 221 |             |   | $        |   |              |  |  |        |  |  | $  | 221  |   
|                                                                            |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |   
|Earnings before interest, taxes, depreciation and
    restructuring charge: |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |   
|                                                                            | Paper  |           |     | (3          | ) |          |   |              |  |  |        |  |  |    |      | (3 | )
|                                                                            | Timber |           |     | 3           |   |          |   |              |  |  |        |  |  |    |      | 3  |  
|                                                                            |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |   
|                                                                            |        |           |    |             |   |          |   |              |  |  |        |  |  |    |     |   
|Fees on sale of accounts receivable                                         |        |           | (1  | )           |   |          | 1 |              |  |  | [c]    |  |  |    |     |   
|Interest expense                                                            |        |           | (3  | )           |   |          | 2 |              |  |  | [a][b] |  |  |    | (1   | ) 
|                                                                            |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |   
|Earnings before depreciation and taxes                                      |        |           | (4  | )           |   |          | 3 |              |  |  |        |  |  |    | (1   | ) 
|Depreciation                                                                |        |           | (11 | )           |   |          |   |              |  |  |        |  |  |    | (11  | ) 
|Income tax recovery                                                         |        |           | 1   |             |   |          |   |              |  |  |        |  |  |    | 1    |   
|                                                                            |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |   
|Loss                                                                        |        | $         | (14 | )           |   | $        | 3 |              |  |  |        |  |  | $  | (11  | ) 
|                                                                            |        |           |     |             |   |          |   |              |  |  |        |  |  |    |      |   
|Loss per common share (note 3)                                              |        |           |     |             |   |          |   |              |  |  |        |  |  | ($ | 0.37 | ) 

(See accompanying notes)

H-4



---



##### 



Fraser Papers Inc.

Pro Forma Consolidated Statement of
Operations

Year Ended


(US$ millions, except per share information)


|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |     |  
|--------------------------------------------------------------------------- | ------ | ------------ | --- | ----------- | - | -------- | -- | ------------ |  |  | ------ |  |  | - | ----- | --- | -
|                                                                            |        |              |     |             |   |          |    | Pro Forma   
|                                                                            |        |              |     |             |   |          |    | Consolidated
|(unaudited)                                                                 |        | December 31, |     | Pro Forma   |   | (Note 2) |    | Statement of
|                                                                            |        | 2003         |     | Adjustments |   | Ref      |    | Operations  
|                                                                            |        |              |     |             |   |          |    |             
|Net sales                                                                   |        | $            | 873 |             |   | $        |    |              |  |  |        |  |  | $ | 873   |    
|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    
|Earnings before interest, taxes, depreciation and
    restructuring charge: |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    
|                                                                            | Paper  |              |     | (13         | ) |          |    |              |  |  |        |  |  |   |       | (13 | )
|                                                                            | Timber |              |     | 11          |   |          |    |              |  |  |        |  |  |   |       | 11  |  
|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    
|                                                                            |        |              | (2  | )           |   |          |    |              |  |  |        |  |  |   | (2    | )  
|Restructuring charge                                                        |        |              | (26 | )           |   |          |    |              |  |  |        |  |  |   | (26   | )  
|Interest income                                                             |        |              | 1   |             |   |          |    |              |  |  |        |  |  |   | 1     |    
|Fees on sale of accounts receivable                                         |        |              | (6  | )           |   |          | 6  |              |  |  | [c]    |  |  |   |      |    
|Interest expense                                                            |        |              | (11 | )           |   |          | 7  |              |  |  | [a][b] |  |  |   | (4    | )  
|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    
|Earnings before depreciation and taxes                                      |        |              | (44 | )           |   |          | 13 |              |  |  |        |  |  |   | (31   | )  
|Depreciation                                                                |        |              | (49 | )           |   |          |    |              |  |  |        |  |  |   | (49   | )  
|Income tax recovery (expense)                                               |        |              | 1   |             |   |          |    |              |  |  |        |  |  |   | 1     |    
|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    
|Loss                                                                        |        | $            | (92 | )           |   | $        | 13 |              |  |  |        |  |  | $ | (79   | )  
|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    
|Loss per common share (note 3)                                              |        |              |     |             |   |          |    |              |  |  |        |  |  | $ | (2.63 | )  
|                                                                            |        |              |     |             |   |          |    |              |  |  |        |  |  |   |       |    

(See accompanying notes)

H-5



---



##### 



Fraser Papers Inc.

Notes to the Pro Forma Consolidated Financial
Statements

(in millions of US dollars, except per share
information)


(unaudited)

In these notes Nexfor means Nexfor
Inc. and all of its consolidated subsidiaries and affiliates,
and Fraser Papers means the Fraser Papers division
of Nexfor Inc. as it has been carved out under the Plan of
Arrangement (the Arrangement).

Note 1.     Basis
of Presentation

The pro forma consolidated financial statements
have been prepared in accordance with Canadian generally
accepted accounting principles. The pro forma consolidated
balance sheet has been prepared from the combined balance sheet
of Fraser Papers as at March 27, 2004. The pro forma
consolidated statements of operations for the three months ended
March 27, 2004 and the year ended December 31, 2003
have been prepared from the combined statements of operations
for the periods then ended. These pro forma consolidated
financial statements should be read in conjunction with the
combined financial statements of Fraser Papers, including the
notes thereto, which are presented elsewhere in the information
circular.

These pro forma consolidated financial statements
are not necessarily indicative of the financial position or
results of operations that would have resulted had the relevant
transactions taken place at the respective dates referred to
below.

Note 2.     Pro
Forma Assumptions and Adjustments

The pro forma consolidated financial statements
have been presented assuming the Arrangement, as described
elsewhere in this information circular has been effected on
January 1, 2003 for the pro forma consolidated statements
of operations and on March 27, 2004 for the pro forma
consolidated balance sheet. These pro forma consolidated
financial statements give effect to the following items:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Nexfor will distribute $500 of shareholders
    equity to its shareholders on the Effective Date comprising the
    assets and liabilities of Fraser Papers, $30 of cash and a note
    payable to Norbord (the Note). The value of the Note
    will be determined on the Effective Date and will be equal to
    the amount by which the net assets distributed exceed $500,
    excluding the Note itself and any impact on carrying values
    resulting from the implementation of Section 3475 of the
    CICA Handbook, Disposal of Long-Lived Assets and
    Discontinued Operations. The Note will have a term of
    12 months, can be extended for a further 6 months, and
    will bear interest at LIBOR + 3%.
|
| | (b) | Historical interest expense relates to interest
    owing to Nexfor on amounts which are included in Nexfors
    net investment. The adjustment to interest expense gives effect
    to the elimination of Nexfors net investment as a result
    of the Arrangement and resulting capitalization of Fraser Papers.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (c) | Fraser Papers currently participates in a
    receivables purchase program (RPP) whereby a Nexfor
    affiliate purchases its accounts receivable less a fee. Fraser
    Papers will not participate in the RPP after the Effective Date
    and accordingly, the accounts receivable balance and income of
    Fraser Papers have been adjusted to reflect the termination of
    the program.                                                                                                                                                                                                                                                                                                                               
|
| | (d) | The components included in Nexfors net
    investment in Fraser Papers combined balance sheet at
    March 27, 2004 have been separately disclosed into the
    respective balance sheet lines reflecting the initial
    capitalization of Fraser Papers Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (e) | Certain of the temporary differences included in
    future income taxes on the combined balance sheet will remain
    with Norbord after the disposition of Fraser Papers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (f) | Estimated annual corporate costs of approximately
    $2 to $4 have not been reflected in these financial
    statements. Included in this estimate is salaries, professional
    services, rent and other corporate office expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

H-6



---



##### 



Note 3.     Earnings
per Common Share

Earnings per common share is calculated as
follows:

|                         |  |                  |       |                   |  |   |       |  
|------------------------ |  | ---------------- | ----- | ----------------- |  | - | ----- | -
|                         |  |                 
|                         |  | Pro Forma Period
|                         |  |                 
|                         |  | Quarter Ended    |       | Year Ended       
|                         |  | March 27, 2004   |       | December 31, 2003
|                         |  |                  |       |                  
|Loss                     |  |                  | (11   | )                 |  |   | (79   | )
|Common shares (millions) |  |                  | 30    |                   |  |   | 30    |  
|                         |  |                  |       |                   |  |   |       |  
|Loss per common share    |  | $                | (0.37 | )                 |  | $ | (2.63 | )
|                         |  |                  |       |                   |  |   |       |  

As a result of the Arrangement, it is anticipated
that Fraser Papers will have approximately 30 million
shares outstanding. This estimate is based on the number of
Nexfor Inc. shares outstanding as at March 27, 2004 and
calculated based on the terms of the Arrangement.

H-7



---



##### 






EXHIBIT I

PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS

OF


NORBORD INC.


March 27, 2004

I-1



---



##### 



Compilation Report

To the Directors of Nexfor Inc.,

We have read the accompanying unaudited pro forma
consolidated balance sheet of Norbord Inc. (the
Company) as at March 27, 2004 and unaudited pro
forma consolidated statements of earnings for the three months
then ended and for the year ended December 31, 2003, and
have performed the following procedures:



| |     |                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Compared the figures in the columns captioned
    March 27, 2004 to the unaudited financial
    statements of the Company as at March 27, 2004 and for the
    three months then ended, and the column December 31,
    2003 to the audited financial statements of the Company
    for the year ended December 31, 2003, respectively, and
    found them to be in agreement.
|
| | (b) | Made enquiries of certain officials of the
    Company who have responsibility for financial and accounting
    matters about:                                                                                                                                                                                                                                                    



| |      |                                                                                                                                                                       
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | the basis for determination of the pro forma
    adjustments; and                                                                                                     
|
| | (ii) | whether the pro forma consolidated financial
    statements comply as to form in all material respects with
    applicable requirements of National Instrument 44-101.

The officials:



| |       |                                                                                                                                                                           
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | described to us the basis for determination of
    the pro forma adjustments, and                                                                                         
|
| | (iv)  | stated that the pro forma consolidated financial
    statements comply as to form in all material respects with
    applicable requirements of National Instrument 44-101.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Read the notes to the pro forma consolidated
    financial statements, and found them to be consistent with the
    basis described to us for determination of the pro forma
    adjustments.                                                                                                                                                                                                                                                            
|
| | (d) | Recalculated the application of the pro forma
    adjustments to the column captioned March 27,
    2004 as at March 27, 2004 and for the three months
    then ended, and to the column captioned December 31,
    2003 for the year ended December 31, 2003, and found
    the amounts in the columns captioned Pro forma
    Consolidated Balance Sheet and Pro forma
    Consolidated Statement of Earnings to be arithmetically
    correct.

A pro forma consolidated financial statement is
based on management assumptions and adjustments which are
inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the
objective of which is the expression of assurance with respect
to managements assumptions, the pro forma adjustments, and
the application of the adjustments to the historical financial
information. Accordingly, we express no such assurance. The
foregoing procedures would not necessarily reveal matters of
significance to the pro forma consolidated financial statements,
and we therefore make no representation about the sufficiency of
the procedures for the purposes of a reader of such statements.

ERNST & YOUNG SIG

Toronto, Canada


|               |                      
|-------------- | ---------------------
|April 30, 2004 | Chartered Accountants

I-2



---



##### 



Norbord Inc.

Pro Forma Consolidated Balance Sheet

(US$ millions)


As at


|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |     |     | 
|---------------------------------------- | ---------------------------------------- | ------------------------- | ----- | --------------------- | --- | ------------- | ---- | ------------- | ---- | - | -- | - |  | - | ----- | --- | --- | 
|                                         |                                          |                           |       |                       |     |              
|                                         |                                          |                           |       | Pro Forma Adjustments |     |              
|                                         |                                          |                           |       |                       |     | Pro Forma    
|(unaudited)                              |                                          | March 27,                 |       | Fraser                |     | Note          |      | Consolidated 
|                                         |                                          | 2004                      |       | Papers (2a)           |     | Issuance (2b) |      | Balance Sheet
|                                         |                                          |                           |       |                       |     |               |      |              
|Assets                                   |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|Current assets:                          |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         |                                          | Cash and short-term notes |       | $                     | 187 |               |      | $             | (30  | ) |    | $ |  |   |       | $   | 157 | 
|                                         |                                          | Accounts receivable       |       |                       | 290 |               |      |               | (120 | ) |    |   |  |   |       |     | 170 | 
|                                         |                                          | Inventory                 |       |                       | 221 |               |      |               | (141 | ) |    |   |  |   |       |     | 80  | 
|                                         |                                          | Future income taxes       |       |                       | 24  |               |      |               | (11  | ) |    |   |  |   |       |     | 13  | 
|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         |                                          |                           | 722   |                       |     |               | (302 | )             |      |   |    |   |  |   | 420   |    
|Property, plant and equipment            |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         |                                          | Panels                    |       |                       | 850 |               |      |               |      |   |    |   |  |   |       |     | 850 | 
|                                         |                                          | Paper                     |       |                       | 466 |               |      |               | (466 | ) |    |   |  |   |       |     |    | 
|                                         |                                          | Timber                    |       |                       | 53  |               |      |               | (53  | ) |    |   |  |   |       |     |    | 
|Other assets                             |                                          |                           | 20    |                       |     |               | (25  | )             |      |   | 90 |   |  |   | 85    |    
|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         |                                          | $                         | 2,111 |                       |     | $             | (846 | )             |      | $ | 90 |   |  | $ | 1,355 |    
|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|Liabilities and Shareholders
    Equity |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|Current liabilities:                     |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         | Accounts payable and accrued liabilities |                           | $     | 290                   |     |               | $    | (124          | )    |   |    |   |  |   |       | 166 |    
|                                         | Current portion of long-term debt        |                           |       | 1                     |     |               |      |               |      |   |    |   |  |   |       | 1   |    
|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         |                                          |                           | 291   |                       |     |               | (124 | )             |      |   |    |   |  |   | 167   |    
|Long-term debt                           |                                          |                           | 632   |                       |     |               | (91  | )             |      |   | 90 |   |  |   | 631   |    
|Other liabilities                        |                                          |                           | 104   |                       |     |               | (63  | )             |      |   |    |   |  |   | 41    |    
|Future income taxes                      |                                          |                           | 115   |                       |     |               | (68  | )             |      |   |    |   |  |   | 47    |    
|Shareholders equity                     |                                          |                           | 969   |                       |     |               | (500 | )             |      |   |    |   |  |   | 469   |    
|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    
|                                         |                                          | $                         | 2,111 |                       |     | $             | (846 | )             |      | $ | 90 |   |  | $ | 1,355 |    
|                                         |                                          |                           |       |                       |     |               |      |               |      |   |    |   |  |   |       |    

On behalf of the Board:

|                  |  |                                    
|----------------- |  | -----------------------------------
|K. LINN MACDONALD |  | DOMINIC GAMMIERO                   
|Chairman          |  | President & Chief Executive Officer

(See accompanying notes)

I-3



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##### 



Norbord Inc.

Pro Forma Consolidated Statement of
Earnings

Three Months Ended


(US$ millions, except per share information)


|                                                 |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |      | 
|------------------------------------------------ | ------- | --------- | --- | --------------------- |  | ------------- | ---- | ------------- |  | - | - |  |  | - | --- | ---- | 
|                                                 |         |           |     |                       |  |              
|                                                 |         |           |     | Pro Forma adjustments |  |              
|                                                 |         |           |     |                       |  | Pro Forma    
|(unaudited)                                      |         | March 27, |     | Fraser                |  | Note          |      | Consolidated 
|                                                 |         | 2004      |     | Papers (2a)           |  | Issuance (2b) |      | Balance Sheet
|                                                 |         |           |     |                       |  |               |      |              
|Net sales                                        |         | $         | 569 |                       |  | $             | (221 | )             |  | $ |   |  |  | $ | 348 |     
|                                                 |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |     
|Earnings before interest, taxes and depreciation |         |           | 157 |                       |  |               |      |               |  |   |   |  |  |   | 157 |     
|Interest and other income                        |         |           | 1   |                       |  |               |      |               |  |   | 1 |  |  |   | 2   |     
|Interest expense                                 |         |           | (8  | )                     |  |               |      |               |  |   |   |  |  |   | (8  | )   
|                                                 |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |     
|Earnings before depreciation and taxes           |         |           | 150 |                       |  |               |      |               |  |   | 1 |  |  |   | 151 |     
|Depreciation                                     |         |           | (30 | )                     |  |               | 11   |               |  |   |   |  |  |   | (19 | )   
|Income tax recovery (expense)                    |         |           | (39 | )                     |  |               | (4   | )             |  |   |   |  |  |   | (43 | )   
|                                                 |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |     
|Earnings                                         |         | $         | 81  |                       |  | $             | 7    |               |  | $ | 1 |  |  | $ | 89  |     
|                                                 |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |     
|Earnings per common share (note 3)               |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |     
|                                                 | Basic   |           | $   | 0.54                  |  |               |      |               |  |   |   |  |  |   | $   | 0.60 | 
|                                                 | Diluted |           | $   | 0.54                  |  |               |      |               |  |   |   |  |  |   | $   | 0.60 | 
|                                                 |         |           |     |                       |  |               |      |               |  |   |   |  |  |   |     |     

(See accompanying notes)

I-4



---



##### 



Norbord Inc.

Pro Forma Consolidated Statement of
Earnings

Year Ended


(US$ millions, except per share information)


|                                                                           |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |      | 
|-------------------------------------------------------------------------- | ------- | ------------ | ----- | --------------------- |  | ------------- | ---- | ----------- |  | - | -- | - |  | - | ----- | ---- | 
|                                                                           |         |              |       |                       |  |              
|                                                                           |         |              |       | Pro Forma adjustments |  | Pro Forma    
|                                                                           |         |              |       |                       |  | Consolidated 
|(unaudited)                                                                |         | December 31, |       | Fraser                |  | Note          |      | Statement  
|                                                                           |         | 2003         |       | Papers (2a)           |  | Issuance (2b) |      | of Earnings
|                                                                           |         |              |       |                       |  |               |      |            
|Net sales                                                                  |         | $            | 1,939 |                       |  | $             | (873 | )           |  | $ |    |   |  | $ | 1,066 |     
|                                                                           |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|Earnings before interest, taxes, depreciation and
    restructuring charge |         |              | 359   |                       |  |               | 2    |             |  |   |    |   |  |   | 361   |     
|Restructuring charge                                                       |         |              | (26   | )                     |  |               | 26   |             |  |   |    |   |  |   |      |     
|Interest and other income                                                  |         |              | 5     |                       |  |               | (1   | )           |  |   | 4  |   |  |   | 8     |     
|Interest expense                                                           |         |              | (37   | )                     |  |               |      |             |  |   |    |   |  |   | (37   | )   
|                                                                           |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|Earnings before depreciation and taxes                                     |         |              | 301   |                       |  |               | 27   |             |  |   | 4  |   |  |   | 332   |     
|Depreciation                                                               |         |              | (124  | )                     |  |               | 49   |             |  |   |    |   |  |   | (75   | )   
|Income tax recovery (expense)                                              |         |              | (61   | )                     |  |               | (27  | )           |  |   | (1 | ) |  |   | (89   | )   
|                                                                           |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|Earnings from continuing operations                                        |         | $            | 116   |                       |  | $             | 49   |             |  | $ | 3  |   |  | $ | 168   |     
|Gain on sale of discontinued operations                                    |         |              | 12    |                       |  |               |      |             |  |   |    |   |  |   | 12    |     
|Earnings of discontinued operations                                        |         |              | (2    | )                     |  |               |      |             |  |   |    |   |  |   | (2    | )   
|                                                                           |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|Earnings                                                                   |         | $            | 126   |                       |  | $             | 49   |             |  | $ | 3  |   |  | $ | 178   |     
|                                                                           |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|Earnings from continuing operations per common
    share: (note 3)         |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|                                                                           | Basic   |              | $     | 0.78                  |  |               |      |             |  |   |    |   |  |   | $     | 1.14 | 
|                                                                           | Diluted |              | $     | 0.78                  |  |               |      |             |  |   |    |   |  |   | $     | 1.14 | 
|Earnings per common share:                                                 |         |              |       |                       |  |               |      |             |  |   |    |   |  |   |       |     
|                                                                           | Basic   |              | $     | 0.85                  |  |               |      |             |  |   |    |   |  |   | $     | 1.21 | 
|                                                                           | Diluted |              | $     | 0.85                  |  |               |      |             |  |   |    |   |  |   | $     | 1.21 | 

(See accompanying notes)

I-5



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##### 



Norbord Inc.

Notes to the Pro Forma Consolidated Financial
Statements

(in millions of US dollars, except per share
information)


(unaudited)

Note 1. Basis of
Presentation

The pro forma consolidated financial statements
have been prepared in accordance with Canadian generally
accepted accounting principles. The pro forma consolidated
balance sheet of Norbord Inc. (Norbord) has been
prepared from the consolidated balance sheet of Nexfor Inc. as
at March 27, 2004. The pro forma consolidated statement of
earnings for the three months ended March 27, 2004 and the
year ended December 31, 2003 have been prepared from the
consolidated statements of earnings for the periods then ended.
These pro forma consolidated financial statements should be read
in conjunction with those consolidated financial statements.

These pro forma consolidated financial statements
are not necessarily indicative of the financial position or
results of operations that would have resulted had the relevant
transactions taken place at the respective dates referred to
below.

Note 2. Pro Forma Assumptions and
Adjustments

The pro forma consolidated financial statements
have been presented assuming the Arrangement, as described
elsewhere in this information circular has been effected on
January 1, 2003 for the pro forma consolidated statements
of earnings and on March 27, 2004 for the pro forma
consolidated balance sheet. These pro forma consolidated
financial statements give effect to the following items:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | The distribution of the Fraser Papers division as
    at March 27, 2004, after the assumptions and adjustments
    that give effect to the capitalization of Fraser Papers Inc..                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | b. | Upon distribution of Fraser Papers Inc., Norbord
    will take back a note payable from Fraser Papers Inc. (the
    Note). The value of the Note will be determined on
    the Effective Date and will be equal to the amount by which the
    net assets distributed exceeds $500, excluding the Note itself
    and any impact from the implementation of Section 3475 of
    the CICA Handbook, Disposal of Long-Lived Assets and
    Discontinued Operations. The Note will have a term of
    12 months, can be extended for 6 months and will bear
    interest at Libor +3%.

I-6



---



##### 



Note 3. Earnings per common
share

Earnings per common share is calculated as
follows:

|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |       |      | 
|------------------------------------------------------------------------- | -------------------------------------------------------- | ------------- | -- | ---------- | ---- | ------- | -- | ----- | ---- | - | --- | ----- | ---- | - | --- | ----- | ---- | 
|                                                                          |                                                          |               |    |           
|                                                                          |                                                          | Quarter Ended |    | Year Ended
|                                                                          |                                                          |               |    |           
|                                                                          |                                                          | Mar 27,       |    | Pro        |      | Dec 31, |    | Pro  
|                                                                          |                                                          | 2004          |    | Forma      |      | 2003    |    | Forma
|                                                                          |                                                          |               |    |            |      |         |    |      
|Earnings from continuing operations available to
    common shareholders: |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          | Earnings from continuing operations                      |               |    |            |      |         |    |       |      |   | $   | 116   |      |   | $   | 168   |     
|                                                                          | Less: Preferred share dividends                          |               |    |            |      |         |    |       |      |   |     | (2    | )    |   |     | (2    | )   
|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          |                                                          |               |    |            |      |         |    |       |      | $ | 114 |       |      | $ | 166 |      
|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|Earnings available to common shareholders                                 |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          | Earnings                                                 |               | $  | 81         |      |         | $  | 89    |      |   | $   | 126   |      |   | $   | 178   |     
|                                                                          | Less: Preferred share dividends                          |               |    |           |      |         |    |      |      |   |     | (2    | )    |   |     | (2    | )   
|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          |                                                          | $             | 81 |            |      | $       | 89 |       |      | $ | 124 |       |      | $ | 176 |      
|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|Common shares (millions):                                                 |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          | Weighted average number of common shares
    outstanding |               |    | 148.4      |      |         |    | 148.4 |      |   |     | 145.7 |      |   |     | 145.7 |     
|                                                                          | Stock options                                            |               |    | 1.4        |      |         |    | 1.4   |      |   |     | 0.3   |      |   |     | 0.3   |     
|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          | Diluted number of common shares                          |               |    | 149.8      |      |         |    | 149.8 |      |   |     | 146.0 |      |   |     | 146.0 |     
|                                                                          |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|Earnings from continuing operations per common
    share:                 |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          | Basic                                                    |               |    |            |      |         |    |       |      |   | $   | 0.78  |      |   | $   | 1.14  |     
|                                                                          | Diluted                                                  |               |    |            |      |         |    |       |      |   | $   | 0.78  |      |   | $   | 1.14  |     
|Earnings per common share:                                                |                                                          |               |    |            |      |         |    |       |      |   |     |       |      |   |     |      
|                                                                          |                                                          | Basic         |    | $          | 0.54 |         |    | $     | 0.60 |   |     | $     | 0.85 |   |     | $     | 1.21 | 
|                                                                          |                                                          | Diluted       |    | $          | 0.54 |         |    | $     | 0.60 |   |     | $     | 0.85 |   |     | $     | 1.21 | 

Note 4. Commitments and
Contingencies

In the ordinary course of business, Nexfor Inc.
has provided financial guarantees to its wholly-owned
subsidiaries, including Fraser Papers. Upon approval of the
Arrangement, Norbord will continue to provide these guarantees
to Fraser Papers for a period of up to 18 months. It is
estimated that guarantees in the range of $70 to $90 will be
outstanding after giving effect to the Arrangement.

I-7



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##### 






EXHIBIT J

CORPORATE GOVERNANCE PRACTICES

Nexfor is committed to following sound corporate
governance policies and practices to ensure that the interests
of our shareholders, employees and the communities in which we
operate are continuously maintained.

As a public company listed on the Toronto Stock
Exchange (TSX), Nexfors corporate governance policies and
practices, in all material respects, meet the guidelines for
improved corporate governance in Canada, adopted by the TSX and
applicable requirements of the Sarbanes-Oxley Act of 2002.

Role of Board of Directors

The Board of Directors is responsible for
overseeing the management of Nexfors affairs directly and
through its committees. At all times, the Board intends to act
on behalf of the best interests of the shareholders of Nexfor.

Among its principal responsibilities, the
Board:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reviews and approves Nexfors overall
    business strategy and its annual business plan                                                                                                                                
|
| |  | Reviews the risks and alternatives in
    Nexfors business to ensure appropriate systems or plans
    are in place to manage these risks                                                                               
|
| |  | Reviews and approves strategic initiatives and
    capital investment plans to ensure Nexfors proposed
    actions are consistent with shareholders objectives and
    expectations                                   
|
| |  | Appoints the CEO and approves the appointment of
    senior management                                                                                                                                                  
|
| |  | Establishes a compensation plan for the CEO and
    approves the compensation of senior management                                                                                                                      
|
| |  | Reviews succession and development plans for
    senior management                                                                                                                                                      
|
| |  | Maintains integrity within Nexfor by reviewing
    and monitoring disclosure controls and procedures, internal
    controls and procedures for financial reporting and compliance
    with the Code of Business Conduct 
|
| |  | Approves Nexfors financial reports to
    shareholders                                                                                                                                                                 
|
| |  | Sets the Corporations dividend policy and
    approves quarterly dividends                                                                                                                                             
|
| |  | Ensures the effective operation of the Board and
    its committees                                                                                                                                                     
|
| |  | Assesses managements performance against
    approved business plans and key industry performance indicators                                                                                                           
|
| |  | Ensures policies and processes are in place to
    address key business issues of the Corporation including
    financial, environmental, health and safety, business conduct,
    pension management and communications
|
| |  | Approves significant and material issues 
    in addition to those matters that must, by law, be approved by
    the Board, Nexfors Board also provides approval on:                                                  



| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any disposition or expenditure in excess of CAD
    $3 million and for any cost overrun on any of these
    projects in excess of 10% or CAD $2 million whichever is
    less,
|
| |  | any new loan agreement or guarantee for an amount
    in excess of CAD $10 million,                                                                                           
|
| |  | changes in senior management at the Corporation
    and its principal operating subsidiaries, and                                                                             
|
| |  | any other material agreement or arrangement that
    is not in the ordinary course of business.                                                                               

Meetings of the Board

The Board of Directors meets at least quarterly,
plus at least once per year to review Nexfors strategy,
with additional meetings scheduled when required. While most
Board meetings are held at the Nexfor corporate office in
Toronto, meetings are periodically held at an operating
location. This gives the Directors an opportunity to improve
their understanding of the operations of Nexfor.

Composition and Size of the Board

The Board of Directors currently comprises
13 Directors, including 11 independent Directors, four
of which are closely related to the Corporations major
shareholder, Brascan Corporation, and two related Directors
including the

J-1



---



##### 



CEO. The Board considers that this combination
leads to a constructive exchange of views in Board deliberations
resulting in objective, balanced and informed decision-making.


The Corporations Directors represent a
diverse base of business skills and experiences to ensure
effective oversight and reporting.

Independent
Directors          11
of 13

J.W. Bud Bird

Jack L. Cockwell*


Dian Cohen


Pierre Dupuis


J. Bruce Flatt*


Gordon E. Forward


Robert J. Harding*


Aldéa Landry


Margot Northey


Timothy R. Price*


Don S. Wells


Related
Directors          2
of 13

Dominic Gammiero


K. Linn Macdonald (Chairman)







|  |                                                            
|- | -----------------------------------------------------------
|* | Denotes Director closely related to Brascan
    Corporation

Eleven of the 13 Directors, comprising a
majority of the Board, are unrelated directors within the
meaning of the TSX Guidelines. The two Directors considered to
be related within the meaning of the TSX Guidelines are: Dominic
Gammiero, President and CEO of Nexfor since 1999, and
K. Linn Macdonald, Chairman of the Board and former
President and CEO of the Corporation from 1991-1999.

It is the policy and practice of the Board that
at each regular meeting, the Directors meet and discuss the
Corporations affairs without management Directors present.
These sessions are conducted under the direction of the
Corporations Lead Director, Robert J. Harding, and any
material information is reported to management.

Committees of the Board

Board committees assist in the effective
functioning of the Corporations Board of Directors. The
composition of the Board committees, all of which consist of
independent Directors, should ensure that the views of unrelated
and independent Directors are effectively represented.

Nexfors Board of Directors has five
Committees: the Audit Committee, the Corporate Governance
Committee, the Human Resources Committee, the Pension Committee
and the Environment, Health and Safety Committee. It is the
Boards policy that each Committee meets without management
Directors present at each of its meetings.

Special Committees may be formed from time to
time as required to review particular matters or transactions.

Audit Committee

The Audit Committee assists the Board in meeting
its fiduciary responsibilities relating to corporate accounting
and reporting practices. Its duties include overseeing internal
controls, reviewing risk management practices, and approving
quarterly and annual financial filings. The extensive review of
audit Committees now underway in Canada and the United States
has led to a number of specific regulations and recommendations
on the mandate, practices and performance of audit committees.
As a result, Nexfor will continue to review the terms of
reference of the Audit Committee and update the charter as
further rules are established. Full terms of reference for the
Audit Committee are set out in Exhibit L to this Circular
and are on the Corporations website at www.nexfor.com

The Audit Committee comprises four independent
Directors: J.W. Bud Bird (Chair), Pierre Dupuis, Gordon
E. Forward and Don S. Wells.

J-2



---



##### 



Corporate Governance Committee

The Corporate Governance Committee is responsible
for the development and monitoring of the Corporations
corporate governance practices. Its duties include the
identification and recommendation of potential nominees or
appointees to the Board and the assessment of the effectiveness
of the Board, its size and composition, its committee structure
and the individual performance of its directors. The Committee
also has responsibility for the review of the Corporations
communications policy and its Code of Business Conduct. Full
terms of reference for the Corporate Governance Committee are
available on the Corporations website at www.nexfor.com

The Corporate Governance Committee comprises four
independent Directors: Dian Cohen (Chair), Robert
J. Harding, Margot Northey and Don S. Wells.

Human Resources Committee

The Human Resources Committee approves the
Corporations compensation and benefits policy and monitors
its implementation. It reviews management succession plans and
considers appointments of officers of the Corporation. The
Committee annually assesses the performance of the Chief
Executive Officer against agreed targets and recommends the
CEOs compensation to the Board. For all other officers,
the Committee approves the compensation levels. Together with
the Chief Executive Officer, the Committee reviews the
performance of senior officers of the Corporation and makes
compensation recommendations to the Board. The Committee also
recommends compensation for Directors. Full terms of reference
for the Human Resources Committee are available on the
Corporation website at www.nexfor.com.

The Human Resources Committee comprises five
independent Directors: Jack L. Cockwell (Chair), Pierre
Dupuis, Gordon E. Forward, Robert J. Harding and
Margot Northey.

Pension Committee

The Pension Committee is responsible for
overseeing the funding, investment management and administration
of Nexfors employee retirement plans, as managed by the
Corporations Pension Management Committee (consisting of
senior finance and human resources executives). The Pension
Committee approves the appointment of Pension Management
Committee members; reviews and approves the appointment of
outside firms engaged to support the investment and funding
activities of the plans; reviews and approves funding
objectives, assumptions and strategies in respect of
Nexfors defined benefit plans; and annually assesses the
overall performance and regulatory compliance of Nexfors
retirement plans. Full terms of reference for the Pension
Committee are available on the Company website at www.nexfor.com.

The Pension Committee comprises four independent
Directors: J.W. Bud Bird, Dian Cohen, Aldéa Landry, and
Timothy R. Price (Chair).

Environment, Health and Safety
Committee

The mandate of the Environment, Health and Safety
Committee is to assist the Board in carrying out its
responsibilities with respect to health, safety and
environmental issues. The Committee reviews compliance with
relevant Board resolutions and with the Corporations
environmental and health and safety policies, and assesses the
effectiveness of the Corporations environmental management
processes and health and safety programs including the review of
internal audits of these processes and programs.

Full terms of reference for the Environment,
Health and Safety Committee are available on the Corporation
website at www.nexfor.com.

The Environment, Health and Safety Committee
comprises six independent directors: Dian Cohen, J. Bruce
Flatt, Gordon E. Forward, Aldéa Landry, Margot Northey
(Chair) and Timothy R. Price.

Nexfor Management

The primary responsibility of management is to
create value for its shareholders based on an approved business
strategy and action plan. The Board of Directors is responsible
to ensure the performance of management is adequate and to bring
about any management change that will enable Nexfor to perform
satisfactorily. Nexfors corporate governance principles
are intended to encourage autonomy and effective decision-making
by management while ensuring scrutiny by Nexfors Board of
Directors and its Committees.

J-3



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##### 



Role of Chairman

The Chairman is appointed by the Board of
Directors. The role of the Chairman is as follows:



| |    |                                                                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Manage the business of the Board and ensure that
    the functions identified in the Terms of Reference of the Board
    are being effectively carried out by the Board and its Committees
|
| | 2. | Ensure that all Directors receive the information
    required for the proper performance of their duties                                                                                 
|
| | 3. | Ensure that the appropriate committee structure
    is in place and recommend appointments to such Committees                                                                             
|
| | 4. | Lead in the annual review of Director and Board
    performance and make recommendations for changes when appropriate                                                                     
|
| | 5. | Work with the CEO and senior management to
    monitor progress on strategic planning, policy implementation
    and succession planning                                                  

Role of President and CEO

The President and CEO reports to and is
accountable to the Board of Directors. The CEOs role is as
follows:



| |    |                                                                                                                                                                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Provide leadership of the Corporation and,
    subject to approved policies and direction by the Board, manage
    the operation, organization and administration of the Corporation                                                                                                                                    
|
| | 2. | Present to the Board for approval a long-term
    vision for the Corporation together with strategies to achieve
    that vision, the risks and alternatives to these strategies and
    specific steps and performance indicators, which will enable the
    Board to evaluate progress on implementing such strategies
|
| | 3. | Propose to the Board for approval annual capital
    and operating plans that implement the Corporations
    strategies together with key financial and other performance
    goals for the Corporations activities and report regularly
    to the Board on the progress against these goals                         
|
| | 4. | Act as the primary spokesperson for the
    Corporation to all its stakeholders                                                                                                                                                                                                                                         
|
| | 5. | Present to the Board for approval annually an
    assessment of the Corporations management resources
    together with a succession plan that provides for the orderly
    succession of senior management including the recruitment,
    training and development required                                           
|
| | 6. | Recommend to the Board the appointment or
    termination of any officer of the Corporation other than the
    Chairman                                                                                                                                                                                                 
|
| | 7. | Develop and implement the systems and processes
    to support the policies established by the Board                                                                                                                                                                                                                    

Role of the Lead Director

The Lead Director is appointed by the independent
Directors. The Lead Directors role is as follows:



| |    |                                                             
| | -- | ------------------------------------------------------------
| | 1. | Chair meetings held without management Directors
    present
|
| | 2. | Liaise between management and independent
    Directors     

Board Information

The information provided by Nexfor management to
the Board of Directors is critical to the Boards
effectiveness. In addition to reports presented to the Board at
regular and special meetings, the Board is also informed on a
timely basis by management of corporate developments and key
decisions by management in pursuing Nexfors strategic plan.

New Directors are provided with comprehensive
information about Nexfor.

All Directors have the opportunity to meet and
participate in work sessions with management to obtain insight
into the operations and business of the Corporation. Directors
are also free to consult with members of management, whenever
they so require, and to engage outside advisors with the
Chairmans authorization.

Management Remuneration

Nexfors remuneration policies are intended
to provide a direct link between competitive industry
compensation and Corporation and individual performance. Bonus
compensation is reviewed annually by the CEO and approved by

J-4



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##### 



the Board of Directors. Periodic reviews of
compensation practices are carried out to ensure management is
fairly rewarded, based on performance.


Communications Policy

Nexfor keeps shareholders informed of its
activities and progress through a comprehensive annual report,
quarterly reports and news releases. A regularly updated web
site (www.nexfor.com) provides additional information about the
Corporation as well as ready access to published reports, news
releases, statutory filings and supplemental information
provided to financial analysts and investors.

Directors and management meet with Nexfor
shareholders at the annual meeting, held in Toronto, and are
available to respond to shareholder questions.

Nexfors investor relations program seeks to
ensure that shareholder enquiries are responded to in a timely
manner. Management meets on a regular basis with investment
analysts and financial advisors to ensure that accurate
information is available to investors, including quarterly
conference calls and web casts to discuss Nexfors results.
Nexfor also endeavors to ensure news media is kept apprised of
developments as they occur.

All Nexfor communications are carried out in
accordance with the Corporations Corporate Disclosure
Policy, which is posted on Nexfors website at
www.nexfor.com. This ensures fairness, accuracy and timeliness
in reporting material information that is likely to affect the
price of Nexfors publicly traded securities.

January, 2004

J-5



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##### 






EXHIBIT K

BOARD OF DIRECTORS  TERMS OF
REFERENCE

1.   Role of Board

The role of the Board of directors is to
supervise the business and affairs of the Corporation, which are
conducted by its officers and employees under the direction of
the Chief Executive Officer (CEO), to enhance the
long-term value of the Corporation for its shareholders. The
Board is elected by the shareholders to oversee management to
ensure that the best interests of the shareholders are advanced
by enhancing shareholder value in a manner that recognizes the
concerns of other stakeholders in the Corporation including its
employees, suppliers, customers and the communities in which it
operates.

2.   Authority and
Responsibilities

The Board of Directors meets regularly to review
reports by management on the performance of the Corporation. In
addition to the general supervision of management, the Board
performs the following functions:



| |     |                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | strategic
    planning overseeing the
    strategic planning process within the Corporation and reviewing,
    approving and monitoring the strategic plan for the Corporation,
    including fundamental financial and business strategies and
    objectives;                                       
|
| | (b) | risk
    assessment assessing the
    major risks facing the Corporation and reviewing, approving and
    monitoring the manner of managing those risks;                                                                                                                                              
|
| | (c) | CEO
    developing a position description for the CEO including the
    corporate objectives that the CEO is responsible for meeting and
    selecting, evaluating and compensating the CEO;                                                                                                          
|
| | (d) | senior
    management overseeing the
    selection, evaluation and compensation of senior management and
    monitoring succession planning; and                                                                                                                                                      
|
| | (e) | maintaining
    integrity reviewing and
    monitoring the controls and procedures within the Corporation to
    maintain its integrity including its disclosure controls and
    procedures, its internal controls and procedures for financial
    reporting and compliance with its code of ethics.

In addition to those matters that must, by law,
be approved by the Board, specific Board approval must be
obtained for:



| |       |                                                                                                                                                              
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | any disposition or expenditure in excess of
    CAD $3,000,000 and any cost overrun on any project in
    excess of 10% or CAD $2,000,000, whichever is less;
|
| | (ii)  | any loan agreement or guarantee for an amount in
    excess of CAD $10,000,000; and                                                                          
|
| | (iii) | any other material agreement or arrangement that
    is not in the ordinary course of business of the Corporation.                                           

3.   Composition and
Procedures



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Size of Board and selection
    process The Directors of
    the Corporation are elected each year by the shareholders at the
    annual meeting of shareholders. The Corporate Governance
    Committee proposes to the full board the nominees for election
    to the Board and the Board proposes a slate of nominees to the
    shareholders for election. Any shareholder may propose a nominee
    for election to the Board either by means of a shareholder
    proposal upon compliance with the requirements prescribed by the
    Canada Business Corporations Act or at the annual
    meeting. The Board also determines the number of Directors on
    the Board, subject to a minimum of eight and a maximum of 20.
    Between annual meetings, the Board may appoint Directors to
    serve until the next annual meeting.
|
| | (b) | Qualifications
    Directors should have the highest personal and professional
    ethics and values and be committed to advancing the best
    interests of the shareholders of the Corporation. They should
    possess skills and competencies in areas that are relevant to
    the Corporations activities. A majority of the Directors
    will be unrelated Directors under the Toronto Stock
    Exchange (TSX) guidelines.                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (c) | Retirement
    Not more than three Directors will be over 70 years of age
    when re-elected or appointed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

K-1



---



##### 





| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | Director
    orientation The Chief
    Financial Officer and the Corporate Secretary are responsible
    for providing an orientation and education program for new
    Directors. Each new Director must, within three months of
    becoming a Director, spend one day at the head office of the
    Corporation for personal briefings by senior management on the
    Corporations strategic plan, major risks and other key
    business matters.
|
| | (e) | Meetings
    The Board has at least four scheduled meetings a year. The Board
    is responsible for its agenda. Prior to each Board meeting, the
    CEO will discuss agenda items for the meeting with the Chairman
    of the Board and the Lead Director. Materials for each meeting
    will be distributed to the directors in advance.                                                                                                          



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The unrelated Directors have at least four
    scheduled meetings a year without management present. The
    Directors have appointed a Lead Director to Chair these meetings.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (f) | Committees
    The Board has established the following permanent Committees to
    assist the Board in discharging its responsibilities 
    audit, corporate governance, human resources, pension, and
    environment, health and safety. Special Committees are
    established from time to time to assist the Board in connection
    with specific matters. The chairman of each Committee reports to
    the Board following meetings of the Committee. The terms of
    reference of each permanent Committee is reviewed annually by
    the Board.
|
| | (g) | Evaluation
    The Corporate Governance Committee performs an annual evaluation
    of the effectiveness of the Board as a whole, the Committees of
    the Board and the contributions of individual Directors.                                                                                                                                                                                                                                                                                                                                             
|
| | (h) | Compensation
    The Human Resources Committee recommends to the Board the
    compensation and benefits for non-management directors. In
    reviewing the adequacy and form of compensation and benefits,
    the Committee seeks to ensure that the compensation and benefits
    reflect the responsibilities and risks involved in being a
    Director of the Corporation and align the interests of the
    Directors with the best interests of the shareholders.                                                                                    
|
| | (i) | Access to independent
    advisors The Board and any
    committee may at any time retain outside financial, legal or
    other advisors at the expense of the Corporation. Any Director
    may, subject to the approval of the Chairman of the Board,
    retain an outside advisor at the expense of the Corporation.                                                                                                                                                                                                                                     

K-2



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##### 






EXHIBIT L

AUDIT COMMITTEE  TERMS OF
REFERENCE

1.   Role of Audit
Committee

The role of the Audit Committee is to assist the
Board in its oversight of the integrity of the financial and
related information of the Corporation including its financial
statements, the internal controls and procedures for financial
reporting and the processes for monitoring compliance with legal
and regulatory requirements and to review the independence,
qualifications and performance of the external auditor of the
Corporation. Management is responsible for establishing and
maintaining those controls, procedures and processes and the
Audit Committee is appointed by the Board to review and monitor
them.

2.   Authority and
Responsibilities

In carrying out its role, the Audit Committee has
the following authority and responsibilities:



| |     |                                         
| | --- | ----------------------------------------
| | (a) | financial information and
    reporting



| |     |                                                                                   
| | --- | ----------------------------------------------------------------------------------
| | (i) | to review and discuss with management and the
    external auditor, as appropriate



| |     |                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | (A) | the annual audited financial statements and the
    interim financial statements including the accompanying
    managements discussion and analysis and
|
| | (B) | earnings guidance and other releases containing
    information taken from the Corporations financial
    statements prior to their release; and       



| |      |                                                                                                                                                                
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | to review the Corporations financial
    reporting and accounting standards and principles and any
    proposed material changes to them or their application;



| |     |                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | internal
    controls to review, with
    the Chief Financial Officer (CFO), the external
    auditor and others, as appropriate, the Corporations
    internal system of audit controls;
|
| | (c) | external
    audit                                                                                                                                                                          



| |       |                                                                                                                                                                                                                                                                                                                             
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | to recommend to the Board, for shareholder
    approval, the external auditor to examine the Corporations
    accounts, controls and financial statements on the basis that
    the external auditor is accountable to the Board and the Audit
    Committee as representatives of the shareholders of the
    Corporation;
|
| | (ii)  | to evaluate the audit services provided by the
    external auditor, pre-approve all audit fees and recommend to
    the Board, if necessary, the replacement of the external auditor;                                                                                                                                      
|
| | (iii) | to pre-approve any non-audit services to be
    provided to the Corporation by the external auditor and the fees
    for those services;                                                                                                                                                                                    
|
| | (iv)  | to obtain and review, at least annually, a
    written report by the external auditor setting out the
    auditors internal quality-control procedures, any material
    issues raised by the auditors internal quality-control
    reviews and the steps taken to resolve those issues; and                              
|
| | (v)   | to review, at least annually, the relationships
    between the Corporation and the external auditor in order to
    establish the independence of the external auditor;                                                                                                                                                    



| |     |                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | risk
    management to review and
    monitor the Corporations major financial risks and risk
    management policies and the steps taken by management to
    mitigate those risks; and



| |     |            
| | --- | -----------
| | (e) | compliance



| |      |                                                                                                                                                                                                                                                                                                               
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | to review the Corporations financial
    reporting procedures and policies to ensure compliance with all
    legal and regulatory requirements and to investigate any
    non-adherence to those procedures and policies; and                                                                                
|
| | (ii) | to establish procedures for the receipt and
    treatment of any complaint regarding accounting, internal
    accounting controls or auditing matters including procedures for
    the confidential, anonymous submissions by employees of concerns
    regarding questionable accounting or auditing matters.

L-1



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##### 



3.   Composition and
Procedures



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Size The
    Audit Committee will consist of a minimum of three directors.
    The members of the Committee are appointed by the Board upon the
    recommendation of the Corporate Governance Committee and may be
    removed by the Board in its discretion.                                                                                                                                                                                                                                                                                                                                                                       
|
| | (b) | Qualifications
    All members of the Committee must be unrelated
    Directors under the Toronto Stock Exchange
    (TSX) guidelines. All members of the Committee must
    be financially literate, i.e., have the ability
    to read and understand a balance sheet, an income statement and
    a cash flow statement. At least one member of the Committee
    should have accounting or related financial
    expertise, i.e., the ability to analyze and interpret
    a full set of financial statements, including the attached
    notes, in accordance with Canadian generally accepted accounting
    principles.



| |     |                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Meetings
    The Committee will meet at least five times a year. The
    Committee will hold a portion of each meeting without the
    presence of management.



| |     |                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | Review of Financial
    Statements The Committee
    will review the Corporations annual audited financial
    statements with the CEO and CFO and then the full Board. The
    Committee will review the interim financial statements with the
    CEO and CFO. The external auditor will be present at these
    meetings.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Review of CEO and CFO Certification
    Process In connection with
    its review of the annual audited financial statements and
    interim financial statements, the Committee will also review the
    process for the CEO and CFO certifications with respect to the
    financial statements and the Corporations disclosure and
    internal controls, including any material deficiencies or
    changes in those controls.                                                                                   
|
| | (f) | Review of Earnings and Other
    Releases The Committee
    will review with the CFO any earnings guidance to be issued by
    the Corporation and any news release containing financial
    information taken from the Corporations financial
    statements prior to the release of the financial statements to
    the public. In addition, the CFO must review with the Committee
    the substance of any presentations to analysts or rating
    agencies that contain a change in strategy or outlook.        
|
| | (g) | Approval of Audit and Non-Audit
    Services In addition to
    recommending the external auditor to examine the
    Corporations financial statements, the Committee must
    approve any use of that external auditor to provide non-audit
    services prior to its engagement. It is the Committees
    practice to restrict the non-audit services that may be provided
    by the external auditor in order to minimize relationships that
    could appear to impair the objectivity of the external auditor.



| |     |                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (h) | Hiring Guidelines for Independent Auditor
    Employees The Committee
    will adopt guidelines regarding the hiring of any partner,
    employee, reviewing tax professional or other person providing
    audit assurance to the external auditor of the Corporation on
    any aspect of its certification of the Corporations
    financial statements.



| |     |                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | Audit Partner
    Rotation The Committee
    will ensure that the lead audit partner assigned by the external
    auditor to the Corporation, as well as the independent review
    partner charged with reviewing the financial statements of the
    Corporation, are changed at least every five years.



| |     |                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (j) | Process for Handling Complaints about
    Accounting Matters The
    Committee has established the following procedure for the
    receipt and treatment of any complaint received by the
    Corporation regarding accounting, internal accounting controls
    or auditing matters.



| |     |                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Corporation will make available and make
    known special mail and e-mail addresses and telephone numbers
    for receiving complaints regarding accounting, internal
    accounting controls or auditing matters.     
|
| | (b) | Copies of complaints received will be sent to the
    members of the Committee.                                                                                                                                             
|
| | (c) | All complaints will be investigated by the
    Corporations finance staff, except as otherwise directed
    by the Committee. The Committee may request that outside
    advisors be retained to investigate any complaint.
|
| | (d) | The status of each complaint will be reported on
    a quarterly basis to the Committee and, if the Committee so
    directs, to the full Board.                                                                            

L-2



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##### 





| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Corporations Code of Business Conduct
    prohibits any director, officer or employee of the Corporation
    from retaliating or taking any adverse action against anyone for
    raising or helping to resolve a complaint.



| |     |                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (k) | Evaluation
    The Committee will conduct and present to the Board an annual
    evaluation of the performance of the Committee and the adequacy
    of these terms of reference and recommend any proposed change to
    the Board for approval.



| |     |                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------
| | (l) | Other
    Matters The Committee will
    conduct reviews, and where appropriate recommend action by the
    Board, on:



| |     |                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the annual information form to be filed by the
    Corporation;                                                                                                                                                 
|
| | (b) | regular reports on outstanding litigation that
    could have a material effect on the Corporation;                                                                                                             
|
| | (c) | an annual certificate of the CEO attesting that
    senior management of the Corporation have received and agreed to
    be bound by the Corporations Code of Business Conduct and
    to comply with the Code;
|
| | (d) | an annual report on officers expenses;                                                                                                                                                                         
|
| | (e) | an annual report on consulting and legal fees
    paid by the Corporation; and                                                                                                                                  
|
| | (f) | an annual report on the Corporations
    insurance coverage and costs.                                                                                                                                         

January 2004

L-3



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##### 






EXHIBIT M

CORPORATE GOVERNANCE GUIDELINES

As described fully in Exhibit J to this
circular, the Corporation is committed to following sound
corporate governance policies and practices to ensure that the
interests of all our stakeholders are continuously maintained.
These governance practices meet, and in many cases exceed the
requirements set out by the Toronto Stock Exchange (TSX). A
comparison of the Corporations governance practices (in
italics) relating to the 14 TSX corporate governance disclosure
guidelines is set out (in italics) below.



|   |                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------
|1. | The Board should explicitly assume responsibility
    for stewardship of the Corporation and specifically, for:

(a)   Adoption
of a strategic planning process.

The Board participates in the
Corporations strategic planning process through its
dialogue with management on strategic alternatives. Management
proposes a strategic plan and the Board reviews, approves and
monitors the plan. In 2003, one full Board meeting was dedicated
to discussing the proposed plan and reviewing the associated
risks and uncertainties. On a quarterly basis, the Board reviews
the Companys progress against the established strategic
plan.

(b)   Identification
of principal risks and the implementation of appropriate
risk-management systems.

The Board uses its Committees for much of its
assessment of risks and risk management. The Audit Committee,
together with management and the Corporations auditors,
reviews the principal financial risks of the business and
insures that systems are in place to manage those risks. The
Environment, Health and Safety Committee has a mandate to assess
many of the principal operating risks of the Corporation. This
Committee receives regular reports on the Corporations
management systems covering environmental performance, health
and safety issues and emergency preparedness. The Pension and
Human Resources Committees also have areas of risk management
within their mandates.

(c)   Succession
planning including monitoring senior management.

The Board, through its Human Resources
Committee, insures that the Corporation has realistic plans for
management succession, and conducts a formal review of the plans
for the Corporation and its principal subsidiaries at least
annually. As part of the annual review, the Human Resources
Committee reviews the Corporations senior managers with
the CEO, and approves senior appointments. The Committee
considers the performance of the CEO separately and reports its
findings to the Board directly.

(d)   Communications
policy.

The Board is satisfied that the Corporation
has appropriate structures and controls to ensure complete and
meaningful communication between the Corporation and its
employees, shareholders and the larger communities in which it
operates. The Board is also satisfied that the Corporation
fulfils the letter and spirit of its reporting requirements to
the jurisdictions in which it operates. The Board reviews and
formally approves all financial information to shareholders
before it is released. In 2001, the Board approved a Corporate
Disclosure Policy which formalizes the Corporations
commitment to timely and accurate disclosure. A copy of this
policy is available on the Nexfor website
(www.nexfor.com).

(e)   Integrity
of internal controls and management information systems.

As discussed above, the Board, primarily
through the Audit Committee, effectively monitors the integrity
of the internal controls and systems. The Corporations
auditors have, as part of their annual audit process, reviewed
much of the Corporations internal controls and management
information systems and have in the past made recommendations
for improvements which have been implemented by
management.

2-3 Majority of directors are
unrelated. Disclose whether each director is
unrelated

According to the TSX guidelines on Corporate
Governance, an unrelated director is a director who is
independent of management and is free from any interest and any
business or other relationship which

M-1



---



##### 



could, or could be reasonably perceived to,
materially interfere with the directors ability to act
with a view to the best interests of the Corporation, other than
interests and relationships arising from
shareholding.

Under the TSX definition, the Corporation has
two related Directors; Mr. Gammiero is the President and
CEO of the Corporation, and Mr. Macdonald is the former
President and CEO. As described on page 14 of the proxy
circular, the Board considers that the other 11 Director
nominees are unrelated.



|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4-5 | Appoint a committee responsible for
appointment/ assessment of directors, composed of a majority of
unrelated directors. Implement a process for assessing the
effectiveness of the Board, its Committees and individual
directors

The Corporation has had a Corporate
Governance Committee since 1994, with the responsibility of
assessing the performance of Directors and recommending a slate
of Directors to the Board for election at each annual meeting.
This Committee consists entirely of unrelated Directors. The
Committee has established criteria for assessing the performance
of individual Directors and for evaluating potential new
nominees for the Board. The Committee also reviews the
effectiveness of the Board and its Committees and has conducted
surveys of directors to ensure that their expectations are being
addressed. The Board evaluates itself annually to ensure it is
functioning effectively and in the best interests of
shareholders. Evaluations include a detailed questionnaire
completed by each Director and one on one interviews with the
Chairman. The Board is assessed in four specific areas: overall
Board governance; managing management; strategy and Company
performance; and Board effectiveness. In addition to the Board,
each Committee of the Board evaluates its performance annually.
These evaluations focus on the Committees successes in
meeting their terms of reference as well as their overall
effectiveness as a Committee. Individual Board members are also
reviewed by their peers. This review is conducted by the
Chairman and presented to the Corporate Governance Committee for
their consideration.



|   |                                                                  
|-- | -----------------------------------------------------------------
|6. | Provide orientation and education programs for
    new directors.

The Chief Financial Officer and the Corporate
Secretary are responsible for providing an orientation and
education program for new Directors. Each new Director must,
within three months of becoming a Director, spend one day at the
head office of the Corporation for personal briefings by senior
management on the Corporations strategic plan, major risks
and other key business matters. The Board holds regular meetings
at the different facilities of the Corporation to give the
Directors additional insight into its operations.



|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|7. | Consider the size of the Board, with a view to
    facilitating effective decision-making.

The Corporate Governance Committee reviews
the size of the Board annually. The Board feels that 13 is an
appropriate number of directors for a company of Nexfors
size and scope.



|   |                                                                             
|-- | ----------------------------------------------------------------------------
|8. | Review compensation of directors in light of
    risks and responsibilities.

The Human Resource Committee reviews
Directors compensation annually. The levels of
compensation are set out elsewhere in the proxy
circular.



|   |                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------
|9. | Committees should generally be composed of
    outside directors and the majority of Committee members should
    be unrelated.

All Committees of the Board are comprised of
outside Directors, and no related Directors sit on the
Committees. The composition of Board Committees is set out
elsewhere in the proxy circular.



|    |                                                                                                  
|--- | -------------------------------------------------------------------------------------------------
|10. | Responsibility for determining the
    Corporations approach to corporate governance
    issues.

The Corporate Governance Committee has the
mandate to recommend policies, initiatives and actions to the
Board that will enhance the Corporations governance
practices. This Committee is also responsible for the statement
of Corporate Governance practices included as Exhibit J of
the proxy circular.



|        |                                                                                                                                     
|------- | ------------------------------------------------------------------------------------------------------------------------------------
|11. (a) | Define limits to managements
    responsibilities by developing written mandates for the Board
    and the Chief Executive Officer.

M-2



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| |     |                                        
| | --- | ---------------------------------------
| | (b) | Approve CEOs corporate
    objectives.

The Board has established written terms of
reference for its operation and has also written statements on
the roles of the Chairman, Chief Executive Officer, and the Lead
Director. The Board is responsible for the business and affairs
of the Corporation, which are conducted by its officers and
employees under the direction of the Chief Executive Officer.
The Board delegates some of its powers to its Committees. The
Board approves all major transactions including those that
involve commitments above certain dollar thresholds. The CEO
also has responsibility for developing strategies and plans for
consideration and approval by the Board. The Board reviews the
CEOs objectives annually.



|    |                                                                                      
|--- | -------------------------------------------------------------------------------------
|12. | Establish procedures to enable the Board to
    function independently of management.

The Directors are satisfied that the Board
would be able to function independently of management should
this be required. The Board, as part of its regular meetings,
holds sessions without management present and has appointed a
Lead Director to insure this independence.



|    |                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------
|13. | Establish an Audit Committee with a
    specifically defined mandate, with all members being outside
    directors.

The Audit Committee has well-defined terms of
reference and all of its members are outside directors. The
Audit Committee reviews the Corporations internal controls
and procedures for financial reporting with the Chief Financial
Officer of the Corporation, the external auditors and others.
The full terms of reference of the Audit Committee are set out
in Exhibit L of this proxy circular.



|    |                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------
|14. | Implement a system to enable individual
    directors to engage outside advisors, at the Corporations
    expense.

The Board and each Committee can engage
outside advisors at the expense of the Corporation. Any
individual Director, with the approval of the Chairman, may, at
the Corporations expense, retain an outside advisor,
should the Chairman agree that the hiring of such an advisor is
necessary and prudent from the Directors point of
view.

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EXHIBIT N

NORBORD INC. STOCK OPTION PLAN

1.   Purpose

The purpose of the Plan is to advance the
interest of the Corporation and its Subsidiaries by encouraging
and enabling officers and employees to acquire a larger share
interest in the Corporation.

2.   Definitions

In this Plan:

boardmeans the board of directors of the Corporation.

Corporationmeans Nexfor
Inc. and any successor corporation.

Human Resources
Committeemeans the Human
Resources Committee of the board.

market
pricemeans the simple average
of the daily averages of the high and low prices at which a
board lot of the Shares traded on the Toronto Stock Exchange on
each of the five trading days immediately preceding the date of
the grant of an Option.

Optionmeans a right to acquire Shares under the Plan.

Option
pricemeans the market price of
a Share on the date of the grant of an Option.

participantmeans a person
who has been granted an Option.

Pension
Planmeans the various
retirement plans of Nexfor Group Companies, as the same may from
time to time be amended or replaced.

Planmeans the Norbord Inc. Stock Option Plan established by
resolution of the board on April 21, 2004.

Sharesmeans Common Shares of the Corporation.

Subsidiarymeans any
corporation designated as such by the board for the purpose of
the Plan and may, without limitation, include a corporation that
is under the management or control of the Corporation or any
Subsidiary and, in the case of the granting of an Option to a
person other than an officer or employee of the Corporation, the
granting of such Option will for all purposes of the Plan be
deemed a designation by the board of the corporation in respect
of which the person to whom such Option is granted is an officer
or employee as a subsidiary corporation.

year,
with respect to any Option, means the period of 12 months
commencing on the date of the granting of the Option or on any
anniversary thereof.

Words importing the singular include the plural
and vice versa and words importing any gender include any
other gender.

3.   Grant of Options

(1)   The board may from time to
time, in its discretion, grant an Option at the Option price to
any officer of the Corporation or a Subsidiary and any other
employee of the Corporation or a Subsidiary who, in the opinion
of the board, is a key employee of the Corporation or a
Subsidiary, upon and subject to the terms and conditions
contained herein and as the board may from time to time impose
in the option agreement or by regulation.

(2)   Notwithstanding the
provisions of Section 3(1), no Option will be granted under
the Plan unless recommended by a majority of the Human Resources
Committee. The recommendations of the Human Resources Committee
with respect to Options must be in writing and delivered to the
Secretary of the Corporation for transmission to the board.

(3)   The terms and conditions of
each Option will be contained in a written option agreement in a
form approved by the Human Resources Committee and containing
such provisions as may be approved by the board consistent with
the Plan.

(4)   More than one Option may be
granted to the same person and each of such Options will be
dealt with as a separate Option. The total number of Shares to
be granted under Options to any one person under the Plan,
together

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with any Shares under other employee stock option
or purchase plans of the Corporation granted to such person,
will not exceed 5 % of the outstanding Shares.


(5)   An Option may be granted
subject to vesting requirements. The vesting requirements will
be determined at the time the Option is granted and will be
contained in the applicable option agreement.

4.   Eligibility

No Option will be granted to any person who:



| |     |                                                                                             
| | --- | --------------------------------------------------------------------------------------------
| | (a) | is not an officer or employee of the Corporation
    or a Subsidiary; or                    
|
| | (b) | has reached the age of normal retirement as fixed
    from time to time in the Pension Plan.

5.   Option Period

(1)   An Option will expire on the
first to occur of the following dates:



| |     |                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the date of, and coincident with, termination of
    employment of the participant with the Corporation or a
    Subsidiary for cause or as a result of resignation (but not
    including termination of employment due to early retirement or
    retirement under the provisions of the Pension Plan or due to
    sickness or disability under the provisions of the Pension Plan);
|
| | (b) | six months after the date of the death of the
    participant; and                                                                                                                                                                                                                                                                                                                     
|
| | (c) | the expiry date of the Option as fixed by the
    board.                                                                                                                                                                                                                                                                                                                               

(2)   Notwithstanding the
provisions of Section 5(1),



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | no Option may be exercised later than
    10 years after the date upon which it was granted; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (b) | subject to the provisions of
    Section 5(2)(a), the Human Resources Committee has the
    discretion and authority (i) to amend the exercise terms of
    any Option granted to any person who has ceased to be an officer
    or employee of the Corporation or a Subsidiary for any reason
    including by accelerating the vesting dates or extending the
    expiry date and (ii) to cancel any Option granted to any
    such person who is determined by the Human Resources Committee
    to be engaged in activities that are competitive with those of
    the Corporation or its Subsidiaries. For greater certainty, no
    damages will be recoverable by a participant and no compensation
    will be paid to a participant with respect to any amendment to
    or cancellation of any Option by the Human Resources Committee.

(3)   On the expiry of an Option
all rights of a participant thereunder, whether unexercised or
not yet exercisable, will automatically expire and be cancelled
without any compensation being paid therefor.

6.   Exercise of
Options

(1)   Subject to the terms and
conditions of each Option, an Option may be exercised in whole
or in part by delivery by a participant or the legal
representatives of a deceased participant of a written notice of
exercise to the Corporation at its principal office in the City
of Toronto, Ontario addressed to the attention of the Secretary.
The Option will be deemed to be exercised upon the date of
delivery of such written notice. The written notice should
specify the number of Shares in respect of which the Option is
being exercised. If the written notice is delivered by the legal
representatives of a deceased participant, it must be
accompanied by satisfactory evidence of authority to act.

(2)   If an Option is exercised,
the written notice referred to in Section 6(1) must be
accompanied by a cheque for the aggregate exercise price (i.e.,
the aggregate Option price) for the Shares in respect of which
the Option is being exercised.

(3)   An Option may not be
exercised in respect of less than 25 Shares at one time except
where the remainder totals less than 25.

7.   Issue of Shares

(1)   Shares duly purchased and
paid for under the terms of an Option, this Plan and any
applicable regulation made hereunder will be conclusively deemed
to have been issued as fully paid and non-assessable Shares.

(2)   Share certificates will be
issued to participants within a reasonable time following
receipt of the written notice referred to in Section 6(1)
and receipt of a cheque in payment of the full exercise price. A
participant to whom

N-2



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Shares are to be issued will not have any rights
in respect of such Shares until the share certificates therefor
have been issued to the participant.


(3)   The obligation of the
Corporation to deliver share certificates is subject to all
applicable laws, regulations, rules, orders and approvals then
in effect and required by regulatory authorities and any stock
exchange on which the Shares are listed including any obligation
to withhold income or other taxes arising in respect of the
grant of Options or their exercise.

8.   Non-assignability

An Option is not assignable.

9.   Maximum Shares

The aggregate number of Shares issuable pursuant
to the Plan, subject to adjustment pursuant to Section 10,
will not exceed 10,000,000 Shares. Shares in respect of which
Options are not exercised prior to expiry will be available for
subsequent grants of Options under the Plan.

10. Share Capital Adjustments

(1)   Appropriate adjustments to
the number of Shares subject to the Plan, Options granted or to
be granted, Shares issuable upon exercise of an Option, and the
purchase price will be made by the board to give effect to
adjustments in the number of Shares resulting from any
subdivision, consolidation or reclassification of the Shares,
the payment of stock dividends by the Corporation (other than
dividends in the ordinary course) or other relevant changes to
the capital stock of the Corporation. The purpose of such
adjustments will be to ensure that any participant exercising an
Option after such change in the capital stock of the Corporation
will be in the same position as such participant would have been
in if he or she had exercised the Option prior to such change,
except with respect to the receipt of income on the Shares.

(2)   In the event of a proposed
merger, amalgamation or arrangement of the Corporation with one
or more other corporations, the making of a take-over bid (as
defined in the Ontario Securities Act) for any of the
outstanding Shares, the sale or distribution of all or
substantially all of the Corporations assets or a proposed
corporate arrangement or reorganization, the board may, in its
absolute discretion, determine the manner in which all
unexercised Options will be treated, including changing the date
upon which any rights under Options vest or expire, and
otherwise make provision for the protection of the rights of
participants.

11. Administration

(1)   The board may from time to
time make, amend and repeal such regulations hereunder as it
deems expedient for the purpose of carrying out the Plan.

(2)   All decisions and
interpretations of the board or the Human Resources Committee
respecting the Plan or Options granted thereunder will be
binding and conclusive on the Corporation and on all
participants and their legal representatives and on all persons
eligible under the provisions of the Plan to participate therein.

12. Amendment

The board may from time to time, subject to the
rules and regulations of the stock exchanges on which the Shares
are listed, amend the Plan and Options granted thereunder
provided that, subject to the provisions of Section 5(2),
no such amendment will prejudice the rights of participants
previously granted thereunder.

13. Termination

(1)   The board may at any time
terminate the Plan without prejudice to the rights of
participants previously granted thereunder.

(2)   In the event of termination
of the Plan the provisions thereof in force at the time of the
termination of the Plan insofar as they are applicable to an
Option will continue in effect during such time as such Option
remains in force.

14. Governing Laws

The Plan and each option agreement will be
construed in accordance with and governed by the laws of the
Province of Ontario and the federal laws of Canada applicable
therein.

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PRINTED IN CANADA T12824




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Nexfor Inc. 500, 1 Toronto Street
Toronto, Ontario
M5C 2W4 Instrument of Proxy
For the Annual and Special Meeting of Shareholders The undersigned holder (Shareholder) of common shares of Nexfor Inc. hereby
appoints K. Linn Macdonald or, failing him, D. Gammiero or instead of
either of the foregoing                , as proxyholder of the Shareholder,
with full power of substitution, to attend and act and vote for and on behalf of the
Shareholder at the Annual and Special Meeting of the Shareholders (the Meeting), to be held
on June 22, 2004and at any adjournment thereof to the same extent and with the
same powers as if the Shareholder were personally present at the Meeting with authority to
vote at the said proxy-holders discretion, except as otherwise specified below. Without limiting the
general powers hereby conferred, the undersigned hereby directs the said proxyholder to vote the
shares represented in the following manner:  1)
    
    FORo the election of all Directors listed (except as indicated to
the contrary below) or WITHHOLD FROM VOTING FORo the election of Directors Jack L. Cockwell
    
    Gordon E. Forward
    
    Margot NortheyDian Cohen
    
    Dominic Gammiero
    
    J. Barrie ShinetonPierre Dupuis
    
    Robert J. Harding
    
    Don S. WellsJ. Bruce Flatt
    
    K. Linn Macdonald
 To withhold from voting for any individual Director please
write that Directors name(s) on the line below:    2)
    
    FORo or
WITHHOLD FROM VOTING FORo appointment and remuneration of
auditors; and3)
    
    FORo or AGAINSTo passage of the Arrangement Resolution.4)
    
    FORo or AGAINSTo passage of the Stock Option Plans Resolution. This instrument of proxy
is solicited on behalf of the management of the Corporation.
The shares represented by this instrument of proxy will be voted by the persons
whose names are printed above or on any ballot that may be called for and, where the
Shareholder has specified a choice with respect to the above matters, will be voted as
directed above or, if no direction is given, will be voted in favour of the
above matters. Each Shareholder has the right to appoint a proxyholder, other
than the persons designated above, who need not be a Shareholder, to attend and to act
for the Shareholder at the Meeting. To exercise such right, the names of the
nominees of management should be crossed out and the name of the Shareholders
appointee should be legibly printed in the blank space provided. A proxy must be executed by the Shareholder or the Shareholders attorney
authorized in writing. If this proxy is not dated, it will be deemed to bear the date on
which it is mailed by the Corporation. The undersigned hereby revokes any proxies previously given. Dated
this   day of
            , 2004. (Signature of Shareholder)(Name of Shareholder  please print)
 I wish to have my name and address placed on a mailing list in order to receive interim reports. o
    
    Please indicate with an X on the box.
 Please see reverse for voting options.




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Nexfor Inc. 500, 1 Toronto Street
Toronto, Ontario
M5C 2W4  1.
    
    If the Shareholder is a corporation, its corporate seal must be
affixed or it must be signed by
an officer or attorney thereof duly authorized.2.
    
    This form of proxy must be dated and the signature hereon should be
exactly the same as the
name in which the shares are registered.3.
    
    Persons signing as executors, administrators, trustees, etc., should
so indicate and give their full
title as such.4.
    
    This instrument of proxy will not be valid and not be acted
upon or voted unless it
is completed as outlined herein and delivered to the attention of ADP
Investor
Communications, 5970 Chedworth Way, Mississauga, Ontario, L5R 4G5, not
less than 24
hours before the time set for the holding of the Meeting or any
adjournment thereof. A proxy
is valid only at the Meeting in respect of which it is given
or any adjournment of
that Meeting.  5.
    
    Voting Options:In order to expedite your vote, you may use a touch-tone telephone or the Internet. To vote by
telephone, call toll free 1-800-474-7493 (English) or 1-800-474-7501
(French). You will be
prompted to provide your 12 digit control number located below. The telephone or Internet
voting service is not available on the day of meeting and the telephone
system cannot be used
if you plan to attend the meeting or designate another person to attend on
your behalf.To vote via the Internet, go to www.proxyvotecanada.com and follow the
simple instructions.You may send your completed and signed Proxy by facsimile to 905-507-7793
or
514-281-8911.




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##### 



(NEXFOR LOGO)

    
    VOTING INSTRUCTION FORM
Annual and Special Meeting of Beneficial Shareholders to be held on June 22, 2004
 Appointing Your Proxyholder For the Annual and
Special Meeting of Shareholders. The undersigned holder (Shareholder) of common shares of Nexfor Inc. hereby appoints
K. Linn Macdonald or, failing him, D. Gammiero or instead of either of the
foregoing              , as proxyholder of the Shareholder, with full
power of substitution, to attend and act and vote for and on behalf of the
Shareholder at the Annual and Special Meeting of the Shareholders (the Meeting), to be held
on June 22, 2004and at any adjournment thereof to the same extent and with the
same powers as if the Shareholder were personally present at the Meeting with
authority to vote at the said proxyholders discretion, except as otherwise specified below. Without
limiting the general powers hereby conferred, the undersigned hereby directs the said
proxyholder to vote the shares represented in the following manner:  1)
    
    FORo the election of all Directors listed (except as indicated to
the contrary below) or WITHHOLD FROM VOTING FORo the election of Directors 01
    
    Jack L. Cockwell
    
    
    05
    
    
    Gordon E. Forward
    
    
    09
    
    
    Margot Northey02
    
    Dian Cohen
    
    
    06
    
    
    Dominic Gammiero
    
    
    10
    
    
    J. Barrie Shineton03
    
    Pierre Dupuis
    
    
    07
    
    
    Robert J. Harding
    
    
    11
    
    
    Don S. Wells04
    
    J. Bruce Flatt
    
    
    08
    
    
    K. Linn Macdonald
 To withhold from voting for any individual Director please write the number
next to that Directors name on the line below:  2)
    
    FORoor WITHHOLD FROM VOTING FORo appointment and remuneration of
auditors; and3)
    
    FORoor AGAINSTo passage of the Arrangement Resolution.4)
    
    FORoor AGAINSTo passage of the Stock Option Plans Resolution. This instrument of voting instruction form (VIF) is solicited on behalf of the management of the
Corporation. The shares represented by this VIF will be voted by the persons whose names are
printed above or on any ballot that may be called for and, where the Shareholder has specified a
choice with respect to the above matters, will be voted as directed above or, if no direction is given,
will be voted in favour of the above matters. Each Shareholder has the right to appoint a proxyholder,
other than the persons designated above, who need not be a Shareholder, to attend and to act for the
Shareholder at the Meeting. To exercise such right, the names of the nominees
of management should be crossed out and the name of the Shareholders appointee should be
legibly printed in the blank space provided. A VIF must be executed by the Shareholder or the Shareholders attorney authorized in writing.
If this VIF is not dated, it will be deemed to bear the date on which it is mailed by the Corporation. The undersigned hereby revokes any proxies previously given. Dated
this   day of
        , 2004. (Signature of Shareholder)(Name of Shareholder  please print)
 I wish to have my name and address placed on a mailing list in order to receive interim reports. o
    
    Please indicate with an X on the box.
 I wish to have my name and address placed on a mailing list in order to receive Annual Financial Statements and Related MD&A. o
    
    Please indicate with an X on the box.




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Nexfor Inc. 500, 1 Toronto
Street Toronto,
Ontario M5C 2W4 Instrument of Proxy For the Annual and Special Meeting of Shareholders The undersigned holder (Shareholder) of preferred
shares or options to purchase common shares of Nexfor
Inc. hereby appoints K. Linn Macdonald or, failing him,
D. Gammiero or instead of either of the foregoing
             , as proxyholder of
the Shareholder, with full power of substitution, to
attend and act and vote for and on behalf of the
Shareholder at the Annual and Special Meeting of the
Shareholders and the Holders of Common Shares of Nexfor
Inc. (the Meeting), to be held on June 22, 2004and
at any adjournment thereof to the same extent and with
the same powers as if the Shareholder were personally
present at the Meeting with authority to vote at the
said proxyholders discretion, except as otherwise
specified below. Without limiting the general powers
hereby conferred, the undersigned hereby directs the
said proxyholder to vote the shares or options
represented in the following manner: 1) FORo or AGAINSTo passage of the Arrangement Resolution. This instrument of proxy is solicited on behalf of the
management of the Corporation. The shares or options
represented by this instrument of proxy will be voted
by the persons whose names are printed above or on any
ballot that may be called for and, where the
Shareholder has specified a choice with respect to the
above matters, will be voted as directed above or, if
no direction is given, will be voted in favour of the
above matters. Each Shareholder has the right to
appoint a proxyholder, other than the persons
designated above, who need not be a Shareholder, to
attend and to act for the Shareholder at the Meeting.
To exercise such right, the names of the nominees of
management should be crossed out and the name of the
Shareholders appointee should be legibly printed in
the blank space provided. A proxy must be executed by the Shareholder or the
Shareholders attorney authorized in writing. If this
proxy is not dated, it will be deemed to bear the date
on which it is mailed by the Corporation. The undersigned hereby revokes any proxies previously given. Dated this________________________ day of ________________________, 2004.       I wish to have my name and address placed on a
mailing list in order to receive interim reports. o Please indicate with an X on the box. Please see reverse for voting options.




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(NEXFOR LOGO)
    
    V O T I N G      I N S T R U C T I
O N      F O R MAnnual and Special Meeting of Beneficial Shareholders to be held on June 22, 2004
 Appointing Your Proxyholder For the
Annual and Special Meeting of Shareholders. The undersigned holder (Shareholder) of preferred shares of
Nexfor Inc. hereby appoints K. Linn Macdonald or, failing him,
D. Gammiero or instead of either of the foregoing
             , as proxyholder of the
Shareholder, with full power of substitution, to attend and act
and vote for and on behalf of the Shareholder at the Annual and
Special Meeting of the Shareholders and the Holders of Common
Shares of Nexfor Inc. (the Meeting), to be held on June 22,
2004and at any adjournment thereof to the same extent and with
the same powers as if the Shareholder were personally present
at the Meeting with authority to vote at the said proxyholders
discretion, except as otherwise specified below. Without
limiting the general powers hereby conferred, the undersigned
hereby directs the said proxyholder to vote the shares or
options represented in the following manner: 1) FORo or AGAINSTo passage of the Arrangement Resolution. This instrument of voting instruction form (VIF) is solicited
on behalf of the management of the Corporation. The shares
represented by this VIF will be voted by the persons whose
names are printed above or on any ballot that may be called for
and, where the Shareholder has specified a choice with respect
to the above matters, will be voted as directed above or, if no
direction is given, will be voted in favour of the above
matters. Each Shareholder has the right to appoint a
proxyholder, other than the persons designated above, who need
not be a Shareholder, to attend and to act for the Shareholder
at the Meeting. To exercise such right, the names of the
nominees of management should be crossed out and the name of
the Shareholders appointee should be legibly printed in the
blank space provided. A VIF must be executed by the Shareholder or the Shareholders
attorney authorized in writing. If this VIF is not dated, it
will be deemed to bear the date on which it is mailed by the
Corporation. THE UNDERSIGNED HEREBY REVOKES ANY PROXIES PREVIOUSLY GIVEN. Dated this____________________day of_______________________________________, 2004.       I wish to have my name and address placed on a mailing list in order to receive interim reports. o Please indicate with an X on the box. I wish to have my name and address placed on a mailing list
in order to receive Annual Financial Statements and Related
MD&A. o Please indicate with an X on the box.