Document:

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                              ACQUISITION AGREEMENT

                                      DATED

                                 August 28, 2000

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                          OSLER, HOSKIN & HARCOURT LLP

                                      -

                                WHITE & CASE LLP

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                                TABLE OF CONTENTS

                                                                           Page

ARTICLE 1
         INTERPRETATION....................................................... 1
         Section 1.1     Definitions.......................................... 1
         Section 1.2     Interpretation Not Affected by Headings, etc......... 6
         Section 1.3     Currency............................................. 6
         Section 1.4     Number, etc...........................................6
         Section 1.5     Date For Any Action...................................6
         Section 1.6     Entire Agreement......................................7
         Section 1.7     Schedules.............................................7
         Section 1.8     Accounting Matters....................................7
         Section 1.9     Knowledge.............................................7

ARTICLE 2
         THE AMALGAMATION......................................................7
         Section 2.1     Implementation Steps by Repap.........................7
         Section 2.2     Articles of Amalgamation..............................8
         Section 2.3     Repap Circular........................................8
         Section 2.4     Preparation of Filings, etc...........................8

ARTICLE 3
         REPRESENTATIONS AND WARRANTIES........................................9
         Section 3.1     Representations and Warranties of Repap...............9
         Section 3.2     Representations and Warranties of UPM................23
         Section 3.3     Survival.............................................25

ARTICLE 4
         COVENANTS............................................................25
         Section 4.1     Retention of Goodwill................................25
         Section 4.2     Covenants of Repap...................................25
         Section 4.3     Covenants of UPM.....................................29
         Section 4.4     Treatment of Repap Stock Options.....................30
         Section 4.5     Covenants Regarding Non-Solicitation.................30
         Section 4.6     Notice by Repap of Superior Proposal Determination...32
         Section 4.7     Access to Information................................33
         Section 4.8     Closing Matters......................................33
         Section 4.9     Indemnification......................................33

ARTICLE 5
         CONDITIONS...........................................................34
         Section 5.1     Mutual Conditions Precedent..........................34
         Section 5.2     Additional Conditions Precedent to the
                         Obligations of UPM...................................35
         Section 5.3     Additional Conditions Precedent to the
                         Obligations of Repap.................................36
         Section 5.4     Notice and Cure Provisions...........................36
         Section 5.5     Satisfaction of Conditions...........................37

ARTICLE 6
         AMENDMENT AND TERMINATION............................................37
         Section 6.1     Amendment............................................37
         Section 6.2     [Intentionally Deleted]..............................38
         Section 6.3     Termination..........................................38
         Section 6.4     Break and Other Fees; Option.........................39
         Section 6.5     Remedies.............................................39

ARTICLE 7
         GENERAL..............................................................40
         Section 7.1     Notices..............................................40
         Section 7.2     Assignment...........................................41
         Section 7.3     Binding Effect.......................................42
         Section 7.4     Waiver and Modification..............................42
         Section 7.5     Further Assurances...................................42
         Section 7.6     Expenses.............................................42
         Section 7.7     Consultation.........................................42
         Section 7.8     Governing Laws.......................................43
         Section 7.9     Time of Essence......................................43
         Section 7.10    Counterparts.........................................43

SCHEDULE A - AMALGAMATION AGREEMENT
SCHEDULE B - SPECIAL RESOLUTION OF THE REPAP SHAREHOLDERS
SCHEDULE C - REGULATORY APPROVALS
SCHEDULE D - CONFIDENTIALITY PROVISIONS
SCHEDULE E - OPTION AGREEMENT

<PAGE>

                              ACQUISITION AGREEMENT

        MEMORANDUM OF AGREEMENT made as of the 28th day of August, 2000

                                B E T W E E N :

                           UPM-KYMMENE CORPORATION,
                           a corporation existing under the laws of Finland
                           ("UPM")

                                     - and -

                           REPAP ENTERPRISES INC.,
                           a corporation existing under the laws of Canada
                           ("Repap").

     THIS AGREEMENT WITNESSES THAT in consideration of the respective  covenants
and  agreements  herein  contained,  the parties  hereto  covenant  and agree as
follows:

                                    ARTICLE 1
                                 Interpretation

Section 1.1    Definitions

     In this  Agreement,  unless  there is  something  in the subject  matter or
context  inconsistent  therewith,  the following  terms shall have the following
meanings respectively:

     "Acquireco"  means 3796477  Canada Inc., a corporation  existing  under the
     laws of Canada and a wholly-owned subsidiary of UPM;

     "Acquisition  Proposal"  means any  proposal  or offer with  respect to any
     merger,  amalgamation,   arrangement,  business  combination,  liquidation,
     dissolution, recapitalization, take-over bid, tender offer, purchase of all
     or any  material  assets of, or any purchase of more than 20% of the equity
     (or rights  thereto) of, or similar  transactions  involving,  Repap or any
     Repap Material Subsidiary, excluding the Amalgamation;

     "affiliate"  shall have the meaning  ascribed  thereto under the Securities
     Act;

     "Amalco" means the corporation continuing as a result of the Amalgamation;

     "Amalco Special Shares" means the redeemable special shares of Amalco to be
     issued on the  Amalgamation  and to be redeemed by Amalco on the Redemption
     Date at the Redemption Price;

     "Amalgamation"  means an  amalgamation of Repap and Acquireco under Section
     181 of the CBCA on the terms and subject to the  conditions  set out in the
     Amalgamation  Agreement,  subject to any  amendments or variations  thereto
     made in accordance with Section 6.1;

     "Amalgamation Agreement" means the amalgamation agreement providing for the
     Amalgamation  substantially  in the form and  content of Schedule A annexed
     hereto and any  amendments  or variations  thereto made in accordance  with
     Section 6.1;

     "Amalgamation  Resolution"  means  the  special  resolution  of  the  Repap
     Shareholders,  to be  substantially  in the form and  content of Schedule B
     annexed hereto;

     "ancillary documents" means the schedules hereto and any disclosure letters
     between the parties as contemplated herein;

     "Articles of Amalgamation"  means the articles of amalgamation of Repap and
     Acquireco in respect of the  Amalgamation  that are required by the CBCA to
     be filed with the Director;

     "Berg Litigation" means the litigation relating to Mr. S. Berg disclosed in
     the documents Publicly Disclosed by Repap;

     "Break Fee" shall have the meaning ascribed thereto in Section 6.4(1);

     "Business Day" means any day on which  commercial  banks are generally open
     for  business  in  Toronto,  Ontario  and  Helsinki,  Finland  other than a
     Saturday, a Sunday or a day observed as a holiday in Toronto, Ontario or in
     Helsinki, Finland under applicable Laws;

     "CBCA" means the Canada Business  Corporations  Act as now in effect and as
     it may be amended from time to time prior to the Effective Date;

     "COBRA" has the meaning ascribed thereto in Section 3.1(1)(vii);

     "Convertible  Debenture"  means the U.S.  $45 million  principal  amount 6%
     convertible subordinated debenture of Repap;

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

     "Dissent Rights" means the rights of dissent in respect of the Amalgamation
     under Section 190 of the CBCA;

     "Dissenting  Shareholder"  means any Repap  Shareholder which exercises its
     Dissent  Rights in  compliance  with  Section  190 of the CBCA and  thereby
     becomes  entitled to receive the fair value of the Repap Common Shares held
     by that Repap Shareholder;

     "Effective Date" means the date shown on the certificate of amalgamation to
     be issued by the Director under the CBCA giving effect to the Amalgamation;

     "Environmental Laws" means all applicable Laws, including applicable common
     law,  relating to the protection of the  environment  and public health and
     safety or any hazardous or toxic substance or pollutant;

     "ERISA" has the meaning ascribed thereto in Section 3.1(l)(vi);

     "Exchange Act" means the United States Securities  Exchange Act of 1934, as
     amended and the rules, regulations and policies made thereunder,  as now in
     effect and as they may be amended from time to time prior to the  Effective
     Date;

     "Governmental  Entity" means any (a)  multinational,  federal,  provincial,
     state,  regional,  municipal,  local or other  government,  governmental or
     public   department,   central  bank,  court,   tribunal,   arbitral  body,
     commission,  board,  bureau  or  agency,  domestic  or  foreign,  (b)  self
     regulatory  organization  or stock  exchange  including  The  Nasdaq  Stock
     Market,  Inc.  OTC  Bulletin  Board and The  Toronto  Stock  Exchange,  (c)
     subdivision,   agent,  commission,  board,  or  authority  of  any  of  the
     foregoing,  or  (d)  quasi-governmental  or  private  body  exercising  any
     regulatory,  expropriation  or taxing authority under or for the account of
     any of the foregoing;

     "holders"  means,  when used with  reference to the Repap Common Shares and
     the Repap Preferred Shares,  the holders thereof shown from time to time in
     the  register  maintained  by or on  behalf  of  Repap in  respect  of such
     securities;

     "including" means including without limitation;

     "Information" has the meaning ascribed thereto in Section 4.7(2);

     "Intellectual Property Rights" means all patents,  trade-marks,  copyright,
     industrial  designs,  trade-names  and other  intellectual  property rights
     whether   registered  or  not,  owned  by  or  licensed  to  Repap  or  its
     subsidiaries;  "Copyright"  means the rights  prescribed by section 3(1) of
     the Copyright Act (Canada) and other copyright rights; "Industrial Designs"
     means the  exclusive  rights  conferred  under the  Industrial  Design  Act
     (Canada)  and other  equivalent  rights  including  design  patent  rights;
     "Patents" means all issued patents and inventions and pending  applications
     therefor  and  patents  which  may  be  issued  from  current  applications
     (including divisions, reissues, renewals,  re-examinations,  continuations,
     continuations-in-part  and  extensions)  applied for or  registered  in any
     jurisdiction; and "Trade-marks" means the trade-marks, trade-names, brands,
     business  names,  uniform  resource  locators,  domain  names,  tag  lines,
     designs,  graphics,  logos,  service marks and other commercial symbols and
     indicia of origin  whether  registered  or not and any goodwill  associated
     therewith;

     "Laws" means all statutes, regulations,  statutory rules, orders, and terms
     and conditions of any grant of approval,  permission,  authority or license
     of any Governmental  Entity, and the term "applicable" with respect to such
     Laws and in the context that refers to one or more Persons, means that such
     Laws apply to such Person or Persons or its or their business, undertaking,
     property  or  securities  and emanate  from a  Governmental  Entity  having
     jurisdiction  over  the  Person  or  Persons  or  its  or  their  business,
     undertaking, property or securities;

     "Match Period" has the meaning ascribed thereto in Section 4.6(1);

     "Material Adverse Change", when used in connection with a Person, means any
     change,   effect,  event  or  occurrence  with  respect  to  the  financial
     condition, properties, assets, liabilities,  obligations (whether absolute,
     accrued,  conditional or otherwise),  businesses,  operations or results of
     operations  of such Person or any of its  subsidiaries  that is or would be
     material and adverse to such Person and its subsidiaries  taken as a whole,
     other than any change,  effect,  event or  occurrence  (i)  relating to, or
     arising  out  of,  the  Canadian,  United  States  or  European  economies,
     political conditions or securities markets in general or (ii) affecting the
     worldwide pulp and paper  industry in general or the North American  coated
     paper industry in general which does not have a materially disproportionate
     impact on such Person and its subsidiaries;

     "Material Adverse Effect" when used in connection with a Person,  means any
     effect resulting in a Material Adverse Change with respect to it;

     "material  fact"  shall  have  the  meaning   ascribed  thereto  under  the
     Securities Act;

     "Option  Agreement"  means the  option  agreement  attached  as  Schedule C
     hereto;

     "OSC" means the Ontario Securities Commission;

     "Outside  Date"  means  December  20,  2000  or such  later  date as may be
     mutually agreed by the parties;

     "Person" includes any individual,  firm, partnership,  limited partnership,
     joint venture,  venture capital fund, limited liability company,  unlimited
     liability company,  association,  trust, trustee, executor,  administrator,
     legal personal representative,  estate, group, body corporate, corporation,
     unincorporated association or organization,  Governmental Entity, syndicate
     or other entity, whether or not having legal status;

     "Publicly  Disclosed by Repap" means  disclosed by Repap in a public filing
     made by it with the OSC or the SEC on or before the date hereof;

     "Redemption Date" means the Effective Date;

     "Redemption  Price"  means  Cdn.  $0.20 per  Amalco  Special  Share or such
     greater amount established in accordance with Section 4.6;

     "Regulatory Approvals" means those sanctions,  rulings,  consents,  orders,
     exemptions,  permits  and other  approvals  (including  the lapse,  without
     objection,  of a prescribed  time under a statute or regulation that states
     that a transaction may be implemented if a prescribed time lapses following
     the  giving of notice  without an  objection  being  made) of  Governmental
     Entities, as set out in Schedule C hereto;

     "Repap  Circular"  means the notice of the Repap  Meeting and  accompanying
     management  information  circular,  including all appendices thereto, to be
     sent to Repap Shareholders in connection with the Repap Meeting;

     "Repap  Common  Shares"  means the common  shares in the  capital of Repap;

     "Repap Documents" has the meaning ascribed thereto in Section 3.1(m);

     "Repap Material  Subsidiary"  means Repap New Brunswick Inc. and each other
     subsidiary of Repap (i) the total assets of which constituted more than ten
     percent of the  consolidated  assets of Repap or (ii) the total revenues of
     which  constituted  more than ten percent of the  consolidated  revenues of
     Repap, in each case as set out in the financial statements of Repap for the
     year ended  December 31, 1999 and each  affiliate of Repap that directly or
     indirectly holds an equity interest in any such subsidiary;

     "Repap Meeting" means the special meeting of Repap Shareholders,  including
     any adjournment or postponement  thereof, to be called and held to consider
     the Amalgamation;

     "Repap Options" means the Repap Common Share purchase options granted under
     the Repap Stock Option Plans;

     "Repap Plans" has the meaning ascribed thereto in Section 3.1(l);

     "Repap Preferred Shares" means collectively the Preferred Shares,  Series C
     and the Preferred Shares, Series F in the capital of Repap;

     "Repap  Shareholders"  means the holders of Repap  Common  Shares and Repap
     Preferred Shares;

     "Repap  Shares"  means  the Repap  Common  Shares  and the Repap  Preferred
     Shares;

     "Repap Stock  Option  Plans" means  Repap's  1987  Directors,  Officers and
     Employees Stock Option Plan, and the 1991 Salaried  Employees Amended Stock
     Option Plan, as amended to the date hereof;

     "Representatives" has the meaning ascribed thereto in Section 4.7(1);

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

     "Securities  Act"  means  the  Securities  Act  (Ontario)  and  the  rules,
     regulations and policies made thereunder,  as now in effect and as they may
     be amended from time to time prior to the Effective Date;

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

     "Superior Proposal" means any bona fide written  Acquisition  Proposal that
     in the good faith  determination of the Board of Directors of Repap,  after
     consultation  with its financial  advisors and with outside  counsel (a) is
     reasonably  capable of being  completed,  taking  into  account  all legal,
     financial,  regulatory  and other  aspects of such  proposal  and the party
     making such proposal,  and (b) would, if consummated in accordance with its
     terms,  result in a  transaction  more  favourable  to the holders of Repap
     Common  Shares and no less  favourable  to the  holders of Repap  Preferred
     Shares from a financial point of view than the transaction  contemplated by
     this Agreement;

     "Tax" and "Taxes" have the respective  meanings ascribed thereto in Section
     3.1(k) (iii);

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

     "Technical  Information" means all know-how and related technical knowledge
     owned by or licensed to Repap,  its  subsidiaries or affiliates  including,
     without limitation:  all trade secrets,  confidential information and other
     proprietary know-how; all public information and non-proprietary  know-how;
     any  information of a scientific,  technical,  financial or business nature
     regardless  of its  form;  all  documented  research,  forecasts,  studies,
     marketing  plans,  budgets,  market data,  developmental,  demonstration or
     engineering work; all information that can be or is used to define a design
     or process or procure,  produce, support or operate material and equipment;
     all software,  methods of production and procedures; all integrated circuit
     topographies,   mask  works  and  similar  rights  in  semi-conductor  chip
     technology;  and all formulae,  designs,  drawings,  blueprints,  patterns,
     plans, flow charts, parts lists, manuals and records;

     "unsolicited" means unsolicited after Tuesday, August 22, 2000; and

     "US Repap Plans" has the meaning ascribed thereto in Section 3.1(l)(vi).

Section 1.2       Interpretation Not Affected by Headings, etc.

     The division of this Agreement  into Articles,  Sections and other portions
and the insertion of headings are for  convenience  of reference  only and shall
not  affect  the  construction  or  interpretation   hereof.   Unless  otherwise
indicated,  all  references  to an "Article"  or "Section"  followed by a number
and/or a letter refer to the specified Article or Section of this Agreement. The
terms  "this  Agreement",   "hereof",   "herein"  and  "hereunder"  and  similar
expressions refer to this Agreement  (including the Schedules hereto) and not to
any  particular  Article,  Section  or other  portion  hereof  and  include  any
agreement or instrument supplementary or ancillary hereto.

Section 1.3       Currency

     Unless otherwise specifically  indicated,  all sums of money referred to in
this Agreement are expressed in lawful money of Canada.

Section 1.4       Number, etc.

     Unless the context otherwise  requires,  words importing the singular shall
include the plural and vice versa and words  importing  any gender shall include
all genders.

Section 1.5       Date For Any Action

     In the event  that any date on which any  action  is  required  to be taken
hereunder by any of the parties  hereto is not a Business Day, such action shall
be required to be taken on the next succeeding day which is a Business Day.

Section 1.6       Entire Agreement

     This Agreement,  and the agreements and other documents referred to herein,
constitute the entire  agreement  between the parties  hereto  pertaining to the
terms of the  transactions  contemplated  hereby and  supersede  all other prior
agreements,  understandings,  negotiations  and  discussions,  whether  oral  or
written,   between  the  parties  hereto  with  respect  to  the  terms  of  the
transactions contemplated hereby.

Section 1.7       Schedules

     The  following  Schedules  are  annexed  to this  Agreement  and are hereby
incorporated by reference into this Agreement and form part hereof:

     Schedule A - Amalgamation Agreement
     Schedule B - Special Resolution of the Repap Shareholders
     Schedule C - Regulatory Approvals
     Schedule D - Confidentiality Provisions
     Schedule E - Option Agreement

Section 1.8       Accounting Matters

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

Section 1.9       Knowledge

     Each  reference  herein to the knowledge of Repap means,  unless  otherwise
specified,  the actual  knowledge of H.  Stephen,  S.  Larson,  M. Cormier or T.
McBride  following due review of corporate records and inquiry of such employees
of Repap as they  determine in their  reasonable  judgement  can be made without
jeopardizing the  confidentiality of the subject matter of this Agreement.  Each
reference herein to the knowledge of UPM means, unless otherwise specified,  the
actual knowledge of UPM's senior officers.

                                    ARTICLE 2
                                THE AMALGAMATION

Section 2.1      Implementation Steps by Repap

     Repap covenants in favour of UPM that Repap shall:

     (a)  convene  and hold the Repap  Meeting,  within 30 days of  causing  the
          Repap Circular and other documentation required in connection with the
          Repap Meeting to be sent to each Repap Shareholder pursuant to Section
          2.3, for the purpose of considering the Amalgamation Resolution;

     (b)  subject to Section 4.6(1) and Section  5.4(2),  not postpone or cancel
          (or propose for adjournment,  postponement or cancellation)  the Repap
          Meeting  without  UPM's prior written  consent  except as required for
          quorum purposes, by Law or by the Repap Shareholders;

     (c)  at the request of UPM, use commercially  reasonable efforts to solicit
          from the Repap  Shareholders  proxies in favour of the approval of the
          Amalgamation Resolution and to take all other action that is necessary
          or desirable to secure the approval of the Amalgamation  Resolution by
          the  Repap  Shareholders,  except  to the  extent  that  the  Board of
          Directors has changed its  recommendation in accordance with the terms
          of this Agreement (and subject in all cases to Section 6.4); and

     (d)  subject to the satisfaction or waiver of the other  conditions  herein
          contained in favour of each party and on written  direction  from UPM,
          send to the Director,  for endorsement and filing by the Director, the
          Articles of  Amalgamation  and such other documents as may be required
          in  connection  therewith  under  the  CBCA  to  give  effect  to  the
          Amalgamation.

Section 2.2      Articles of Amalgamation

     The Articles of Amalgamation shall implement the Amalgamation,  as a result
of which,  among  other  things,  each  holder of Repap  Common  Shares  will be
entitled to receive one Amalco Special Share for each Repap Common Share.

Section 2.3      Repap Circular

     Repap shall  commence  preparation  of the Repap  Circular no later than on
August 29, 2000. As promptly as reasonably  practicable  after the execution and
delivery of this  Agreement,  Repap shall complete the Repap  Circular  together
with any other documents required by the Securities Act or other applicable Laws
in connection  with the  Amalgamation  required to be prepared by Repap,  and as
promptly as practicable after the execution and delivery of this Agreement,  and
in any event on or prior to  September  15, 2000 Repap shall,  unless  otherwise
agreed by the parties, cause the Repap Circular and other documentation required
in connection  with the Repap Meeting to be sent to each Repap  Shareholder  and
filed as required by applicable Laws.

Section 2.4      Preparation of Filings, etc.

(1)      UPM and Repap  shall use all  reasonable  efforts to  cooperate  in the
         preparation, seeking and obtaining of all circulars, filings, consents,
         Regulatory   Approvals  and  other   approvals  and  other  matters  in
         connection with this Agreement and the Amalgamation.

(2)      Each of UPM and Repap shall  furnish to the other all such  information
         concerning it and its shareholders as may be required (and, in the case
         of its  shareholders,  available  to it)  for the  effectuation  of the
         actions described in Sections 2.3 and the foregoing  provisions of this
         Section 2.4, and each covenants that no information furnished by it (to
         its knowledge in the case of information  concerning its  shareholders)
         in  connection  with such actions or otherwise in  connection  with the
         consummation   of  the   Amalgamation   and  the   other   transactions
         contemplated  by this Agreement will contain any untrue  statement of a
         material fact or omit to state a material fact required to be stated in
         any such  document or  necessary  in order to make any  information  so
         furnished for use in any such  document not  misleading in the light of
         the circumstances in which it is furnished.

(3)      Repap shall  promptly  notify UPM if at any time  before the  Effective
         Date it  becomes  aware  that the Repap  Circular  contains  any untrue
         statement of a material fact or omits to state a material fact required
         to be stated  therein or  necessary  to make the  statements  contained
         therein not misleading in light of the  circumstances in which they are
         made,  or that  otherwise  requires an amendment or  supplement  to the
         Repap Circular or such other document. In any such event, UPM and Repap
         shall  cooperate in the preparation of a supplement or amendment to the
         Repap Circular or such  application or other document,  as required and
         as the case may be, and, if  required,  shall cause the same to be sent
         to Repap Shareholders and filed as required by applicable Laws.

(4)      Repap shall  ensure that the Repap  Circular  complies in all  material
         respects with all applicable  Laws.  Without limiting the generality of
         the  foregoing,  Repap shall  ensure that the Repap  Circular  provides
         holders of Repap Shares with information in sufficient detail to permit
         them to form a reasoned  judgement  concerning the matters to be placed
         before them at the Repap Meeting.

                                    ARTICLE 3
                         REPRESENTATIONS AND WARRANTIES

Section 3.1       Representations and Warranties of Repap

     Repap  represents  and  warrants  to and in  favour of UPM as  follows  and
acknowledges  that UPM is relying upon such  representations  and  warranties in
connection with the transactions contemplated by this Agreement:

     (a)  Organization.  Each of Repap and the Repap Material  Subsidiaries  has
          been duly incorporated or formed under all applicable Laws, is validly
          subsisting  and has full corporate or legal power and authority to own
          its  properties  and conduct its  businesses  as  currently  owned and
          conducted. All of the outstanding shares and other ownership interests
          of  the  Repap  Material  Subsidiaries  which  are  held  directly  or
          indirectly by Repap are validly issued,  fully paid and non-assessable
          and all such shares and other  ownership  interests are owned directly
          or indirectly by Repap,  free and clear of all material liens,  claims
          or  encumbrances,  except for  restrictions on transfers  contained in
          articles or similar documents,  and there are no outstanding  options,
          rights,  entitlements,  understandings  or commitments  (contingent or
          otherwise)  regarding  the right to acquire  any such  shares or other
          ownership interests in any of the Repap Material  Subsidiaries.  Repap
          has disclosed in writing to UPM in a form  acceptable to UPM the names
          and  jurisdictions  of  incorporation  of each of the  Repap  Material
          Subsidiaries.

     (b)  Capitalization.  Except as has been  disclosed  in writing by Repap to
          UPM in a form  acceptable  to UPM,  the  authorized  capital  of Repap
          consists  of an  unlimited  number  of  Repap  Common  Shares  and  an
          unlimited number of Preferred  Shares,  issuable in series.  As of the
          date hereof,  there are 743,960,637  Repap Common Shares (and no more)
          and  240,000  Preferred  Shares,  Series C (and no more)  and  400,000
          Preferred  Shares,  Series F (and no more) and no Preferred  Shares of
          any other series, issued and outstanding.  In addition, as at the date
          hereof,  options to acquire an aggregate  of not more than  60,895,000
          Repap Common Shares are granted and outstanding  under the Repap Stock
          Option  Plans and the right to acquire an  aggregate  of not more than
          128,571,429  Repap Common Shares is outstanding  under the Convertible
          Debenture at a conversion price as at the date hereof of U.S.$0.35 per
          Repap Common Share.  Except as described in the preceding sentences of
          this  Section  3.1(b),  there  are no  options,  warrants,  conversion
          privileges or other rights,  agreements,  arrangements  or commitments
          (pre-emptive,  contingent or otherwise)  obligating Repap or any Repap
          subsidiary to issue or sell any shares of Repap or of any of the Repap
          subsidiaries or securities or obligations of any kind convertible into
          or  exchangeable  for any shares of Repap or of any Repap  subsidiary.
          All outstanding  Repap Common Shares and Repap  Preferred  Shares have
          been duly  authorized and are validly issued and  outstanding as fully
          paid and non-assessable  shares, free of pre-emptive rights. Except as
          has  been  disclosed  in  this  Section,   there  are  no  outstanding
          contractual  obligations of Repap or any of the Repap  subsidiaries to
          repurchase,  redeem  or  otherwise  acquire  any  of  its  outstanding
          securities  or  with  respect  to the  voting  or  disposition  of any
          outstanding securities of Repap or any of the Repap subsidiaries.

     (c)  Authority and No Violation.

          (i)  Repap has the  requisite  corporate  power and authority to enter
               into this Agreement and to perform its obligations hereunder. The
               execution and delivery of this Agreement and the Option Agreement
               by  Repap  and the  consummation  by  Repap  of the  transactions
               contemplated by this Agreement and the Option Agreement have been
               duly  authorized by its Board of Directors and no other corporate
               proceedings on its part are necessary to authorize this Agreement
               or the transactions contemplated hereby, other than:

               (A)  with respect to the Repap  Meeting,  the Repap  Circular and
                    other matters  relating solely thereto,  the approval of the
                    Board of Directors of Repap; and

               (B)  with  respect to the  completion  of the  Amalgamation,  the
                    requisite approval of the Repap Shareholders.

          (ii) This  Agreement and the Option  Agreement have been duly executed
               and delivered by Repap and  constitute  legal,  valid and binding
               obligations,  enforceable  against Repap in accordance with their
               terms,  subject to bankruptcy,  insolvency  and other  applicable
               Laws  affecting  creditors'  rights  generally,  and  to  general
               principles of equity.

          (iii)The Board of Directors of Repap has (A) unanimously determined as
               of the date  hereof  that the  Amalgamation  is fair to the Repap
               Shareholders  and is in the best interests of Repap, (B) received
               an  opinion  from   Donaldson,   Lufkin  &  Jenrette   Securities
               Corporation to the effect that, as of the date of this Agreement,
               the consideration  offered to Repap Shareholders  pursuant to the
               Amalgamation  is fair from a financial point of view to the Repap
               Shareholders,   and  (C)   determined   as  of  the  date  hereof
               unanimously  to  recommend  that the Repap  Shareholders  vote in
               favour of the Amalgamation.  Repap's directors have advised Repap
               that, except in the event of a Superior Proposal,  they intend to
               vote all Repap Shares held by them in favour of the  Amalgamation
               and will so represent in the Repap Circular.

          (iv) The  approval of this  Agreement  and the Option  Agreement,  the
               execution and delivery by Repap of this  Agreement and the Option
               Agreement  and the  performance  by it of its  obligations  under
               those  agreements and the completion of the  Amalgamation and the
               transactions contemplated thereby, will not:

               (A)  result (with or without  notice or the passage of time) in a
                    violation  or breach of,  require any consent to be obtained
                    under or give rise to any termination,  accelerated  payment
                    right,  purchase or sale rights or payment  obligation under
                    any provision of:

                    (I)  its or any Repap Material  Subsidiary's  certificate of
                         incorporation,   articles,  by-laws  or  other  charter
                         documents;

                    (II) any Laws, judgement or decree (subject to obtaining the
                         Regulatory Approvals relating to Repap and UPM), except
                         to the  extent  that the  violation  or  breach  of, or
                         failure  to  obtain  any  consent   under,   any  Laws,
                         judgement or decree would not,  individually  or in the
                         aggregate,  have a Material Adverse Effect on Repap and
                         would not  prevent,  materially  hinder  or  materially
                         delay the completion of the  transactions  contemplated
                         hereby; or

                    (III)except as has been disclosed in writing by Repap to UPM
                         in a form  acceptable to UPM, any contract,  agreement,
                         licence,  franchise,  permit, loan, government grant or
                         guarantee  to which  Repap or any Repap  subsidiary  is
                         party or by which  it is  bound  or  subject  or is the
                         beneficiary,  except as would not,  individually  or in
                         the aggregate, have a Material Adverse Effect on Repap;

               (B)  except as has been disclosed in writing by Repap to UPM in a
                    form   acceptable   to  UPM,  give  rise  to  any  right  of
                    termination or  acceleration of indebtedness of Repap or any
                    Repap subsidiary, or cause any such indebtedness to come due
                    before its stated maturity, or cause any available credit of
                    Repap or any  Repap  subsidiary  to  cease to be  available,
                    other than as would not,  individually  or in the aggregate,
                    have a Material Adverse Effect on Repap; or

               (C)  result in the imposition of any encumbrance,  charge or lien
                    upon  any  of  its   assets  or  the  assets  of  any  Repap
                    subsidiary,  except  as would  not,  individually  or in the
                    aggregate, have a Material Adverse Effect on Repap.

               No consent,  approval,  order or authorization of, or declaration
               or  filing  with,  any  Governmental  Entity  is  required  to be
               obtained by Repap or any of its  subsidiaries  in connection with
               the  execution  and  delivery  of this  Agreement  or the  Option
               Agreement  or the  consummation  by  Repap  of  the  transactions
               contemplated  hereby  other than (A)  filings  with the  Director
               under the CBCA,  (B) the Regulatory  Approvals  relating to Repap
               and (C) any other consents,  approvals,  orders,  authorizations,
               declarations  or filings of or with a  Governmental  Entity which
               have  been  disclosed  in  writing  by  Repap  to  UPM  in a form
               acceptable  to  UPM  or  which,  if  not  obtained,   would  not,
               individually or in the aggregate,  have a Material Adverse Effect
               on Repap and would not prevent,  materially  hinder or materially
               delay the completion of the transactions contemplated hereby.

     (d)  No Defaults. Subject to obtaining the Regulatory Approvals relating to
          Repap,  neither Repap nor any of its subsidiaries is in default under,
          and there exists no event, condition or occurrence which, after notice
          or lapse of time or both,  would  constitute such a default under, any
          contract, agreement, licence or franchise to which it is a party which
          would have a Material Adverse Effect on Repap.

     (e)  Absence of Certain Changes or Events.  Except as has been disclosed in
          writing  by  Repap  to  UPM in a form  acceptable  to UPM or  Publicly
          Disclosed  by Repap,  since  December  31,  1999 each of Repap and the
          Repap  Material  Subsidiaries  has  conducted its business only in the
          ordinary and regular course of business  consistent with past practice
          and there has not occurred:

          (i)  a Material Adverse Change with respect to Repap;

          (ii) any damage,  destruction  or loss not fully covered by insurance,
               subject to customary deductions,  retentions and exclusions, that
               would have a Material Adverse Effect on Repap;

          (iii)any redemption,  repurchase or other  acquisition of Repap Common
               Shares by Repap or Repap  Preferred  Shares  or any  declaration,
               setting  aside or payment of any  dividend or other  distribution
               (whether in cash, stock or property) with respect to Repap Common
               Shares or Repap Preferred Shares;

          (iv) any  material  increase in or  modification  of the  compensation
               payable  or to become  payable by it to any of its  directors  or
               officers,  the  entering  into of any change of control,  "golden
               parachute" or similar  agreement or  arrangement  with any of its
               directors  or  officers,  or any  grant to any such  director  or
               officer of any increase in severance or termination pay;

          (v)  any material  increase in or modification of any bonus,  pension,
               insurance or benefit arrangement (including the granting of stock
               options,  restricted stock awards or stock  appreciation  rights)
               made to, for or with any of its directors or officers;

          (vi) any acquisition or sale of its property or assets aggregating 10%
               or more of Repap's total  consolidated  property and assets as at
               December 31, 1999 other than in the  ordinary and regular  course
               of business consistent with past practice;

         (vii) any entering into, amendment of,  relinquishment,  termination or
               non-renewal by it of any material contract,  agreement,  licence,
               franchise,  lease  transaction,  commitment  or  other  right  or
               obligation that would have a Material Adverse Effect on Repap;

        (viii) any   resolution   to  approve  a  split,   consolidation   or
               reclassification of any of its outstanding shares;

          (ix) any  material  change  in its  accounting  methods,  policies  or
               practices;

          (x)  any  guarantee  of the  payment of material  indebtedness  or any
               incurrence  of material  indebtedness  for money  borrowed or any
               issue or sale of any debt  securities  except in the ordinary and
               regular course of business consistent with past practice;

          (xi) except in the usual,  ordinary and regular course of business and
               consistent with past practice: (A) any satisfaction or settlement
               of any claims or  liabilities  prior to the same being due, which
               were,  individually  or in the  aggregate,  material;  or (B) any
               grant of any waiver,  exercise of any option or relinquishment of
               any  contractual  rights  which  were,  individually  or  in  the
               aggregate, material; or

          (xii)any  giving  of a  consent  by  Repap  to the  assignment  of the
               purchase  agreement  dated  as of May 15,  1998  relating  to the
               original issuance of the Convertible Debenture.

     (f)  Employment Matters.

          (i)  Except as has been disclosed in writing by Repap to UPM in a form
               acceptable  to  UPM,   neither  Repap  nor  any  Repap   Material
               Subsidiary   is  a  party  to  any   agreement,   obligation   or
               understanding providing for severance or termination payments to,
               or any  employment,  change of  control,  "golden  parachute"  or
               similar  agreement with, any director or officer,  other than any
               common law obligations of reasonable notice of termination or pay
               in lieu thereof and any statutory obligations.

          (ii) Except as has been disclosed in writing by Repap to UPM in a form
               acceptable to UPM, Repap and its  subsidiaries are not subject to
               any collective bargaining  agreements,  and there are no current,
               pending  or, to the  knowledge  of Repap,  threatened  strikes or
               lockouts at Repap or any Repap  Material  Subsidiary  that would,
               individually or in the aggregate,  have a Material Adverse Effect
               on Repap.

         (iii) Except as has been disclosed in writing by Repap to UPM in a form
               acceptable  to  UPM,   neither  Repap  nor  any  Repap   Material
               Subsidiary  is  subject  to any  litigation,  actual  or,  to the
               knowledge  of  Repap,  threatened,   relating  to  employment  or
               termination   of   employment   of   employees   or   independent
               contractors, other than those claims or such litigation as would,
               individually  or in the  aggregate,  not have a Material  Adverse
               Effect on Repap.

          (iv) Except as has been disclosed in writing by Repap to UPM in a form
               acceptable  to UPM,  Repap  and all Repap  Material  Subsidiaries
               have, during the past 12 months,  operated in accordance with all
               applicable Laws with respect to employment and labour, including,
               but not limited to, employment and labour standards, occupational
               health  and  safety,  employment  equity,  pay  equity,  workers'
               compensation,  human rights and labour relations and there are no
               current,  pending  or,  to the  knowledge  of  Repap,  threatened
               proceedings  before any board or tribunal  with respect to any of
               the above areas,  other than as has been  disclosed in writing by
               Repap to UPM in a form  acceptable to UPM or where the failure to
               so  operate or such  proceedings  would,  individually  or in the
               aggregate, not have a Material Adverse Effect on Repap.

          (v)  Except as has been disclosed in writing by Repap to UPM in a form
               acceptable to UPM,  there are no outstanding  stock  appreciation
               rights,   phantom   equity   or   similar   rights,   agreements,
               arrangements or commitments  based upon the book revenue,  value,
               income or any other attribute of Repap or any Repap subsidiary.

     (g)  Financial Statements; Contingent Liabilities. The audited consolidated
          financial  statements  for  Repap as at and for  each of the  12-month
          periods ended on or about  December 31, 1999,  1998 and 1997 have been
          prepared in accordance  with Canadian  generally  accepted  accounting
          principles  and  such  financial  statements  present  fairly,  in all
          material respects,  the consolidated financial position and results of
          operations  of Repap as of the  respective  dates  thereof and for the
          respective  periods covered thereby.  Except as set forth in the Repap
          Documents  filed prior to the date hereof,  and except for liabilities
          and obligations  incurred in the ordinary course of business since the
          date of the most recent  consolidated  balance  sheet  included in the
          Repap  Documents,  neither Repap nor any of its  subsidiaries  has any
          liabilities or obligations of any nature (whether  accrued,  absolute,
          contingent or otherwise) except for those that would not, individually
          or in the aggregate, have a Material Adverse Effect on Repap.

          The quarterly  financial  statements for Repap for the fiscal quarters
          ended  March  31,  2000  and June  30,  2000  have  been  prepared  in
          accordance with Canadian generally accepted accounting principles on a
          basis consistent with the consolidated  audited  financial  statements
          for the year ended  December  31, 1999 and such  financial  statements
          fairly present, in all material respects,  the consolidated  financial
          position and results of operations of Repap as of the respective dates
          thereof and for the respective periods covered thereby.

     (h)  Books and Records.  The financial books, records and accounts of Repap
          and its subsidiaries,  in all material respects, (i) have been and are
          being  maintained in accordance with accounting  principles  generally
          accepted  in the  country of  domicile  of each such entity on a basis
          consistent with prior years,  (ii) are stated in reasonable detail and
          accurately and fairly reflect the acquisitions and dispositions of the
          assets of Repap and its  subsidiaries  and (iii) accurately and fairly
          reflect  the basis for the Repap  consolidated  financial  statements.
          Repap's and the Repap Material  Subsidiaries'  corporate  minute books
          contain  minutes of all meetings and  resolutions of the directors and
          shareholders  held,  and full access  thereto has been provided to UPM
          with the exception of certain recent minutes of the board of directors
          relating solely to the strategic initiatives of Repap.

     (i)  Litigation,  Etc.  Except as has been disclosed in writing by Repap to
          UPM in a form acceptable to UPM or Publicly  Disclosed by Repap, there
          is no claim,  action,  proceeding or investigation  pending or, to the
          knowledge  of  Repap,   threatened   against   Repap  or  any  of  its
          subsidiaries   before  any  court  or  Governmental   Entity  that  if
          determined  adversely to Repap or such subsidiary  would reasonably be
          expected  to have a Material  Adverse  Effect on Repap or to  prevent,
          materially hinder or materially delay consummation of the transactions
          contemplated   by  this   Agreement.   Neither  Repap  nor  any  Repap
          subsidiary,  nor any of their  respective  assets and  properties,  is
          subject to any  outstanding  judgement,  order,  writ,  injunction  or
          decree that has had or would reasonably be expected to have a Material
          Adverse  Effect on Repap or that would prevent,  materially  hinder or
          materially delay consummation of the transactions contemplated by this
          Agreement.  Except as has been disclosed in writing by Repap to UPM in
          a form  acceptable to UPM, to Repap's  knowledge,  Repap and the Repap
          subsidiaries are not subject to any warranty, negligence,  performance
          or other claims or disputes or potential claims or disputes in respect
          of  products or  services  currently  being  delivered  or  previously
          delivered,   and  to  Repap's   knowledge   there  are  no  events  or
          circumstances  which would  reasonably be expected to give rise to any
          such claims or disputes or potential claims or disputes,  in each case
          which  has had or would  reasonably  be  expected  to have a  Material
          Adverse Effect on Repap.

     (j)  Environmental.  Except for any matters  that,  individually  or in the
          aggregate, have not had and would not reasonably be expected to have a
          Material  Adverse  Effect on Repap or except as has been  disclosed in
          writing by Repap to UPM in a form acceptable to UPM:

          (i)  all operations of Repap and its subsidiaries have been conducted,
               and are now, in compliance with all Environmental Laws; and

          (ii) neither Repap nor any Repap subsidiary is subject to:

               (A)  any  Environmental  Law which  requires  or may  require any
                    material  work,  repairs,  construction,  change in business
                    practices or operations, or expenditures; or

               (B)  any  written  demand or  written  notice  with  respect to a
                    breach  of  or  liability  under  any   Environmental   Laws
                    applicable to Repap or any Repap subsidiary;

         (iii) there are no claims,  proceedings or actions by any  Governmental
               Entity or other person or entity  pending or, to the knowledge of
               Repap threatened,  against Repap or any of its subsidiaries under
               any Environmental Law; and

          (iv) there are no facts,  to the  knowledge of Repap,  relating to the
               business or operations of Repap or any of its subsidiaries, or to
               any real property at any time owned,  leased or operated by Repap
               or any of its  subsidiaries,  that  would give rise to any claim,
               proceeding   or   action,   or  to  any   liability,   under  any
               Environmental Law.

     (k)  Tax Matters.  Except as has been  disclosed in writing by Repap to UPM
          in a form acceptable to UPM:

          (i)  Repap and each of the Repap Material  Subsidiaries have filed, or
               caused to be filed, all material Tax Returns required to be filed
               by or with  respect  to them in the  form  and  within  the  time
               prescribed  under  applicable  Laws  for so  doing  (all of which
               returns were correct and complete in all material respects),  and
               have paid,  or caused to be paid,  all material  amounts of Taxes
               shown to be due and payable  thereon,  and Repap's most  recently
               published  financial  statements contain an adequate provision in
               accordance with Canadian generally accepted accounting principles
               for all  material  amounts  of Taxes  payable  in respect of each
               period covered by such financial statements and all prior periods
               to the extent  such Taxes have not been paid,  whether or not due
               and whether or not shown as being due on any Tax  Returns.  Repap
               and each of its  subsidiaries  have made  adequate  provision  in
               accordance with accounting  principles  generally accepted in the
               domicile  of each such  entity in their books and records for any
               material  amounts of Taxes  accruing in respect of any accounting
               period which has ended  subsequent to the period  covered by such
               financial statements. Repap has duly and timely withheld from any
               amount paid or credited by it to or for the account or benefit of
               any person,  including any  employees,  officers or directors and
               any  non-resident  person,  the  amount  of all  Taxes  and other
               deductions  required  by  any  Laws,  rule  or  regulation  to be
               withheld  from any such  amount and has duly and timely  remitted
               the same to the appropriate Governmental Entity.

          (ii) Except  as  disclosed  in  writing  by  Repap  to UPM in a manner
               acceptable to UPM,  neither Repap nor any of its subsidiaries has
               received  any written  notification  that any issues  involving a
               material  amount of Taxes  have been  raised  (and are  currently
               pending) by the Canada  Customs and  Revenue  Agency,  the United
               States Internal  Revenue  Service or any other taxing  authority,
               including any sales tax authority,  in connection with any of the
               Tax  Returns  filed or  required  to be filed,  and no waivers of
               statutes of  limitations,  or  objections to any  assessments  or
               reassessments,  have been given or requested or made with respect
               to Repap or any Repap Material Subsidiary. Except as disclosed by
               Repap to UPM in a form  acceptable to UPM, all liability of Repap
               and its subsidiaries for income taxes has been assessed for up to
               the fiscal years disclosed in writing by Repap to UPM in a manner
               acceptable  to  UPM.   Neither  Repap  nor  any  Repap   Material
               Subsidiary  has  received  any  written  notice  from any  taxing
               authority to the effect that any Tax Return is being examined. To
               the  best  of the  knowledge  of  Repap,  there  are  no  written
               proposals to assess  additional Taxes involving a material amount
               of Taxes and none has been asserted in writing. No Tax liens have
               been filed for material amounts of Taxes other than for Taxes not
               yet due and payable.  Neither Repap nor any of the Repap Material
               Subsidiaries   is  a  party  to  any  Tax  sharing,   allocation,
               indemnification  or other similar agreement or arrangement of any
               nature  with any other  Person  (other  than  Repap or any of its
               subsidiaries)  pursuant  to  which  Repap  or any  of  the  Repap
               Material  Subsidiaries  has or  could  have  any  liabilities  in
               respect  of a  material  amount of Taxes.  Neither  Repap nor any
               Repap  Material  Subsidiary has received a refund of any Taxes to
               which it was not entitled.

         (iii) "Tax" and "Taxes" means,  with respect to any entity,  all income
               taxes  (including  any tax on or  based  upon net  income,  gross
               income,  income  as  specially  defined,   earnings,  profits  or
               selected  items of income,  earnings or profits)  and all capital
               taxes,  gross receipts taxes,  environmental  taxes, sales taxes,
               use taxes, ad valorem taxes,  value added taxes,  transfer taxes,
               franchise  taxes,  licence  taxes,  withholding  taxes  or  other
               withholding obligations,  payroll taxes, employment taxes, Canada
               or  Quebec  Pension  Plan  premiums,  excise,  severance,  social
               insurance  or social  security  premiums,  workers'  compensation
               premiums,  employment insurance or compensation  premiums,  stamp
               taxes,  occupation taxes, premium taxes, property taxes, windfall
               profits taxes,  alternative  or add-on  minimum taxes,  goods and
               services  tax,   customs  duties  or  other  taxes  of  any  kind
               whatsoever  (whether  payable  directly or by  withholding or not
               requiring the filing of a Tax Return),  all  estimated  taxes and
               deficiency  assessments,  together  with  any  interest  and  any
               penalties or additional  amounts imposed by any taxing  authority
               (domestic  or foreign) on such entity or for which such entity is
               responsible,  and  any  interest,  penalties,  additional  taxes,
               additions  to tax or other  amounts  imposed  with respect to the
               foregoing.

          (iv) For purposes of this Section 3.1(k), the term "material amount of
               Taxes"  shall mean an amount of Taxes that is  material  to Repap
               and its subsidiaries taken as a whole.

     (l)  Pension and Employee Benefits.

          (i)  Repap has made  available  to UPM a list of all current  employee
               benefit,  health,  welfare,  supplemental  unemployment  benefit,
               bonus,  pension,  profit sharing,  deferred  compensation,  stock
               option,   stock   compensation,   stock   purchase,   retirement,
               hospitalization insurance, medical, dental, legal, disability and
               similar plans or  arrangements  or practices,  whether written or
               oral,  which are maintained by Repap and each of its subsidiaries
               (collectively referred to as the "Repap Plans").

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

         (iii) Repap has made available to UPM true, correct and complete copies
               of all of the material  Repap Plans  requested by UPM (or, in the
               case of any material unwritten Repap Plan, a description thereof)
               together with funding agreements,  actuarial reports, funding and
               financial information returns and statements with respect to each
               Repap Plan,  and current plan  summaries,  booklets and personnel
               manuals. Repap has made available to UPM a true and complete copy
               of the most  recent  report  filed with  applicable  Governmental
               Entities with respect to each Repap Plan in respect of which such
               a report was required.

          (iv) Other than as has been  disclosed in writing by Repap to UPM in a
               form  acceptable to UPM, all of the Repap Plans are in compliance
               in all  material  respects  with all  applicable  Laws and  their
               terms,  and all of the Repap  Plans are  fully  insured  or fully
               funded.

          (v)  Except as has been disclosed in writing by Repap to UPM in a form
               acceptable to UPM, the entry into or performance by Repap of this
               Agreement  and  the  completion  of  the   Amalgamation  and  the
               transactions  contemplated thereby will not result in any payment
               (including   severance,    unemployment   compensation,    golden
               parachute,  bonus or  otherwise)  becoming  due to any  director,
               officer or employee of Repap or any Repap Material Subsidiary, or
               increase any benefits  otherwise payable under any Material Repap
               Plan or result in the  acceleration of time of payment or vesting
               of any such benefits.

          (vi) Repap has disclosed in writing to UPM in a form acceptable to UPM
               an accurate  and complete  list of each  employee  benefit  plan,
               within the  meaning of Section  3(3) of the  Employee  Retirement
               Income  Security  Act of 1974,  as  amended,  and the  rules  and
               regulations  thereunder  ("ERISA") and each stock  option,  stock
               appreciation right, restricted stock, stock purchase, stock unit,
               performance share,  incentive,  bonus,  profit-sharing,  savings,
               deferred compensation,  health, medical,  dental, life insurance,
               disability,  accident,  supplemental  unemployment or retirement,
               employment,  severance  or salary  or  benefits  continuation  or
               fringe benefit plan, program,  arrangement or agreement,  in each
               case,  subject to ERISA or for the benefit of active,  retired or
               former  employees or directors  residing within the United States
               of  America  (or with  respect  to which  any  such  employee  or
               director is a participant or party),  that have been  established
               or maintained by Repap or any subsidiary  thereof  (collectively,
               the "US Repap Plans").

         (vii) Except as has been disclosed in writing by Repap to UPM in a form
               acceptable  to UPM:  (A)  each US  Repap  Plan is in  substantial
               compliance   with  all  applicable   laws   (including,   without
               limitation,  ERISA and the Code)  and has been  administered  and
               operated in all material  respects in accordance  with its terms;
               (B) each US Repap Plan which is intended to be "qualified" within
               the  meaning  of  Section  401(a)  of the  Code  has  received  a
               favourable  determination  letter  or  opinion  letter  from  the
               Internal Revenue Service and, to the knowledge of Repap, no event
               has occurred and no condition  exists which would  reasonably  be
               expected to result in the  revocation of any such  determination;
               (C) no US Repap  Plan is  covered by Title IV of ERISA or subject
               to  Section  412 of the Code or  Section  302 of ERISA;  (D) full
               payment has been timely  made of all amounts  which Repap  and/or
               its  subsidiaries  are required under applicable law or under any
               US Repap  Plan or related  agreement  to have paid as of the last
               day of the most  recent  fiscal  year of each US Repap Plan ended
               prior to the date hereof,  or such non-payment has been reflected
               in their financial statements, and, to the knowledge of Repap, no
               event has occurred or condition  exists that would  reasonably be
               expected  to result in a material  increase  in the level of such
               amounts paid or accrued for the most recently  ended fiscal year;
               (E) neither  Repap nor any of its  subsidiaries  has  incurred or
               expects  to incur  any  material  liability  (including,  without
               limitation, additional contributions,  fines, taxes or penalties)
               as a result of a failure to  administer  or operate  any US Repap
               Plan that is a "group  health  plan" (as such terms is defined in
               Section  607(l) of ERISA or  Section  5000(b)(l)  of the Code) in
               compliance with the applicable requirements of Part 6 of Subtitle
               B of Title I of ERISA or Section 4980B of the Code ("COBRA"); (F)
               no US Repap Plan provides for  post-employment or retiree health,
               life  insurance or other  welfare  benefits (G) neither Repap nor
               any of its subsidiaries  has engaged in any  transaction,  act or
               omission to act in  connection  with any US Repap Plan that would
               reasonably be expected to result in the  imposition of a material
               penalty  or fine  pursuant  to  Section  502 of  ERISA,  or a tax
               pursuant to Section 4975 of the Code;  (I) the  execution of this
               Agreement and the consummation of the  transactions  contemplated
               hereby do not  constitute a  triggering  event under any US Repap
               Plan,  policy,  arrangement or agreement,  which (either alone or
               upon the occurrence of any  additional or subsequent  event) will
               or may result in any payment,  "parachute  payment" (as such term
               is  defined  in  Section  280G of the  Code),  severance,  bonus,
               retirement or job security or similar-type  benefit,  or increase
               any benefits or accelerate the payment or vesting of any benefits
               to any employee or former employee or director or Repap or any of
               its affiliates;  (J) no US Repap Plan provides for the payment of
               severance,   termination,   change  in  control  or  similar-type
               payments or benefits;  (K) no material liability,  claim, action,
               litigation,  audit, examination,  investigation or administrative
               proceeding has been made,  commenced or, to the best knowledge or
               Repap,  threatened  with respect to any US Repap Plan (other than
               routine claims for benefits payable in the ordinary course) which
               could result in a material  liability  of Repap or any  affiliate
               thereof; and (L) except as required to maintain the tax-qualified
               status of any US Repap Plan  intended  to qualify  under  Section
               401(a) of the Code,  no  condition  or  circumstance  exists that
               would prevent the amendment or termination of any US Repap Plan.

        (viii) Repap has  delivered  or caused to be  delivered  to UPM or its
               counsel true and complete copies of each US Repap Plan,  together
               with all amendments thereto,  and, to the extent applicable,  (A)
               all current summary plan  descriptions;  (B) the annual report on
               Internal   Revenue  Service  Form   5500-series,   including  any
               attachments  thereto,  for each of the last three plan years; (C)
               the most  recent  actuarial  valuation  report;  and (D) the most
               recent determination letter.

     (m)  Reports.  Except as has been disclosed in writing by Repap to UPM in a
          form  acceptable to UPM,  Repap has filed with the OSC and the SEC and
          Repap New  Brunswick  Inc.  has filed with the SEC,  true and complete
          copies  of  all  forms,  reports,  schedules,   statements  and  other
          documents  required  to be filed by them  since  January 1, 1998 (such
          forms, reports, schedules,  statements and other documents,  including
          any financial  statements or other documents,  including any schedules
          included  therein,   are  collectively   referred  to  as  the  "Repap
          Documents"). The Repap Documents at the time filed (i) did not contain
          any  misrepresentation  of a material fact or omit to state a material
          fact required to be stated therein or necessary to make the statements
          therein, in the light of the circumstances under which they were made,
          not  misleading,  and (ii) complied in all material  respects with the
          requirements of applicable  securities  Laws.  Neither Repap nor Repap
          New Brunswick Inc. has filed any  confidential  material change report
          with the OSC, the SEC or any other  securities  authority or regulator
          or any stock exchange or other self-regulatory  authority which at the
          date hereof remains confidential.

     (n)  Compliance with Laws. Except as has been disclosed in writing by Repap
          to UPM in a form  acceptable  to UPM or Publicly  Disclosed  by Repap,
          Repap and the Repap Material  Subsidiaries  have complied with and are
          not in  violation  of any  applicable  Laws,  orders,  judgements  and
          decrees  other than  non-compliance  or  violations  which  would not,
          individually  or in the aggregate,  have or be reasonably  expected to
          have  a  Material  Adverse  Effect  on  Repap.  Without  limiting  the
          generality of the foregoing,  all  securities of Repap  (including all
          options, rights or other convertible or exchangeable  securities) have
          been issued in compliance  with all  applicable  securities  Laws and,
          subject to  Regulatory  Approvals,  all  securities to be issued on or
          before the Effective  Date upon  exercise of any such options,  rights
          and other  convertible or  exchangeable  securities  will be issued in
          compliance with all applicable securities Laws.

     (o)  Restrictions on Business Activities. There is no agreement, judgement,
          injunction,  order or decree  binding upon Repap or any  subsidiary or
          affiliate that has or would  reasonably be expected to have the effect
          of  prohibiting,  materially  restricting or materially  impairing any
          business  practice  of  Repap  or any  subsidiary  or  affiliate,  any
          acquisition of property by Repap or any subsidiary or affiliate or the
          conduct  of  business  by  Repap or any  subsidiary  or  affiliate  as
          currently conducted  (including following the Amalgamation) other than
          such  agreements,  judgements,  injunctions,  orders or decrees  which
          would not,  individually  or in the  aggregate,  have or be reasonably
          expected to have a Material Adverse Effect on Repap.

     (p)  Property. Except as has been disclosed in writing by Repap to UPM in a
          form acceptable to UPM or Publicly  Disclosed by Repap, Repap and each
          Repap Material  Subsidiary have good and sufficient  title to the real
          property  interests,  including  fee  simple  estate  of and  in  real
          property,  leases, easements,  rights of way, permits or licences from
          land owners or authorities permitting the use of land by Repap or such
          Repap Material Subsidiary,  necessary to permit the operation of their
          businesses as presently owned and conducted except for such failure of
          title  that  would,  individually  or in  the  aggregate,  not  have a
          Material Adverse Effect on Repap. Repap and its subsidiaries are not a
          party to, or under any  agreement to become a party to, any lease with
          respect to real  property  which if  terminated  would  reasonably  be
          expected to have a Material Adverse Effect on Repap.

     (q)  Licences, Etc. Except as has been disclosed in writing by Repap to UPM
          in a form acceptable to UPM, Repap and each Repap Material  Subsidiary
          owns,  possesses,  or has  obtained  and is in  compliance  with,  all
          licences,   permits,   certificates,    orders,   grants   and   other
          authorizations of or from any Governmental Entity necessary to conduct
          its  businesses  as now  conducted  except for such failure that would
          not, individually or in the aggregate,  have or be reasonably expected
          to have a Material Adverse Effect on Repap.

     (r)  Authorizations  etc.  Repap and each Repap Material  Subsidiary  owns,
          possesses,   or  has   obtained   and  is  in   compliance   with  any
          authorizations,  certificates,  approvals  or  licences of or from any
          Person  necessary to conduct its business as now conducted  except for
          such failures that would not,  individually or in the aggregate,  have
          or be reasonably expected to have a Material Adverse Effect on Repap.

     (s)  Registration Rights.  Except as has been disclosed in writing by Repap
          to UPM in a form acceptable to UPM, no holder of securities  issued by
          Repap has any right to compel Repap to register or  otherwise  qualify
          such  securities  for public  sale in Canada or the  United  States or
          elsewhere.

     (t)  Intellectual  Property.  Repap  has set  forth  in  writing  in a form
          acceptable   to  UPM  a  complete  and   accurate   list  of  all  (i)
          registrations and applications relating to Intellectual Property which
          is owned by Repap or its subsidiaries;  and (ii) Intellectual Property
          Rights and  Technical  Information  that is licensed by Repap which is
          material to Repap's business and any applicable licensing  agreements.
          Except as disclosed in writing by Repap to UPM in a form acceptable to
          UPM:

          (A)  Repap,  or one of its  subsidiaries  is the exclusive  beneficial
               owner of all right, title and interest in and to the Intellectual
               Property Rights and Technical  Information (with no breaks in the
               chain of title  thereof)  free and clear of any  claim,  security
               interest, lien, pledge, option, charge or encumbrance of any kind
               whatsoever.  Neither  Repap  nor  any  of  its  subsidiaries  has
               transferred  nor  will  it  transfer  such  rights,  licenses  or
               privileges, to any other Person;

          (B)  Repap and its  subsidiaries  have and shall  maintain  all right,
               title and interest in and to the Intellectual Property Rights and
               Technical  Information,  including  the right to use all licensed
               Intellectual  Property Rights and Technical  Information,  to the
               extent  necessary  to continue to conduct its  business as it has
               been conducted to the date hereof;

          (C)  the Intellectual Property Rights are in full force and effect and
               have not been used or  enforced  or failed to be used or enforced
               in a manner that would result in their abandonment,  cancellation
               or unenforceability;

          (D)  there are no claims of adverse  ownership or  invalidity or other
               opposition to or conflicts with any of the Intellectual  Property
               Rights and Technical  Information  nor any claim against Repap or
               any of its  affiliates  relating  to  the  Intellectual  Property
               Rights and Technical Information;

          (E)  to Repap's  knowledge,  the use by it and its subsidiaries of the
               Intellectual  Property Rights and Technical  Information does not
               breach,  violate,  infringe or  interfere  with any rights of any
               Person; and

          (F)  there are no claims, oppositions,  conflicts, suits, proceedings,
               demands,   actions,    investigations,    breaches,   violations,
               infringements  and  interferences  of the  Intellectual  Property
               Rights  and  Technical  Information,  and to the best of  Repap's
               knowledge,  there are no facts  upon which a  challenge  could be
               made;

          except to the extent that would not, individually or in the aggregate,
          reasonably  be  expected to have a Material  Adverse  Effect on Repap;
          provided  that,   notwithstanding   the  foregoing,   Repap  makes  no
          representation  or warranty in this Section 3.1(t) with respect to the
          technology for making pulp known as the ALCELL(R) technology.

     (u)  Non-Arm's Length Transactions. Except as has been disclosed in writing
          by Repap to UPM in a form  acceptable  to UPM,  there are no  material
          contracts, commitments, agreements, arrangements or other transactions
          between Repap or any of its subsidiaries, on the one hand, and any (i)
          officer  or  director  of Repap or any of its  subsidiaries,  (ii) any
          holder of record or  beneficial  owner of five  percent or more of the
          securities  of Repap or of the  Convertible  Debenture,  or (iii)  any
          affiliate  or associate of any such  officer,  director or  beneficial
          owner, on the other hand.

     (v)  Insurance. Repap and its subsidiaries maintain insurance coverage with
          reputable insurers in such amounts and covering such risks, subject to
          customary deductions,  retentions and exclusions, as are in accordance
          with normal  industry  practice for  companies  engaged in  businesses
          similar to that of Repap and its subsidiaries.

     (w)  Customers  and  Suppliers.  Since  January 1, 2000,  there has been no
          termination or cancellation of, and no material  adverse  modification
          or change in, the business  relationship with any customer or group of
          customers which  individually  or in the aggregate  provided more than
          10% of the  consolidated  gross revenues of Repap and its subsidiaries
          for the fiscal year ended on December 31, 1999.

     (x)  Foreign  Private Issuer.  Repap is a "foreign  private issuer" as such
          term is defined in Rule 3b-4(c) of the Exchange Act.

     (y)  Broker's  or Finder's  Fee.  Except for  Donaldson,  Lufkin & Jenrette
          Securities  Corporation (whose fees and expenses will be paid by Repap
          in accordance  with their agreement with such firm, a true and correct
          copy of which has been previously delivered to UPM), no agent, broker,
          Person or firm  acting on behalf of Repap is, or will be,  entitled to
          any fee,  commission or broker's or finder's fees from Repap,  or from
          any Person  controlling,  controlled  by, or under common control with
          Repap,  in connection  with this Agreement or any of the  transactions
          contemplated hereby.

     (z)  Cumulative Breach. The breaches,  if any, of the representations  made
          by Repap in this  Agreement that would occur if all references in such
          representations   to   phrases   concerning   materiality,   including
          references to the qualification "Material Adverse Effect" or "Material
          Adverse Change",  were deleted, in the aggregate do not have and would
          not reasonably be expected to have a Material Adverse Effect on, or do
          not or would not  reasonably  be  expected  to  amount  to a  Material
          Adverse Change in respect of, Repap.

Section 3.2       Representations and Warranties of UPM

     UPM  represents  and  warrants  to and in  favour of Repap as  follows  and
acknowledges that Repap is relying upon such  representations  and warranties in
connection with the matters contemplated by this Agreement:

     (a)  Organization.  Each of UPM and Acquireco has been duly incorporated or
          formed  under  applicable  Laws,  is validly  subsisting  and has full
          corporate  or legal  power and  authority  to own its  properties  and
          conduct its businesses as currently owned and conducted.

     (b)  Capitalization. The issued capital of Acquireco consists of one common
          share.

     (c)  Authority and No Violation.

          (i)  UPM has the requisite corporate power and authority to enter into
               this  Agreement  and to perform  its  obligations  hereunder  and
               thereunder.  The execution and delivery of this  Agreement by UPM
               and the  performance by UPM of the  transactions  contemplated by
               this  Agreement  have  been  duly  authorized  by  its  Board  of
               Directors and no other  proceedings  on its part are necessary to
               authorize this Agreement or the transactions  contemplated hereby
               or thereby.

          (ii) This  Agreement  has been duly  executed and delivered by UPM and
               constitutes its legal, valid and binding obligation,  enforceable
               against it in accordance  with its terms,  subject to bankruptcy,
               insolvency and other applicable Laws affecting  creditors' rights
               generally,  and to general principles of equity. The Amalgamation
               Agreement  will be duly executed and delivered by Acquireco  and,
               when so executed and delivered,  will constitute its legal, valid
               and binding obligation, enforceable against it in accordance with
               its terms, subject to bankruptcy, insolvency and other applicable
               Laws  affecting  creditors'  rights  generally,  and  to  general
               principles of equity.

         (iii) The  approval of this  Agreement  and the Option  Agreement,  the
               execution  and delivery by UPM of this  Agreement  and the Option
               Agreement and by Acquireco of the Amalgamation  Agreement and the
               performance  by  each of them  of  their  respective  obligations
               hereunder and thereunder  and the completion of the  Amalgamation
               and the transactions  contemplated thereby, will not result (with
               or  without  notice or the  passage  of time) in a  violation  or
               breach of,  require any consent to be obtained under or give rise
               to any termination, purchase or sale rights or payment obligation
               under any provision of:

               (A)  its certificate of incorporation, articles, by-laws or other
                    charter documents; or;

               (B)  any Laws,  judgement  or decree  (subject to  obtaining  the
                    Regulatory  Approvals relating to UPM and Repap),  except to
                    the extent  that the  violation  or breach of, or failure to
                    obtain any  consent  under,  any Laws,  judgement  or decree
                    would  not,  individually  or  in  the  aggregate,  prevent,
                    materially  hinder or materially delay the completion of the
                    transactions contemplated hereby.

          (iv) No consent,  approval,  order or authorization of, or declaration
               or  filing  with,  any  Governmental  Entity  is  required  to be
               obtained by UPM in connection  with the execution and delivery of
               this Agreement or the Option Agreement or the consummation by UPM
               of the  transactions  contemplated  hereby  other  than  (A)  the
               Regulatory Approvals relating to UPM, and (B) any other consents,
               approvals, orders, authorizations,  declarations or filings of or
               with a  Governmental  Entity which have been set forth in writing
               by UPM to Repap in a form  acceptable  to Repap or which,  if not
               obtained,  would not,  individually  or in the  aggregate  have a
               Material Adverse Effect on UPM.

     (d)  Necessary  Funds.  UPM has or has  access  to the funds  necessary  to
          redeem the Amalco Special Shares and the Repap Preferred  Shares after
          they have  become  Amalco  Preferred  Shares as  contemplated  in this
          Agreement.

Section 3.3       Survival

     The representations and warranties of Repap and UPM contained herein
shall survive the execution and delivery of this  Agreement and shall  terminate
on the earlier of the termination of this Agreement in accordance with its terms
and the  Effective  Date.  Any  investigation  by a party hereto or its advisors
shall not mitigate,  diminish or affect the  representations  and  warranties of
another party to this Agreement.

                                    ARTICLE 4
                                    COVENANTS

Section 4.1       Retention of Goodwill

     Until the Effective  Date,  Repap will continue to carry on the business of
Repap and its subsidiaries in a manner consistent with prior practice,
working to preserve the attendant goodwill of such entities and to contribute to
retention of that goodwill to and after the Effective  Date,  but subject to the
following  provisions  of this  Article 4. The  provisions  of  Section  4.2 are
intended to be in furtherance of this general commitment.

Section 4.2       Covenants of Repap

     (a)  Repap  covenants  and agrees  that,  until the  Effective  Date or the
          earlier  termination of this  Agreement in accordance  with Article 6,
          except (i) with the consent of UPM to any deviation therefrom; (ii) as
          has been disclosed in writing by Repap to UPM in a form  acceptable to
          UPM prior to the date  hereof;  or (iii)  with  respect  to any matter
          expressly  contemplated by this Agreement,  including the transactions
          involving the businesses of Repap contemplated hereby, Repap will, and
          will cause the Repap Material Subsidiaries to:

          (i)  carry on its  business  in, and only in, the ordinary and regular
               course in substantially  the same manner as heretofore  conducted
               and,  to the  extent  consistent  with  such  business,  use  all
               reasonable  efforts  to  preserve  intact  its  present  business
               organization  and keep  available  the  services  of its  present
               officers and employees and others having  business  dealings with
               it;

          (ii) not  split,  consolidate  or  reclassify  any of the  outstanding
               shares of Repap nor declare, set aside or pay any dividends on or
               make any other  distributions on or in respect of the outstanding
               shares of Repap;

         (iii) not amend the  articles or by-laws of Repap or  materially  amend
               the articles or by-laws of any subsidiary;

          (iv) not sell, pledge,  encumber,  allot, reserve, set aside or issue,
               authorize or propose the sale,  pledge,  encumbrance,  allotment,
               reservation,  setting aside or issuance of, or purchase or redeem
               or  propose  the  purchase  or  redemption  of, any shares in its
               capital stock or of any Repap Material Subsidiary or any class of
               securities convertible or exchangeable into, or rights,  warrants
               or options to acquire,  any such shares or other  convertible  or
               exchangeable securities,  except for (A) transactions between two
               or more wholly-owned Repap subsidiaries or between a wholly-owned
               subsidiary  of Repap and  Repap,  and (B) the  issuance  of Repap
               Common Shares  pursuant to fully vested and duly exercised  Repap
               Options granted prior to the date hereof;

          (v)  except to vest any  currently  issued and unvested  options under
               the Repap Stock Option Plans (unless  specifically  agreed to the
               contrary),  not  amend,  vary or modify  the Repap  Stock  Option
               Plans, or other benefits granted thereunder;

          (vi) not  reorganize,  amalgamate  or merge  Repap or any of the Repap
               Material Subsidiaries with any other Person, nor acquire or agree
               to  acquire  by  amalgamating,  merging  or  consolidating  with,
               purchasing  substantially  all  of the  assets  or  shares  of or
               otherwise,   any  business  of  any   corporation,   partnership,
               association or other business  organization or division  thereof,
               which  acquisition would be material to its business or financial
               condition on a consolidated basis;

        (vii)  except  with  respect  to the sale of  inventory  of Repap or any
               subsidiary  in  the  ordinary  and  regular  course  of  business
               consistent  with past  practice,  not sell,  lease,  encumber  or
               otherwise  dispose of any material assets (other than relating to
               transactions  between two or more wholly-owned Repap subsidiaries
               or between a wholly-owned subsidiary of Repap and Repap);

        (viii) use  its  reasonable  efforts  to   comply   promptly  with   all
               requirements  which  applicable  Laws may  impose on Repap or its
               subsidiaries  with  respect  to  the  transactions   contemplated
               hereby;

          (ix) not:

               (A)  other  than  pursuant  to  existing   employment,   pension,
                    supplemental pension, termination, compensation arrangements
                    or policies, enter into or modify any employment, severance,
                    change of control, "golden parachute" or similar agreements,
                    policies or arrangements with, or grant any bonuses,  salary
                    increases,  pension or supplemental pension benefits, profit
                    sharing,   retirement  allowances,   deferred  compensation,
                    incentive  compensation,  severance or termination pay to or
                    any  other  form  of  compensation  or with  respect  to any
                    increase  of  benefits  payable to, or make any loan to, any
                    officers or directors of Repap or any Repap subsidiary; or

               (B)  other  than in the usual,  ordinary  and  regular  course of
                    business and  consistent  with past  practice or pursuant to
                    existing   employment,    pension,   supplemental   pension,
                    termination,  compensation  arrangements or policies, in the
                    case of employees who are not officers or directors of Repap
                    or any Repap subsidiary, take any action with respect to the
                    entering into or  modification  of any material  employment,
                    severance,  collective  bargaining  or  similar  agreements,
                    policies  or  arrangements  or grant any  material  bonuses,
                    salary increases,  pension or supplemental pension benefits,
                    profit    sharing,    retirement    allowances,     deferred
                    compensation,    incentive   compensation,    severance   or
                    termination  pay or any other form of  compensation  or with
                    respect to any  material  increase of benefits  payable,  or
                    make any material loans to employees;

          (x)  not settle or compromise any claim brought by any present, former
               or purported  holder of any of its securities in connection  with
               the  transactions  contemplated by this Agreement or the prior to
               the Effective Date;

          (xi) not  guarantee  the  payment of  material  indebtedness  or incur
               material  indebtedness  for money  borrowed  or issue or sell any
               debt  securities  except in the  ordinary  and regular  course of
               business  consistent  with past practice,  other than as has been
               disclosed in writing by Repap to UPM in a form acceptable to UPM;

         (xii) not, except in the usual, ordinary and regular course of business
               and  consistent  with past  practice:  (A)  satisfy or settle any
               claims or liabilities prior to the same being due, except such as
               have been reserved  against in the financial  statements of Repap
               and its  subsidiaries  or as has been disclosed in writing to UPM
               by Repap in a form acceptable to UPM, which are,  individually or
               in the aggregate,  material;  (B) grant any waiver,  exercise any
               option  or   relinquish   any   contractual   rights  which  are,
               individually or in the aggregate, material; or (C) enter into any
               interest  rate,  currency  or  commodity  swaps,  hedges or other
               similar financial instruments;

        (xiii) use  its  reasonable  commercial  efforts  to  cause its  current
               insurance  (or  re-insurance)  policies  not to be  cancelled  or
               terminated  or any of the coverage  thereunder  to lapse,  unless
               simultaneously  with  such  termination,  cancellation  or lapse,
               replacement  policies  underwritten by insurance and re-insurance
               companies of nationally  recognized  standing providing coverage,
               subject to customary deductions, retentions and exclusions, equal
               to or greater than the coverage under the  cancelled,  terminated
               or lapsed policies for substantially similar premiums are in full
               force and effect;

         (xiv) incur or commit to capital  expenditures  prior to the  Effective
               Date only in the ordinary  course  consistent  with past practice
               and Repap's approved capital expenditure budget for 2000;

          (xv) continue  to defend  the Berg  Litigation  and not enter into any
               settlement  in respect of the Berg  Litigation  without the prior
               written consent of UPM;

        (xvi)  not make any changes to existing accounting practices relating to
               Repap or any Repap subsidiary,  except as required by Canadian or
               U.S. Law or required by Canadian  generally  accepted  accounting
               principles,  or make any material tax election  inconsistent with
               past practice; and

        (xvii) promptly advise UPM orally and, if then requested, in writing:

               (A)  of any event known to it occurring subsequent to the date of
                    this  Agreement  that  would  render any  representation  or
                    warranty of Repap  contained in this  Agreement  (except any
                    such  representation or warranty which speaks solely as of a
                    date prior to the  occurrence of such event),  if made on or
                    as of the date of such event or the Effective  Date,  untrue
                    or inaccurate in any material respect;

               (B)  of any  Material  Adverse  Change  known to it in respect of
                    Repap; and

               (C)  of any material  breach by Repap known to it of any covenant
                    or agreement contained in this Agreement;

     (b)  Repap  shall  and  shall  cause  its   subsidiaries   to  perform  all
          obligations  required or  desirable to be performed by Repap or any of
          its  subsidiaries  under  this  Agreement,   co-operate  with  UPM  in
          connection therewith,  and do all such other acts and things as may be
          necessary or desirable in order to consummate and make  effective,  as
          soon as reasonably practicable,  the transactions contemplated by this
          Agreement and, without limiting the generality of the foregoing, Repap
          shall and where appropriate shall cause its subsidiaries to:

          (i)  use all reasonable  efforts to obtain the requisite  approvals of
               the Repap Shareholders to the Amalgamation;

          (ii) apply for and use all reasonable efforts to obtain all Regulatory
               Approvals   relating  to  Repap  or  any  of  its   subsidiaries,
               including,  without  limitation,  any  approvals  with respect to
               timber licences held by Repap or any of its subsidiaries required
               as a result  of the  Amalgamation  and,  in doing so, to keep UPM
               informed as to the status of the proceedings related to obtaining
               the  Regulatory  Approvals,   including,   but  not  limited  to,
               providing  UPM  with  copies  of  all  related  applications  and
               notifications,  in draft  form,  in order for UPM to provide  its
               reasonable comments and providing UPM with copies of all material
               correspondence;

         (iii) defend  all  lawsuits  or  other  legal,   regulatory   or  other
               proceedings to which it is a party  challenging or affecting this
               Agreement or the  consummation of the  transactions  contemplated
               hereby and not enter into any  settlement of any lawsuits or such
               other proceedings without the prior written consent of UPM;

          (iv) use its  reasonable  efforts  to have  lifted  or  rescinded  any
               injunction or restraining  order relating to Repap or other order
               which  may  adversely  affect  the  ability  of  the  parties  to
               consummate the transactions contemplated hereby;

          (v)  use its reasonable efforts to effect all necessary registrations,
               filings and  submissions of information  required by Governmental
               Entities  from Repap or any of its  subsidiaries  relating to the
               Amalgamation;

          (vi) use its  reasonable  efforts  to obtain  all  necessary  waivers,
               consents  and  approvals  required  to be  obtained by Repap or a
               subsidiary in connection with the Amalgamation from other parties
               to  any  material  loan  agreements,  leases  or  other  material
               contracts; and

     (c)  use its reasonable  efforts to comply  promptly with all  requirements
          which  applicable  Laws may impose on Repap or its  subsidiaries  with
          respect to the transactions contemplated hereby.

Section 4.3       Covenants of UPM

     UPM hereby covenants and agrees to and, if applicable, will cause Acquireco
to,  perform all  obligations  required or desirable to be performed by it under
this Agreement, to co-operate with Repap in connection therewith,  and to do all
such  other  acts  and  things  as may be  necessary  or  desirable  in order to
consummate  and  make  effective,  as  soon  as  reasonably   practicable,   the
transactions contemplated by this Agreement and, without limiting the generality
of the foregoing, to:

     (a)  apply for and use all  reasonable  efforts  to obtain  all  Regulatory
          Approvals  relating to UPM and, in doing so, to keep Repap informed as
          to the status of the  proceedings  related to obtaining the Regulatory
          Approvals,  including, but not limited to, providing Repap with copies
          of all related applications and notifications, in draft form, in order
          for Repap to provide its reasonable  comments and providing Repap with
          copies of all material correspondence;

     (b)  effect  all  necessary  registrations,   filings  and  submissions  of
          information  required  by  Governmental   Entities  from  UPM  or  its
          subsidiaries relating to the Amalgamation;

     (c)  defend all lawsuits or other legal, regulatory or other proceedings to
          which it is a party  challenging  or affecting  this  Agreement or the
          consummation of the transactions contemplated hereby;

     (d)  use  commercially  reasonable  efforts to have lifted or rescinded any
          injunction or  restraining  order or other order relating to UPM which
          may  adversely  affect the  ability of the parties to  consummate  the
          transactions contemplated hereby;

     (e)  effect  all  necessary  registrations,   filings  and  submissions  of
          information  required  by  Governmental   Entities  from  UPM  or  its
          subsidiaries relating to the Amalgamation;

     (f)  promptly advise Repap orally and, if then requested, in writing:

          (i)  of any event known to it occurring subsequent to the date of this
               Agreement that would render any representation or warranty of UPM
               contained in this Agreement  (except any such  representation  or
               warranty which speaks solely as of a date prior to the occurrence
               of such event), if made on or as of the date of such event or the
               Effective Date, untrue or inaccurate in any material respect; and

          (ii) of any  material  breach  by UPM known to it of any  covenant  or
               agreement contained in this Agreement;

     (g)  UPM  acknowledges the employment  contracts (as amended)  disclosed in
          writing by Repap to UPM in a manner  acceptable  to UPM, and agrees to
          cause Repap to comply with such contracts, as may be amended from time
          to time with UPM's consent; and

     (h)  cause  Amalco  to  redeem  the  Amalco  Special  Shares  and the Repap
          Preferred Shares on the Effective Date following the completion of the
          Amalgamation.

Section 4.4       Treatment of Repap Stock Options

     UPM  understands  that Repap will provide interim  financial  assistance to
holders of Repap Options in connection  with the exercise of such Repap Options.
Such  financial  assistance  shall  consist of interest  free loans in an amount
necessary to enable such holders of Repap Options to exercise such options. Each
loan shall be secured by an  assignment of the proceeds and direction of payment
thereof to Repap of any  disposition of the shares under option up to the amount
of the loans. Furthermore, Repap shall provide lists to UPM of optionholders who
will receive financial  assistance,  the number of options held by those holders
and the exercise price(s) of their options.

Section 4.5       Covenants Regarding Non-Solicitation

(1)  Subject to Section 4.6, Repap shall not,  directly or  indirectly,  through
     any officer,  director,  employee,  representative  (including  for greater
     certainty any investment banker, lawyer or accountant) or agent of Repap or
     any of its  subsidiaries,  (i) solicit,  initiate,  knowingly  encourage or
     otherwise  facilitate  (including  by  way  of  furnishing  information  or
     entering  into any form of agreement,  arrangement  or  understanding)  the
     initiation of any inquiries or proposals regarding an Acquisition Proposal,
     (ii) initiate or participate in any discussions or  negotiations  regarding
     any  Acquisition  Proposal,  (iii)  approve  or  recommend,  or  propose to
     recommend,  any  Acquisition  Proposal  or (iv)  accept  or enter  into any
     agreement,   arrangement  or  understanding   related  to  any  Acquisition
     Proposal. Notwithstanding the preceding part of this Section 4.5(1) and any
     other  provision  of this  Agreement,  nothing  shall  prevent the Board of
     Directors of Repap from complying with Repap's disclosure obligations under
     applicable Laws with regard to an Acquisition Proposal or from considering,
     participating  in any  discussions  or  negotiations,  or  entering  into a
     confidentiality  agreement  and providing  information  pursuant to Section
     4.5(3) (but, subject to Section 4.6, shall not approve,  recommend,  accept
     or enter into any agreement,  arrangement or  understanding),  regarding an
     unsolicited bona fide written Acquisition  Proposal (a) in respect of which
     any required  financing has been  demonstrated  to the  satisfaction of the
     Board of Directors of Repap,  acting in good faith, to be reasonably likely
     to be  obtained  or  available,  (b) that did not  otherwise  result from a
     breach of this  Section 4.5 and (c) which the Board of  Directors  of Repap
     has determined in good faith,  after  consultation with financial  advisors
     and outside counsel, is a Superior Proposal and that it is required to take
     such actions in order to comply with its fiduciary  duties under applicable
     Laws.  Repap  shall,  and shall cause its  subsidiaries  and the  officers,
     directors,  employees,   representatives  and  agents  of  itself  and  its
     subsidiaries to, cease immediately all current discussions and negotiations
     regarding any proposal that  constitutes,  or may reasonably be expected to
     lead to, an Acquisition Proposal,  and request the return or destruction of
     all confidential information provided in connection therewith.

(2)  Repap shall forthwith  notify UPM, at first orally and then in writing,  of
     any Acquisition  Proposal and any inquiry that could lead to an Acquisition
     Proposal, or any amendments to the foregoing, or any request for non-public
     information  (including  requests  for  shareholder  or  noteholder  lists)
     relating to Repap or any Repap  Material  Subsidiary in connection  with an
     Acquisition  Proposal or for access to the properties,  books or records of
     Repap or any Repap  Material  Subsidiary  by any Person.  Such notice shall
     include a description of the material terms and conditions of any proposal,
     the  identity of the Person  making such  proposal,  inquiry or contact and
     provide such other details of the  proposal,  inquiry or contact as UPM may
     reasonably  request.  Repap shall keep UPM informed of the status including
     any  change  to the  material  terms of any such  Acquisition  Proposal  or
     inquiry.

(3)  If Repap  receives a request for  material  non-public  information  from a
     Person who has made an unsolicited bona fide written  Acquisition  Proposal
     and Repap is  permitted,  subject to and as  contemplated  under the second
     sentence of Section  4.5(1),  to  negotiate  the terms of such  Acquisition
     Proposal, then, and only in such case, the Board of Directors of Repap may,
     subject to the  execution  by such  Person of a  confidentiality  agreement
     containing employee non-solicitation  provisions,  provide such Person with
     access to information regarding Repap; provided,  however, that Repap sends
     a copy of any  such  confidentiality  agreement  to UPM  promptly  upon its
     execution and UPM is provided  with a list of or copies of the  information
     provided  to such  Person  and  promptly  provided  with  access to similar
     information to which such Person was provided.

(4)  Repap shall  ensure that its  officers,  directors  and  employees  and its
     subsidiaries and their officers,  directors and employees and any financial
     advisors  or  other  advisors  or  representatives  retained  by it or  its
     subsidiaries  are aware of the  provisions  of this  Section 4.5, and Repap
     shall be  responsible  for any  breach of this  Section  4.5 by its and its
     subsidiaries' officers, directors, employees, representatives or agents.

Section 4.6       Notice by Repap of Superior Proposal Determination

(1)  Notwithstanding  Sections 4.5(1),  (2) and (3), but subject to UPM's rights
     under Sections 6.3(3)(c) and 6.4, Repap may accept,  approve,  recommend or
     enter into any  agreement,  understanding  or  arrangement in respect of an
     unsolicited Superior Proposal if, and only if: (i) it has provided UPM with
     a copy of the Superior Proposal document;  and (ii) five calendar days (the
     "Match  Period") shall have elapsed from the later of the date UPM received
     written  notice  advising UPM that Repap's Board of Directors has resolved,
     subject  only to  compliance  with this  Section  4.6, to accept,  approve,
     recommend  or enter into an  agreement,  understanding  or  arrangement  in
     respect of such Superior  Proposal and the date UPM received a copy of such
     Superior  Proposal.  In the event that Repap  provides  UPM with the notice
     contemplated  in this  Section on a date that is less than  seven  calendar
     days prior to the Repap Meeting, Repap shall adjourn the Repap Meeting to a
     date  that is not less  than  seven  calendar  days  and not  more  than 10
     calendar days after the date of such notice.  Any  information  provided by
     Repap to UPM  pursuant to this Section 4.6 or pursuant to Section 4.5 shall
     constitute "Information" under Section 4.7(2).

(2)  During the Match  Period,  Repap agrees that UPM shall have the right,  but
     not the  obligation,  to offer to amend  the terms of this  Agreement.  The
     Board of Directors of Repap will review any offer by UPM to amend the terms
     of this Agreement in good faith in order to determine, in its discretion in
     the exercise of its fiduciary  duties,  whether UPM's offer upon acceptance
     by Repap would result in such  Superior  Proposal  ceasing to be a Superior
     Proposal.  If the Board of Directors of Repap so determines,  it will enter
     into an amended  agreement with UPM reflecting UPM's amended  proposal.  If
     the Board of Directors of Repap continues to believe,  in good faith, after
     consultation  with its financial  advisors and outside  counsel,  that such
     Superior  Proposal remains a Superior  Proposal and therefore rejects UPM's
     amended  proposal,  Repap may approve,  recommend,  accept or enter into an
     agreement,  understanding  or  arrangement  with  respect  to the  Superior
     Proposal,  provided  that such  acceptance  or agreement  does not obligate
     Repap or any  other  Person  to seek to  interfere  with the  timing or the
     holding  of  the  Repap   Meeting  to  consider   whether  to  approve  the
     Amalgamation  or to  provide  for any  "break",  "hello"  or other  fees or
     options or rights to acquire assets or securities or any other  obligations
     of  Repap  or  any  subsidiary  that  would  be  payable  or  apply  if the
     Amalgamation occurs. In addition, in such circumstances,  Repap may proceed
     with such  approvals,  consents,  filings of or  required  by  Governmental
     Entities  and such other  Persons as Repap shall  consider  appropriate  in
     order to  consummate  such Superior  Proposal,  provided that such activity
     does not  interfere  with the timing or the holding of the Repap Meeting to
     consider  whether  to  approve  the  Amalgamation.  If as a  result  of the
     application  of this Section  there is another  Acquisition  Proposal to be
     considered at the Repap Meeting,  Repap will act fairly in connection  with
     the order of presentation,  signage,  proxy forms and other matters related
     thereto.

(3)  Subject to Section  4.6(l),  nothing  contained  in this  Section 4.6 shall
     limit in any way the  obligation  of Repap to  convene  and hold the  Repap
     Meeting in accordance with Section 2.1 of this Agreement.

(4)  Repap  acknowledges and agrees that each successive  material  amendment to
     any Acquisition  Proposal shall  constitute a new Acquisition  Proposal for
     purposes of the requirement under clause (ii) of Section 4.6(1) to initiate
     an additional Match Period.

Section 4.7       Access to Information

(1)      Subject to Section 4.7(2) and applicable Laws, upon reasonable  notice,
         Repap shall (and shall cause each of its  subsidiaries to) afford UPM's
         officers,   employees,   counsel,   accountants  and  other  authorized
         representatives and advisors  ("Representatives") access, during normal
         business  hours  from the date  hereof  and  until the  earlier  of the
         Effective  Date or the  termination of this  Agreement,  to its and its
         subsidiaries'  properties,  books,  contracts and records as well as to
         its management  personnel,  and,  during such period,  Repap shall (and
         shall cause each of its  subsidiaries  to) furnish  promptly to UPM all
         information  concerning  Repap's  and  its  subsidiaries'   businesses,
         properties  and  personnel  as UPM may  reasonably  request;  provided,
         however,  that  neither  Repap  nor any of its  subsidiaries  shall  be
         required to disclose trade secrets, breach confidentiality  obligations
         or waive solicitor-client privilege.

(2)      UPM acknowledges that certain information  provided to it under Section
         4.7(1)  above will be  non-public  and/or  proprietary  in nature  (the
         "Information") and will be subject to the terms for confidentiality set
         forth in Schedule D hereto.  For greater  certainty,  the provisions of
         Schedule D shall  survive the  termination  of this  Agreement  for the
         periods set forth in Schedule D,  provided  that Schedule D and Section
         4.7(1) shall terminate at the Effective Date  notwithstanding  anything
         to the contrary contained therein.

Section 4.8       Closing Matters

     Each of UPM and Repap shall  deliver,  at the  closing of the  transactions
contemplated hereby, such customary certificates,  resolutions and other closing
documents as may be required by the other party hereto, acting reasonably.

Section 4.9       Indemnification

(1)  UPM agrees that all rights to  indemnification  or exculpation now existing
     in favour of the current and former  directors  or officers of Repap or any
     subsidiary  as  provided  in its  articles  or  by-laws or by  contract  or
     otherwise shall survive the  Amalgamation  and shall continue in full force
     and effect for a period of not less than six years from the Effective Date.
     UPM hereby  irrevocably and  unconditionally  guarantees the obligations of
     Repap in favour of such  directors or officers,  whether or not they remain
     in office,  and Repap shall hold the benefit of such  obligations in favour
     of such persons.

(2)  There shall be maintained  in effect,  for not less than six years from the
     Effective Date, coverage  substantially  equivalent to that in effect under
     the current  policies of the directors' and officers'  liability  insurance
     maintained by Repap or any of its  subsidiaries,  as the case may be, which
     is no less  advantageous,  and with no gaps or  lapses  in  coverages  with
     respect to matters occurring prior to the Effective Date. Alternatively, at
     UPM's  option,  it may cause Repap to  purchase  "run-off"  directors'  and
     officers'  liability  insurance  providing  coverage as  favourable to such
     directors  and officers as that in effect  under such  current  policies to
     cover prior events during such six year period or the balance thereof.

                                    ARTICLE 5
                                   CONDITIONS

Section 5.1       Mutual Conditions Precedent.

     The   respective   obligations  of  the  parties  hereto  to  complete  the
transactions   contemplated   by  this   Agreement   shall  be  subject  to  the
satisfaction,  on or before the  Effective  Date,  of the  following  conditions
precedent,  each of which may only be waived by the  mutual  consent  of UPM and
Repap:

     (a)  the Amalgamation  shall have been approved at the Repap Meeting by not
          less  than  two-thirds  of the votes  cast by the  Repap  Shareholders
          voting  together and by not less than  two-thirds of the votes cast by
          the holders of Repap Common Shares;

     (b)  there shall not be in force any final and  non-appealable  injunction,
          order or decree  restraining  or  enjoining  the  consummation  of the
          transactions  contemplated  by this  Agreement  and there  shall be no
          proceeding,  of a  judicial  or  administrative  nature or  otherwise,
          brought  by a  Governmental  Entity in  progress  or  threatened  that
          relates  to or  results  from the  transactions  contemplated  by this
          Agreement that would, if successful, result in an order or ruling that
          would preclude  completion of the  transactions  contemplated  by this
          Agreement in accordance with the terms hereof;

     (c) this Agreement shall not have been terminated pursuant to Article 6;

     (d)  other than the Regulatory Approvals, all consents,  waivers,  permits,
          orders and approvals of any Governmental Entity, and the expiry of any
          waiting  periods,  in  connection  with,  or required  to permit,  the
          consummation  of the  Amalgamation,  the failure of which to obtain or
          the  non-expiry  of which would  constitute a violation of  applicable
          Laws, or would have a Material  Adverse Effect on UPM or Repap, as the
          case may be,  shall have been  obtained or received on terms that will
          not have a Material  Adverse  Effect on UPM and/or Repap;  there shall
          not be pending or  threatened  any suit,  action or  proceeding by any
          Governmental   Entity:   (i)  seeking  to  prohibit  or  restrict  the
          acquisition  by UPM or any of its  subsidiaries  of any  Repap  Common
          Shares  or  Repap  Options,   seeking  to  restrain  or  prohibit  the
          consummation  of the  Amalgamation  or seeking to obtain from Repap or
          UPM  any  damages  directly  or  indirectly  in  connection  with  the
          Amalgamation,  (ii)  seeking  to  prohibit  or  materially  limit  the
          ownership  or  operation  by UPM or  any  of its  subsidiaries  of any
          material  portion  of the  business  or  assets of Repap or any of its
          subsidiaries or to compel UPM or any of its subsidiaries to dispose of
          or hold separate any portion of the business or assets of Repap or any
          of its  subsidiaries,  (iii)  seeking  to  impose  limitations  on the
          ability  of UPM or any of its  subsidiaries  to  acquire  or hold,  or
          exercise  full  rights  of  ownership  of,  any Repap  Common  Shares,
          including the right to vote the Repap Common Shares  purchased by them
          on all matters properly  presented to the shareholders of Repap,  (iv)
          seeking to prohibit UPM or any of its  subsidiaries  from  effectively
          controlling  in any  material  respect the business or  operations  of
          Repap or any of its  subsidiaries or (v) which otherwise is reasonably
          likely to have a Material Adverse Effect on Repap or UPM; and

     (e)  the  Regulatory  Approvals  shall have been  obtained or  satisfied on
          terms and conditions satisfactory to UPM, acting reasonably.

Section 5.2       Additional Conditions Precedent to the Obligations of UPM

(1)  The  obligations of UPM to complete the  transactions  contemplated by this
     Agreement  shall also be subject to the fulfilment of each of the following
     conditions  precedent (each of which is for UPM's exclusive benefit and may
     be waived by UPM):

     (a)  all  covenants  of Repap under this  Agreement  to be  performed on or
          before the Effective  Date shall have been duly  performed by Repap in
          all material respects;

     (b)  the representations and warranties of Repap under this Agreement shall
          have  been  true and  correct  in all  material  respects  on the date
          hereof;

     (c)  the representations and warranties of Repap under this Agreement shall
          be true and correct in all material  respects as of the Effective Date
          as if  made  on  and as of  such  date  (except  to  the  extent  such
          representations  and warranties speak solely as of an earlier date, in
          which  event such  representations  and  warranties  shall be true and
          correct to such extent as of such earlier  date, or except as affected
          by transactions contemplated or permitted by this Agreement),  and UPM
          shall have received a certificate of Repap  addressed to UPM and dated
          the Effective Date,  signed on behalf of Repap by two senior executive
          officers of Repap (on Repap's behalf and without personal  liability),
          confirming the same as at the Effective Date;

     (d)  the Board of  Directors  of Repap  shall have  adopted  all  necessary
          resolutions,  and all other necessary corporate action shall have been
          taken by Repap and the  subsidiaries to permit the consummation of the
          Amalgamation;

     (e)  between the date hereof and the Effective  Date,  there shall not have
          occurred a Material Adverse Change to Repap;

     (f)  the holders of Repap Common  Shares  representing  in excess of 15% of
          the outstanding  Repap Common Shares shall not have exercised  Dissent
          Rights or similar rights in connection with the Amalgamation; and

     (g)  all  outstanding  options or other rights or  entitlements of any type
          whatsoever to purchase or otherwise  acquire  authorized  and unissued
          Repap Common Shares, other than pursuant to the Convertible Debenture,
          shall have been exercised in full or irrevocably released, surrendered
          and waived by the holders thereof.

(2)  UPM may not rely on the  failure  to  satisfy  any of the above  conditions
     precedent if the condition  precedent  would have been  satisfied but for a
     material default by UPM in complying with its obligations hereunder.

Section 5.3       Additional Conditions Precedent to the Obligations of Repap

(1)  The obligations of Repap to complete the transactions  contemplated by this
     Agreement shall also be subject to the following conditions precedent (each
     of which is for the exclusive benefit of Repap and may be waived by Repap):

     (a)  all covenants of UPM under this Agreement to be performed on or before
          the  Effective  Date  shall  have  been duly  performed  by UPM in all
          material respects;

     (b)  all  representations  and warranties of UPM under this Agreement shall
          have  been  true and  correct  in all  material  respects  on the date
          hereof;

     (c)  the  representations  and warranties of UPM under this Agreement shall
          be true and correct in all material  respects as of the Effective Date
          as if  made  on  and as of  such  date  (except  to  the  extent  such
          representations  and warranties speak solely as of an earlier date, in
          which  event such  representations  and  warranties  shall be true and
          correct to such extent as of such earlier  date, or except as affected
          by  transactions  contemplated  or permitted by this  Agreement),  and
          Repap shall have received a certificate  of UPM addressed to Repap and
          dated the  Effective  Date,  signed  on  behalf  of UPM by two  senior
          executive  officers  of UPM (on  UPM's  behalf  and  without  personal
          liability), confirming the same as at the Effective Date; and

     (d)  the  Board of  Directors  of UPM  shall  have  adopted  all  necessary
          resolutions,  and all other necessary corporate action shall have been
          taken by Acquireco to permit the consummation of the Amalgamation.

(2)  Repap may not rely on the  failure to satisfy  any of the above  conditions
     precedent if the condition  precedent  would have been  satisfied but for a
     material default by Repap in complying with its obligations hereunder.

Section 5.4       Notice and Cure Provisions

(1)  UPM and Repap will give prompt  notice to the other of the  occurrence,  or
     failure  to occur,  at any time from the date  hereof  until the  Effective
     Date, of any event or state of facts which  occurrence or failure would, or
     would be likely to:

     (a)  cause any of its representations or warranties  contained herein to be
          untrue or inaccurate  on the date hereof or on the Effective  Date; or

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

(2)  Neither  UPM nor  Repap  may  seek to rely  upon any  conditions  precedent
     contained in Sections  5.1, 5.2 or 5.3, or exercise any  termination  right
     arising therefrom, unless forthwith and in any event prior to the filing of
     the Articles of Amalgamation for acceptance by the Director,  UPM or Repap,
     as the case may be, has delivered a written notice to the other  specifying
     in  reasonable  detail  all  breaches  of  covenants,  representations  and
     warranties  or other  matters  which UPM or Repap,  as the case may be, are
     asserting as the basis for the  non-fulfilment of the applicable  condition
     precedent or the exercise of the termination  right, as the case may be. If
     any such notice is  delivered,  provided that Repap or UPM, as the case may
     be,  is  proceeding  diligently  to cure  such  matter,  if such  matter is
     susceptible  to  being  cured  (for  greater  certainty,  except  by way of
     disclosure in the case of  representations  and warranties),  the other may
     not terminate  this Agreement as a result thereof until the later of the 30
     days prior to the Outside  Date and the  expiration  of a period of 30 days
     following such notice.  If such notice has been delivered prior to the date
     of the Repap  Meeting,  such  meetings  shall,  unless  the  parties  agree
     otherwise,  be postponed or adjourned  until the expiry of such period.  If
     such  notice  has been  delivered  prior to the filing of the  Articles  of
     Amalgamation  with the Director,  such filing shall be postponed  until two
     Business Days after the expiry of such period.  For greater  certainty,  in
     the event that such  matter is cured  within the time  period  referred  to
     herein  without  a  Material  Adverse  Effect  on the  curing  party,  this
     Agreement may not be terminated solely as a result of the cured breach.

Section 5.5       Satisfaction of Conditions.

     The  conditions  precedent  set out in Sections  5.1,  5.2 and 5.3 shall be
conclusively  deemed to have been  satisfied,  waived or released when, with the
agreement of UPM and Repap,  a  Certificate  of  Amalgamation  in respect of the
Amalgamation is issued by the Director.

                                    ARTICLE 6
                            AMENDMENT AND TERMINATION

Section 6.1       Amendment

     This  Agreement and the  Amalgamation  Agreement  may, at any time and from
time to time before or after the holding of the Repap Meeting but not later than
the  Effective  Date,  be amended by mutual  written  agreement  of the  parties
hereto,  and any  such  amendment  may,  subject  to  applicable  Laws,  without
limitation:

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

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

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

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

Section 6.2       [Intentionally Deleted]

Section 6.3       Termination

(1)  If any  condition  contained in Sections 5.1 or 5.2 is not  satisfied at or
     before the  Effective  Date,  then UPM may,  subject to Section  5.4 and to
     Section  5.2(2) in the case of Section  5.2,  by notice to Repap  terminate
     this  Agreement and the  obligations  of the parties  hereunder  (except as
     otherwise  herein  provided,  including  under  Section  6.4),  but without
     detracting  from the rights of UPM arising from any breach by Repap but for
     which the condition would have been satisfied.

(2)  If any  condition  contained in Sections 5.1 or 5.3 is not  satisfied at or
     before the Effective  Date,  then Repap may,  subject to Section 5.4 and to
     Section  5.3(2) in the case of Section 5.3, by notice to UPM terminate this
     Agreement and the obligations of the parties hereunder (except as otherwise
     herein provided,  including under Section 6.4), but without detracting from
     the  rights  of Repap  arising  from any  breach  by UPM but for  which the
     condition would have been satisfied.

(3)  This Agreement may:

     (a)  be  terminated  by the mutual  agreement of Repap and UPM (for greater
          certainty,   without   further   action  on  the  part  of  the  Repap
          Shareholders if terminated after the holding of the Repap Meeting);

     (b)  be  terminated by either Repap or UPM if there shall be passed any Law
          that  makes  consummation  of the  transactions  contemplated  by this
          Agreement illegal or otherwise prohibited;

     (c)  be terminated by UPM if (i) the Board of Directors of Repap shall have
          failed to recommend or shall have withdrawn,  modified or changed in a
          manner  adverse  to  UPM  its  approval  or   recommendation  of  this
          Agreement, the Amalgamation or the Amalgamation Resolution (unless the
          Repap  Shareholders  shall have approved the  Amalgamation  Resolution
          prior to such  termination,  or (ii) the Board of  Directors  of Repap
          shall have approved or recommended any Acquisition Proposal; or

     (d)  be terminated by either UPM or Repap if the Repap Shareholder approval
          shall not have been  obtained  by reason of the  failure to obtain the
          required vote at the Repap Meeting;

     in each case, prior to the Effective Date.

(4)  If the Effective Date does not occur on or prior to the Outside Date, then,
     unless  otherwise  agreed in writing by the parties,  this Agreement  shall
     terminate.

(5)  If this Agreement is terminated in accordance with the foregoing provisions
     of this Section  6.3, no party shall have any further  liability to perform
     its obligations hereunder except as provided in Section 6.4, Schedule D and
     as otherwise expressly  contemplated  hereby, and provided that neither the
     termination of this Agreement nor anything contained in this Section 6.3(5)
     shall  relieve  any party from any  liability  for any breach by it of this
     Agreement   or  Schedule  D,   including   from  any   inaccuracy   in  its
     representations  and  warranties  and  any  non-performance  by it  of  its
     covenants made herein.

Section 6.4       Break and Other Fees; Option

(1)  If:

     (a)  (i)  UPM shall terminate this Agreement  pursuant to Section 6.3(3)
               (c); or

          (ii) either Repap or UPM shall  terminate this  Agreement  pursuant to
               Section  6.3(1) or (2) as a result of the  failure to satisfy the
               conditions  specified in either  Section 5.1(a) or Section 5.1(b)
               in circumstances  where the requisite Repap Shareholder  approval
               has not been  obtained at the Repap Meeting or if either Repap or
               UPM shall terminate this Agreement pursuant to Section 6.3(3)(d);
               and

     (b)  (i)  an  Acquisition  Proposal  has been made,  publicly  announced or
               otherwise  publicly  disclosed by any Person other than UPM prior
               to the Repap Meeting; or

          (ii) the  prospect of there  being an  Acquisition  Proposal  has been
               disclosed  to holders of more than 20 percent of the Repap Shares
               prior to or during the Repap Meeting,  Repap Shareholder approval
               of the  Amalgamation  is not obtained at the Repap Meeting and an
               Acquisition  Proposal is made,  publicly  announced  or otherwise
               publicly  disclosed,  prior  to  the  expiration  of  six  months
               following termination of this Agreement; and

     (c)  such Acquisition Proposal is consummated;

     then in any such case Repap shall pay to UPM $18 million  (the "Break Fee")
     in  immediately  available  funds to an  account  designated  by UPM.  Such
     payment shall be due  concurrently  with the consummation of an Acquisition
     Proposal.  Repap  shall not be  obligated  to make  more  than one  payment
     pursuant to this Section 6.4(1).

(2)  On the date  hereof,  Repap  granted  to UPM the option to  purchase  Repap
     Common Shares upon the terms and subject to the conditions contained in the
     Option Agreement, a copy of which is attached as Schedule E.

Section 6.5       Remedies

(1)  Subject to Section 6.5(2), the parties hereto acknowledge and agree that an
     award of money damages would be inadequate for any breach of this Agreement
     by any party or its  representatives and either such breach would cause the
     non-breaching party irreparable harm. Accordingly, the parties hereto agree
     that, in the event of any breach or threatened  breach of this Agreement by
     one of the parties, the non-breaching party will also be entitled,  without
     the requirement of posting a bond or other security,  to equitable  relief,
     including  injunctive relief and specific  performance.  Such remedies will
     not be the exclusive  remedies for any breach of this Agreement but will be
     in addition to all other remedies available at law or equity to each of the
     parties.

(2)  The  parties  agree that if Repap pays to UPM  amounts  required by Section
     6.4(1) as a result of the  occurrence  of any of the events  referenced  in
     Section  6.4(1),  UPM shall  have no other  remedy  for any  breach of this
     Agreement by Repap.

                                    ARTICLE 7
                                     GENERAL

Section 7.1       Notices

     All notices and other  communications which may or are required to be given
pursuant to any  provision of this  Agreement  shall be given or made in writing
and shall be deemed to be validly given if served personally or by facsimile, in
each case addressed to the particular party at:

     (a)  If to UPM, at:

               UPM Kymmene Group
               Etelaesplanadi 2
               P.O. Box 380
               FIN-00101
               Helsinki, Finland

               Attention:       Reko Aalto-Setala
               Facsimile No.:   (358) 204 15 0304

          with a copy to:

               Osler, Hoskin & Harcourt LLP
               P.O. Box 50
               1 First Canadian Place
               Toronto, Ontario
               M5X 1B8

               Attention:       Dale Ponder
               Facsimile No.:   (416) 862-6666

          and with a copy to:

               White & Case LLP
               1155 Avenue of the Americas
               New York, New York   10036

               Attention:  Timothy B. Goodell
               Facsimile No.:  (212) 354-8113

     (b)  If to Repap at:

               Repap Enterprises Inc.
               300 Atlantic Street
               Suite 200
               Stamford, Connecticut 07901

               Attention:       Stephen Larson
               Facsimile No.:    (203) 964-6183

          with a copy to:

               Stikeman Elliott
               1155 Rene-Levesque Blvd. W.
               40th Floor
               Montreal, Quebec
               H3B 3V2

               Attention:       Pierre Raymond
               Facsimile No.:    (514) 397-3222

          and with a copy to:

               Sullivan & Cromwell
               125 Broad Street
               New York, New York  10004

               Attention:       Andrew Soussloff
               Facsimile No.: (212) 558-3588

or at such other address of which any party may,  from time to time,  advise the
other party by notice in writing given in  accordance  with the  foregoing.  The
date of receipt of any such notice shall be deemed to be the date of delivery or
facsimile  transmission  thereof if prior to 5:00 p.m.  local time on a Business
Day in place of delivery or receipt,  and if not  received on a Business  Day or
after 5:00 p.m. on a Business Day then the date of receipt shall be deemed to be
the next  Business  Day.  Notice to the  persons to be copied  hereunder  is not
proper notice to the primary recipients.

Section 7.2       Assignment

     No party hereto may assign its rights or  obligations  under this Agreement
or the  Amalgamation  Agreement,  except  that UPM may assign all or part of its
rights or obligations to a wholly-owned  subsidiary  thereof,  provided that UPM
remains  jointly  and  severally   liable   hereunder  with  such   wholly-owned
subsidiary.

Section 7.3       Binding Effect

     This Agreement  shall be binding upon and shall enure to the benefit of the
parties  hereto and their  respective  successors  and permitted  assigns and no
third party shall have any rights hereunder.

Section 7.4       Waiver and Modification

         Each of Repap and UPM may waive or consent to the  modification  of, in
whole or in part,  any inaccuracy of any  representation  or warranty made to it
hereunder or in any document to be  delivered  pursuant  hereto and may waive or
consent to the  modification  of any of the covenants  herein  contained for its
respective  benefit  or  waive  or  consent  to the  modification  of any of the
obligations of the other party hereto. Any waiver or consent to the modification
of any of the provisions of this Agreement, to be effective,  must be in writing
executed by the party granting such waiver or consent.

Section 7.5       Further Assurances

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

Section 7.6       Expenses

(1)  Subject to Section 6.4, the parties agree that all  out-of-pocket  expenses
     of  the  parties   relating  to  the   Amalgamation  and  the  transactions
     contemplated  hereby,  including  legal fees,  accounting  fees,  financial
     advisory   fees,   regulatory   filing  fees,   stock  exchange  fees,  all
     disbursements of advisors and printing and mailing costs,  shall be paid by
     the party incurring such expenses.

(2)  Repap represents and warrants to UPM that,  except for any amounts owing to
     those  financial  advisers  referred  to in  Section  3.1(c)(iii)  by Repap
     pursuant  to and in  accordance  with the  terms of  written  and  executed
     agreements existing as at the date hereof and disclosed to UPM prior to the
     date hereof, no broker,  finder or investment banker is or will be entitled
     to any  brokerage,  finder's or other fee or  commission  from Repap or any
     subsidiary  of  Repap in  connection  with  the  transactions  contemplated
     hereby.

Section 7.7       Consultation

     UPM and Repap agree to consult with each other as to the general  nature of
any news  releases or public  statements  with respect to this  Agreement or the
transactions contemplated hereby, and to use their respective reasonable efforts
not to issue  any news  releases  or  public  statements  inconsistent  with the
results of such consultations.  Subject to applicable Laws, each party shall use
its reasonable  efforts to enable the other parties to review and comment on all
such news  releases  prior to the release  thereof.  The parties  agree to issue
jointly the news release in the agreed form with respect to the  Amalgamation as
soon as  practicable  following the execution of this  Agreement.  UPM and Repap
also agree to consult  with each other in  preparing  and making any filings and
communications  in connection with any Regulatory  Approvals or other regulatory
approvals  and in  seeking  any third  party  consents  under  leases,  or other
agreements.

Section 7.8       Governing Laws

     This  Agreement  shall be governed by and construed in accordance  with the
laws of the  Province of Ontario and the laws of Canada  applicable  therein and
shall be treated  in all  respects  as a Ontario  contract.  Each  party  hereby
irrevocably attorns to the jurisdiction of the courts of the Province of Ontario
in respect of all matters arising under or in relation to this Agreement.

Section 7.9       Time of Essence

     Time shall be of the essence in this Agreement.

Section 7.10      Counterparts

     This Agreement may be executed in one or more  counterparts,  each of which
shall be deemed to be an original but all of which together shall constitute one
and the same instrument.

<PAGE>

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

                                   UPM-KYMMENE CORPORATION

                                   By:  /s/ Juha Niemela
                                      ------------------------------------------
                                             Authorized Signing Officer

                                   By:  /s/ Reko Aalto-Setala
                                      ------------------------------------------
                                             Authorized Signing Officer

                                   REPAP ENTERPRISES INC.

                                   By:  /s/ Hap Stephen
                                      ------------------------------------------
                                             Authorized Signing Officer

<PAGE>

                                   SCHEDULE A
                             AMALGAMATION AGREEMENT

THIS AMALGAMATION AGREEMENT is made as of ________, 2000

BETWEEN:

          REPAP ENTREPRISES INC.,
          a corporation existing under the Canada Business Corporations Act

          ("Repap")

                                     - and -

          3796477 CANADA INC.,
          a corporation incorporated under the Canada Business Corporations Act

          ("Acquireco").

RECITALS:

A.   Repap and  Acquireco  have  agreed to  amalgamate  pursuant  to the  Canada
     Business  Corporations  Act and upon the terms and  conditions set forth in
     this Agreement;

B.   The authorized  capital of Repap  consists of an unlimited  number of Repap
     Common Shares and an unlimited  number of Preferred  Shares of which, as of
     the date hereof,  there are  743,960,637  Repap Common Shares (and no more)
     and 240,000 Preferred Shares, Series C and 400,000 Preferred Shares, Series
     F (and no more) and no  Preferred  Shares of any other  series,  issued and
     outstanding;

C.   The  authorized  capital of Acquireco  consists of an  unlimited  number of
     common shares; and

D.   It is desirable that this amalgamation be effected.

     NOW  THEREFORE in  consideration  of the mutual  covenants  and  agreements
contained  herein and other good and  valuable  consideration  (the  receipt and
sufficiency of which are hereby acknowledged) the parties agree as follows:

1.   Interpretation

     In this Agreement:

     "Acquireco  Common  Shares"  means  the  common  shares in the  capital  of
     Acquireco;

     "Act" means the Canada Business Corporations Act;

     "Affiliate"  means an  affiliated  body  corporate  within  the  meaning of
     section 1(2) of the Act;

     "Agreement"  means  this  amalgamation   agreement,   and  the  expressions
     "hereof", "herein", "hereto", "hereunder", "hereby" and similar expressions
     refer to this agreement;

     "Amalco" means the corporation continuing as a result of the Amalgamation;

     "Amalco Class A Redeemable  Preferred  Shares" means the Class A redeemable
     preferred  shares in the capital of Amalco  having the rights,  privileges,
     restrictions and conditions set forth in Schedule 1.

     "Amalco Class B Preferred Shares" means the Class B preferred shares in the
     capital  of Amalco,  issuable  in series,  having the  rights,  privileges,
     restrictions and conditions set forth in Schedule 1;

     "Amalco  Class B  Preferred  Shares,  Series C" means the Class B preferred
     shares,  series C in the capital of Amalco  having the rights,  privileges,
     restrictions and conditions set forth in Schedule 1;

     "Amalco  Class B  Preferred  Shares,  Series F" means the Class B preferred
     shares,  Series F in the capital of Amalco  having the rights,  privileges,
     restrictions and conditions set forth in Schedule 1;

     "Amalco  Common  Shares"  means the common  shares in the capital of Amalco
     having the rights,  privileges,  restrictions  and  conditions set forth in
     Schedule 1;

     "Amalgamating Corporations" means Repap and Acquireco;

     "Amalgamation"  means the amalgamation of the Amalgamating  Corporations as
     contemplated in this Agreement;

     "Business Day" means any day on which  commercial  banks are generally open
     for  business  in  Toronto,  Ontario  and  Helsinki,  Finland  other than a
     Saturday, a Sunday or a day observed as a holiday in Toronto, Ontario or in
     Helsinki, Finland under applicable laws;

     "Dissenting  Shareholder" means a registered holder of Repap Shares who, in
     connection with the special  resolution of the shareholders  which approves
     and adopts this Agreement, has exercised the right to dissent under section
     190 of the Act in  compliance  with  the  provisions  thereof  and  thereby
     becomes entitled to receive the fair value of his or her Repap Shares;

     "Effective Date" means the date shown on the certificate of amalgamation to
     be issued by the Director under the Act giving effect to the Amalgamation;

     "Record Date" means the record date for the Meeting;

     "Redemption  Consideration"  means Cdn.  $.20 per Amalco Class A Redeemable
     Preferred Share; and

     "Redemption Date" means the Effective Date;

     "Repap Common Shares" means the common shares in the capital of Repap;

     "Repap Meeting" means the special meeting of Repap  shareholders to be held
     to consider  the  approval of the special  resolution  which  approves  and
     adopts this Agreement;

     "Repap Preferred Shares,  Series C" means the preferred shares, series C in
     the capital of Repap ;

     "Repap Preferred Shares,  Series F" means the preferred shares, series F in
     the capital of Repap;

     "Repap  Shares"  means the Repap Common  Shares,  Repap  Preferred  Shares,
     Series C and Repap Preferred Shares, Series F.

     Words and phrases used but not defined in this Agreement and defined in the
     Act shall have the same meaning in this  Agreement as in the Act unless the
     context or subject matter otherwise requires.

2.   Agreement to Amalgamate

     The  Amalgamating  Corporations  hereby  agree  to  amalgamate  as  of  the
Effective  Date and to continue as one  corporation  on the terms and conditions
set out in this Agreement.

3.   Name

     The name of Amalco shall be 3796477 Canada Inc.

4.   Registered Office

     The registered office of Amalco shall be c/o Osler,  Hoskin & Harcourt LLP,
P.O. Box 50, 1 First Canadian Place, Toronto, Ontario, M5X 1B8.

5.   Authorized Capital

     Amalco shall be  authorized  to issue an unlimited  number of Amalco Common
Shares, an unlimited number of Amalco Class A Redeemable Preferred Shares and an
unlimited  number of Amalco Class B Preferred  Shares,  issuable in series.  The
rights,  privileges,  restrictions  and  conditions  attaching  to each class of
shares of Amalco shall be as described in Schedule 1 to this Agreement.

6.   Private Company Restrictions

     Effective immediately upon UPM-Kymmene Corporation becoming the sole holder
of shares of Amalco:

     (a)  the right to transfer  shares of Amalco shall be restricted in that no
          share  shall be  transferred  except  with the consent of the board of
          directors of Amalco,  to be expressed either by a resolution passed at
          a meeting of the board of directors or by an instrument or instruments
          in writing signed by a majority of the directors; and

     (b)  the number of shareholders of Amalco,  exclusive of persons who are in
          its  employment  or the  employment  of an affiliate  and exclusive of
          persons who,  having been  formerly in the  employment of Amalco were,
          while in that employment,  and have continued after the termination of
          that employment to be, shareholders of Amalco, shall be limited to not
          more than  fifty.  Two or more  persons  who are the joint  registered
          owners of one of more shares shall be counted as one shareholder.

     Any  invitation  to the public to  subscribe  for  securities  of Amalco is
prohibited.  For the purposes hereof,  the issuance of Amalco Class A Redeemable
Preferred Shares,  Amalco Class B Preferred Shares and Amalco Common Shares upon
the  Amalgamation  shall not constitute an invitation to the public to subscribe
for securities of Amalco.

7.   Restrictions on Business

     There shall be no  restrictions  on the business which Amalco is authorized
to carry on.

8.   Number of Directors

     The  board of  directors  of  Amalco  shall,  until  otherwise  changed  in
accordance with the Act, consist of a minimum number of one and a maximum number
of [5] directors.  The number of directors of Amalco shall  initially be [3] and
the  directors of Amalco  shall be empowered to determine  from time to time the
number of  directors  of Amalco  within the said  minimum  and  maximum  numbers
provided for in the Articles of Amalco,  as the same may be amended from time to
time.

9.   Initial Directors

         The first  directors  of Amalco  shall be the  persons  whose names and
residential addresses appear below;

Name                      Municipality of Residence           Resident Canadian

  o                                 o                            [yes/no]

     Such  directors  shall  hold  office  until  the  next  annual  meeting  of
shareholders of Amalco or until their successors are elected or appointed.

10.  By-Laws

     The by-laws of Amalco,  until  repealed,  amended or altered,  shall be the
by-laws of Repap.

11.  Amalgamation

     On the Effective Date:

     (a)  each issued and outstanding  Repap Common Share (other than those held
          by Dissenting  Shareholders and other than those held by Acquireco, if
          any) will be converted  into one Amalco  Class A Redeemable  Preferred
          Share;

     (b)  each issued and outstanding  Repap Common Share held by Acquireco will
          be cancelled;

     (c)  each issued and outstanding  Acquireco  Common Share will be converted
          into one Amalco Common Share;

     (d)  each issued and outstanding  Repap Preferred  Share,  Series C will be
          converted into one Amalco Class B Preferred Share, Series C;

     (e)  each issued and outstanding  Repap Preferred  Share,  Series F will be
          converted into one Amalco Class B Preferred Share, Series F; and

     (f)  Dissenting  Shareholders will be entitled to be paid the fair value of
          their Common Shares.

12.  Stated Capital Accounts

     There  shall be added  to the  stated  capital  account  in the  accounting
records of Amalco maintained for:

     (a)  the Amalco Class A Redeemable Preferred Shares, an amount equal to the
          number of Amalco Class A  Redeemable  Preferred  Shares  issued on the
          Amalgamation multiplied by Cdn. $.20;

     (b)  the Amalco Class B Preferred Shares,  Series C, an amount equal to the
          aggregate  stated  capital of each  Repap  Preferred  Share,  Series C
          changed  into an  Amalco  Class B  Preferred  Share,  Series  C on the
          Amalgamation;

     (c)  the Amalco Class B Preferred Shares,  Series F, an amount equal to the
          aggregate  stated  capital of each  Repap  Preferred  Share,  Series F
          changed  into an  Amalco  Class B  Preferred  Share,  Series  F on the
          Amalgamation; and

     (d)  the Amalco Common  Shares,  an amount equal to the amount by which the
          aggregate  stated  capital  attributable  to the Repap  Common  Shares
          (other than those held by Acquireco,  if any) and the Acquireco Common
          Shares  exceeds  the  amount  added  to  the  stated  capital  account
          maintained  for the  Amalco  Class A  Redeemable  Preferred  Shares in
          accordance with this section.

     The amount of stated capital attributable to the Amalco Common Shares shall
be adjusted to reflect payments that may be made to Dissenting Shareholders.

13.  Share Certificates

     No certificates shall be issued in respect of the Amalco Class A Redeemable
Preferred  Shares  and  such  shares  shall  be  evidenced  by the  certificates
representing  Repap Common Shares. No certificates shall be issued in respect of
the Amalco  Class B Preferred  Shares,  Series C or the Amalco Class B Preferred
Shares, Series F and such shares shall be evidenced by certificates representing
Repap  Preferred  Shares,   Series  C  and  Repap  Preferred  Shares,  Series  F
respectively.

14.  Contribution of Assets

     Each of Repap and  Acquireco  shall  contribute  to Amalco all its  assets,
subject to its liabilities, as such exist immediately before the Effective Date.

15.  Property of Amalco

     Amalco shall posses all the property, rights, privileges and franchises and
shall be subject to all the  liabilities,  contracts,  disabilities and debts of
each of the  Amalgamating  Corporations  as such  exist  immediately  before the
Effective Date.

16.  Rights of Creditors

     All rights of creditors against property,  rights and assets of each of the
Amalgamating  Corporations and all liens upon their property,  rights and assets
shall be unimpaired by the  Amalgamation and all debts,  contracts,  liabilities
and duties of each of the Amalgamating  Corporations shall thenceforth attach to
Amalco and may be enforced against it.

17.  General Conditions Precedent

     The  respective  obligations  of  the  parties  hereto  to  consummate  the
transactions  contemplated  hereby,  and in  particular  the  Amalgamation,  are
subject to the  satisfaction,  on or before the Effective Date, of the following
conditions  any of which may be waived by the  mutual  consent  of such  parties
without  prejudice  to  their  rights  to rely on any  other or  others  of such
conditions:

     (a)  this Agreement and the transactions  contemplated hereby, including in
          particular the Amalgamation, shall have been approved by:

          (i)  the common shareholder of Acquireco; and

          (ii) not less than  two-thirds  of the votes  cast by the  holders  of
               Repap Shares who,  being  entitled to do so, vote in person or by
               proxy at the Repap Meeting in accordance  with the  provisions of
               the  Act  and in  accordance  with  other  applicable  regulatory
               requirements; and

     (b)  there  shall  not be in force  any  order  or  decree  restraining  or
          enjoining the  consummation of the  transactions  contemplated by this
          Agreement, including, without limitation, the Amalgamation.

18.  Termination

     This Agreement may, prior to the issuance of a certificate of Amalgamation,
be  terminated  by the board of directors of Repap or Acquireco  notwithstanding
the approval thereof by the shareholders of Repap and Acquireco.

19.  Dissenting Shareholders

     Repap  Shares  which  are held by a  Dissenting  Shareholder  shall  not be
converted into Amalco Class A Redeemable Preferred Shares. However, in the event
that a holder of Repap Shares  fails to perfect or  effectively  withdraws  such
shareholder's  claim under section 190 of the Act or forfeits such shareholder's
rights  to  make  a  claim  under  section  190 of the  Act or his  rights  as a
shareholder  of Repap are otherwise  reinstated,  (i) such  shareholder's  Repap
Common  Shares  shall  thereupon  be  deemed to have  been  converted  as of the
Effective  Date into  Amalco  Class A  Redeemable  Preferred  Shares,  (ii) such
shareholder's Repap Preferred Shares, Series C shall thereupon be deemed to have
been  converted as of the Effective  Date into Amalco Class B Preferred  Shares,
Series C and (iii) such  shareholder's  Repap Preferred  Shares,  Series F shall
thereupon be deemed to have been  converted as of the Effective Date into Amalco
Class B  Preferred  Shares,  Series F, in each  case,  on the basis set forth in
paragraph 11 hereof.

20.  Filing Documents

     Upon the  shareholders of each of the Amalgamating  Corporations  approving
this Agreement by special  resolution in accordance  with the Act and subject to
the other  provisions of this Agreement,  the  Amalgamating  Corporations  shall
jointly file with the Director under the Act articles of  amalgamation  and such
other documents as may be required.

21.  Governing Law

     This  Agreement  shall be governed by and construed in accordance  with the
laws of the Province of Ontario and the laws of Canada applicable therein.

22.  Counterparts

     This  Agreement  may be signed in  counterparts  and each such  counterpart
shall  constitute an original  document and such  counterparts,  taken together,
shall constitute one and the same instrument.

     IN WITNESS WHEREOF the parties have executed this Agreement.

                                                REPAP ENTERPRISES INC.

                                                By:
                                                   -----------------------------
                                                   Authorized Signing Officer

                                                3796477 CANADA INC.

                                                By:
                                                   -----------------------------
                                                   Authorized Signing Officer

<PAGE>

                                   SCHEDULE B
                  SPECIAL RESOLUTION OF THE REPAP SHAREHOLDERS

RESOLVED AS A SPECIAL RESOLUTION THAT:

     1. The amalgamation (the  "Amalgamation") of Repap (the  "Corporation") and
3796477  Canada Inc.  ("Acquireco")  under  section  181 of the Canada  Business
Corporations Act, as more particularly described and set forth in the Management
Information  Circular (the "Circular") of Repap  accompanying the notice of this
meeting is hereby  authorized  and approved  upon the terms and  conditions  set
forth in the acquisition  agreement (the  "Acquisition  Agreement")  dated as of
August 28, 2000 between the Corporation and  UPM-Kymmene  Corporation,  the full
text of which is set forth in Schedule _____ to the Circular;

     2. The amalgamation  agreement  between the Corporation and Acquireco dated
_____,  2000, in the form set forth in Schedule A to the Acquisition  Agreement,
is hereby approved;

     3. The board of directors of the Corporation is hereby authorized to revoke
this resolution at any time prior to the Amalgamation becoming effective without
further  approval of the shareholders of the Corporation and to determine not to
proceed with the Amalgamation; and

     4.  The  directors  and  proper  officers  of the  Corporation  are  hereby
authorized  to take all such  steps  as they  deem  necessary  or  desirable  in
connection with the Amalgamation of the Corporation and Acquireco.

<PAGE>

                                   SCHEDULE C
                              REGULATORY APPROVALS

Canada

-    expiration or earlier  termination  of the waiting  period under Part IX of
     the Competition  Act (Canada) and receipt of an advance ruling  certificate
     ("ARC")  pursuant to the Competition Act (Canada) or, in the alternative to
     an ARC, a no-action letter from the Commissioner of Competition

-    determination by the Minister  responsible for Investment  Canada under the
     Investment  Canada Act (Canada) that the Amalgamation is of "net benefit to
     Canada" for purposes of such Act on terms and  conditions  satisfactory  to
     UPM, acting reasonably

-    any required  government consents with respect to Crown timber licenses and
     agreements to which Repap or any of its affiliates is a party

-    approval  for the  listing of the Repap  Common  Shares  issuable  upon the
     exercise of the Option by The Toronto Stock Exchange

United States

-    expiration  or  earlier   termination  of  the  waiting  period  under  the
     Hart-Scott-Rodino Antitrust Improvements Act of 1976

<PAGE>

                                   SCHEDULE D
                           CONFIDENTIALITY PROVISIONS

In  connection   with  UPM's   interest  in  the   acquisition   of  Repap  (the
"Transaction"),  Repap  and  Repap's  affiliates  are  furnishing  UPM or  UPM's
representatives   with   certain   information   which  is  either   non-public,
confidential  or proprietary  in nature.  This  information  furnished to UPM or
UPM's representatives,  together with analyses, compilations, forecasts, studies
or other  documents  prepared  by UPM,  its agents,  representatives  (including
lawyers,  accountants  and  financial  advisors) or employees  which  contain or
otherwise  reflect such  information  is, subject to section 3 of this Schedule,
hereinafter  referred  to  as  the  "Information".  In  consideration  of  Repap
furnishing UPM with the Information, UPM agrees that:

1.   The Information  shall be kept  confidential and shall not, without Repap's
     prior  written   consent,   be  disclosed  by  UPM,  or  by  UPM's  agents,
     representatives  or  employees,  in any manner  whatsoever,  in whole or in
     part,  and  shall  not be used by UPM,  UPM's  agents,  representatives  or
     employees,  other than, in each case, in connection  with the  Transaction.
     Moreover,  UPM  agrees  to reveal  the  Information  only to UPM's  agents,
     representatives  and  employees  who need to know the  Information  for the
     purposes of  evaluating  the  Transaction,  who are  informed by UPM of the
     confidential  nature  of the  Information  and who  shall  agree  to act in
     accordance with the terms and conditions of this Schedule.

2.   Upon the termination of the Acquisition Agreement to which these provisions
     constitute  Schedule  D, all  copies of the  Information,  except  for that
     portion  of the  Information  which  consists  of  analyses,  compilations,
     forecasts,  studies  or other  documents  prepared  by UPM,  UPM's  agents,
     representatives or employees,  will be, at UPM's option,  returned to Repap
     or destroyed.  That portion of the Information  which consists of analyses,
     compilations,  forecasts, studies or other documents prepared by UPM, UPM's
     agents, representatives or employees will be destroyed upon Repap's request
     and any oral  Information  will continue to be subject to the terms of this
     Schedule.  Upon Repap's request, UPM shall provide Repap with a certificate
     certifying as to the complete  return and destruction of all Information in
     accordance with the terms of this paragraph. Notwithstanding the foregoing,
     one copy of each  document or other item  constituting  Information  may be
     retained  by  counsel  to UPM,  permanently  subject  to the  terms of this
     Schedule,  for use only in connection with any dispute or litigation  which
     has  arisen at that time and for which such  Information  is  necessary  or
     desirable.

3.   The term  "Information"  shall not include such portions of the Information
     which (i) are or become  generally  available to the public other than as a
     result of a disclosure by UPM, UPM's agents,  representatives  or employees
     in  contravention  of this Schedule,  (ii) are received from an independent
     third party who had  obtained  the  Information  lawfully  and was under no
     obligation of secrecy to Repap, (iii) UPM can show were in UPM's possession
     before UPM received such  Information  from Repap or (iv) UPM can show were
     independently  developed  by UPM or on UPM's  behalf by  persons  having no
     access to the Information at the time of independent development.

4.   UPM acknowledges that neither Repap nor any of Repap's affiliates makes any
     express  or  implied  representation  or  warranty  as to the  accuracy  or
     completeness of the Information,  and each of Repap and Repap's  affiliates
     expressly  disclaims  any  and  all  liability  that  may be  based  on the
     Information,  errors therein or omissions therefrom. UPM agrees that UPM is
     not entitled to rely on the accuracy or completeness of the Information and
     that UPM  shall be  entitled  to rely  solely  on the  representations  and
     warranties made to UPM in the Acquisition Agreement.

5.   If UPM or anyone to whom UPM transmits the Information becomes compelled by
     applicable legal or regulatory requirements (including, without limitation,
     the  requirements of any applicable  stock exchange) to disclose any of the
     Information,  UPM will provide  Repap with prompt  notice so that Repap may
     seek a protective order or other appropriate remedy and/or waive compliance
     with the provisions of this  Schedule.  If such  protective  order or other
     remedy is not obtained or Repap waives  compliance  with the  provisions of
     this Schedule,  UPM will furnish only that portion of the Information which
     UPM is  advised,  by  written  opinion  of  counsel,  is  required  by such
     applicable   legal  or  regulatory   requirements  and  will  exercise  its
     commercially  reasonable  efforts  to obtain  assurance  that  confidential
     treatment  will  be  accorded  to  the  Information  if  such  confidential
     treatment is available.

6.   Without the prior written consent of Repap,  for a period of two years from
     the date of this  Agreement,  neither UPM nor any of UPM's  affiliates will
     solicit for  employment,  employ or otherwise  contract for the services of
     any  person  who  is now  employed  (either  as an  employee  or  full-time
     consultant)  by Repap or any of its operating  divisions or affiliates  and
     with whom UPM or UPM's agents,  representatives or employees communicate in
     connection with the Transaction, other than persons (i) whose employment by
     Repap or any of its  operating  divisions  or  affiliates,  or any of their
     successors,  shall have been  terminated,  (ii) who shall have  voluntarily
     left  the  employ  of  Repap  or its  affiliate  prior  to the date of such
     solicitation, employment or other contractual arrangements, (iii) who shall
     have  responded to general  solicitation  through  advertising  or (iv) who
     shall have responded to general solicitation by a recruiting or search firm
     (provided  that such  search  firm has not been  directed  by UPM or any of
     UPM's affiliates to contact such persons).

7.   Any provision in this Schedule which is prohibited or  unenforceable in any
     jurisdiction  shall, as to such jurisdiction,  be ineffective to the extent
     of such prohibition or unenforceability  without invalidating the remaining
     provisions of this Schedule or affecting the validity or  enforceability of
     such provisions in any other jurisdiction.

8.   UPM  acknowledges  that disclosure of the Information in  contravention  of
     this  Schedule  may  cause  significant  damage  and harm to Repap  and its
     affiliates  and that remedies at law may be  inadequate to protect  against
     breach of this Agreement,  and UPM hereby in advance agrees to the granting
     of injunctive relief in Repap's favour without proof of actual damages,  in
     addition to any other remedy to which Repap may be entitled.

9.   The  obligations  described in this Schedule shall terminate two years from
     the date of this Schedule;  provided, however, that sections 3, 8 and 10 of
     this Schedule shall survive indefinitely.

10.  It is  acknowledged  and  agreed  that  UPM  is  requesting  access  to the
     Information to permit it and its agents,  representatives  and employees to
     perform  the  above-described   evaluation  of  Repap  and/or  any  of  its
     affiliates.  It is understood that affiliated companies of UPM may be given
     access to the Information and that those affiliated  companies of UPM which
     are given access to the  Information  will be informed of the  confidential
     nature of the Information and UPM will make commercially reasonable efforts
     to cause the directors,  officers, employees, agents and representatives of
     those  affiliated  companies  to treat the  Information  on a  confidential
     basis.  The  affiliated  companies  of UPM which are not given such  access
     shall have no obligations under this Schedule.  References in this Schedule
     to "UPM" shall be deemed to be  references  to UPM and/or  such  affiliated
     companies as may eventually be given access to the Information.

11.  This Schedule  constitutes the entire agreement  between Repap and UPM with
     respect to the subject matter hereof.

<PAGE>

                                   SCHEDULE E
                                OPTION AGREEMENTEXHIBIT 10.2

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

                                OPTION AGREEMENT

--------------------------------------------------------------------------------
                                      DATED

                                 August 28, 2000

                          OSLER, HOSKIN & HARCOURT LLP

                                                                   -

                                WHITE & CASE LLP
<PAGE>

                                OPTION AGREEMENT

     OPTION AGREEMENT made as of August 28, 2000 (this "Agreement"),

BETWEEN:

          UPM-KYMMENE CORPORATION,
          a corporation existing under the laws of Finland

          ("UPM")

                                     - and -

          REPAP ENTERPRISES INC.,
          a corporation existing under the laws of Canada

          ("Repap").

     WHEREAS UPM and Repap have entered into an Acquisition  Agreement  dated as
of the date hereof (the "Acquisition  Agreement") which provides, upon the terms
and  subject to the  conditions  set forth  therein,  for the  completion  of an
amalgamation (the "Amalgamation") involving Repap and 3796477 Canada Inc.;

     AND WHEREAS, unless the context otherwise requires,  words and phrases used
herein  shall  have the  meanings  assigned  to such  words and  phrases  in the
Acquisition Agreement;

     AND  WHEREAS  as  a  condition  to  UPM's  entering  into  the  Acquisition
Agreement,  UPM has  required  that Repap  agree,  and in order to induce UPM to
enter into the Acquisition Agreement, Repap has agreed to grant UPM an option to
purchase from the treasury of Repap, in accordance with the terms and conditions
of this Agreement, up to 19.9% of the issued and outstanding Repap Common Shares
on the date of the first Exercise Notice (as defined below);

     NOW  THEREFORE,  in  consideration  of the  foregoing  and  the  respective
representations,   warranties,  covenants  and  agreements  set  forth  in  this
Agreement and in the Acquisition Agreement, the parties hereto agree as follows:

                                    ARTICLE 1
                                   THE OPTION

Section 1.1  Grant of Option.

     (a)  Subject to the terms and  conditions  set forth  herein,  Repap hereby
          grants to UPM an  irrevocable  option (the  "Option") to purchase from
          the  treasury  of Repap up to the  greater  of 19.9% of the issued and
          outstanding Repap Common Shares on the date hereof (being  148,048,167
          Repap  Common  Shares) and 19.9% of the issued and  outstanding  Repap
          Common  Shares on the date of the first  Exercise  Notice (as  defined
          below) (in each case,  the  "Option  Shares")  in the manner set forth
          below at a purchase  price (the  "Purchase  Price")  per Option  Share
          equal to $0.20 in cash per Option Share; provided, however, that in no
          event shall the number of shares for which this Option is  exercisable
          exceed  19.9% of the issued  and  outstanding  shares of Repap  Common
          Shares at the time of exercise  without giving effect to the number of
          Repap Common  Shares issued or issuable  pursuant to this Option.  The
          number of Repap Common  Shares that may be received  upon the exercise
          of the Option and the  Purchase  Price are  subject to  adjustment  as
          herein set forth.

Section 1.2  Exercise of Option.

(1)  The Option may be  exercised  by UPM,  in whole or in part,  at any time or
     from time to time after the  occurrence  of an  Exercise  Event (as defined
     below) and prior to the Termination Date (as defined below).

(2)  An  "Exercise  Event" shall occur for  purposes of this  Agreement  upon an
     Acquisition  Proposal being made,  publicly announced or otherwise publicly
     disclosed by any Person other than UPM prior to the Repap Meeting or in the
     circumstances   described  in  Section  6.4(1)(b)(ii)  of  the  Acquisition
     Agreement.

(3)  The "Termination  Date" shall occur for purposes of this Agreement upon the
     first to occur of any of the following:

     (a)  the Effective Date;

     (b)  the date which is six months following  termination of the Acquisition
          Agreement;

     (c)  the date on which the Option shall have been exercised in full;

     (d)  the day next  preceding  the date on which  the  Acquisition  Proposal
          referred to in Section 1.2(2) hereof is to be consummated; or

     (e)  if the Acquisition  Agreement is terminated in  circumstances in which
          no Break Fee is payable  pursuant  to Section  6.4 of the  Acquisition
          Agreement.

(4)  Repap  shall  notify  UPM  promptly  in writing  of the  occurrence  of any
     Exercise Event, it being understood that the giving of such notice by Repap
     shall not be a condition to the right of UPM to exercise the Option.

(5)  In the event UPM wishes to exercise  the  Option,  UPM shall send a written
     notice (an  "Exercise  Notice")  to Repap  specifying  the total  number of
     Option  Shares  that UPM  wishes  to  purchase,  the  denominations  of the
     certificate or certificates  evidencing such Option Shares which UPM wishes
     to receive,  the date (subject to the earlier of the satisfaction or waiver
     of the  conditions  set forth in  Section  1.3  hereof) on which the Option
     Shares are to be issued (the "Closing  Date") which shall be a Business Day
     not later  than the fifth  Business  Day and not  earlier  than the  second
     Business Day after  delivery of such notice,  and the place for the closing
     (the  "Closing") of such  purchase;  provided,  that if the closing of such
     purchase  cannot  be  consummated  by reason  of any  applicable  judgment,
     injunction, decree, order, law or regulation, the period of time that would
     otherwise run pursuant to this sentence  shall run instead from the date on
     which such restriction on consummation has expired or been terminated;  and
     provided,  further,  that if prior  notification  to, approval of or filing
     with any Governmental  Entity is required in connection with such purchase,
     UPM and Repap shall promptly file the required  notice or  application  for
     approval and responses thereto,  and shall  expeditiously  process the same
     and the period of time that  otherwise  would run pursuant to this sentence
     shall run  instead  from the last date on which any  required  notification
     periods  have  expired  or been  terminated  and such  approvals  have been
     obtained and any requisite waiting period or periods shall have passed.

Section 1.3  Conditions to Closing.

     The  obligation of Repap to deliver  Option Shares upon any exercise of the
Option pursuant to Section 1.2(5) hereof is subject to the following conditions:

(1)  The Option Shares shall have been approved for listing on The Toronto Stock
     Exchange  ("TSE"),  provided  however,  that Repap and UPM agree that Repap
     shall not be  obligated  to  qualify  the  Option  Shares for resale in the
     United  States  or  Canada  other  than on the  terms  and  subject  to the
     conditions set forth in Section 3.2 hereof; and

(2)  No  preliminary  or  permanent  injunction  or other  order by any court of
     competent jurisdiction  prohibiting such issuance of Option Shares shall be
     in effect  (provided  that Repap has used its  reasonable  best  efforts to
     resist or overturn same).

Section 1.4  Closing.

(1)  In the event of a Closing  pursuant to Section 1.2(5),  Repap shall deliver
     to UPM a certificate or  certificates  evidencing the applicable  number of
     Option  Shares  (in the  denominations  specified  therein),  and UPM shall
     purchase each such Option Share from Repap at the Purchase Price.

(2)  Payment of the Purchase Price shall be made by wire transfer of immediately
     available  funds,  provided  that  failure or refusal of Repap to designate
     such a bank account  shall not preclude UPM from  exercising  the Option by
     delivery of a certified cheque or bank draft.

(3)  Upon the tender of the applicable  Purchase Price in immediately  available
     funds,  UPM shall be deemed to be the holder of record of the Repap  Common
     Shares issuable upon such exercise, notwithstanding that the stock transfer
     books of Repap shall then be closed or that certificates  representing such
     Repap  Common  Shares shall not then be actually  delivered  to UPM.  Repap
     shall pay all  expenses,  and any and all  federal,  provincial,  state and
     local taxes and other  charges that may be payable in  connection  with the
     preparation, issue and delivery of stock certificates in the name of UPM or
     its  assignee,  transferee or designee,  excluding  for greater  certainty,
     income  taxes or other  taxes  payable by UPM in relation to its capital or
     profits.

Section 1.5 Adjustments upon Share Issuances, Changes in Capitalization, etc.

(1)  In the event of any  change  in Repap  Common  Shares  or in the  number of
     outstanding  Repap Common Shares by reason of a stock  dividend,  split-up,
     recapitalization, combination, exchange of shares or similar transaction or
     any other  extraordinary  change in the  corporate or capital  structure of
     Repap  (including,  without  limitation,  the  declaration or payment of an
     extraordinary dividend of cash, securities or other property), the type and
     number of shares or  securities  to be issued by Repap upon exercise of the
     Option and the Purchase Price shall be adjusted  appropriately,  and proper
     provision shall be made in the agreements  governing such  transaction,  so
     that UPM shall  receive upon exercise of the Option the number and class of
     shares and/or other  securities  and/or cash and/or property that UPM would
     have  received  in  respect of Repap  Common  Shares if the Option had been
     exercised  immediately prior to such event, or the record date therefor, as
     applicable, and elected, to the fullest extent it would have been permitted
     to elect, to receive such securities,  cash or other property (as UPM shall
     determine).

(2)  In the event  that Repap  shall  enter into an  agreement  (other  than the
     Acquisition  Agreement):  (i) to consolidate with, amalgamate or merge into
     any person,  other than UPM or any  subsidiary of UPM, and shall not be the
     continuing or surviving corporation of such consolidation,  amalgamation or
     merger; (ii) to permit any person, other than UPM or any subsidiary of UPM,
     to merge  into  Repap  and  Repap  shall  be the  continuing  or  surviving
     corporation,  but, in  connection  with such merger,  the then  outstanding
     Repap Common  Shares shall be changed into or exchanged for shares or other
     securities  of Repap or any other  person or cash or any other  property or
     the then outstanding  Repap Common Shares shall after such merger represent
     less  than 50% of the  outstanding  shares  and  share  equivalents  of the
     surviving  corporation;  or  (iii)  to sell or  otherwise  transfer  all or
     substantially  all of its  assets  to any  person,  other  than  UPM or any
     subsidiary of UPM; then, and in each such case,  proper  provision shall be
     made in the agreements  governing such  transaction  (and the continuing or
     surviving or transferee corporation shall also enter into an agreement with
     UPM to  provide  UPM with  such  rights)  so that UPM  shall  receive  upon
     exercise  of the  Option,  the  number  and  class of shares  and/or  other
     securities  and/or cash  and/or  property  that UPM would have  received in
     respect of Repap Common Shares if the Option had been exercised immediately
     prior to such transaction,  or the record date therefor, as applicable, and
     elected,  to the fullest extent it would have been  permitted to elect,  to
     receive such securities,  cash or other property (as UPM shall  determine),
     and the Purchase Price shall be adjusted appropriately.

(3)  The provisions of this Agreement,  including, without limitation,  Sections
     1.1,  1.2, 1.4 and 3.2,  shall apply with  appropriate  adjustments  to any
     securities  for which  the  Option  becomes  exercisable  pursuant  to this
     Section 1.5.

                                    ARTICLE 2
                         REPRESENTATIONS AND WARRANTIES

Section 2.1  Representations of Repap.

     Repap hereby represents and warrants to UPM as follows:

(1)  Repap has all  necessary  corporate  power and  authority  to  execute  and
     deliver  this  Agreement,  to  perform  its  obligations  hereunder  and to
     consummate the transactions contemplated hereby. The execution and delivery
     of  this  Agreement  by  Repap  and  the   consummation  by  Repap  of  the
     transactions  contemplated  hereby have been duly and validly authorized by
     all necessary  corporate action, and no other corporate  proceedings on the
     part of Repap are  necessary to authorize  this  Agreement or to consummate
     such  transactions.  This Agreement has been duly executed and delivered by
     Repap and, assuming the due  authorization,  execution and delivery by UPM,
     constitutes the legal, valid and binding  obligation of Repap,  enforceable
     against  Repap  in  accordance  with  its  terms,  subject  to  bankruptcy,
     insolvency and other applicable Laws affecting creditors' rights generally,
     and to general principles of equity.

(2)  Repap has taken all necessary corporate action to authorize and reserve and
     permit  it to issue,  and at all times  from the date  hereof  through  the
     Termination  Date  shall have  reserved,  all the  Option  Shares  issuable
     pursuant to this  Agreement,  and Repap shall take all necessary  corporate
     action to authorize and reserve and permit it to issue all additional Repap
     Common  Shares or other  securities  which may be issued  pursuant  to this
     Agreement,  all of which,  upon their  issuance and delivery in  accordance
     with the terms of this Agreement, shall be duly authorized, validly issued,
     fully paid and  non-assessable,  shall be  delivered  free and clear of all
     security  interests,  liens,  claims,  pledges,  options,  rights  of first
     refusal,   agreements,   charges  and  other  encumbrances  of  any  nature
     whatsoever  (other  than as provided  in this  Agreement)  and shall not be
     subject to any pre-emptive rights.

(3)  Except  for  Regulatory  Approvals,  the  execution  and  delivery  of this
     Agreement does not, and the consummation of the  transactions  contemplated
     hereby will not,  conflict  with,  or result in any breach  pursuant to any
     provision of the  constating  documents of Repap or any subsidiary of Repap
     or result in any breach of any loan or credit  agreement,  note,  mortgage,
     indenture, lease, pension plan or other agreement, obligation,  instrument,
     permit, concession,  franchise,  license, judgment, order, decree, statute,
     law, ordinance, rule or regulation applicable to Repap or any subsidiary of
     Repap or their  respective  properties  or assets,  except  that the Option
     Shares may not be resold except in accordance  with  applicable  securities
     laws.

Section 2.2 Representations of UPM.

(1)  UPM has all necessary  corporate power and authority to execute and deliver
     this Agreement,  to perform its obligations hereunder and to consummate the
     transactions  contemplated  hereby.  The  execution  and  delivery  of this
     Agreement  by  UPM  and  the   consummation  by  UPM  of  the  transactions
     contemplated  hereby have been duly and validly authorized by all necessary
     corporate action, and no other corporate proceedings on the part of UPM are
     necessary to authorize this Agreement or to consummate  such  transactions.
     This  Agreement has been duly  executed and delivered by UPM and,  assuming
     the due  authorization,  execution and delivery by Repap,  constitutes  the
     legal,  valid and binding  obligation  of UPM,  enforceable  against UPM in
     accordance  with its terms,  subject to  bankruptcy,  insolvency  and other
     applicable  Laws  affecting  creditors'  rights  generally,  and to general
     principles of equity.

(2)  The only  agreements to which UPM is a party with any  shareholder of Repap
     are those which UPM has provided true and complete copies of to Repap,  and
     such  agreements have not been amended,  supplemented  or otherwise  varied
     since their respective dates.

                                    ARTICLE 3
                               COVENANTS OF Repap

Section 3.1  Listing; Other Action.

(1)  As promptly as practicable, Repap shall use all reasonable efforts to cause
     the Option Shares to be approved for listing on the TSE,  subject to notice
     of issuance,  and shall provide prompt notice to the TSE of the issuance of
     each Option Share.

(2)  Repap shall use all reasonable  efforts to take, or cause to be taken,  all
     appropriate  action,  and to do, or cause to be done, all things necessary,
     proper or advisable under applicable law,  regulation or policy  (including
     complying with all applicable  notification,  filing, reporting and waiting
     period requirements under applicable laws and cooperating fully with UPM in
     preparing any applications or notices and providing such information to any
     Governmental Entity as it may require) to consummate and make effective the
     transactions contemplated hereby, including,  without limitation, using its
     all  reasonable  efforts  to  obtain  all  licenses,   permits,   consents,
     approvals,  authorizations,  qualifications  and orders of any Governmental
     Entity;  provided however, that Repap shall not be obligated to qualify the
     Option  Shares  for  resale  other  than on the  terms and  subject  to the
     conditions set forth in Section 3.2.

Section 3.2  Qualification

(1)  In the event  that UPM shall  desire to sell any of the  Option  Shares and
     such sale in the manner proposed by UPM requires, in the opinion of counsel
     to UPM (which  opinion  shall be reasonably  satisfactory  to Repap and its
     counsel),  qualification  of such Option Shares for resale under applicable
     securities  laws,  Repap shall  cooperate with UPM and any  underwriters in
     qualifying such Option Shares for resale,  including,  without  limitation,
     promptly  filing a  prospectus  which  complies  with the  requirements  of
     applicable Canadian federal, provincial and territorial securities laws and
     United States  federal and state  securities  laws, as the case may be, and
     entering  into and  complying  with an  underwriting  agreement  with  such
     underwriters upon such terms and conditions as are customarily contained in
     underwriting agreements with respect to secondary distributions;  provided,
     however,   that  Repap  shall  not  be  required  to  file  more  than  two
     prospectuses  hereunder  and shall be  entitled  to delay the filing of any
     prospectus  for up to 120  days  (but not  more  than  once in any 12 month
     period) if the offering would, in the judgment of the Board of Directors of
     Repap, require premature  disclosure of any material corporate  development
     or otherwise  materially  interfere with or materially adversely affect any
     pending or proposed  offering of securities of Repap or any other  material
     transaction involving Repap.

(2)  If Option Shares are qualified  pursuant to the  provisions of this Section
     3.2, Repap agrees (i) to furnish  copies of the prospectus  relating to the
     Option Shares covered  thereby in such numbers as UPM may from time to time
     reasonably  request  and (ii) if any event shall occur as a result of which
     it becomes necessary to amend or supplement any prospectus,  to prepare and
     file under the applicable  securities  laws such amendments and supplements
     as may be  necessary  to keep  available  for at least 90 days a prospectus
     covering the Option  Shares  meeting the  requirements  of such  securities
     laws, and to furnish UPM with such numbers of copies of the prospectus,  as
     amended or supplemented, as may reasonably be requested. UPM shall bear the
     cost of the  registration or  qualification,  including but not limited to,
     all  registration  and  filing  fees,  printing  expenses,   and  fees  and
     disbursements  of counsel and accountants for Repap,  and UPM shall pay the
     fees  and  disbursements  of its  counsel  and the  underwriting  fees  and
     commissions  applicable  to the  Option  Shares  sold by UPM.  Repap  shall
     indemnify  and hold  harmless  UPM,  its  affiliates  and their  respective
     officers  and  directors  from  and  against  any and all  losses,  claims,
     damages,  liabilities  and  expenses  arising  out  of or  based  upon  any
     statements  contained  in or  omissions  or alleged  omissions  from,  each
     prospectus (or any amendment  thereto)  filed  pursuant to this  paragraph;
     provided,  however,  that  this  provision  shall  not  apply to any  loss,
     liability,  claim,  damage or  expense  to the  extent it arises out of any
     untrue  statement or omission made in reliance upon and in conformity  with
     written  information  furnished  to Repap by UPM,  its  affiliates  and its
     officers and other representatives  expressly for use in any prospectus (or
     any amendment  thereto) filed pursuant to this paragraph.  Repap shall also
     indemnify and hold harmless each  underwriter  and each person who controls
     any underwriter against any and all losses,  claims,  damages,  liabilities
     and expenses  arising out of or based upon any  statements  contained in or
     omissions or alleged  omissions  from,  each  prospectus  (or any amendment
     thereto) filed pursuant to this  paragraph;  provided,  however,  that this
     provision shall not apply to any loss, liability,  claim, damage or expense
     to the extent it arises out of any untrue  statement  or  omission  made in
     reliance upon and in conformity with written information furnished to Repap
     by the  underwriters  expressly for use in any prospectus (or any amendment
     thereto) filed pursuant to this Section 3.2.

                                    ARTICLE 4
                               CERTAIN LIMITATIONS

Section 4.1  Maximum Total Proceeds.

     Notwithstanding  any other  provision of this Agreement or the  Acquisition
Agreement,  in no event shall  UPM's Total  Proceeds  (as  hereinafter  defined)
exceed  the Break Fee (as  defined  in the  Acquisition  Agreement)  and,  if it
otherwise would exceed such amount,  UPM shall either:  (i) reduce the number of
Option Shares otherwise issuable;  (ii) deliver to Repap for cancellation Option
Shares previously  purchased by UPM hereunder;  (iii) pay cash to Repap; or (iv)
at UPM's sole election,  any combination  thereof,  so that UPM's Total Proceeds
shall not exceed the Break Fee after taking into account the foregoing  actions.
As used  herein,  the term  "Total  Proceeds"  shall mean the  aggregate  amount
(before  taxes) of the  following:  (i) the greater of (A) the net cash proceeds
(or  equivalent  thereof) to UPM from the arm's length  disposition by it of the
Option Shares in the market, by private placement, by tender into an Acquisition
Proposal or otherwise or (B) the  consideration  (or  equivalent  thereof) which
would have been payable for the Option Shares pursuant to any Superior  Proposal
which is  consummated  and as a result of which  amounts  become  payable to UPM
pursuant  to Section  6.4(1) of the  Acquisition  Agreement,  without  regard to
whether UPM tenders its Option  Shares  pursuant  thereof;  less UPM's  Purchase
Price for such shares;  and (ii) any amounts received by UPM pursuant to Section
6.4(1) of the Acquisition Agreement.

                                    ARTICLE 5
                                covenants of UPM

Section 5.1  Voting Limitations.

     UPM hereby  agrees with Repap that it will not exercise  any voting  rights
attached to the Option Shares to vote in favour of the Amalgamation.

Section 5.2  Distribution of Option Shares.

     UPM agrees with Repap that any resale of Option Shares, other than pursuant
to an Acquisition  Proposal,  shall be widely  distributed to the public and, in
any event, so that no Repap shareholder would, as a result of such distribution,
to UPM's knowledge, own 10% or more of the outstanding common shares of Repap.

                                    ARTICLE 6
                            TERMINATION OF AGREEMENT

Section 6.1  Termination.

     This  Agreement,  other than the rights  and  obligations  of UPM and Repap
under Sections 3.2, 4.1 and this Section 6.1, shall terminate on the Termination
Date.

                                    ARTICLE 7
                                  MISCELLANEOUS

Section 7.1  Amendment.

     This Agreement may not be amended except by an instrument in writing signed
by each of the parties hereto.

Section 7.2  Waiver.

     Either  party hereto may (a) extend the time for or waive  compliance  with
the  performance of any obligation or other act of the other party hereto or (b)
waive any inaccuracy in the representations  and warranties  contained herein or
in any document delivered pursuant hereto. Any such extension or waiver shall be
valid if set forth in an instrument  in writing  signed by the party to be bound
thereby.

Section 7.3  Notices.

     All notices,  requests,  claims, demands and other communications hereunder
shall be in  writing  and shall be given  (and shall be deemed to have been duly
given upon  receipt) by delivery in person,  by  facsimile,  or by a  nationally
recognized  courier  service to the  respective  parties at their  addresses  as
specified in the Acquisition Agreement.

Section 7.4  Severability.

     If any term or other  provision of this  Agreement  is invalid,  illegal or
incapable  of being  enforced  by any rule of law or  public  policy,  all other
conditions and provisions of this Agreement  shall  nevertheless  remain in full
force and effect so long as the economic or legal substance of the  transactions
contemplated  hereby is not  affected  in any manner  materially  adverse to any
party.  Upon such  determination  that any term or other  provision  is invalid,
illegal or incapable of being  enforced,  the parties hereto shall  negotiate in
good faith to modify this  Agreement so as to effect the original  intent of the
parties as closely as  possible in a mutually  acceptable  manner to the fullest
extent permitted by applicable Law in order that the  transactions  contemplated
hereby may be  consummated  as  originally  contemplated  to the fullest  extent
possible.  If for any reason such court or regulatory agency determines that UPM
is not  permitted  to acquire the full number of shares of Repap  Common  Shares
provided in this Agreement and also does not permit the payment of the Spread in
respect to such prohibited shares, it is the express intention of Repap to allow
UPM to acquire such lesser number of Repap Common Shares (or receive  payment of
the Spread in respect of such lesser number) as may be permissible,  without any
amendment or modification hereof.

Section 7.5  Assignment; Binding Effect; Benefit.

     Except as expressly provided herein,  neither this Agreement nor any of the
rights,  interests or obligations  hereunder  shall be assigned (by operation of
law or otherwise) by either party without the prior written consent of the other
party hereto.  Notwithstanding the foregoing,  UPM may assign this Agreement and
any of the  rights,  interests  or  obligations  hereunder  to any  wholly-owned
subsidiary  of UPM  without  the  consent of Repap,  provided  that UPM  remains
jointly  and  severally  liable  hereunder  with such  wholly-owned  subsidiary.
Subject to the first and second  sentence of this section,  this Agreement shall
be binding  upon and shall enure to the benefit of the parties  hereto and their
respective successors and permitted assigns.

Section 7.6  Specific Performance.

     The parties hereto agree that  irreparable  damage would occur in the event
any provision of this Agreement were not performed in accordance  with the terms
hereof and that the parties  shall be entitled  to specific  performance  of the
terms hereof, in addition to any other remedy at law or in equity.

Section 7.7  Governing Law.

     This Agreement shall be governed by, and construed in accordance,  with the
laws of the  Province  of  Ontario  and the  federal  laws of Canada  applicable
therein.  All  actions  and  proceedings  arising  out of or  relating  to  this
Agreement  shall  be heard  and  determined  exclusively  in the  courts  of the
Province of Ontario.

Section 7.8  Headings.

     The  descriptive  headings  contained  in this  Agreement  are included for
convenience  of  reference  only and shall not affect in any way the  meaning or
interpretation of this Agreement.

Section 7.9  Entire Agreement.

     This  Agreement  and  the  Acquisition   Agreement  constitute  the  entire
agreement  between the parties  with  respect to the subject  matter  hereof and
supersede  all prior  agreements  and  understandings  between the parties  with
respect  thereto.  No  addition  to or  modification  of any  provision  of this
Agreement  shall be binding  upon any party  hereto  unless  made in writing and
signed by all parties hereto.

Section 7.10  Counterparts.

     This Agreement may be executed in two or more  counterparts,  each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
<PAGE>

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

                                                   UPM-Kymmene Corporation

                                                   By:  /s/ Juha Niemela
                                                      --------------------------
                                                      Authorized Signing Officer

                                                  By:  /s/ Reko Aalto-Setala
                                                      --------------------------
                                                      Authorized Signing Officer

                                                   Repap ENTERPRISES INC.

                                                   By:  /s/ Hap Stephen
                                                      --------------------------
                                                      Authorized Signing Officer

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