Domtar CORP (Form: 10-Q, Received: 11/04/2011 06:06:24)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________to________

COMMISSION FILE NUMBER 001-33164

DOMTAR CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		20-5901152
(State of Incorporation)		(I.R.S. Employer Identification No.)

395 de Maisonneuve West, Montreal, Quebec H3A 1L6 Canada

(Address of principal executive offices) (zip code)

(514) 848-5555

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

At October 31, 2011, 36,446,349 shares of the issuer’s voting common stock were outstanding.

DOMTAR CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2011

INDEX


PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

	CONSOLIDATED STATEMENTS OF EARNINGS	3

	CONSOLIDATED BALANCE SHEETS	4

	CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	6

	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	43

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	63

ITEM 4.	CONTROLS AND PROCEDURES	64

PART II	OTHER INFORMATION	64

ITEM 1.	LEGAL PROCEEDINGS	64

ITEM 1A.	RISK FACTORS	64

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	65

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	65

ITEM 4.	REMOVED AND RESERVED	65

ITEM 5.	OTHER INFORMATION	65

ITEM 6.	EXHIBITS	65

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)


	For the three months ended						For the nine months ended
CONSOLIDATED STATEMENTS OF EARNINGS	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
	(Unaudited)
	$			$			$			$
Sales		1,417			1,473			4,243			4,477
Operating expenses
Cost of sales, excluding depreciation and amortization		1,055			1,048			3,132			3,397
Depreciation and amortization		93			97			281			300
Selling, general and administrative		75			91			253			244
Impairment and write-down of property, plant and equipment (NOTE 11)		8			14			73			50
Closure and restructuring costs (NOTE 11)		1			1			14			26
Other operating loss (income), net (NOTE 7)		(2	)		(14	)		(3	)		12

		1,230			1,237			3,750			4,029

Operating income		187			236			493			448
Interest expense, net		25			24			67			126

Earnings before income taxes		162			212			426			322
Income tax expense		45			21			122			42

Net earnings		117			191			304			280

Per common share (in dollars) (NOTE 5)
Net earnings
Basic		2.96			4.47			7.43			6.53
Diluted		2.95			4.44			7.38			6.48
Weighted average number of common and exchangeable shares outstanding (millions)
Basic		39.5			42.7			40.9			42.9
Diluted		39.7			43.0			41.2			43.2

The accompanying notes are an integral part of the consolidated financial statements.

DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)


	At
	September 30, 2011			December 31, 2010
	(Unaudited)
	$			$
Assets
Current assets
Cash and cash equivalents		461			530
Receivables, less allowances of $5 and $7		679			601
Inventories (NOTE 8)		630			648
Prepaid expenses		24			28
Income and other taxes receivable		51			78
Deferred income taxes		115			115

Total current assets		1,960			2,000
Property, plant and equipment, at cost		8,424			9,255
Accumulated depreciation		(4,934	)		(5,488	)

Net property, plant and equipment		3,490			3,767
Goodwill (NOTE 9)		163			—
Intangible assets, net of amortization (NOTE 10)		205			56
Other assets		202			203

Total assets		6,020			6,026

Liabilities and shareholders’ equity
Current liabilities
Bank indebtedness		17			23
Trade and other payables		753			678
Income and other taxes payable		29			22
Long-term debt due within one year (NOTE 13)		5			2

Total current liabilities		804			725
Long-term debt (NOTE 13)		837			825
Deferred income taxes and other		1,052			924
Other liabilities and deferred credits		328			350
Commitments and contingencies (NOTE 15)
Shareholders’ equity
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued: 42,447,365 and 42,300,031 shares		—			—
Treasury stock (NOTE 14) $0.01 par value; 5,296,520 and 664,857 shares		—			—
Exchangeable shares No par value; unlimited shares authorized; issued and held by nonaffiliates: 678,475 and 812,694 shares		53			64
Additional paid-in capital		2,388			2,791
Retained earnings		623			357
Accumulated other comprehensive loss		(65	)		(10	)

Total shareholders’ equity		2,999			3,202

Total liabilities and shareholders’ equity		6,020			6,026

The accompanying notes are an integral part of the consolidated financial statements.

DOMTAR CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)


CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY	Issued and outstanding common and exchangeable shares (millions of shares)			Exchangeable shares			Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
	(Unaudited)
				$			$			$			$			$
Balance at December 31, 2010		42.4			64			2,791			357			(10	)		3,202
Conversion of exchangeable shares		—			(11	)		11			—			—			—
Stock-based compensation		0.4			—			12			—			—			12
Net earnings		—			—			—			304			—			304
Net derivative gains on cash flow hedges:
Net gain arising during the period, net of tax of $(5)		—			—			—			—			(12	)		(12	)
Less: Reclassification adjustments for losses included in net earnings, net of tax of nil		—			—			—			—			(3	)		(3	)
Foreign currency translation adjustments		—			—			—			—			(56	)		(56	)
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans		—			—			—			—			16			16
Stock repurchase		(5.0	)		—			(426	)		—			—			(426	)
Cash dividends		—			—			—			(38	)		—			(38	)

Balance at September 30, 2011		37.8			53			2,388			623			(65	)		2,999

The accompanying notes are an integral part of the consolidated financial statements.

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS OF DOLLARS)


	For the nine months ended
CONSOLIDATED STATEMENTS OF CASH FLOWS	September 30, 2011			September 30, 2010
	(Unaudited)
	$			$
Operating activities
Net earnings		304			280
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization		281			300
Deferred income taxes and tax uncertainties		56			7
Impairment and write-down of property, plant and equipment		73			50
Loss on repurchase of long-term debt		4			40
Net losses (gains) on disposals of property, plant and equipment and sale of businesses		(5	)		33
Stock-based compensation expense		3			3
Other		—			(6	)
Changes in assets and liabilities, excluding the effects of acquisition and sale of businesses
Receivables		(56	)		(134	)
Inventories		20			40
Prepaid expenses		(4	)		(2	)
Trade and other payables		14			(4	)
Income and other taxes		27			375
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(7	)		5
Other assets and other liabilities		1			13

Cash flows provided from operating activities		711			1,000

Investing activities
Additions to property, plant and equipment		(64	)		(112	)
Proceeds from disposals of property, plant and equipment		34			26
Proceeds from sale of businesses		10			161
Acquisition of business, net of cash acquired		(288	)		—

Cash flows (used for) provided from investing activities		(308	)		75

Financing activities
Dividend payments		(36	)		(11	)
Net change in bank indebtedness		(7	)		(16	)
Repayment of long-term debt		(17	)		(763	)
Borrowings under accounts receivable securitization program		—			20
Premium paid on debt repurchases		(7	)		(26	)
Stock repurchase		(415	)		(44	)
Prepaid on structured stock repurchase, net		—			(19	)
Other		10			(3	)

Cash flows used for financing activities		(472	)		(862	)

Net (decrease) increase in cash and cash equivalents		(69	)		213
Translation adjustments related to cash and cash equivalents		—			—
Cash and cash equivalents at beginning of period		530			324

Cash and cash equivalents at end of period		461			537

Supplemental cash flow information
Net cash payments for:
Interest		51			77
Income taxes paid		42			24

The accompanying notes are an integral part of the consolidated financial statements.

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1	BASIS OF PRESENTATION	8

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	9

NOTE 3	ACQUISITION OF BUSINESS	10

NOTE 4	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	11

NOTE 5	EARNINGS PER SHARE	17

NOTE 6	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	18

NOTE 7	OTHER OPERATING LOSS (INCOME), NET	21

NOTE 8	INVENTORIES	22

NOTE 9	GOODWILL	23

NOTE 10	INTANGIBLE ASSETS	24

NOTE 11	CLOSURE AND RESTRUCTURING LIABILITY	25

NOTE 12	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	27

NOTE 13	LONG-TERM DEBT	28

NOTE 14	SHAREHOLDERS’ EQUITY	29

NOTE 15	COMMITMENTS AND CONTINGENCIES	31

NOTE 16	SEGMENT DISCLOSURES	34

NOTE 17	SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	36

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed in the Notes to Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Results for the first nine months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Domtar Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission. The December 31, 2010 Consolidated Balance Sheet, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

STOCK COMPENSATION

In April 2010, the Financial Accounting Standards Board (“FASB”) issued an update to Compensation – Stock Compensation, which addresses the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This update clarifies that those employee share-based payment awards should not be considered to contain a condition that is not a market, performance, or service condition and therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity.

This update is effective for fiscal years and interim periods beginning on or after December 15, 2010 with early adoption permitted. The Company adopted the new requirement on January 1, 2011 with no impact on the Company’s consolidated financial statements.

FUTURE ACCOUNTING CHANGES

COMPENSATION – RETIREMENT BENEFITS

In September 2011, the FASB issued an update to Compensation – Retirement Benefits, which addresses the disclosures about an employer’s participation in a multiemployer plan. This update will require additional disclosures about multiemployer plans to improve transparency and increase awareness of the commitments and risks involved with participation in multiemployer plans. The new accounting guidance requires employers participating in multiemployer plans to provide additional quantitative and qualitative disclosures to provide users with more detailed information regarding an employer’s involvement in multiemployer plans.

This update is effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The Company anticipates that the adoption of this standard will expand its consolidated financial statement footnote disclosures and will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

INTANGIBLES – GOODWILL AND OTHER

In September 2011, the FASB issued an update to Intangibles – Goodwill and Other, which simplify how entities test goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The amended provisions are effective for reporting periods beginning on or after December 15, 2011, with early adoption permitted. This amendment impacts impairment testing steps only, and therefore adoption will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3. ACQUISITION OF BUSINESS

On September 1, 2011, Domtar Corporation completed the acquisition of 100% of the outstanding shares of Attends Healthcare Inc., (“Attends”). Attends produces a complete line of incontinence care products and distributes washcloths marketed primarily under the Attends ^® brand name. The company has a wide product offering encompassing 170 items and it serves a diversified customer base in multiple channels throughout the United States and Canada. Attends has approximately 330 employees and the facility is located in Greenville, North Carolina. The results of Attends’ operations have been included in the consolidated financial statements as of September 1, 2011, and are included in the Personal Care segment. The purchase price was $288 million in cash, including working capital, net of acquired cash of $12 million, subject to post-closing adjustments. The acquisition was accounted for as a business combination under the acquisition method of accounting, in accordance with the Business Combinations Topic of FASB Accounting Standards Codification (“ASC”).

The total purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair value, which are based on information currently available. The items to be finalized are capital lease assets and obligations, intangible assets, both current and non-current deferred tax liabilities which are subject to change, pending the finalization of certain tax returns and residual goodwill. The Company will complete the valuation of all assets and liabilities within the next twelve months.

The table below illustrates the preliminary purchase price allocation:

Fair value of net assets acquired at the date of acquisition


Receivables		$	12
Inventory			17
Property, plant and equipment			54
Intangible assets (Note 10)

Trade names ⁽¹⁾	61
Customer relationships ⁽²⁾	93
			154
Goodwill (Note 9)			163
Other assets			4

Total assets			404

Less: Liabilities
Trade and other payables			15
Income and other taxes payable			2
Capital lease obligation			31
Deferred income tax liabilities			66
Other liabilities			2

Total liabilities			116

Fair value of net assets acquired at the date of acquisition			288

⁽¹⁾	Indefinite useful life.

⁽²⁾	The useful life of the Customer relationships acquired is expected to be 40 years.

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is attributable to the general reputation of the business, the assembled workforce, and the expected future cash flows of the business. Disclosed goodwill is not deductible for tax purposes. Pro forma results have not been provided, as the acquisition had no material impact on the Company.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

INTEREST RATE RISK

The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, its bank indebtedness, its bank credit facility and its long-term debt. The Company may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts.

CREDIT RISK

The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As at September 30, 2011, the Company had one customer, which represented 10% of its receivables (December 31, 2010 – 6%).

The Company is also exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company minimizes this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored. Additionally, the Company is exposed to credit risk in the event of non-performance by its insurers. The Company minimizes this exposure by doing business only with large reputable insurance companies.

COST RISK

Cash flow hedges:

The Company purchases natural gas and oil at the prevailing market price at the time of delivery. In order to manage the cash flow risk associated with purchases of natural gas and oil, the Company may utilize derivative financial instruments or physical purchases to fix the price of forecasted natural gas and oil purchases. The Company formally documents the hedge relationships, including identification of the hedging instruments and the hedged items, the risk management objectives and strategies for undertaking the hedge transactions, and the methodologies used to assess effectiveness and measure ineffectiveness. Current contracts are used to hedge forecasted purchases over the next three years. The effective portion of changes in the fair value of derivative contracts designated as cash flow hedges is recorded as a component of Accumulated other comprehensive loss within Shareholders’ equity, and is recognized in Cost of sales in the period in which the hedged transaction occurs.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of September 30, 2011 to hedge forecasted purchases:


Commodity	Notional contractual quantity under derivative contracts			Notional contractual value under derivative contracts (in millions of dollars)		Percentage of forecasted purchases under derivative contracts for
						2011			2012			2013			2014
Natural gas	7,320,000	MMBTU	⁽¹⁾	$	38		29	%		27	%		13	%		2	%

(1)	MMBTU: Millions of British thermal units

The natural gas derivative contracts were fully effective for accounting purposes as of September 30, 2011. The critical terms of the hedging instruments and the hedged items match. As a result, there were no amounts reflected in the Consolidated Statements of Earnings for the three and nine months ended September 30, 2011 resulting from hedge ineffectiveness (three and nine months ended September 30, 2010 – nil).

FOREIGN CURRENCY RISK

Cash flow hedges:

The Company has manufacturing operations in the United States and Canada. As a result, it is exposed to movements in the foreign currency exchange rate in Canada. Also, certain assets and liabilities are denominated in Canadian dollars and are exposed to foreign currency movements. As a result, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar relative to the U.S. dollar. The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates. Foreign exchange forward contracts are contracts whereby the Company has the obligation to buy Canadian dollars at a specific rate. Currency options purchased are contracts whereby the Company has the right, but not the obligation, to buy Canadian dollars at the strike rate if the Canadian dollar trades above that rate. Currency options sold are contracts whereby the Company has the obligation to buy Canadian dollars at the strike rate if the Canadian dollar trades below that rate.

The Company formally documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. Foreign exchange forward contracts and currency options contracts used to hedge forecasted purchases in Canadian dollars are designated as cash flow hedges. Current contracts are used to hedge forecasted purchases over the next 12 months. The effective portion of changes in the fair value of derivative contracts designated as cash flow hedges is recorded as a component of Accumulated other comprehensive loss within Shareholders’ equity, and is recognized in Cost of sales in the period in which the hedged transaction occurs.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following table presents the currency values under contracts pursuant to currency options outstanding as of September 30, 2011 to hedge forecasted purchases:


Contract		Notional contractual value		Percentage of CDN denominated forecasted expenses, net of revenues under contracts for
				2011			2012
Currency options purchased	CDN	$	400		50	%		38	%
Currency options sold	CDN	$	400		50	%		38	%

The currency options are fully effective as at September 30, 2011. The critical terms of the hedging instruments and the hedged items match. As a result, there were no amounts reflected in the Consolidated Statements of Earnings for the three and nine months ended September 30, 2011 resulting from hedge ineffectiveness (three and nine months ended September 30, 2010 – nil).

The Effect of Derivative Instruments on the Consolidated Statements of Earnings and Consolidated Statement of Shareholders’ Equity


Derivatives Designated as Cash Flow Hedging Instruments under the Derivatives and Hedging Topic of FASB ASC	Gain (Loss) Recognized in Accumulated Other Comprehensive Loss on Derivatives (Effective Portion)						Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
	For the three months ended						For the three months ended
	September 30, 2011			September 30, 2010			September 30, 2011		September 30, 2010
	$			$			$		$
Natural gas swap contracts (a)		(2	)		(2	)		—		(2	)
Currency options (a)		(15	)		3			1		2

Total		(17	)		1			1		—

(a)	The Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) is recorded in Cost of Sales.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The Effect of Derivative Instruments on the Consolidated Statements of Earnings and Consolidated Statement of Shareholders’ Equity


Derivatives Designated as Cash Flow Hedging Instruments under the Derivatives and Hedging Topic of FASB ASC	Loss Recognized in Accumulated Other Comprehensive Loss on Derivatives (Effective Portion)						Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
	For the nine months ended						For the nine months ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
	$			$			$			$
Natural gas swap contracts (a)		(3	)		(7	)		(3	)		(6	)
Currency options (a)		(9	)		(3	)		6			16

Total		(12	)		(10	)		3			10

(a)	The Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) is recorded in Cost of Sales.

The cumulative loss recorded in Accumulated other comprehensive loss relating to natural gas contracts of $6 million as at September 30, 2011, will be recognized in Cost of sales upon maturity of the derivatives over the next three years at the then prevailing values, which may be different from those at September 30, 2011.

The cumulative loss recorded in Accumulated other comprehensive loss relating to currency options of $9 million as at September 30, 2011, will be recognized in Cost of sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at September 30, 2011.

The accounting standards for fair value measurements and disclosures, establish a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.


Level 1		Quoted prices in active markets for identical assets or liabilities.

Level 2		Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3		Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (c) below) at September 30, 2011 and December 31, 2010, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

Fair Value of financial instruments at:


Derivatives designated as cash flow hedging instruments under the Derivatives and Hedging Topic of FASB ASC:	September 30, 2011		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance sheet classification
	$		$		$		$
Asset derivatives
Currency options		6		—		6		—	(a) Prepaid expenses

Total Assets		6		—		6		—

Liabilities derivatives
Currency options		15		—		15		—	(a) Trade and other payables
Natural gas swap contracts		5		—		5		—	(a) Trade and other payables
Natural gas swap contracts		1		—		1		—	(a) Other liabilities and deferred credits

Total Liabilities		21		—		21		—

Other Instruments:
Asset backed commercial paper investments (“ABCP”)		6		—		—		6	(b) Other assets
Long-term debt		986		986		—		—	(c) Long-term debt

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

Fair Value of financial instruments at:


Derivatives designated as cash flow hedging instruments under the Derivatives and Hedging Topic of FASB ASC:	December 31, 2010		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance sheet classification
	$		$		$		$
Asset derivatives
Currency options		14		—		14		—	(a) Prepaid expenses

Total Assets		14		—		14		—

Liabilities derivatives
Currency options		3		—		3		—	(a) Trade and other payables
Natural gas swap contracts		7		—		7		—	(a) Trade and other payables
Natural gas swap contracts		2		—		2		—	(a) Other liabilities and deferred credits

Total Liabilities		12		—		12		—

Other Instruments:
ABCP		6		—		—		6	(b) Other assets
Long-term debt		979		979		—		—	(c) Long-term debt

(a)	Fair value of the Company’s derivatives is classified under Level 2 (inputs that are observable; directly or indirectly) as it is measured as follows:

–

For currency options: Fair value is measured using techniques derived from the Black-Scholes pricing model. Interest rates, forward market rates and volatility are used as inputs for such valuation techniques.

–

For natural gas contracts: Fair value is measured using the discounted difference between contractual rates and quoted market future rates.

(b)

Fair value of ABCP investments is classified under Level 3 and is mainly based on a financial model incorporating uncertainties regarding return, credit spreads, the nature and credit risk of underlying assets, the amounts and timing of cash inflows and the limited market for the notes at September 30, 2011 and December 31, 2010.

(c)

Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. In accordance with US GAAP, the Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010. However, fair value disclosure is required.

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, receivables, bank indebtedness, trade and other payables and income and other taxes approximate their fair values.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 5. EARNINGS PER SHARE

The following table provides the reconciliation between basic and diluted earnings per share:


	For the three months ended				For the nine months ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Net earnings	$	117	$	191	$	304	$	280
Weighted average number of common and exchangeable shares outstanding (millions)		39.5		42.7		40.9		42.9
Effect of dilutive securities (millions)		0.2		0.3		0.3		0.3

Weighted average number of diluted common and exchangeable shares outstanding (millions)		39.7		43.0		41.2		43.2

Basic net earnings per share (in dollars)	$	2.96	$	4.47	$	7.43	$	6.53
Diluted net earnings per share (in dollars)	$	2.95	$	4.44	$	7.38	$	6.48

The following table provides the securities that could potentially dilute basic earnings per share in the future, but were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive:

For the three months ended

For the nine months ended

September 30,
2011

September 30,
2010

September 30,
2011

September 30,
2010

Options (in units)

189,381

410,812

146,930

410,812

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

The Company has several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the three and nine months ended September 30, 2011, the related pension expense was $5 million and $18 million, respectively (2010 – $5 million and $20 million, respectively).

DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

The Company has several defined benefit pension plans covering a majority of all employees. The defined benefit plans are generally contributory in Canada and non-contributory in the United States. The Company also provides other post-retirement plans to eligible Canadian and U.S. employees; the plans are unfunded and include life insurance programs, medical and dental benefits and short-term and long-term disability programs. The Company also provides supplemental unfunded benefit plans to certain senior management employees.

Components of net periodic benefit cost for pension plans and other post-retirement benefit plans


	For the three months ended					For the nine months ended
	September 30, 2011					September 30, 2011
	Pension Plans			Other post-retirement benefit plans		Pension Plans			Other post-retirement benefit plans
	$			$		$			$
Service cost		9			—		26			2
Interest expense		21			2		65			5
Expected return on plan assets		(26	)		—		(78	)		—
Amortization of net actuarial loss		3			—		10			—
Settlement loss (b)		—			—		23			—
Amortization of prior year service costs		1			—		2			(1	)

Net periodic benefit cost		8			2		48			6

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

Components of net periodic benefit cost for pension plans and other post-retirement benefit plans


	For the three months ended					For the nine months ended
	September 30, 2010					September 30, 2010
	Pension Plans			Other post-retirement benefit plans		Pension Plans			Other post-retirement benefit plans
	$			$		$			$
Service cost		8			1		25			3
Interest expense		22			2		66			5
Expected return on plan assets		(23	)		—		(69	)		—
Amortization of net actuarial loss		2			—		5			—
Curtailment loss (gain) (a)		2			—		12			(13	)
Settlement loss (b)		—			—		16			—
Amortization of prior year service costs		1			—		2			—

Net periodic benefit cost		12			3		57			(5	)

(a)

The curtailment loss of $2 million and $12 million, respectively, in the pension plans for the three and nine months ended September 30, 2010, represents nil and $10 million, respectively, related to the sale of the Wood business and $2 million and $2 million, respectively, related to the sale of the Woodland, Maine mill.

The curtailment gain of $13 million in the other post-retirement benefit plans, for the nine months ended September 30, 2010, represents $3 million related to the sale of the Wood business and $10 million related to the harmonization of the Company’s post-retirement benefit plans.

(b)	The settlement loss of $23 million in the pension plans, for the nine months ended September 30, 2011, is related to the sale of assets of Prince Albert.

The settlement loss of $16 million in the pension plans, for the nine months ended September 30, 2010, is related to the sale of the Wood business.

The Company contributed $16 million and $33 million for the three and nine months ended September 30, 2011, respectively (2010 – $9 million and $27 million, respectively), to the pension plans. The Company also contributed $1 million and $5 million for the three and nine months ended September 30, 2011, respectively (2010 – $2 million and $5 million, respectively), to the other post-retirement benefit plans.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

Multiemployer Plans

The Company is currently reviewing its strategy and participation in its current multiemployer pension plans, and is assessing the possibility of withdrawing completely from some plans. These withdrawals would normally result in a withdrawal liability and a charge to earnings to be recorded by the Company, when determined to be probable. The measurement of these liabilities is based on the plan administrator’s allocation methodologies and assumptions.

Although not considered probable, and as such not recorded in the results for the period ended September 30, 2011, the withdrawal liability related to these plans is estimated to be approximately $27 million based on management’s best estimate and subject to the final assessment of the plan administrator.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 7. OTHER OPERATING LOSS (INCOME), NET

Other operating loss (income) is an aggregate of both recurring and periodic loss or income items and, as a result, can fluctuate from period to period. The Company’s other operating loss (income) includes the following:


	For the three months ended						For the nine months ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
	$			$			$			$
Loss on sale of Wood business		—			—			—			50
Gain on sale of Woodland mill		—			(10	)		—			(10	)
Alternative fuel tax credits (Note 16)		—			—			—			(25	)
Gains on sale of property, plant and equipment		(4	)		(4	)		(5	)		(7	)
Environmental provision		3			—			3			—
Foreign exchange loss (gain), net		(3	)		(1	)		(4	)		3
Other		2			1			3			1

Other operating loss (income), net		(2	)		(14	)		(3	)		12

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 8. INVENTORIES

The following table presents the components of inventories:


	September 30, 2011		December 31, 2010
	$		$
Work in process and finished goods		348		361
Raw materials		101		105
Operating and maintenance supplies		181		182

		630		648

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 9. GOODWILL

The carrying value and any changes in the carrying value of goodwill are as follows:


	September 30, 2011		December 31, 2010
	$		$
Balance at beginning of period		—		—
Acquisition of Attends Healthcare Inc.		163		—

Balance at end of period		163		—

The goodwill at September 30, 2011 is entirely related to the Personal Care segment. (See Note 3 – Acquisition of Business for further information.)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 10. INTANGIBLE ASSETS

The following table presents the components of intangible assets:


	Weighted average useful lives		September 30, 2011			December 31, 2010
			$			$
Intangible assets subject to amortization
Water rights		40		8			8
Power purchase agreements		25		32			33
Customer relationships ⁽¹⁾		38		104			11
Trade names		7		6			7
Supplier agreements		5		6			6

				156			65
Accumulated amortization				(12	)		(9	)

				144			56
Intangible assets not subject to amortization
Trade names ⁽¹⁾				61			—

Total intangible assets				205			56

Amortization expense related to intangible assets for the three and nine months ended September 30, 2011 was $1 million and $3 million, respectively (2010 – nil and $2 million, respectively).

Amortization expense for the next five years related to intangible assets is expected to be as follows:


	2011		2012		2013		2014		2015
	$		$		$		$		$
Amortization expense related to intangible assets		5		7		5		5		4

⁽¹⁾	See Note 3 – Acquisition of Business for further information.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 11. CLOSURE AND RESTRUCTURING LIABILITY

The Company regularly reviews its overall production capacity with the objective of adjusting its production capacity with anticipated long-term demand.

On March 29, 2011, the Company announced that it will permanently shut down one of four paper machines at its Ashdown, Arkansas pulp and paper mill. This measure reduced the Company’s annual uncoated freesheet paper production capacity by approximately 125,000 short tons. The mill’s workforce was reduced by approximately 110 employees. For the three and nine months ended September 30, 2011, the Company recorded $1 million recovery and $1 million expense, respectively, of inventory obsolescence and nil and $2 million, respectively, of severance and termination costs as well as $8 million and $73 million, respectively, of accelerated depreciation, a component of Impairment and write-down of property, plant and equipment. Operations ceased on August 1, 2011.

On February 1, 2011, the Company announced the closure of its forms plant in Langhorne, Pennsylvania, and recorded $4 million in severance and termination costs.

For the three and nine months ended September 30, 2011, the Company also incurred other costs related to previous closures which included $1 million and $2 million, respectively, of severance and termination costs and $1 million and $5 million, respectively, of other costs.

For the three and nine months ended September 30, 2010, the Company recorded $13 million and $39 million, respectively, of accelerated depreciation, nil and $1 million, respectively, of severance and termination costs and $1 million and $1 million, respectively, of inventory obsolescense related to the reconfiguration of the Plymouth, North Carolina mill, announced on October 20, 2009. During the third quarter of 2010, the Company recorded $1 million of write-downs for the related paper machine.

During the second quarter of 2010, the Company decided to close the Cerritos, California form converting plant, and recorded a $1 million write-down for the related assets and $1 million in severance and termination costs. Operations ceased on July 16, 2010.

On March 16, 2010, the Company announced that it would permanently close its coated groundwood paper mill in Columbus, Mississippi. This measure resulted in the permanent curtailment of 238,000 tons of coated groundwood and 70,000 metric tons of thermo-mechanical pulp, as well as affected 219 employees. The Company recorded a $9 million write-down for the related fixed assets. In addition, for the three and nine months ended September 30, 2010, the Company recorded nil and $8 million, respectively, of severance and termination costs, nil and $8 million, respectively, of inventory obsolescence and $2 million recovery and nil, respectively, of other costs. Operations ceased in April 2010.

For the three and nine months ended September 30, 2010, the Company also incurred other costs related to previous closures which included $1 million and $2 million, respectively, of severance and termination costs and $1 million and $5 million, respectively, of other costs.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 11. CLOSURE AND RESTRUCTURING LIABILITY (CONTINUED)

The following tables provide the components of closure and restructuring costs by segment:

		00		00
	For the three months ended September 30, 2011		For the three months ended September 30, 2010
	Pulp and Paper		Pulp and Paper
	$		$
Severance and termination costs		1		1
Inventory obsolescence ⁽¹⁾		(1)		1
Other		1		(1	)

Closure and restructuring costs		1		1


	For the nine months ended September 30, 2011		For the nine months ended September 30, 2010
	Pulp and Paper		Pulp and Paper
		$		$
Severance and termination costs		8		12
Inventory obsolescence ⁽¹⁾		1		9
Other		5		5

Closure and restructuring costs		14		26

⁽¹⁾	Inventory obsolescence primarily relates to the write-down of operating and maintenance supplies classified as Inventories on the Consolidated Balance Sheets.

The following table provides the activity in the closure and restructuring liability:


	September 30, 2011
	$
Balance at December 31, 2010		17
Additions		8
Severance payments		(9	)
Change in estimates		—
Other		—
Effect of foreign currency exchange rate change		—

Balance at September 30, 2011		16

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 12. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the three months ended						For the nine months ended
COMPREHENSIVE INCOME	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
	$			$			$			$
Net earnings		117			191			304			280
Other comprehensive income (loss)
Net derivative gains (losses) on cash flow hedges:
Net gain (loss) arising during the three and nine month periods, net of tax of $7 and $5, respectively (2010 - $2 and $5, respectively)		(17	)		1			(12	)		(10	)
Less: Reclassification adjustment for losses included in net earnings, net of tax of $1 and nil, respectively (2010 - $ (2) and $(4), respectively)		(1	)		—			(3	)		(10	)
Foreign currency translation adjustments		(89	)		28			(56	)		22
Change in unrecognized gains (losses) and prior cost related to pension and post-retirement benefit plans, net of tax of nil and $(5), respectively (2010 - $3 and $(2), respectively)		—			(8	)		16			(50	)

Comprehensive income		10			212			249			232

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13. LONG-TERM DEBT

On June 23, 2011, the Company entered into a new Credit Agreement (the “Credit Agreement”), among the Company and certain of its subsidiaries as borrowers (collectively, the “Borrowers”) and the lenders and agents party thereto. The Credit Agreement replaced the Company’s existing $750 million senior secured revolving credit facility that was scheduled to mature March 7, 2012.

The Credit Agreement provides for a revolving credit facility (including a letter of credit sub-facility and a swingline sub-facility) with an initial maximum aggregate amount of availability of $600 million that matures on June 23, 2015. Borrowings may be made by the Company, by its U.S. subsidiary Domtar Paper Company, LLC, and, subject to a limit of $150 million, by its Canadian subsidiary Domtar Inc. The Company may increase the maximum aggregate amount of availability under the revolving Credit Agreement by up to $400 million, and the Borrowers may extend the final maturity of the Credit Agreement by one year, if, in each case, certain conditions are satisfied, including: (i) the absence of any event of default or default under the Credit Agreement, and (ii) the consent of the lenders participating in each such increase or extension, as applicable.

Borrowings under the Credit Agreement will bear interest at a rate dependent on the Company’s credit ratings at the time of such borrowing and will be calculated at the Borrowers’ option according to a base rate, prime rate, Eurodollar rate or the Canadian bankers’ acceptance rate plus an applicable margin, as the case may be. In addition, the Company must pay facility fees quarterly at rates dependent on the Company’s credit ratings.

The Credit Agreement contains customary covenants for transactions of this type, including the following financial covenants: (i) an interest coverage ratio (as defined under the Credit Agreement) that must be maintained at a level of not less than 3.0 to 1 and (ii) a leverage ratio (as defined under the Credit Agreement) that must be maintained at a level of not greater than 3.75 to 1. At September 30, 2011, the Company was in compliance with its covenants and no amounts were borrowed (December 31, 2010 – nil). At September 30, 2011, the Company had outstanding letters of credit amounting to $57 million under this credit facility (December 31, 2010 – $50 million).

All borrowings under the Credit Agreement are unsecured. Certain domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Credit Agreement, and certain Canadian subsidiaries of the Company unconditionally guarantee any obligations of Domtar Inc., the Canadian subsidiary borrower, under the Credit Agreement.

During the third quarter of 2011, the Company repurchased $15 million of its 10.75% debt and recorded a $4 million loss on repurchase of this debt.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14. SHAREHOLDERS’ EQUITY

On February 23, 2011, the Company’s Board of Directors approved a quarterly dividend of $0.25 per share to be paid to holders of the Company’s common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc., a subsidiary of Domtar Corporation. The total dividends of approximately $10 million were paid on April 15, 2011 to shareholders of record on March 15, 2011.

On May 4, 2011, the Company’s Board of Directors approved a quarterly dividend of $0.35 per share to be paid to holders of the Company’s common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc., the total dividends of approximately $15 million were paid on July 15, 2011 to shareholders of record on June 15, 2011.

On August 3, 2011, the Company’s Board of Directors approved a quarterly dividend of $0.35 per share to be paid to holders of the Company’s common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc., the total dividends of approximately $13 million were paid on October 17, 2011 to shareholders of record on September 15, 2011.

On November 2, 2011, the Company’s Board of Directors approved a quarterly dividend of $0.35 per share to be paid to holders of the Company’s common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc., on January 17, 2012 to shareholders of record on December 15, 2011.

STOCK REPURCHASE PROGRAM

On May 4, 2010, the Company’s Board of Directors authorized a stock repurchase program (“the Program”) of up to $150 million of Domtar Corporation’s common stock. On May 4, 2011, the Company’s Board of Directors approved an increase to the Program from $150 million to $600 million. Under the Program, the Company is authorized to repurchase from time to time shares of its outstanding common stock on the open market or in privately negotiated transactions in the United States. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock, from time to time, in part to reduce the dilutive effects of its stock options, awards, and employee stock purchase plan and to improve shareholders’ returns.

During 2010 and the first three quarters of 2011, the Company made open market purchases of its common stock using general corporate funds. Additionally, the Company entered into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements required the Company to make up-front payments to the counterparty financial institutions which resulted in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14. SHAREHOLDER’S EQUITY (CONTINUED)

During 2011, the Company repurchased 4,987,795 shares at an average price of $85.44 per share for a total cost of $426 million. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share. Of the $426 million shares repurchased, $11 million was payable at September 30, 2011.

During 2010, the Company repurchased 738,047 shares at an average price of $59.96 per share for a total cost of $44 million. Also, the Company entered into structured stock repurchase agreements that did not result in the repurchase of shares but resulted in net gains of $2 million which are recorded as a component of Shareholders’ equity.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 15. COMMITMENTS AND CONTINGENCIES

ENVIRONMENT

The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities.

During the first quarter of 2006, the pulp and paper mill in Prince Albert, Saskatchewan was closed due to poor market conditions. The Company’s management determined that the Prince Albert facility was no longer a strategic fit for the Company and would not be reopened. On May 3, 2011, Domtar sold its Prince Albert facility to Paper Excellence Canada Holdings Corporation (“Paper Excellence”). Paper Excellence agreed to assume all past, present and future known and unknown environmental liabilities and as such, the Company reversed its reserve for environmental liabilities for this site in the second quarter of 2011.

An action was commenced by Seaspan International Ltd. (“Seaspan”) in the Supreme Court of British Columbia, on March 31, 1999 against Domtar Inc. and others with respect to alleged contamination of Seaspan’s site bordering Burrard Inlet in North Vancouver, British Columbia, including contamination of sediments in Burrard Inlet, due to the presence of creosote and heavy metals. On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan and Domtar in order to define and implement an action plan to address soil, sediment and groundwater issues. This Order was appealed to the Environmental Appeal Board (“Board”) on March 17, 2010 but there is no suspension in the execution of this Order unless the Board orders otherwise. The appeal hearing scheduled for January 2011 was cancelled and no alternative date has been scheduled as of yet. The relevant government authorities selected a remediation plan on July 15, 2011. This plan selection has no impact on the on-going appeal. The Company has recorded an environmental reserve to address estimated exposure.

The following table reflects changes in the reserve for environmental remediation and asset retirement obligations:


	September 30, 2011
	$
Balance at December 31, 2010		107
Additions		4
Sale of businesses and closed facility		(11	)
Environmental spending		(10	)
Accretion		2
Effect of foreign currency exchange rate change		(2	)

Balance at September 30, 2011		90

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 15. COMMITMENTS AND CONTINGENCIES (CONTINUED)

At September 30, 2011, the Company had a provision of $90 million for environmental matters and other asset retirement obligations (December 31, 2010 – $107 million). Additional costs, not known or identifiable, could be incurred for remediation efforts. Based on policies and procedures in place to monitor environmental exposure, management believes that such additional remediation costs would not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Climate change regulation

Since 1997, when an international conference on global warming concluded an agreement known as the Kyoto Protocol, which called for reductions of certain emissions that may contribute to increases in atmospheric greenhouse gas (“GHG”) concentrations, various international, national and local laws have been proposed or implemented focusing on reducing GHG emissions. These actual or proposed laws do or may apply in the countries where the Company currently has, or may have in the future, manufacturing facilities or investments.

In the United States, Congress has considered legislation to reduce emissions of GHGs, although it appears unlikely that any legislation will be actively considered again until after the 2012 elections. Several states already are regulating GHG emissions by public utilities and certain other significant emitters, primarily through regional GHG cap-and-trade programs. Furthermore, the U.S. Environmental Protection Agency (“EPA”) is scheduled later in 2011 to propose regulations regulating GHGs pursuant to the Clean Air Act. Passage of GHG legislation by Congress or individual states, or the adoption of regulations by the EPA or analogous state agencies, that restrict emissions of GHGs in areas in which the Company conducts business could have a variety of impacts upon the Company, including requiring it to implement GHG containment and reduction programs or to pay taxes or other fees with respect to any failure to achieve the mandated results. This, in turn, will increase the Company’s operating costs, which, to the extent passed through to customers, could reduce demand for the Company’s products. However, the Company does not expect to be disproportionately affected by these measures compared with other pulp and paper producers in the United States.

The province of Quebec is expected to initiate, as part of its commitment to the Western Climate Initiative (“WCI”), a GHG cap-and-trade system by January 1, 2012. Reduction targets for Quebec are expected to be promulgated later in 2012, to be effective January 1, 2013. There are presently no federal or provincial legislation on regulatory obligations to reduce GHGs for the Company’s pulp and paper operations elsewhere in Canada.

While it is likely that there will be increased regulation relating to GHG emissions, at this stage it is not possible to estimate either a timetable for the promulgation or implementation of any new regulations or the Company’s cost of compliance to said regulations. The impact could, however, be material.

Industrial Boiler Maximum Achievable Controlled Technology Standard

The EPA has proposed several standards related to emissions from boilers and process heaters included in the Company’s manufacturing processes. These standards are referred to as “Boiler MACT.” The EPA issued a final rule in February 2011. The EPA stayed the effectiveness of this rule, however, in order to allow it to carry out a detailed review of certain of its provisions, thus making uncertain what actions the agency will take with those portions of the rule under review. Most recently, the EPA has stated that its review will be complete in the fourth quarter 2011 and that the Boiler MACT will be effective by April 2012. compliance with Boiler MACT will be required immediately for “new” sources and three years after effectiveness for existing sources, although such timing could be changed as the final rule may be altered as a result of the review. In addition, legislation has been introduced in Congress that could modify or delay the Boiler MACT, although its passage is uncertain. It is apparent that owners and operators of boilers and process heaters will be required to address multiple emission standards in order to comply with the final rule. Until the final rule is promulgated, it is not possible to accurately determine what containment or reduction programs will be required or to accurately estimate cost of compliance. While compliance may have significant impact on the Company’s results of operations, financial position or cash flows, the Company does not expect to be disproportionately affected by these measures compared with other pulp and paper producers in the United States.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 15. COMMITMENTS AND CONTINGENCIES (CONTINUED)

CONTINGENCIES

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at September 30, 2011, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The pulp and paper mill in Prince Albert was closed in the first quarter of 2006 and has not been operated since. In December 2009, the Company decided to dismantle the Prince Albert facility. In a grievance relating to the closure of the Prince Albert facility, the union claimed that it is entitled to the accumulated pension benefits during the actual layoff period because, according to the union, a majority of employees still had recall rights during the layoff. Arbitration in this matter was held in February 2010, and the arbitrator ruled in favor of the Company on August 24, 2010. As a result of the sale of the Prince Albert facility to Paper Excellence in May 2011, the union agreed to release any claims for judicial review it may have against the Company in relation to the grievance.

On July 31, 1998, Domtar Inc. (now a 100% owned subsidiary of Domtar Corporation) acquired all of the issued and outstanding shares of E.B. Eddy Limited and E.B. Eddy Paper, Inc. (“E.B. Eddy”), an integrated producer of specialty paper and wood products. The purchase agreement included a purchase price adjustment whereby, in the event of the acquisition by a third party of more than 50% of the shares of Domtar Inc. in specified circumstances, Domtar Inc. may be required to pay an increase in consideration of up to a maximum of $116 million (CDN$120 million), an amount gradually declining over a 25-year period. At March 7, 2007, the maximum amount of the purchase price adjustment was approximately $106 million (CDN$110 million).

On March 14, 2007, the Company received a letter from George Weston Limited (the previous owner of E.B. Eddy and a party to the purchase agreement) demanding payment of $106 million (CDN$110 million) as a result of the consummation of the combination of the Weyerhaeuser Fine Paper Business with Domtar Inc. on March 7, 2007, (the “Transaction”). On June 12, 2007, an action was commenced by George Weston Limited against Domtar Inc. in the Superior Court of Justice of the Province of Ontario, Canada, claiming that the consummation of the Transaction triggered the purchase price adjustment and sought a purchase price adjustment of $106 million (CDN$110 million) as well as additional compensatory damages. The Company does not believe that the consummation of the Transaction triggers an obligation to pay an increase in consideration under the purchase price adjustment and intends to defend itself vigorously against any claims with respect thereto. However, the Company may not be successful in the defense of such claims, and if the Company is ultimately required to pay an increase in consideration, such payment may have a material adverse effect on the Company’s financial position, results of operations or cash flows. On March 31, 2011, George Weston Limited filed a motion for summary judgment which the Company expects to be resolved by the Court in due course. No provision is recorded for this potential purchase price adjustment.

INDEMNIFICATIONS

In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At September 30, 2011, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 16. SEGMENT DISCLOSURES

Following the sale of the Wood business on June 30, 2010, the Company’s reporting segments correspond to the following business activities: Pulp and Paper and Distribution.

On September 1, 2011, the Company purchased Attends Healthcare products Inc. As a result, an additional segment, Personal Care, has been added to the existing reportable segments.

Prior to June 30, 2010, the Company operated in three reportable segments: Pulp and Paper (formerly known as Papers), Distribution (formerly known as Paper Merchants) and Wood.

Each reportable segment offers different products and services and requires different technology and marketing strategies. The following summary briefly describes the operations included in each of the Company’s reportable segments:

•

Pulp and Paper – represents the aggregation of the manufacturing and distribution of business, commercial printing and publishing, and converting and specialty papers, as well as market softwood, fluff and hardwood pulp.

•

Distribution – involves the purchasing, warehousing, sale and distribution of various products made by the Company and by other manufacturers. These products include business and printing papers and certain industrial products.

•

Personal Care – involves the manufacturing and distribution of adult incontinence products.

•

Wood – comprises the manufacturing and marketing of lumber and wood-based value-added products and the management of forest resources.

The Company evaluates performance based on operating income, which represents sales, reflecting transfer prices between segments at fair value, less allocable expenses before interest expense and income taxes.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 16. SEGMENT DISCLOSURES (CONTINUED)

An analysis and reconciliation of the Company’s business segment information to the respective information in the financial statements is as follows:


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
SEGMENT DATA	2011			2010			2011			2010
	$			$			$			$
Sales
Pulp and Paper		1,246			1,296			3,776			3,858
Distribution		197			233			604			658
Personal Care		17			—			17			—
Wood		—			—			—			150

Total for reportable segments		1,460			1,529			4,397			4,666
Intersegment sales – Pulp and Paper		(43	)		(56	)		(154	)		(178	)
Intersegment sales – Wood		—			—			—			(11	)

Consolidated sales		1,417			1,473			4,243			4,477

Depreciation and amortization and impairment and write-down of property, plant and equipment
Pulp and Paper		91			96			277			287
Distribution		1			1			3			3
Personal Care		1			—			1			—
Wood		—			—			—			10

Total for reportable segments		93			97			281			300
Impairment and write-down of property, plant and equipment – Pulp and Paper		8			14			73			50

Consolidated depreciation and amortization and impairment and write-down of property, plant and equipment		101			111			354			350

Operating income (loss)
Pulp and Paper ^(a)		189			237			489			506
Distribution		(1	)		—			—			—
Personal Care		—			—			—			—
Wood ^(b)		—			—			—			(54	)
Corporate		(1	)		(1	)		4			(4	)

Consolidated operating income		187			236			493			448
Interest expense, net		25			24			67			126

Earnings before income taxes		162			212			426			322
Income tax expense		45			21			122			42

Net earnings		117			191			304			280

^(a)

The U.S. Internal Revenue Code of 1986, as amended (the “Code”) permitted a refundable excise tax credit, until the end of 2009, for the production and use of alternative bio fuel mixtures derived from biomass. The Company submitted an application with the IRS to be registered as an alternative fuel mixer and received notification that its registration had been accepted in March 2009. The Company began producing and consuming alternative fuel mixtures in February 2009 at its eligible mills. Although the credit ended at the end of 2009, in 2010, the Company recorded $25 million of such credits in Other operating income on the Consolidated Statement of Earnings. The $25 million represented an adjustment to amounts presented as deferred revenue at December 31, 2009 and was released to income in the first quarter of 2010, following guidance issued by the IRS in March 2010.

^(b)	On June 30, 2010, the Company sold its Wood business to EACOM Timber Corporation. The sale resulted in a loss on disposal of the Wood business and related pension curtailments and settlements of $50 million in the second quarter of 2010.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The following information is presented as required under Rule 3-10 of Regulation S-X, in connection with the Company’s issuance of debt securities that are fully and unconditionally guaranteed by Domtar Paper Company, LLC, a 100% owned subsidiary of the Company and the successor to the Weyerhaeuser Fine Paper Business U.S. Operations, Domtar Industries Inc. (and subsidiaries, excluding Domtar Funding LLC), Ariva Distribution Inc., Domtar Delaware Investments Inc., Domtar Delaware Holdings LLC, Domtar A.W., LLC (and subsidiary), Domtar AI Inc., and Attends Healthcare Inc., all 100% owned subsidiaries of the Company (“Guarantor Subsidiaries”), on a joint and several basis. The Guaranteed Debt will not be guaranteed by certain of Domtar Paper Company LLC’s own 100% owned subsidiaries; including Domtar Delaware Holdings Inc. and Domtar Inc., (collectively the “Non-Guarantor Subsidiaries”).

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at September 30, 2011 and December 31, 2010 and the Statements of Earnings, and Cash Flows for the nine months ended September 30, 2011 and September 30, 2010 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method. The 2010 comparative figures have been retrospectively adjusted to reflect the fact that Domtar Delaware Investments Inc. and Domtar Delaware Holdings LLC both became Guarantor subsidiaries in June 2011.


	For the three months ended September 30, 2011
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Sales		—			1,196			463			(242	)		1,417
Operating expenses
Cost of sales, excluding depreciation and amortization		—			940			357			(242	)		1,055
Depreciation and amortization		—			68			25			—			93
Selling, general and administrative		5			77			(7	)		—			75
Impairment and write-down of property, plant and equipment		—			8			—			—			8
Closure and restructuring costs		—			1			—			—			1
Other operating income, net		—			(1	)		(1	)		—			(2	)

		5			1,093			374			(242	)		1,230

Operating income (loss)		(5	)		103			89			—			187
Interest expense (income), net		28			4			(7	)		—			25

Earnings (loss) before income taxes		(33	)		99			96			—			162
Income tax expense (benefit)		(10	)		26			29			—			45
Share in earnings of equity accounted investees		140			67			—			(207	)		—

Net earnings		117			140			67			(207	)		117

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)


	For the nine months ended September 30, 2011
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Sales		—			3,550			1,397			(704	)		4,243
Operating expenses
Cost of sales, excluding depreciation and amortization		—			2,752			1,084			(704	)		3,132
Depreciation and amortization		—			204			77			—			281
Selling, general and administrative		22			249			(18	)		—			253
Impairment and write-down of property, plant and equipment		—			73			—			—			73
Closure and restructuring costs		—			11			3			—			14
Other operating loss (income), net		—			(11	)		8			—			(3	)

		22			3,278			1,154			(704	)		3,750

Operating income (loss)		(22	)		272			243			—			493
Interest expense (income), net		75			10			(18	)		—			67

Earnings (loss) before income taxes		(97	)		262			261			—			426
Income tax expense (benefit)		(29	)		72			79			—			122
Share in earnings of equity accounted investees		372			182			—			(554	)		—

Net earnings		304			372			182			(554	)		304


	For the three months ended September 30, 2010
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Sales		—			1,255			462			(244	)		1,473
Operating expenses
Cost of sales, excluding depreciation and amortization		—			957			335			(244	)		1,048
Depreciation and amortization		—			72			25			—			97
Selling, general and administrative		9			100			(18	)		—			91
Impairment and write-down of property, plant and equipment		—			14			—			—			14
Closure and restructuring costs		—			(1	)		2			—			1
Other operating loss (income), net		7			2			(23	)		—			(14	)

		16			1,144			321			(244	)		1,237

Operating income (loss)		(16	)		111			141			—			236
Interest expense (income), net		24			3			(3	)		—			24

Earnings (loss) before income taxes		(40	)		108			144			—			212
Income tax expense (benefit)		(4	)		24			1			—			21
Share in earnings of equity accounted investees		227			143			—			(370	)		—

Net earnings		191			227			143			(370	)		191

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)


CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	For the nine months ended September 30, 2010
	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Sales		—			3,689			1,486			(698	)		4,477
Operating expenses
Cost of sales, excluding depreciation and amortization		—			2,905			1,190			(698	)		3,397
Depreciation and amortization		—			217			83			—			300
Selling, general and administrative		19			203			22			—			244
Impairment and write-down of property, plant and equipment		—			50			—			—			50
Closure and restructuring costs		—			20			6			—			26
Other operating loss (income), net		7			(10	)		15			—			12

		26			3,385			1,316			(698	)		4,029

Operating income (loss)		(26	)		304			170			—			448
Interest expense (income), net		124			9			(7	)		—			126

Earnings (loss) before income taxes		(150	)		295			177			—			322
Income tax expense (benefit)		(30	)		69			3			—			42
Share in earnings of equity accounted investees		400			174			—			(574	)		—

Net earnings		280			400			174			(574	)		280

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)


	September 30, 2011
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$		$			$			$			$
Assets
Current assets
Cash and cash equivalents		142		6			313			—			461
Receivables		—		499			180			—			679
Inventories		—		462			168			—			630
Prepaid expenses		6		7			11			—			24
Income and other taxes receivable		164		—			27			(140	)		51
Intercompany accounts		323		3,141			142			(3,606	)		—
Deferred income taxes		1		94			20			—			115

Total current assets		636		4,209			861			(3,746	)		1,960
Property, plant and equipment, at cost		—		5,594			2,830			—			8,424
Accumulated depreciation		—		(3,231	)		(1,703	)		—			(4,934	)

Net property, plant and equipment		—		2,363			1,127			—			3,490
Goodwill		—		163			—			—			163
Intangible assets, net of amortization		—		163			42			—			205
Investments in affiliates		6,786		1,895			1			(8,682	)		—
Intercompany long-term advances		6		80			431			(517	)		—
Other assets		51		—			304			(153	)		202

Total assets		7,479		8,873			2,766			(13,098	)		6,020

Liabilities and shareholders’ equity
Current liabilities
Bank indebtedness		—		14			3			—			17
Trade and other payables		48		375			330			—			753
Intercompany accounts		3,227		350			29			(3,606	)		—
Income and other taxes payable		—		162			7			(140	)		29
Long-term debt due within one year		—		4			1			—			5

Total current liabilities		3,275		905			370			(3,746	)		804
Long-term debt		789		37			11			—			837
Intercompany long-term loans		432		85			—			(517	)		—
Deferred income taxes and other		—		1,113			92			(153	)		1,052
Other liabilities and deferred credits		37		58			233			—			328
Shareholders’ equity		2,946		6,675			2,060			(8,682	)		2,999

Total liabilities and shareholders’ equity		7,479		8,873			2,766			(13,098	)		6,020

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)


	December 31, 2010
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$		$			$			$			$
Assets
Current assets
Cash and cash equivalents		311		50			169			—			530
Receivables		4		416			181			—			601
Inventories		—		477			171			—			648
Prepaid expenses		5		6			17			—			28
Income and other taxes receivable		47		—			33			(2	)		78
Intercompany accounts		367		2,801			287			(3,455	)		—
Deferred income taxes		1		104			10			—			115

Total current assets		735		3,854			868			(3,457	)		2,000
Property, plant and equipment, at cost		—		5,537			3,718			—			9,255
Accumulated depreciation		—		(2,993	)		(2,495	)		—			(5,488	)

Net property, plant and equipment		—		2,544			1,223			—			3,767
Intangible assets, net of amortization		—		10			46			—			56
Investments in affiliates		6,421		1,713			—			(8,134	)		—
Intercompany long-term advances		6		80			271			(357	)		—
Other assets		27		1			189			(14	)		203

Total assets		7,189		8,202			2,597			(11,962	)		6,026

Liabilities and shareholders’ equity
Current liabilities
Bank indebtedness		—		19			4			—			23
Trade and other payables		33		375			270			—			678
Intercompany accounts		2,825		400			230			(3,455	)		—
Income and other taxes payable		—		14			10			(2	)		22
Long-term debt due within one year		—		2			—			—			2

Total current liabilities		2,858		810			514			(3,457	)		725
Long-term debt		803		10			12			—			825
Intercompany long-term loans		351		6			—			(357	)		—
Deferred income taxes and other		—		920			18			(14	)		924
Other liabilities and deferred credits		39		66			245			—			350
Shareholders’ equity		3,138		6,390			1,808			(8,134	)		3,202

Total liabilities and shareholders’ equity		7,189		8,202			2,597			(11,962	)		6,026

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)


	For the nine months ended September 30, 2011
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		304			372			182			(554	)		304
Changes in operating and intercompany assets and liabilities and non cash items, included in net earnings		(36	)		(232	)		121			554			407

Cash flows provided from operating activities		268			140			303			—			711

Investing activities
Additions to property, plant and equipment		—			(46	)		(18	)		—			(64	)
Proceeds from disposals of property, plant and equipment		—			16			18			—			34
Proceeds from sale of business		—			10			—			—			10
Acquisition of business, net of cash acquired		—			(288	)		—			—			(288	)

Cash flows used for investing activities		—			(308	)		—			—			(308	)

Financing activities
Dividend payments		(36	)		—			—			—			(36	)
Net change in bank indebtedness		—			(6	)		(1	)		—			(7	)
Repayment of long-term debt		(16	)		(1	)		—			—			(17	)
Premium paid on debt repurchases		(7	)		—			—			—			(7	)
Stock repurchase		(415	)		—			—			—			(415	)
Increase in long-term advances to related parties		—			—			(158	)		158			—
Decrease in long-term advances to related parties		27			131			—			(158	)		—
Other		10			—			—			—			10

Cash flows provided from (used for) financing activities		(437	)		124			(159	)		—			(472	)

Net increase (decrease) in cash and cash equivalents		(169	)		(44	)		144			—			(69	)
Cash and cash equivalents at beginning of period		311			50			169			—			530

Cash and cash equivalents at end of period		142			6			313			—			461

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 17. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)


	For the nine months ended September 30, 2010
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		280			400			174			(574	)		280
Changes in operating and intercompany assets and liabilities and non cash items, included in net earnings		785			(319	)		(320	)		574			720

Cash flows provided from (used for) operating activities		1,065			81			(146	)		—			1,000

Investing activities
Additions to property, plant and equipment		—			(101	)		(11	)		—			(112	)
Proceeds from disposals of property, plant and equipment		—			6			20			—			26
Proceeds from sale of businesses		—			44			117			—			161

Cash flows provided from (used for) investing activities		—			(51	)		126			—			75

Financing activities
Dividend payments		(11	)		—			—			—			(11	)
Net change in bank indebtedness		—			(4	)		(12	)		—			(16	)
Repayment of long-term debt		(761	)		(2	)		—			—			(763	)
Borrowings under accounts receivable securitization program		—			—			20			—			20
Premium paid on debt repurchases		(26	)		—			—			—			(26	)
Stock repurchase		(44	)		—			—			—			(44	)
Prepaid on structured stock repurchase, net		(19	)		—			—			—			(19	)
Increase in long-term advances to related parties		(5	)		(56	)		—			61			—
Decrease in long-term advances to related parties		—			—			61			(61	)		—
Other		(3	)		—			—			—			(3	)

Cash flows provided from (used for) financing activities		(869	)		(62	)		69			—			(862	)

Net increase (decrease) in cash and cash equivalents		196			(32	)		49			—			213
Cash and cash equivalents at beginning of period		237			83			4			—			324

Cash and cash equivalents at end of period		433			51			53			—			537

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report. You should also read the MD&A in conjunction with the historical financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2011. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refer to Domtar Corporation and its subsidiaries, as well as its investments. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States (“GAAP”).

In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton and the term “MFBM” refers to million foot board measure. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings, and shipment volume are based on the three-month and nine-month periods ended September 30, 2011 as compared to the three-month period ended June 30, 2011 and the three-month and nine-month periods ended September 30, 2010. The three-month and nine-month periods ended September 30, 2011 and 2010 are also referred to as the third quarter of 2011 and 2010 and the first nine months of 2011 and 2010, respectively, and the three-month period ended June 30, 2011 as the second quarter of 2011.

EXECUTIVE SUMMARY

In the third quarter of 2011, we reported operating income of $187 million, an increase of $92 million compared to operating income of $95 million in the second quarter of 2011. This increase was mainly attributable to a reduction in impairment and write-down of property, plant and equipment of $54 million ($8 million in the third quarter of 2011 compared to $62 million in the second quarter of 2011). The results for our third quarter of 2011 were also impacted by lower costs relating to our variable compensation program ($15 million) and gains on disposal of assets versus a charge in the second quarter ($10 million).

Our paper shipments are expected to decline in the fourth quarter of 2011 when compared to the third quarter of 2011 due to seasonal factors, while the cyclical downturn in global pulp markets is expected to lead to further declines in average selling prices for market pulp. Our fourth quarter results will benefit from the inclusion of the financial results of Attends Healthcare, Inc. (“Attends”) for a full quarter. See “Recent Development” below.

Restructuring activities

We regularly review our overall production capacity with the objective of aligning our production capacity with anticipated long-term demand.

On March 29, 2011, we announced that no later than July 1, 2011, we would permanently shut down one paper machine at our Ashdown, Arkansas pulp and paper mill. We subsequently postponed the shut down of the paper machine until August 1, 2011. The closure resulted in an aggregate pre-tax charge to earnings of approximately $76 million, which includes $74 million in non-cash charges relating to the accelerated depreciation of the carrying amounts of manufacturing equipment and the write-off of related spare parts and $2 million related to other costs. Of the estimated total pre-tax charge of approximately $76 million, $7 million was recognized in the first quarter of 2011, $62 million in the second quarter of 2011 and $7 million in the third quarter of 2011. This closure reduced Domtar’s annual uncoated freesheet paper production capacity by approximately 125,000 short tons and the mill’s workforce by approximately 110 employees.

On February 1, 2011, we announced the closure of our Langhorne, Pennsylvania forms converting center. The closure resulted in a charge to earnings of $4 million for severance and termination costs. The closure affected 48 employees.

RECENT DEVELOPMENT

On September 1, 2011, we announced the completion of the acquisition of Attends Healthcare, Inc. from KPS Capital Partners, L.P., pursuant to a definitive agreement entered into on August 12, 2011. We acquired all of the outstanding shares of capital stock of Attends for $288 million in cash, including working capital, net of acquired cash of $12 million, subject to post-closing adjustments. Attends produces a complete line of incontinence care products and distributes washcloths marketed primarily under the Attends ^® brand name. The company has a wide product offering encompassing over 170 items and it serves a diversified customer base in multiple channels throughout the United States and Canada. Attends has approximately 330 employees and the facility is located in Greenville, North Carolina. The acquired business is presented under a new reporting segment, “Personal Care.”

OUR BUSINESS

Information relating to our Business is contained in our Annual Report on Form 10-K for the year ended December 31, 2010. There has not been any material change in our business since December 31, 2010, except for the completion of the acquisition of Attends on September 1, 2011. The acquired business is presented under a new reporting segment, “Personal Care.”

General

We are the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity. We are also a manufacturer of papergrade, fluff and specialty pulp. We design, manufacture, market and distribute a wide range of paper products for a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We also produce a complete line of incontinence care products and distribute washcloths, marketed primarily under the Attends ^® brand name. We own and operate Ariva Distribution Inc. (previously Ris Paper Company, Inc.), an extensive network of strategically located paper distribution facilities. We also produced lumber and other specialty and industrial wood products until the sale of our Wood business on June 30, 2010.

Our business segments

As of September 1, 2011, following the completion of the acquisition of Attends, we operate in the three reportable segments described below. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments:

•

Pulp and Paper (previously named “Papers”) – represents the aggregation of the manufacturing and distribution of business, commercial printing and publishing, and converting and specialty papers, as well as market softwood, fluff and hardwood pulp.

•

Distribution (previously named “Paper Merchants”) – involves the purchasing, warehousing, sale and distribution of our paper products and those of other paper manufacturers. These products include business and printing papers and certain industrial products.

•

Personal Care – represents the aggregation of the manufacturing and distribution of a complete line of adult incontinence products. These products include briefs, protective underwear, underpads, pads and washcloths.

On June 30, 2010, we exited our Wood business, which comprised the manufacturing and marketing of lumber and other specialty and industrial wood products and the management of forest resources.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

The following table includes the consolidated financial results of Domtar Corporation for the third quarter of 2011 and 2010 and first nine months of 2011 and 2010.


	Three months ended						Nine month ended
FINANCIAL HIGHLIGHTS	September 30, 2011			September 30, 2010			September 30, 2011		September 30, 2010
(In millions of dollars, unless otherwise noted)
Sales	$	1,417		$	1,473		$	4,243	$	4,477

Operating income		187			236			493		448

Net earnings		117			191			304		280

Net earnings per common share (in dollars) ¹ :
Basic		2.96			4.47			7.43		6.53
Diluted		2.95			4.44			7.38		6.48

Operating income (loss) per segment:
Pulp and Paper	$	189		$	237		$	489	$	506
Distribution		(1	)		—			—		—
Personal Care		—			—			—		—
Wood		—			—			—		(54	)
Corporate		(1	)		(1	)		4		(4	)

Total	$	187		$	236		$	493	$	448

$0,000

At
September 30,
2011

At
December 31,
2010

Total assets

6,020

6,026

Total long-term debt, including current portion

842

827

¹	Refer to Note 5 of the consolidated financial statements included in Item 1, for more information on the calculation of net earnings per common share.

THIRD QUARTER 2011 VERSUS

THIRD QUARTER 2010

Sales

Sales for the third quarter of 2011 amounted to $1,417 million, a decrease of $56 million, or 4%, from sales of $1,473 million in the third quarter of 2010. This decrease in sales was mainly attributable to lower shipments for pulp ($43 million) mainly due to the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010. Deliveries of the Distribution segment decreased by $44 million. These factors were partially offset by the increase in sales due to the acquisition of Attends of $17 million, since the date of acquisition.

Cost of Sales, excluding Depreciation and Amortization

Cost of sales, excluding depreciation and amortization, amounted to $1,055 million in the third quarter of 2011, an increase of $7 million, or 1%, compared to cost of sales, excluding depreciation and amortization, of $1,048 million in the third quarter of 2010. This increase is due to higher costs for chemicals ($15 million) and freight ($11 million), the acquisition of Attends ($15 million) and the negative impact of a stronger Canadian dollar on our Canadian denominated expenses, net of our hedging program ($12 million). These factors were partially offset by lower shipments of pulp ($18 million) mainly due to the sale of our hardwood market pulp in Woodland, Maine in the third quarter of 2010, as well as lower costs for energy ($8 million), maintenance ($8 million) and fiber ($3 million).

Depreciation and Amortization

Depreciation and amortization amounted to $93 million in the third quarter of 2011, a decrease of $4 million, or 4%, compared to depreciation and amortization of $97 million in the third quarter of 2010. This decrease was mainly due to the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010 as well as the closure of a paper machine at our Ashdown, Arkansas pulp and paper mill in the third quarter of 2011.

Selling, General and Administrative Expenses (“SG&A”)

SG&A expenses amounted to $75 million in the third quarter of 2011, a decrease of $16 million, or 18%, compared to SG&A expenses of $91 million in the third quarter of 2010. The decrease in SG&A is primarily due to lower costs related to our variable compensation program of $20 million in the third quarter of 2011 when compared to 2010. This decrease was partially offset by a general increase in corporate expenditures.

Other Operating Income

Other operating income amounted to $2 million in the third quarter of 2011, a decrease of $12 million compared to other operating income of $14 million in the third quarter of 2010. This decrease is primarily due to gain on sale of the Woodland, Maine pulp mill of $10 million, other gains on sale of assets of $4 million recorded in the third quarter of 2010 which were not recurrent and the gain on sale of assets at the Langhorne and Columbus facilities, offset by an increase in the environmental provision of $3 million in the third quarter of 2011 on non-operating properties.

Operating Income

Operating income in the third quarter of 2011 amounted to $187 million, a decrease of $49 million compared to operating income of $236 million in the third quarter of 2010. This decrease is primarily due to the factors mentioned above, partially offset by lower impairment and write-down of property, plant and equipment ($6 million), refer to Item 1, Financial Statements and Supplementary Data, Note 11, of this Quarterly Report on Form 10 Q.

Interest Expense

We incurred $25 million of interest expense in the third quarter of 2011, an increase of $1 million compared to interest expense of $24 million in the third quarter of 2010. The increase in interest expense is primarily related to the premium paid for market repurchases of a portion of our outstanding 10.75% Notes in the third quarter of 2011 offset by lower interest resulting from the repayment of our term loan in the third quarter of 2010 as well as the repayment of all of our outstanding 7.875% Notes in the fourth quarter of 2010.

Income Taxes

For the third quarter of 2011, our income tax expense amounted to $45 million, which is comprised of $19 million of current tax expense and $26 million of deferred tax expense, compared to a tax expense of $21 million in the third quarter of 2010, which was comprised of current tax expense of $17 million and a deferred tax expense of $4 million. We made income tax payments of $17 million during the third quarter of 2011. In the third quarter of 2011 our effective tax rate was 28% compared to an effective tax rate of 10% in the third quarter of 2010. The effective tax rate for the third quarter of 2011 is affected by the mix of earnings between jurisdictions and the recognition of specific tax benefits pertaining to prior tax years that were previously unrecognized for which the statute of limitations has expired in the quarter, partially offset by accrued interest on uncertain tax positions. The effective tax rate for the third quarter of 2010 was affected by a change in the forecasted earnings by jurisdiction as well as the utilization of Canadian tax attributes that had a valuation allowance recorded against prior in 2010.

Net Earnings

Net earnings amounted to $117 million ($2.95 per common share on a diluted basis) in the third quarter of 2011, a decrease of $74 million compared to $191 million ($4.44 per common share on a diluted basis) in the third quarter of 2010 due to the factors mentioned above.

FIRST NINE MONTHS 2011 VERSUS

FIRST NINE MONTHS 2010

Sales

Sales for the first nine months of 2011 amounted to $4,243 million, a decrease of $234 million, or 5%, from sales of $4,477 million in the first nine months of 2010. This decrease in sales was mainly attributable to the sale of our Wood business in the second quarter of 2010 ($139 million) as well as lower shipments for paper and pulp ($170 million) and our Distribution segment ($83 million) due to the closure of our coated groundwood paper mill in Columbus, Mississippi in the second quarter of 2010, the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010 and the sale of a business unit at the end of the first quarter of 2011. These factors were partially offset by higher average selling prices for paper and pulp ($112 million) and the increase in sales due to the acquisition of Attends of $17 million, since the date of acquisition.

Cost of Sales, excluding Depreciation and Amortization

Cost of sales, excluding depreciation and amortization, amounted to $3,132 million in the first nine months of 2011, a decrease of $265 million, or 8%, compared to cost of sales, excluding depreciation and amortization, of $3,397 million in the first nine months of 2010. This decrease was mainly attributable to the sale of our Wood business in the second quarter of 2010 ($129 million), as well as to lower shipments for paper and pulp ($96 million), primarily due to the closure of our coated groundwood paper mill in Columbus, Mississippi in the second quarter of 2010 and the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010. This decrease was also attributable to lower shipments in our Distribution segment ($78 million), lower costs for maintenance ($36 million), fiber ($26 million) and energy ($29 million). These factors were partially offset by higher costs for chemicals ($46 million), freight ($27 million), the negative impact of a stronger Canadian dollar on our Canadian denominated expenses, net of our hedging program ($42 million) and the increase in cost of sales due to the acquisition of Attends of $15 million, since the date of acquisition.

Depreciation and Amortization

Depreciation and amortization amounted to $281 million in the first nine months of 2011, a decrease of $19 million, or 6%, compared to depreciation and amortization of $300 million in the first nine months of 2010. This decrease was mainly due to the sale of our Wood business in the second quarter of 2010, the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010 as well as the closure of a paper machine at our Ashdown, Arkansas pulp and paper mill in the third quarter of 2011.

Selling, General and Administrative Expenses (“SG&A”)

SG&A expenses amounted to $253 million in the first nine months of 2011, an increase of $9 million, or 4%, compared to SG&A expenses of $244 million in the first nine months of 2010. The increase in SG&A is primarily due a post-retirement curtailment gain of $10 million related to the harmonization of certain of our post-retirement benefit plans in the first nine months of 2010 and an overall increase in corporate expenditures offset by lower costs related to our variable compensation program of $6 million in the first nine months of 2011 when compared to 2010.

Other Operating Income (Loss)

Other operating income amounted to $3 million in the first nine months of 2011, an increase of $15 million compared to other operating loss of $12 million in the first nine months of 2010. This increase is primarily due to the loss on sale of our Wood business of $50 million recorded in the second quarter of 2010 partially offset by a refundable excise tax credit for the production and use of alternative bio fuel mixtures of $25 million recorded in the first quarter of 2010, and the gain on sale of the Woodland, Maine mill of $10 million in the third quarter of 2010.

Operating Income

Operating income in the first nine months of 2011 amounted to $493 million, an increase of $45 million compared to operating income of $448 million in the first nine months of 2010. This increase is primarily due to the factors mentioned above as well as due to lower closure and restructuring costs ($12 million), partially offset by higher impairment and write-down of property, plant and equipment ($23 million). For more detail on impairment and write-down of property, plant and equipment, refer to Item I, Financial Statements and Supplementary Data, Note 11, of this Quarterly Report on Form 10-Q.

Interest Expense

We incurred $67 million of interest expense in the first nine months of 2011, a decrease of $59 million compared to interest expense of $126 million in the first nine months of 2010. The decrease in interest expense is primarily related to a charge of $40 million incurred on the repurchase of our outstanding 5.375% and 7.125% Notes in the second quarter of 2010, which included tender premiums of $26 million and a loss on the reversal of a fair value decrement of $14 million, compared to the premium of $4 million paid in the third quarter of 2011 on the partial repurchase of our outstanding 10.75% Notes, as well as a lower long-term average debt balance outstanding in the first nine months of 2011 compared to the first nine months of 2010.

Income Taxes

For the first nine months of 2011, our income tax expense amounted to $122 million, which is comprised of current tax expense of $66 million and deferred tax expense of $56 million, compared to an income tax expense of $42 million in the first nine months of 2010, comprised of current tax expense of $35 million and deferred tax expense of $7 million. We made income tax payments of $42 million during the first nine months of 2011. In the first nine months of 2011, our effective tax rate is 29% compared to 13% in the first nine months of 2010. The effective tax rate for the first nine months of 2011 is impacted by the mix of earnings between jurisdictions. The effective tax rate for the first nine months of 2010 was affected by a change in the forecasted earnings by jurisdiction as well as the utilization of Canadian tax attributes that had a valuation allowance recorded against prior to 2010.

Net Earnings

Net earnings amounted to $304 million ($7.38 per common share on a diluted basis) in the first nine months of 2011, an increase of $24 million compared to $280 million ($6.48 per common share on a diluted basis) in the first nine months of 2010 due to the factors mentioned above.

PULP AND PAPER


	Three months ended						Nine months ended
SELECTED INFORMATION	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
(In millions of dollars, unless otherwise noted)
Sales
Total sales	$	1,246		$	1,296		$	3,776		$	3,858
Intersegment sales		(43	)		(56	)		(154	)		(178	)

	$	1,203		$	1,240		$	3,622		$	3,680
Operating income	$	189		$	237		$	489		$	506
Shipments
Paper (in thousands of ST)		889			896			2,703			2,747
Pulp (in thousands of ADMT)		358			412			1,094			1,286

Sales and Operating Income

Sales

Sales in our Pulp and Paper segment amounted to $1,203 million in the third quarter of 2011, a decrease of $37 million, or 3%, compared to sales of $1,240 million in the third quarter of 2010. The decrease in sales is attributable to lower shipment for pulp and paper of approximately 5% primarily due to the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010. These factors were partially offset by higher average selling prices for paper.

For the first nine months of 2011, sales in our Pulp and Paper segment decreased by $58 million, or 2%, compared to the first nine months of 2010. The decrease in sales is mainly due to the factors mentioned above as well as the impact of the closure of our coated groundwood paper mill in Columbus, Mississippi in the second quarter of 2010. These factors were partially offset by higher average selling prices for paper and pulp.

Operating Income

Operating income in our Pulp and Paper segment amounted to $189 million in the third quarter of 2011, a decrease of $48 million, when compared to $237 million in the third quarter of 2010. The decrease is mostly attributable to lower shipments for pulp and paper, primarily due to the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010, higher costs for chemicals and freight, as well as the unfavorable impact of a stronger Canadian dollar. These factors were partially offset by higher average selling prices for paper, lower maintenance costs as well as lower costs for fiber and energy.

For the first nine months of 2011, operating income in our Pulp and Paper segment decreased by $17 million, or 3%, compared to the first nine months of 2010. The decrease is mostly attributable to lower shipments for pulp and paper, mainly due to the factors mentioned above, higher costs for chemicals and freight, the unfavorable impact of a stronger Canadian dollar as well as the alternative fuel mixture credits recorded in the first quarter of 2010. These factors were partially offset by higher average selling prices for paper and pulp and lower costs for fiber, energy and maintenance.

Pricing Environment

Our average paper sales prices were higher by $2/ton in the third quarter of 2011 compared to the third quarter of 2010. For the first nine months of 2011, our average paper sales prices were higher by $23/ton, or 2% in the first nine months of 2011 compared to the first nine months of 2010.

Our average pulp sales prices increased by $5/metric ton, or 1%, in the third quarter of 2011 compared to the third quarter of 2010. For the first nine months of 2011, our average pulp sales prices were higher by $48/metric ton, or 6%, in the first nine months of 2011 compared to the first nine months of 2010.

Operations

Shipments

Our paper shipments decreased by 7,000 tons, or 1%, in the third quarter of 2011 compared to the third quarter of 2010. For the first nine months of 2011, our paper shipments decreased by 44,000 tons when compared to the first nine months of 2010. The decrease in the first nine months of 2011 when compared to the first nine months of 2010 is almost entirely due to the closure of our coated groundwood paper mill in Columbus, Mississippi in the second quarter of 2010.

Our pulp trade shipments decreased by 54,000 metric tons, or 13%, in the third quarter of 2011 compared to the third quarter of 2010, primarily due to the sale of our hardwood market pulp mill in Woodland, Maine in the third quarter of 2010. Excluding shipments from our Woodland, Maine mill, our pulp trade shipments increased by 33,000 metric tons, or 10%, which resulted from an increase in market demand. For the first nine months of 2011, our pulp trade shipments decreased by 192,000 metric tons, or 15%, when compared to the first nine months of 2010. Excluding shipments from our Woodland, Maine mill, our pulp trade shipments increased by 103,000 metric tons, or 10%, when compared to the first nine months of 2010, which were impacted by the factors mentioned above.

Labor

We have an umbrella agreement with the United Steelworkers Union (“USW”), expiring in 2012, affecting approximately 4,000 employees at our U.S. locations. This agreement only covers certain economic elements, and all other issues are negotiated at each operating location, as the related collective bargaining agreements become subject to renewal. The parties have agreed not to strike or lock-out during the terms of the respective local agreements. Should the parties fail to reach an agreement during the local negotiations, the related collective bargaining agreements are automatically renewed for another four years. The USW and Domtar are currently negotiating a new umbrella agreement to create a new term beyond 2012.

In Canada, the agreement that expired in 2010 at our Windsor facility in Quebec, Canada, is currently under negotiation with the Confederation of National Trade Unions (“CNTU”). At the Espanola Mill facility, agreements have been reached with the Communication, Energy and Paperworkers Union of Canada (“CEP”) locals 74 and 156. Negotiations with the International Brotherhood of Electrical Workers (“IBEW”) at Espanola are scheduled to begin October 31, 2011. Agreements that expired in 2009 at our Dryden facilities in Canada are scheduled for negotiation with the CEP starting November 20, 2011. These Canadian collective agreements are unrelated to the umbrella agreement with the USW covering our U.S. locations.

We are currently reviewing our strategy and participation in our current multiemployer pension plans, and are assessing the possibility of withdrawing completely from some plans. These withdrawals would normally result in a withdrawal liability and a charge to earnings to be recorded by us, when determined to be probable. The measurement of these liabilities is based on the plan administrator’s allocation methodologies and assumptions.

Closure and Restructuring

On March 29, 2011, we announced that no later than July 1, 2011, we would permanently shut down one paper machine at our Ashdown, Arkansas pulp and paper mill. We subsequently postponed the shut down of the paper machine until August 1, 2011. The closure resulted in an aggregate pre-tax charge to earnings of approximately $76 million, which includes $74 million in non-cash charges relating to the accelerated depreciation of the carrying amounts of manufacturing equipment and the write-off of related spare parts and $2 million related to other costs. Of the estimated total pre-tax charge of approximately $76 million, $7 million was recognized in the first quarter of 2011, $62 million in the second quarter of 2011 and $7 million in the third quarter of 2011. This closure reduced our annual uncoated freesheet paper production capacity by approximately 125,000 short tons and the mill’s workforce by approximately 110 employees.

In the third quarter of 2011, we incurred $9 million of closure and restructuring costs compared to $15 million in the third quarter of 2010, including the impairment and write-down of property, plant and equipment of $8 million, compared to $14 million in the third quarter of 2010. For the first nine months of 2011, we incurred $87 million of closure and restructuring costs, including the impairment and write-down of property, plant and equipment of $73 million, compared to $76 million in the first nine months of 2010, including the impairment and write-down of property, plant and equipment of $50 million. For more details on the closure and restructuring costs, refer to Item 1, Financial Statements and Supplementary Data, Note 11, of this Quarterly Report on Form 10-Q.

Closure and restructuring costs are based on management’s best estimates. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further write-downs may be required in future periods.

Other

Sale of Prince Albert, Saskatchewan facility

On May 4, 2011, we sold our Prince Albert, Saskatchewan facility to Paper Excellence Canada Holdings Corporation (“Paper Excellence”). The assets sold to Paper Excellence had no carrying value and the sale resulted in a loss on disposal of the assets and related pension and other post-retirement benefit plan curtailments and settlements, net of a reversal of environmental liability provision, of $12 million recorded in the second quarter of 2011. The Prince Albert, Saskatchewan facility was permanently closed in the second quarter of 2006 and has not been operated since. Domtar acquired the assets in 2007 as part of a transaction with Weyerhaeuser Company. Domtar completed the dismantling of the mill’s paper machine and converting equipment in 2008.

Natural Resources Canada Pulp and Paper Green Transformation Program

On June 17, 2009, the Government of Canada announced that it was developing a Pulp and Paper Green Transformation Program (“the Green Transformation Program”) to help pulp and paper companies make investments to improve the environmental performance of their Canadian facilities. The Green Transformation Program is capped at CDN$1 billion. The funding of capital investments at eligible mills must be completed no later than March 31, 2012 and all projects are subject to the approval of the Government of Canada.

Eligible projects must demonstrate an environmental benefit by either improving energy efficiency or increasing renewable energy production. Although amounts will not be received until qualifying capital expenditures have been made, we have been allocated $138 million (CDN$143 million) through this Green Transformation Program, of which $138 million (CDN$143 million) has been approved to date. The funds are to be spent on capital projects to improve energy efficiency and environmental performance in our Canadian pulp and paper mills and any amounts received will be accounted for as an offset to the applicable plant and equipment asset amount. As of September 30, 2011, we have received $117 million (CDN$122 million) mostly related to eligible projects at our Kamloops, Dryden and Windsor pulp and paper mills.

Cellulosic Biofuel Credit

In July 2010, the US Internal Revenue Service (“IRS”) Office of Chief Counsel released an Advice Memorandum concluding that qualifying cellulose biofuel sold or used before January 1, 2010, qualifies for the cellulosic biofuel producer credit (“CBPC”) and will not be required to be registered by the Environmental Protection Agency. Each gallon of qualifying cellulose biofuel produced by any taxpayer operating a pulp and paper mill and used as a fuel in the taxpayer’s trade or business during calendar year 2009 qualified for the $1.01 non-refundable CBPC. A taxpayer was able to claim the credit on its federal income tax return for the 2009 tax year upon the receipt of a letter of registration from the IRS and any unused CBPC may be carried forward until 2015 to offset a portion of federal taxes otherwise payable.

In July 2010, we submitted an application with the IRS to be registered for the CBPC and on September 28, 2010, we received our notification from the IRS that we were successfully registered. On October 15, 2010 the IRS Office of Chief Counsel released an Advice Memorandum concluding that the Alternative Fuel Mixture Credit (“AFMC”) and CBPC could be claimed in the same year for different volumes of black liquor. In November 2010, we filed an amended 2009 tax return with the IRS claiming a cellulosic biofuel producer credit of $209 million. As of December 31, 2010, approximately $170 million of this credit remained to offset future U.S. federal income tax liability. We expect to utilize a significant portion of this credit during 2011 to offset 75% of otherwise required federal income tax installments.

Alternative Fuel Mixture Credit (“AFMC”)

The U.S. Internal Revenue Code of 1986, as amended (the “Code”) permitted a refundable excise tax credit, until the end of 2009, for the production and use of alternative bio fuel mixtures derived from biomass. We submitted an application with the IRS to be registered as an alternative fuel mixer and received notification that our registration had been accepted in late March 2009. We began producing and consuming alternative fuel mixtures in February 2009 at our eligible mills. The amounts for the refundable credits are based on the volume of alternative bio fuel mixtures produced and burned during that period. We received a refund of $508 million, net of federal income tax offsets. There has been no change in the Company’s status with respect to the AFMC previously claimed but we continue to assess the possibility of converting these credits into additional cellulosic biofuel producer credits. Any such conversion would require the repayment of any AFMC refund previously received, along with interest, in exchange for a credit to be used against future federal income tax.

DISTRIBUTION


	Three months ended					Nine months ended
SELECTED INFORMATION	September 30, 2011			September 30, 2010		September 30, 2011		September 30, 2010
(In millions of dollars)
Sales	$	197		$	233	$	604	$	658
Operating loss		(1	)		—		—		—

Sales and Operating Loss

Sales

Sales in our Distribution segment amounted to $197 million in the third quarter of 2011, a decrease of $36 million, or 15%, compared to sales of $233 million in the third quarter of 2010. This decrease in sales was mostly attributable to a decrease in deliveries of approximately 19%, resulting from the sale of a business unit at the end of the first quarter of 2011 and from difficult market conditions in the paper merchants channel.

For the first nine months of 2011, sales in our Distribution segment decreased by $54 million, or 8%, when compared to the first nine months of 2010, primarily due to the factors mentioned above. Our deliveries in the first nine months of 2011 are lower by approximately 13% when compared to the first nine months of 2010.

Operating Loss

Operating loss amounted to $1 million in the third quarter of 2011, an increase of $1 million when compared to operating loss of nil in the third quarter of 2010. The increase in operating loss is attributable to the decrease in sales mentioned above, the discontinuation of a business unit in the third quarter of 2011, as well as restructuring cost.

For the first nine months of 2011, operating income in our Distribution segment remained stable when compared to the first nine months of 2010.

Operations

Labor

We have collective agreements covering six locations in the U.S., of which one will expire in 2011, one will expire in 2012 and four will expire in 2013. We have four collective agreements covering four locations in Canada, of which one expired in 2008, one expired in 2009 and two will expire in 2013.

PERSONAL CARE


	Three months ended				Nine months ended
SELECTED INFORMATION	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
*(In millions of dollars)*
Sales	$	17		—	$	17		—
Operating income (loss)		—		—		—		—

Our Operations

Our Personal Care business manufactures and supplies a complete line of high quality and innovative adult incontinence (“AI”) products and distributes disposable washcloths marketed primarily under the Attends ^® brand name. We are one of the leading suppliers of AI products sold into North American hospitals (acute care) and nursing homes (long-term care) and we have a strong and growing presence in the domestic homecare and retail channels. We operate nine different production lines to manufacture our products, with all nine lines having the ability to produce multiples items within each category.

Our Raw Materials

Raw materials represent approximately 68% of our total cost of goods sold relating to our Personal Care segment. The primary raw materials used in our manufacturing process are non-woven back sheet, pulp, super absorbent polymers, polypropylene film, elastics, adhesives and packaging materials.

Our Product Offering and Go-to-Market Strategy

Our products, which include branded and private label briefs, protective underwear, underpads, pads and washcloths, are manufactured in a variety of sizes, as well as with differing performance levels and product attributes.

We serve four channels: acute care, long-term care, homecare, and retail. Through the utilization of our flexible, cost-efficient production platform, manufacturing expertise and efficient supply chain management we are able to provide a complete and high quality line of branded and unbranded products provided reliably to customers across all channels.

Sales and Operating Income

Sales

Sales in our Personal Care segment amounted to $17 million in the third quarter of 2011, representing only one month of operations, following the completion of the acquisition on September 1, 2011. For more details on the acquisition, refer to Item 1, Financial Statement and Supplementary Data, Note 3, of this Quarterly Report on Form 10-Q.

Operating Income

Operating income amounted to nil in the third quarter of 2011, representing only one month of operations, from the completion of the acquisition on September 1, 2011 and the negative impact of purchase accounting fair value adjustments of $1 million. For more

details on the acquisition, refer to Item 1, Financial Statement and Supplementary Data, Note 3, of this Quarterly Report on Form 10-Q.

Operations

Labor

We employ approximately 330 non-unionized employees, almost entirely in the United States.

WOOD


	Three months ended				Nine months ended
SELECTED INFORMATION	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
*(In millions of dollars, unless otherwise noted)*
Sales
Total sales	$	—	$	—	$	—	$	150
Intersegment sales		—		—		—		(11	)

	$	—	$	—	$	—	$	139
Operating loss	$	—	$	—	$	—	($	54	)
Shipments (millions of FBM)		—		—		—		351
Benchmark prices ¹ :
Lumber G.L. 2x4x8 stud ($/MFBM)	$	—	$	—	$	—	$	348
Lumber G.L. 2x4 R/L no. 1 & no. 2 ($/MFBM)		—		—		—		350

1	Source: Random Lengths. As such, these prices do not necessarily reflect our sales prices.

Sale of Wood business

On June 30, 2010, we sold our Wood business to EACOM Timber Corporation and exited the manufacturing and marketing of lumber and wood-based value-added products.

Operating loss

Operating loss in our Wood segment amounted to $54 million for the first nine months of 2010. Our operating loss was primarily impacted by a $50 million loss on the sale of our Wood business in the second quarter of 2010.

STOCK-BASED COMPENSATION EXPENSE

For the third quarter of 2011 and the first nine months of 2011, compensation expense recognized in our results of operations was an income of $9 million as a result of the mark to market impact related to the liability awards, and an expense of $9 million, respectively, compared to an expense of $11 million and $15 million in the third quarter and the first nine months of 2010, respectively. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed revolving credit facility of which $543 million (net of outstanding letters of credit), is currently undrawn and available. Under extreme market conditions, there can be no assurance that this agreement would be available or sufficient. See “Capital Resources” below.

Our ability to make payments on and to refinance our indebtedness, including debt we have incurred under the credit facility and outstanding Domtar Corporation notes, and for ongoing operating costs including pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt, will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit facility and debt indentures, as well as terms of any future indebtedness, impose, or may impose, various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

Operating Activities

Cash flows provided from operating activities totaled $711 million in the first nine months of 2011, a $289 million decrease compared to cash flows provided from operating activities of $1 billion in the first nine months of 2010. This decrease in cash flows provided from operating activities is primarily related to the $368 million cash received in the second quarter of 2010 with regards to the alternative fuel mixture credits. This factor was partially offset by an increase in profitability in the first nine months of 2011 when compared to the first nine months of 2010 as well as a decrease in requirements for working capital in the first nine months of 2011, when excluding the cash received in the second quarter of 2010 with regard to the alternative fuel mixture credits, when compared to the first nine months of 2010.

Our operating cash flow requirements are primarily for salaries and benefits, the purchase of fiber, energy and raw materials and other expenses such as property taxes.

Investing Activities

Cash flows used for investing activities in the first nine months of 2011 amounted to $308 million, a decrease of $383 million compared to cash flows provided from investing activities of $75 million in the first nine months of 2010. This decrease in cash flows provided from investing activities is primarily related to the acquisition of Attends Healthcare, Inc. for $288 million. In addition, there were lower proceeds from the sale of business and investments of $151 million due to the prior year sale of our Wood business and the sale of our Woodland, Maine pulp mill. This was partially offset by lower capital spending of $48 million in the first nine months of 2011 when compared to 2010, as well as higher proceeds from sale of certain property, plant and equipment of $8 million.

We intend to limit our annual capital expenditures to below 50% of annual depreciation expense in 2011, excluding the spending under the Natural Resources Canada Pulp and Paper Green Transformation Program, for which we will be reimbursed. We spent, and were reimbursed, $20 million and $71 million under this program in the third quarter and first nine months of 2011, respectively.

Financing Activities

Cash flows used for financing activities totaled $472 million in the first nine months of 2011 compared to $862 million in the first nine months of 2010. This $390 million decrease in cash flows used for financing activities is mainly attributable to the repurchase of our 10.75% notes for $15 million in the third quarter of 2011 versus the repayment in full of our tranche B term loan for $336 million in the first nine months of 2010, and the repurchase of $425 million of our 5.375% and 7.125% Notes in the second quarter of 2010. These factors were partially offset by higher common stock repurchases (cash portion) of $415 million in the first nine months of 2011 when compared to $44 million in the first nine months of 2010 as well as dividend payments of $36 million in the first nine months of 2011 compared to $11 million in the first nine months of 2010.

Capital Resources

Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was $398 million at September 30, 2011, compared to $320 million at December 31, 2010. The $78 million increase in net indebtedness is due to a lower cash level as a result of cash from operating activities net of cash used for investing and financing activities being negative partially due to the purchase of Attends in September 2011 and the common stock repurchase program.

On June 23, 2011, we entered into a new unsecured Credit Agreement (the “Credit Agreement”), among us and certain of our subsidiaries as borrowers (collectively, the “Borrowers”) and the lenders and agents party thereto. The Credit Agreement replaced our existing secured revolving credit facility of $750 million that was scheduled to mature March 12, 2012. We intend to use the new revolving Credit Agreement for general corporate purposes, including working capital, capital expenditures and acquisitions.

The Credit Agreement provides for a revolving credit facility (including a letter of credit subfacility and a swingline subfacility) that matures on June 23, 2015. The initial maximum aggregate amount of availability under the revolving Credit Agreement is $600 million. Borrowings may be made by us, by our U.S. subsidiary Domtar Paper Company, LLC, and, subject to a limit of $150 million, by our Canadian subsidiary Domtar Inc. We may increase the maximum aggregate amount of availability under the revolving Credit Agreement by up to $400 million, and the Borrowers may extend the final maturity of the Credit Agreement by one year, if, in each case, certain conditions are satisfied, including (i) the absence of any event of default or default under the Credit Agreement, and (ii) the consent of the lenders participating in each such increase or extension, as applicable.

No amounts were borrowed at September 30, 2011 (December 31, 2010 – nil). At September 30, 2011, we had outstanding letters of credit amounting to $57 million under this credit facility (December 31, 2010 – $50 million).

Borrowings under the Credit Agreement will bear interest at a rate dependent on our credit ratings at the time of such borrowing and will be calculated at the Borrowers’ option according to a base rate, prime rate, Eurocurrency rate or the Canadian bankers’ acceptance rate plus an applicable margin, as the case may be. In addition, we must pay facility fees quarterly at rates dependent on our credit ratings.

The Credit Agreement contains customary covenants for transactions of this type, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3.0 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not greater than 3.75 to 1. At September 30, 2011, we were in compliance with our covenants.

All borrowings under the Credit Agreement are unsecured. However, certain domestic subsidiaries of the Company will unconditionally guarantee any obligations from time to time arising under the Credit Agreement, and certain Canadian subsidiaries of the Company will unconditionally guarantee any obligations of Domtar Inc., the Canadian subsidiary borrower, under the Credit Agreement.

If there is a change of control, as defined under the Credit Agreement, the Credit Agreement will be terminated and any outstanding obligations under the Credit Agreement will automatically become immediately due and payable.

A significant or prolonged downturn in general business and economic conditions may affect our ability to comply with our covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives.

A breach of any of our Credit Agreement or indenture covenants, including failure to maintain a required ratio or meet a required test, may result in an event of default under these agreements. This may allow the counterparties to those agreements to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If this occurs, we may not be able to refinance the indebtedness on favorable terms, or at all, or repay the accelerated indebtedness.

Domtar Canada Paper Inc. Exchangeable Shares

Upon the consummation of the combination of the Weyerhaeuser Fine Paper Business with Domtar Inc. on March 7, 2007, (the “Transaction”), Domtar Inc. shareholders had the option to receive either common stock of the Company or shares of Domtar (Canada) Paper Inc. that are exchangeable for common stock of the Company. As of September 30, 2011, there were 678,475 exchangeable shares issued and outstanding. The exchangeable shares of Domtar (Canada) Paper Inc. are intended to be substantially the economic equivalent to shares of the Company’s common stock. These shareholders may exchange the exchangeable shares for shares of Domtar Corporation common stock on a one-for-one basis at any time. The exchangeable shares may be redeemed by Domtar (Canada) Paper Inc. on a redemption date to be set by the Board of Directors, which cannot be prior to July 31, 2023, or upon the occurrence of certain specified events, including, upon at least 60 days prior written notice to the holders, in the event less than 416,667 exchangeable shares (excluding any exchangeable shares held directly or indirectly by us) are outstanding at any time.

OFF BALANCE SHEET ARRANGEMENTS

In the normal course of business, we finance certain of our activities off balance sheet through operating leases.

GUARANTEES

Indemnifications

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At September 30, 2011, we are unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provisions have been recorded. These indemnifications have not yielded significant expenses in the past.

Tax Sharing Agreement

In conjunction with the Transaction, we signed a Tax Sharing Agreement that governs both our and Weyerhaeuser’s rights and obligations after the Transaction with respect to taxes for both pre and post-Distribution periods in regards to ordinary course taxes, and also covers related administrative matters. The Distribution refers to the distribution of shares of the Company to Weyerhaeuser shareholders. We will generally be required to indemnify Weyerhaeuser and Weyerhaeuser shareholders against any tax resulting from the Distribution if that tax results from an act or omission to act by us after the Distribution. If Weyerhaeuser, however, should recognize a gain on the Distribution for reasons not related to an act or omission to act by the Company after the Distribution, Weyerhaeuser would be responsible for such taxes and would not be entitled to indemnification by us under the Tax Sharing Agreement.

Pension Plans

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At September 30, 2011, we had not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

E.B. Eddy Acquisition

On July 31, 1998, Domtar Inc. (now a 100% owned subsidiary of Domtar Corporation) acquired all of the issued and outstanding shares of E.B. Eddy Limited and E.B. Eddy Paper, Inc. (“E.B. Eddy”), an integrated producer of specialty paper and wood products. The purchase agreement includes a purchase price adjustment whereby, in the event of the acquisition by a third party of more than 50% of the shares of Domtar Inc. in specified circumstances, Domtar Inc. may be required to pay an increase in consideration of up to a maximum of $116 million (CDN$120 million), an amount which is gradually declining over a 25-year period. At March 7, 2007, the maximum amount of the purchase price adjustment was approximately $106 million (CDN$110 million).

On March 14, 2007, we received a letter from George Weston Limited (the previous owner of E.B. Eddy and a party to the purchase agreement) demanding payment of $106 million (CDN$110 million) as a result of the consummation of the Transaction. On June 12, 2007, an action was commenced by George Weston Limited against Domtar Inc. in the Superior Court of Justice of the Province of Ontario, Canada, claiming that the consummation of the Transaction triggered the purchase price adjustment and sought a purchase price adjustment of $106 million (CDN$110 million) as well as additional compensatory damages. We do not believe that the consummation of the Transaction triggers an obligation to pay an increase in consideration under the purchase price adjustment and intend to defend ourselves vigorously against any claims with respect thereto. However, we may not be successful in our defense of such claims, and if we are ultimately required to pay an increase in consideration, such payment may have a material adverse effect on our financial position, results of operations or cash flows. On March 31, 2011, George Weston Limited filed a motion for summary judgment which we expect to be resolved by the Court in due course. No provision is recorded for this potential purchase price adjustment.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Changes Implemented

Stock Compensation

In April 2010, the FASB issued an update to Compensation – Stock Compensation, which addresses the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This update clarifies that those employee share-based payment awards should not be considered to contain a condition that is not a market, performance, or service condition and therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity.

FUTURE ACCOUNTING CHANGES

COMPENSATION – RETIREMENT BENEFITS

This update is effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The Company anticipates that the adoption of this standard will expand its consolidated financial statement footnote disclosures and will not have an impact on our consolidated financial position, results of operations or cash flows.

INTANGIBLES – GOODWILL AND OTHER

In September 2011, the FASB issued an update to Intangibles – Goodwill and Other, which simplifies how entities test goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The amended provisions are effective for reporting periods beginning on or after December 15, 2011, with early adoption permitted. This amendment impacts testing steps only, and therefore adoption will not have an impact on the our consolidated financial position, results of operations or cash flows.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect our results of operations and financial position. On an ongoing basis, management reviews its estimates, including those related to environmental matters and other asset retirement obligations, useful lives, impairment of long-lived assets, pension plans and other post-retirement benefit plans and income taxes based on currently available information. Actual results could differ from those estimates.

Critical accounting policies reflect matters that contain a significant level of management estimates about future events, reflect the most complex and subjective judgments, and are subject to a fair degree of measurement uncertainty.

We have included in our Annual Report on Form 10-K for the year ended December 31, 2010, a discussion of these critical accounting policies, which are important to the understanding of our financial condition and results of operations and require management’s judgments. We did not make any changes to these critical accounting policies during the first nine months of 2011.

FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q may contain forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “aim,” “target,” “plan,” “continue,” “estimate,” “project,” “may,” “will,” “should” and similar expressions. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occurs, what effect they will have on Domtar Corporation’s results of operations or financial condition. These factors include, but are not limited to:

•

conditions in the global capital and credit markets, and the economy generally, particularly in the U.S. and Canada;

•

market demand for Domtar Corporation’s products;

•

product selling prices;

•

raw material prices, including wood fiber, chemical and energy;

•

performance of Domtar Corporation’s manufacturing operations, including unexpected maintenance requirements;

•

the level of competition from domestic and foreign producers;

•

the effect of, or change in, forestry, land use, environmental and other governmental regulations (including tax), and accounting regulations;

•

the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters;

•

transportation costs;

•

the loss of current customers or the inability to obtain new customers;

•

legal proceedings;

•

changes in asset valuations, including write-downs of property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons;

•

changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar;

•

the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation;

•

performance of pension fund investments and related derivatives, if any; and

•

the other factors described under “Risk Factors,” in item 1A of the Annual Report on Form 10-K, for the year ended December 31, 2010.

You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Quarterly Report on Form 10-Q. Unless specifically required by law, Domtar Corporation assumes no obligation to update or revise these forward-looking statements to reflect new events or circumstances.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, 2010. There has not been any material change in our exposure to market risk since December 31, 2010. In the third quarter of 2011, we have updated the following disclosure.

COST RISK

Cash flow hedges

We purchase natural gas and oil at the prevailing market price at the time of delivery. In order to manage the cash flow risk associated with purchases of natural gas and oil, we may utilize derivative financial instruments or physical purchases to fix the price of forecasted natural gas and oil purchases. We formally document the hedge relationships, including identification of the hedging instruments and the hedged items, the risk management objectives and strategies for undertaking the hedge transactions, and the methodologies used to assess effectiveness and measure ineffectiveness. Current contracts are used to hedge forecasted purchases over the next three years. The effective portion of changes in the fair value of derivative contracts designated as cash flow hedges is recorded as a component of Accumulated other comprehensive income (loss) within Shareholders’ equity, and is recognized in Cost of sales in the period in which the hedged transaction occurs.

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of September 30, 2011 to hedge forecasted purchases:


Commodity	Notional contractual quantity under derivative contracts				Notional contractual value under derivative contracts (in millions of dollars)		Percentage of forecasted purchases under derivative contracts for
							2011			2012			2013			2014
Natural gas		7,320,000	MMBTU	⁽¹⁾	$	38		29	%		27	%		13	%		2	%

(1)	MMBTU: Millions of British thermal units

The natural gas derivative contracts were fully effective for accounting purposes as of September 30, 2011. The critical terms of the hedging instruments and the hedged items match. As a result, there were no amounts reflected in the Consolidated Statements of Earnings for the third quarter and first nine months of 2011 resulting from hedge ineffectiveness (third quarter and first nine months of 2010 – nil).

FOREIGN CURRENCY RISK

Cash flow hedges

We have manufacturing operations in the United States and Canada. As a result, we are exposed to movements in the foreign currency exchange rate in Canada. Also, certain assets and liabilities are denominated in Canadian dollars and are exposed to foreign currency movements. As a result, our earnings are affected by increases or decreases in the value of the Canadian dollar relative to the U.S. dollar. Our risk management policy allows us to hedge a significant portion of our exposure to fluctuations in foreign currency exchange rates for periods up to three years. We may use derivative instruments (currency options and foreign exchange forward contracts) to mitigate our exposure to fluctuations in foreign currency exchange rates. Foreign exchange forward contracts are contracts whereby we have the obligation to buy Canadian dollars at a specific rate. Currency options purchased are contracts whereby we have the right, but not the obligation, to buy Canadian dollars at the strike rate if the Canadian dollar trades above that rate. Currency options sold are contracts whereby we have the obligation to buy Canadian dollars at the strike rate if the Canadian dollar trades below that rate.

We formally document the relationship between hedging instruments and hedged items, as well as our risk management objectives and strategies for undertaking the hedge transactions. Foreign exchange forward contracts and currency options contracts used to hedge forecasted purchases in Canadian dollars are designated as cash flow hedges. Current contracts are used to hedge forecasted purchases over the next 12 months. The effective portion of changes in the fair value of derivative contracts designated as cash flow hedges is recorded as a component of Accumulated other comprehensive income (loss) within Shareholders’ equity, and is recognized in Cost of sales in the period in which the hedged transaction occurs.

The following table presents the currency values under contracts pursuant to currency options outstanding as of September 30, 2011 to hedge forecasted purchases:


Contract		Notional contractual value		Percentage of CDN denominated forecasted expenses, net of revenues under contracts for
				2011			2012
Currency options purchased	CDN	$	400		50	%		38	%
Currency options sold	CDN	$	400		50	%		38	%

The currency options are fully effective as at September 30, 2011. The critical terms of the hedging instruments and the hedged items match. As a result, there were no amounts reflected in the Consolidated Statements of Earnings for the third quarter and first nine months of 2011 resulting from hedge ineffectiveness (third quarter and first nine months of 2010 – nil).

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2011, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the period covered by this report.

PART II OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

A discussion of material developments in the Company’s litigation and settlement matters occurring in the period covered by this report, if any, is found in Note 15 to the financial statements in this Quarterly Report on Form 10-Q.

ITEM 1A.

RISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, 2010, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. There were no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share repurchase activity under our share repurchase program was as follows during the three-month period ended September 30, 2011:


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		(d) Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs (in 000s)
July 1 through July 31, 2011		204,151	$	89.34		204,151	$	302,866
August 1 through August 31, 2011		1,119,418	$	73.27		1,119,418	$	220,846
September 1 through September 30, 2011		1,192,222	$	76.56		1,192,222	$	129,575

		2,515,791	$	76.13		2,515,791

⁽¹⁾

During the third quarter of 2011, the Company repurchased 2,515,791 shares at an average price of $76.13 per share, for a total cost of $192 million under its stock repurchase program (the “Program”) approved by the Board of Directors in May 2010. At September 30, 2011, we have $130 million of remaining availability under our Program. The Program may be suspended, modified or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock, from time to time, in part to reduce the dilutive effects of its stock options, awards, and employee stock purchase plan and to improve shareholders’ returns. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share. During October 2011, we repurchased an additional 551,942 shares at an average price of $71.11 per share, for a total cost of $39 million.

On May 4, 2011, the Company’s Board of Directors approved an increase to the Program from $150 million to $600 million.

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

REMOVED AND RESERVED

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS



Exhibit 2.1		Stock Purchase Agreement by and among Attends Healthcare Holdings, LLC, Attends Healthcare, Inc. and Domtar Corporation dated as of August 12, 2011.*

Exhibit 4.1		Fifth Supplemental Indenture, dated September 7, 2011, among Domtar Corporation, Domtar Delaware Investments Inc. and Domtar Delaware Holdings, LLC, and The Bank of New York Melon, as trustee, relating to the Company’s 7.125% Notes due 2015, 5.375% Notes due 2013, 9.5% Notes due 2016 and 10.75% Notes due 2017

Exhibit 12.1		Computation of Ratio of Earnings to Fixed Charges

Exhibit 31.1		Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


Exhibit 31.2		Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certification by the Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Pursuant to Item 601(b)(2) of Regulation S-K, exhibits and schedules have been omitted. Domtar Corporation agrees to furnish a supplemental copy of any omitted exhibit and schedule to the Securities and Exchange Commission upon request.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.


Date: November 3, 2011	DOMTAR CORPORATION

	By:	/s/ Daniel Buron
		Daniel Buron
		Senior Vice-President and Chief Financial Officer

	By:	/s/ Razvan L. Theodoru
		Razvan L. Theodoru
		Vice-President, Corporate Law and Secretary

Exhibit 2.1

STOCK PURCHASE AGREEMENT

BY AND AMONG

ATTENDS HEALTHCARE HOLDINGS, LLC,

ATTENDS HEALTHCARE, INC.

AND

DOMTAR CORPORATION

DATED AS OF August 12, 2011

TABLE OF CONTENTS


		Page

ARTICLE 1 DEFINITIONS			1

1.1	Definitions		1
1.2	Other Capitalized Terms		8
1.3	Interpretive Provisions		9

ARTICLE 2 CALCULATION OF PURCHASE PRICE AND PAYMENT			10

2.1	Purchase and Sale of the Shares		10
2.2	Transactions to be Effected at the Closing		10
2.3	Purchase Price Adjustment		11

ARTICLE 3 THE CLOSING			13

3.1	Closing; Closing Date		13

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLER			14

4.1	Organization		14
4.2	Binding Obligations		14
4.3	No Defaults or Conflicts		14
4.4	No Governmental Authorization Required		14
4.5	The Shares		15
4.6	Litigation		15
4.7	Exclusivity of Representations		15

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY			15

5.1	Organization and Qualification		15
5.2	Capitalization of the Company		16
5.3	Subsidiaries		16
5.4	Binding Obligations		17
5.5	No Defaults or Conflicts		17
5.6	No Governmental Authorization Required		18
5.7	Financial Statements		18
5.8	Intellectual Property		18
5.9	Compliance with the Laws		20
5.10	Contracts		20
5.11	Litigation		21
5.12	Taxes		21
5.13	Permits		23
5.14	Employee Benefit Plans		23
5.15	Environmental Compliance		27
5.16	Insurance		27
5.17	Real Property		27
5.18	Affiliate Transactions		28
5.19	Absence of Certain Changes or Events		28


5.20	Suppliers and Customers	28
5.21	Title to Assets	29
5.22	Condition and Sufficiency of Assets	29
5.23	Inventory	29
5.24	Accounts Receivable	29
5.25	Labor Relations	29
5.26	Product Liability	30
5.27	Internal Controls	30
5.28	Brokers	30
5.29	Exclusivity of Representations	31

ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE BUYER		31

6.1	Organization	31
6.2	Binding Obligation	31
6.3	No Defaults or Conflicts	31
6.4	No Authorization or Consents Required	32
6.5	Brokers	32
6.6	Sufficient Funds	32
6.7	Litigation	32
6.8	Buyer’s Reliance	32
6.9	Investment Purpose	33

ARTICLE 7 COVENANTS		33

7.1	Conduct of Business of the Company	33
7.2	Access to Information; Confidentiality; Public Announcements	35
7.3	Filings and Authorizations; Consummation	36
7.4	Resignations	38
7.5	Further Assurances	38
7.6	Officer and Director Indemnification	38
7.7	Termination of Affiliate Obligations	39
7.8	Exclusivity	39
7.9	Waiver of Conflicts Regarding Representation	39
7.10	Employee Matters	39
7.11	Escrow Agreement	40
7.12	Restrictive Covenant Agreement	41
7.13	Tax Matters	41

ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER		41

8.1	Representations and Warranties Accurate	41
8.2	Performance	42
8.3	Officer’s Certificate	42
8.4	Legal Prohibition	42
8.5	HSR Act; Governmental Approvals	42
8.6	Stock Certificates	43
8.7	Payoff Letters	43
8.8	FIRPTA Affidavit	43
8.9	No Material Adverse Effect	43


8.10	Audited Financial Statements	43
8.11	Secretary’s Certificates	43
8.12	Escrow Agreement	44
8.13	Restrictive Covenant Agreement	44

ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER		44

9.1	Representations and Warranties Accurate	44
9.2	Performance	44
9.3	Officer Certificate	44
9.4	Legal Prohibition	44
9.5	HSR Act; Governmental Approvals	44
9.6	Escrow Agreement	45

ARTICLE 10 TERMINATION		45

10.1	Termination	45
10.2	Survival After Termination	46

ARTICLE 11 INDEMNIFICATION		46

11.1	Survival	46
11.2	Indemnification by the Seller; Indemnification by the Buyer	46
11.3	Limitations on Indemnification	48
11.4	Indemnification Claim Process	49
11.5	Indemnification Procedures for Non-Third Party Claims	51
11.6	Exclusive Remedy	51
11.7	Calculation of Losses; Limitations	51
11.8	Tax Treatment of Indemnity Payments	52
11.9	Subrogation	52
11.10	Indemnity Escrow	52

ARTICLE 12 MISCELLANEOUS		53

12.1	Expenses	53
12.2	Amendment	53
12.3	Entire Agreement	53
12.4	Headings	53
12.5	Notices	53
12.6	Exhibits and Schedules	54
12.7	Waiver	55
12.8	Binding Effect; Assignment	55
12.9	No Third Party Beneficiary	55
12.10	Counterparts	55
12.11	Release	55
12.12	Governing Law and Jurisdiction	56
12.13	Dispute Resolution	56
12.14	Consent to Jurisdiction and Service of Process	56
12.15	WAIVER OF JURY TRIAL	56
12.16	Conveyance Taxes	57
12.17	Specific Performance	57


12.18		Severability			57


ANNEXES AND EXHIBITS

Exhibit A		Assumed Indebtedness Rules
Exhibit B		Working Capital Rules
Exhibit C		Form of Escrow Agreement

SCHEDULES

Schedule 1.1(a)		Cap/Indemnity Escrow Amount
Schedule 1.1(b)		Knowledge of the Company
Schedule 1.1(c)		Permitted Encumbrances
Schedule 4.3		Seller Defaults or Conflicts
Schedule 4.4		Seller Governmental Authorizations or Consents Required
Schedule 4.5		Seller Ownership of Company
Schedule 5.1		Company Subsidiary Foreign Qualification
Schedule 5.2(a)		Company Capitalization
Schedule 5.3(a)		Company Subsidiaries
Schedule 5.5		Company Defaults or Conflicts
Schedule 5.6		Governmental Authorizations Required
Schedule 5.7(b)		Absence of Undisclosed Liabilities
Schedule 5.8(a)		Intellectual Property Rights
Schedule 5.8(b)		Exceptions to Intellectual Property Rights
Schedule 5.8(e)		Violation of Intellectual Property Rights
Schedule 5.10		Contracts
Schedule 5.11		Litigation
Schedule 5.12		Taxes
Schedule 5.13		Permits
Schedule 5.14(a)		Employee Benefit Plans
Schedule 5.14(e)		Liabilities Under Medical or Death Benefit Plans
Schedule 5.15		Environmental Compliance
Schedule 5.16		Insurance Policies
Schedule 5.17		Real Property
Schedule 5.18		Affiliate Transactions
Schedule 5.19		Certain Changes or Events
Schedule 5.20(a)		Suppliers
Schedule 5.20(b)		Customers
Schedule 6.3		Buyer Defaults or Conflicts
Schedule 6.4		Authorizations and Consents Required by the Buyer
Schedule 7.1		Conduct of Business of the Company
Schedule 7.7		Termination of Affiliate Obligations
Schedule 7.12		Parties to Restrictive Covenant Agreements

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT (the “ Agreement ”), dated as of August 12, 2011, by and among Attends Healthcare Holdings, LLC, a Delaware limited liability company (the “ Seller ”), Attends Healthcare, Inc., a Delaware corporation (the “ Company ”), and Domtar Corporation, a Delaware corporation (the “ Buyer ”).

RECITALS

WHEREAS, as of the date hereof, the Seller is the record owner of all of the shares of Common Stock (hereinafter defined) of the Company (the “ Shares ”).

WHEREAS, the Seller wishes to sell to the Buyer, and the Buyer wishes to purchase from the Seller, all of the Shares upon the terms and subject to the conditions set forth in this Agreement.

NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties to this Agreement agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions . The following terms, whenever used herein, shall have the following meanings for all purposes of this Agreement.

“ Affiliate ” means as to any Person (a) any Person which directly or indirectly controls, is controlled by, or is under common control with such Person, and (b) any Person who is a director, officer, partner or principal of such Person or of any Person which directly or indirectly controls, is controlled by, or is under common control with such Person. For purposes of this definition, “control” of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by ownership of voting stock, by contract or otherwise.

“ Antitrust Laws ” means the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other United States federal or state or foreign statutes, rules, regulations, orders, decrees, administrative or judicial doctrines or other laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

“ Assumed Indebtedness ” means all Indebtedness of the Company and each Company Subsidiary existing as of the Closing that is not being repaid at the Closing under Section 2.2 hereof.

“ Assumed Indebtedness Rules ” means the rules set forth on Exhibit A attached hereto.

“ Audited Balance Sheet ” shall have the meaning as set forth in the definition of Financial Statements.

“ Audited Financial Statements ” shall have the meaning as set forth in the definition of Financial Statements.

“ Base Amount ” shall have the meaning as set forth in the definition of Working Capital Overage.

“ Business Day ” means any day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York or Greenville, North Carolina are authorized or required by law or executive order to close.

“ Buyer Specified Representations ” means the Buyer’s representations and warranties in Section 6.1 (Organization) and Section 6.2 (Binding Obligations) .

“ Cap ” means, at any determination time, an amount equal to the amount, if any, by which the amount set forth on Schedule 1.1(a) exceeds the sum of (x) the aggregate amounts distributed from the Indemnity Escrow Amount to the Buyer Indemnitees pursuant to and in accordance with Section 11.10 (Indemnity Escrow) of this Agreement and the Escrow Agreement and (y) any amounts paid by Seller to the Buyer Indemnitees under Article 11 of this Agreement other than from the Indemnity Escrow Amount (which amount shall only be a positive number).

“ Closing Working Capital ” means the Working Capital as of the close of business in Greenville, North Carolina on the Closing Date.

“ Code ” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

“ Common Stock ” means the common stock, $0.01 par value, of the Company.

“ Company Expenses ” means all fees and expenses of the Company or the Seller related to the transactions contemplated by this Agreement, including the fees and expenses of Paul, Weiss, to the extent not paid prior to the Closing.

“ Company Specified Representations ” means the Seller’s and the Company’s representations and warranties in Section 5.2 (Capitalization of the Company) , Section 5.3 (Subsidiaries) and Section 5.4 (Binding Obligations) .

“ Credit Facilities ” means (a) that certain Amended and Restated Credit and Security Agreement, dated as of March 30, 2010, by and among the Company, Attends Healthcare Products, Inc., and Wells Fargo, as amended, supplemented or otherwise modified from time to time, and (b) that certain Financing Agreement, dated as

of March 30, 2010, by and among the Company, Attends Healthcare Products, Inc., Regiment, and the other parties thereto, as amended, supplemented or otherwise modified from time to time.

“ Credit Facilities Payoff Amount ” means the amount of outstanding principal and accrued but unpaid interest, fees, expenses and other amounts payable (including any prepayment, change of control or similar penalties, if any) as of the close of business in Greenville, North Carolina on the Closing Date under the Credit Facilities.

“ Current Assets ” means, as of any date, the consolidated current assets of the Company and each Company Subsidiary, classified in accordance with GAAP, as adjusted by Exhibit B .

“ Current Liabilities ” means, as of any date, the consolidated current liabilities of the Company and each Company Subsidiary, classified in accordance with GAAP, as adjusted by Exhibit B .

“ date hereof ” and “ date of this Agreement ” means the date first written above.

“ Encumbrance ” means any and all liens, encumbrances, charges, mortgages, options, pledges, restrictions on transfer, security interests, hypothecations, easements, rights-of-way or encroachments of any nature whatsoever, whether voluntarily incurred or arising by operation of law.

“ Environment ” means any environmental medium or natural resource, including ambient air, indoor air, surface water, groundwater, drinking water, sediment, surface and subsurface strata and plant and animal life including biota, fish and wildlife.

“ Environmental Claims ” means any written claims, notice of noncompliance or violation and legal proceedings by any Governmental Authority or Person alleging potential liability arising under any Environmental Law.

“ Environmental Laws ” means any applicable United States federal, state, provincial, local or municipal statute, law, rule, regulation, ordinance, code, policy (to the extent such policy is binding on the applicable Governmental Authority) or rule of common law and any judicial or administrative interpretation thereof including any judicial or administrative order, consent decree or judgment, relating to pollution or protection of the Environment, including any law relating to the use, transportation, storage, disposal, release or threatened release of any Hazardous Substance, or to health and safety as they may be affected by the release of, or exposure to, any Hazardous Substance.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“ ERISA Affiliate ” means any entity which is a member of (i) a controlled group of corporations (as defined in Section 414(b) of the Code), (ii) a group of trades or

businesses under common control (as defined in Section 414(c) of the Code), or (iii) an affiliated service group (as defined under Section 414(m) of the Code) or the regulations under Section 414(o) of the Code, any of which includes the Company or any Company Subsidiary.

“ Financial Statements ” means (i) the audited consolidated balance sheets of the Company and the Company Subsidiaries as of June 30, 2010 and June 30, 2009, and the related consolidated statements of operations, shareholders’ deficit and cash flows of the Company and the Company Subsidiaries for the years ended June 30, 2010 and June 30, 2009, together with the notes and schedules thereto (the “ Audited Financial Statements ”) and (ii) the unaudited consolidated balance sheet of the Company and the Company Subsidiaries as of June 30, 2011 (the “ Interim Balance Sheet ”) and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and the Company Subsidiaries for the twelve (12) months ended June 30, 2011 (the “ Unaudited Financial Statements ”). The audited consolidated balance sheet of the Company and the Company Subsidiaries as of June 30, 2010 is referred to herein as the “ Audited Balance Sheet .”

“ GAAP ” means United States generally accepted accounting principles.

“ Governmental Authority ” means any nation or government, any state, province or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administration functions of or pertaining to government, or any government authority, agency, department, board, tribunal, commission or instrumentality of the United States of America, any foreign government, any state of the United States of America, or any municipality or other political subdivision thereof, and any court, tribunal or arbitrator(s) of competent jurisdiction, and any governmental or non-governmental self-regulatory organization, agency or authority.

“ Greenville Lease ” means that certain standard lease, dated November 1, 2007 between Attends Healthcare Products, Inc. and 1029 Old Creek LLC, 1070 Northpoint L.L.C., 2500 Highland LLC and 3201 L.L.C., as amended, supplemented or otherwise modified from time to time.

“ Hazardous Substance ” means any toxic substance, hazardous material, dangerous substance, pollutant, contaminant, petroleum, petroleum based substance, asbestos containing material, PCBs, waste, or chemical waste, including any substance defined by or regulated under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., the Clean Water Act, 33 U.S.C. §1251 et seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Toxic Substances Control Act, 15 U.S.C. §2601 et seq., the Safe Drinking Water Act, 42 U.S.C. §300f et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §1801 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. §11001 et seq., the Oil Pollution Act, 15 U.S.C. §2601 et seq., and any state or local equivalents thereof.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

“ IRS ” means the United States Internal Revenue Service.

“ Indebtedness ” means, of any Person, without duplication, (i) indebtedness for borrowed money or indebtedness issued or incurred in substitution or exchange for indebtedness for borrowed money, (ii) amounts owing as deferred purchase price for property or services, including all seller notes and “earn-out” payments, (iii) indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security, (iv) obligations under any interest rate, currency or other hedging agreement, (v) obligations under any performance bond or letter of credit, but only to the extent drawn or called prior to the Closing Date, (vi) all capitalized lease obligations as determined under GAAP (including any capitalized lease obligations under the Medline Agreement), (vii) guarantees with respect to any indebtedness of any other Person of a type described in clauses (i) through (vi) above, (viii) the Credit Facilities, (ix) the Greenville Lease and (x) for clauses (i) through (ix) above, all accrued interest thereon, if any, and any termination fees, prepayment penalties, “breakage” cost or similar payments associated with the repayments of such Indebtedness on the Closing Date to the extent paid on the Closing Date. For the avoidance of doubt, Indebtedness shall not include (A) any obligations under any performance bond or letter of credit to the extent undrawn or uncalled, (B) any Indebtedness included in the calculation of Current Liabilities in the determination of Closing Working Capital, (C) any intercompany Indebtedness of the Company and the Company Subsidiaries, (D) any Indebtedness incurred by the Buyer and its Affiliates (and subsequently assumed by the Company or any Company Subsidiary) on the Closing Date, (E) any endorsement of negotiable instruments for collection in the ordinary course of business, (F) any deferred revenue, and (G) all liabilities under any agreement between the Company or any Company Subsidiary, on the one hand, and the Buyer or any of its Affiliates, on the other hand.

“ Indemnitor ” means any party hereto from which any Indemnitee is seeking indemnification pursuant to the provisions of this Agreement.

“ Intellectual Property ” means all registered or unregistered (a) patents and patent applications, whether or not patents are issued on such applications and whether or not such patents or applications are modified, withdrawn or resubmitted; (b) trademarks, service marks, trade names, logos and trade dress, together with the goodwill associated therewith; (c) copyrights; (d) URLs, Internet domain names, computer software programs (including source code and object code), industrial designs, proprietary know-how, confidential business information, business methods, electronic databases, trade secrets, formulae; (e) Inventions, processes and designs (whether or not patentable or reduced to practice), and (f) any other intellectual property rights.

“ Interim Balance Sheet ” shall have the meaning as set forth in the definition of Financial Statements.

“ knowledge of the Company ” or any similar phrase means (a) the actual knowledge of the individuals identified on Schedule 1.1(b) ; and (b) all facts that such individuals should know if they had exercised reasonable diligence based on their applicable positions.

“ Material Adverse Effect ” means any event, occurrence, fact, condition or change that is materially adverse to, or would reasonably be expected to be materially adverse to, the business, results of operations, condition (financial or otherwise) or assets of the Company and the Company Subsidiaries, taken as a whole; provided , however , that “Material Adverse Effect” shall not include the impact on such business, results of operations, condition (financial or otherwise) or assets arising out of or attributable to (i) conditions or effects that generally affect the industries in which the Company and the Company Subsidiaries operate (including legal and regulatory changes), (ii) general economic conditions affecting the United States, (iii) effects resulting from changes affecting capital market conditions in the United States (including in each of clauses (i), (ii) and (iii) above, any effects or conditions resulting from an outbreak or escalation of hostilities, acts of terrorism, political instability or other national or international calamity, crisis or emergency, or any governmental or other response to any of the foregoing, in each case whether or not involving the United States), (iv) effects arising from changes in laws or accounting principles, (v) effects relating to the announcement of the execution of this Agreement or the transactions contemplated hereby, or (vi) any breach of this Agreement by the Buyer; provided , further , however , that any condition or effect referred to in clauses (i), (ii) or (iii) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such condition or effect has a disproportionate effect on the Company and the Company Subsidiaries, taken as a whole, compared to other participants in the industries in which the Company and the Company Subsidiaries conduct their businesses. For the avoidance of doubt, a Material Adverse Effect shall be measured only against past performance of the Company and the Company Subsidiaries, taken as a whole, and not against any forward-looking statements, financial projections or forecasts of the Company or the Company Subsidiaries.

“ Medline Agreement ” means that certain Equipment Lease and Supply Agreement between Medline Industries, Inc., an Illinois corporation, and Attends Healthcare Products, Inc., a Delaware corporation effective May 1, 2008, as amended, supplemented or otherwise modified from time to time.

“ Other Representations ” means the Seller’s and the Company’s representations and warranties in Section 5.12 (Taxes) , Section 5.15 (Environmental Compliance) and Section 5.21 (Title to Assets) .

“ Permitted Encumbrances ” means, (i) Encumbrances granted in favor of Wells Fargo or Regiment pursuant to the Credit Facilities (which Encumbrances shall be removed on the Closing Date), (ii) Encumbrances for taxes, assessments and other government charges not yet due and payable or which are being contested in good faith by appropriate proceedings, (iii) mechanics’, workmen’s, repairmen’s, warehousemen’s, carriers’ or other like Encumbrances arising in the ordinary course of business of the

Company and the Company Subsidiaries, consistent with past practices, (iv) Encumbrances relating to the transferability of securities under applicable securities laws, (v) (a) Encumbrances in favor of lessors under the Leases or encumbering the interests of lessors in the Real Property and/or (b) subleases or licenses of the Real Property made by the Company or the Company Subsidiaries, (vi) in the case of Real Property, easements, rights of way, zoning ordinances and other similar Encumbrances that do not otherwise materially detract from the value or current use of the applicable Real Property, and (vii) the Encumbrances set forth on Schedule 1.1(c) .

“ Person ” means any individual, corporation (including any not for profit corporation), general or limited partnership, limited liability partnership, joint venture, estate, trust, firm, company (including any limited liability company or joint stock company), association, organization, entity or Governmental Authority.

“ Regiment ” means Regiment Capital Special Situations Fund IV, L.P., a Delaware limited partnership.

“ Release ” means any release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).

“ Representatives ” means, with respect to any Person, any director, officer, agent, employee, general partner, member, stockholder, advisor or representative of such Person.

“ Seller Specified Representations ” means the Seller’s representations and warranties in Section 4.1 (Organization) , Section 4.2 (Binding Obligations) and Section 4.5 (The Shares) .

“ Subsidiary ” means, of a specified Person, any corporation, partnership, limited liability company, limited liability partnership, joint venture, or other legal entity of which the specified Person (either alone and/or through and/or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the voting stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body, of such legal entity or of which the specified Person controls the management.

“ Tax ” or “ Taxes ” means all federal, state, local, and foreign income, excise, gross receipts, ad valorem, profits, gains, property, capital, sales, transfer, use, license, payroll, employment, social security, severance, unemployment, withholding, excise, windfall profits, intangibles, franchise, backup withholding, value added, alternative or add-on minimum, estimated and other taxes, charges, duties, levies or like assessments, together with all penalties, fines, and additions to tax and interest thereon.

“ Tax Returns ” means any report, declaration, return, information return, claim for refund, election, disclosure, estimate or statement supplied or required to be

supplied to a Governmental Authority in connection with Taxes, including any schedule or attachment thereto, and including any amendments thereof.

“ Third Party Claim ” means any claim or demand for which an Indemnitor may be liable to an Indemnitee hereunder which is asserted by a third party.

“ Unaudited Financial Statements ” shall have the meaning as set forth in the definition of Financial Statements.

“ Wells Fargo ” means Wells Fargo Bank, National Association.

“ Working Capital ” means, at any date, all Current Assets minus all Current Liabilities as of such date.

“ Working Capital Rules ” means the rules set forth on Exhibit B attached hereto.

“ Working Capital Overage ” shall exist when (and shall be equal to the amount by which) the Working Capital Estimate exceeds $9,500,000 (the “ Base Amount ”).

“ Working Capital Underage ” shall exist when (and shall be equal to the amount by which) the Base Amount exceeds the Working Capital Estimate.

1.2 Other Capitalized Terms . The following terms shall have the meanings specified in the indicated section of this Agreement:


Term		Section
2011 Audited Financial Statements		8.10
2011 Bonus Plan		7.10(c)
Accounting Firm		2.3(b)
Agreement		Preamble
Basket Amount		11.3(c)
Buyer		Preamble
Buyer Adjustment Amount		2.3(c)
Buyer Indemnitee		11.2(a)
Claims Notice		11.4(b)
Closing		3.1
closing agreement		5.12(l)(ii)
Closing Date		3.1
COBRA		5.14(d)
Company		Preamble
Company Plans		5.14(a)
Company Subsidiaries		5.3
Company Subsidiary		5.3
Confidentiality Agreement		7.2(b)
Cut-Off Date		11.1(a)
DeMinimis Losses		11.3(b)
Equitable Exceptions		4.2
Escrow Agent		7.11
Escrow Agreement		7.11
Estimated Assumed Indebtedness Amount		2.1(c)
Estimated Company Expenses		2.1(c)
Estimated Purchase Price		2.1(a)
Final Assumed Indebtedness		2.3(c)
Final Purchase Price		2.1(a)(iii)(D)
Final Working Capital		2.3(c)
First Meeting		12.13
Foreign Plan		5.14(a)
Indemnitee		11.2(b)
Indemnitees		11.2(b)
Indemnity Escrow Account		2.2(c)
Indemnity Escrow Amount		2.2(b)
Information		7.2(b)
Insurance Policies		5.16
Inventions		5.8(g)
IP License		5.8(a)
Leases		5.17
Losses		11.2(a)
Material Contracts		5.10
Multiemployer Plan		5.14(b)
Notice of Disagreement		2.3(b)
Paul, Weiss		7.9
Permits		5.13
proceedings		5.12(d)
Real Property		5.17
Registered Owned Intellectual Property		5.8(a)
Reserved Amount		11.10(a)
Restrictive Covenant Agreement		7.12
Securities Act		6.9


Term		Section
Seller		Preamble
Seller Adjustment Amount		2.3(c)
Seller Indemnitee		11.2(b)
Shares		Recitals
Statement		2.3(a)
Termination Date		10.1(ii)
Working Capital Estimate		2.1(c)

1.3 Interpretive Provisions . Unless the express context otherwise requires:

(a) the words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

(b) terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa;

(d) references herein to a specific Section, Subsection, Recital, Schedule or Exhibit shall refer, respectively, to Sections, Subsections, Recitals, Schedules or Exhibits of this Agreement;

(e) wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”;

(f) references herein to any gender shall include each other gender;

(g) references herein to any Person shall include such Person’s heirs, executors, personal representatives, administrators, successors and assigns; provided , however , that nothing contained in this clause (g) is intended to authorize any assignment or transfer not otherwise permitted by this Agreement;

(h) references herein to a Person in a particular capacity or capacities shall exclude such Person in any other capacity;

(i) references herein to any contract or agreement (including this Agreement) mean such contract or agreement as amended, supplemented or modified from time to time in accordance with the terms thereof;

(j) with respect to the determination of any period of time, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”;

(k) references herein to any law or any license mean such law or license as amended, modified, codified, reenacted, supplemented or superseded in whole or in part, and in effect from time to time; and

(l) references herein to any law shall be deemed also to refer to all rules and regulations promulgated thereunder.

ARTICLE 2

CALCULATION OF PURCHASE PRICE AND PAYMENT

2.1 Purchase and Sale of the Shares .

(a) The “ Estimated Purchase Price ” shall be equal to:

(i) $315,000,000,

(ii) plus the Working Capital Overage, if any,

(iii) minus the sum of:

(A) the Credit Facilities Payoff Amount;

(B) the Estimated Company Expenses;

(D) the Working Capital Underage, if any.

The Estimated Purchase Price shall be subject to adjustment following the Closing pursuant to Section 2.3 hereof (the Estimated Purchase Price as so adjusted, the “ Final Purchase Price ”).

(b) At the Closing provided for in Article 3 , upon the terms and subject to the conditions of this Agreement, the Seller shall sell, transfer and deliver to the Buyer, and the Buyer shall purchase from the Seller, the Shares for an amount equal to the Estimated Purchase Price.

(c) At least five (5) Business Days prior to the Closing Date, the Chief Financial Officer of the Company shall deliver to the Buyer a good faith estimate of (i) Closing Working Capital prepared in accordance with the Working Capital Rules and the resulting Working Capital Overage or Working Capital Underage (the “ Working Capital Estimate ”), (ii) the amount of Assumed Indebtedness prepared in accordance with the Assumed Indebtedness Rules (the “ Estimated Assumed Indebtedness Amount ”), and (iii) the Company Expenses (the “ Estimated Company Expenses ”), in each case reasonably satisfactory to the Buyer.

2.2 Transactions to be Effected at the Closing . At the Closing, the following transactions shall be effected by the parties:

(a) The Seller shall deliver to the Buyer certificates representing the Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank in proper form for transfer, with appropriate transfer Tax stamps, if any, affixed;

(b) The Buyer shall pay to the Seller by wire transfer of immediately available funds to a bank account designated in writing by the Seller (such designation to be made at least two (2) Business Days prior to the Closing Date), (i) the Estimated Purchase Price minus (ii) the amount set forth on Schedule 1.1(a) (the “ Indemnity Escrow Amount ”);

(c) The Buyer shall deliver to the Escrow Agent, for deposit in an escrow account (the “ Indemnity Escrow Account ”), the Indemnity Escrow Amount, to be held by the Escrow Agent in a separate escrow account and distributed by the Escrow Agent in accordance with the terms of the Escrow Agreement and the applicable provisions of this Agreement;

(d) The Buyer shall, on behalf of the Company and/or the applicable Company Subsidiary, deliver to Wells Fargo and Regiment, by wire transfer of immediately available funds to such bank accounts designated pursuant to the payoff letters delivered pursuant to Section 8.7 hereof, an amount equal to the Credit Facilities Payoff Amount; and

(e) The Buyer shall, on behalf of the Company and/or the applicable Company Subsidiary, deliver to the appropriate payees, by wire transfer of immediately available funds to such bank accounts designated in writing by the Company (such designation to be made at least two (2) Business Days prior to the Closing Date) an aggregate amount sufficient to pay the Estimated Company Expenses.

2.3 Purchase Price Adjustment .

(a) Within ninety (90) days after the Closing Date, the Buyer shall deliver to the Seller a statement (the “ Statement ”) of the Closing Working Capital and the Assumed Indebtedness, in each case prepared in accordance with the Working Capital Rules and the Assumed Indebtedness Rules, as applicable. The Buyer shall not amend, supplement or modify the Statement following its delivery to the Seller. The Buyer and the Seller acknowledge that no adjustments shall be made to the Base Amount.

(b) The Statement shall become final and binding upon the parties on the thirtieth (30 ^th ) day following the date on which the Statement was delivered to the Seller, unless the Seller delivers written notice of its disagreement with the Statement (a “ Notice of Disagreement ”) to the Buyer prior to such date. Any Notice of Disagreement shall (i) specify in reasonable detail the nature of any disagreement so asserted and (ii) only include good faith disagreements based on Closing Working Capital and/or Assumed Indebtedness not being calculated in accordance with the Working Capital Rules or the Assumed Indebtedness Rules, as applicable. If a Notice of Disagreement is received by the Buyer in a timely manner, then the Statement (as revised

in accordance with this sentence) shall become final and binding upon the Seller and the Buyer on the earlier of (A) the date the Seller and the Buyer resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement and (B) the date any disputed matters are finally resolved in writing by the Accounting Firm. During the fourteen (14)-day period following the delivery of a Notice of Disagreement, the Seller and the Buyer shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Notice of Disagreement. If at the end of such fourteen (14)-day period the Seller and the Buyer have not resolved in writing the matters specified in the Notice of Disagreement, the Seller and the Buyer shall submit to an independent accounting firm (the “ Accounting Firm ”) for arbitration, in accordance with the standards set forth in this Section 2.3 , only matters that remain in dispute. The Accounting Firm shall be such nationally recognized independent public accounting firm as shall be agreed upon by the Seller and the Buyer in writing. The Seller and the Buyer shall use reasonable efforts to cause the Accounting Firm to render a written decision resolving the matters submitted to the Accounting Firm within thirty (30) days of the receipt of such submission. The scope of the disputes to be resolved by the Accounting Firm shall be limited to fixing mathematical errors and determining whether the items in dispute were determined in accordance with the Working Capital Rules or the Assumed Indebtedness Rules, as applicable, and the Accounting Firm is not to make any other determination, including any determination as to whether the Base Amount, Working Capital Estimate, the final physical inventory count referenced in Exhibit B (if applicable) or the Estimated Assumed Indebtedness Amount are correct. The Accounting Firm’s decision shall be based solely on written submissions by the Seller and the Buyer and their respective representatives and not by independent review and shall be final and binding on all of the parties hereto. The Accounting Firm may not assign a value greater than the greatest value for such item claimed by either party or smaller than the smallest value for such item claimed by either party. Judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The fees and expenses of the Accounting Firm incurred pursuant to this Section 2.3 shall be borne equally as between the Seller, on the one hand, and the Buyer, on the other hand.

(c) For the purposes of this Agreement, “ Final Working Capital ” means the Closing Working Capital and “ Final Assumed Indebtedness ” means the Assumed Indebtedness, in each case as finally agreed or determined in accordance with Section 2.3(b) . The Estimated Purchase Price shall be increased (any such increase, the “ Seller Adjustment Amount ”) by the sum of (i) the amount, if any, that the Final Working Capital exceeds the Working Capital Estimate and (ii) the amount, if any, that the Estimated Assumed Indebtedness Amount exceeds the Final Assumed Indebtedness. The Estimated Purchase Price shall be decreased (any such decrease, the “ Buyer Adjustment Amount ”) by the sum of (i) the amount, if any, that the Working Capital Estimate exceeds the Final Working Capital and (ii) the amount, if any, that the Final Assumed Indebtedness exceeds the Estimated Assumed Indebtedness Amount. If the Seller Adjustment Amount exceeds the Buyer Adjustment Amount by more than $300,000, the Buyer shall, within five (5) Business Days after the Final Working Capital and the Final Assumed Indebtedness are determined, make payment by wire transfer of

immediately available funds to the Seller in the amount by which the Seller Adjustment Amount exceeds the Buyer Adjustment Amount. If the Buyer Adjustment Amount exceeds the Seller Adjustment Amount by more than $300,000, the Seller shall, within five (5) Business Days after the Final Working Capital and the Final Assumed Indebtedness are determined, make payment by wire transfer of immediately available funds to the Buyer in the amount by which the Buyer Adjustment Amount exceeds the Seller Adjustment Amount. Upon payment of the amounts provided in this Section 2.3(c) , none of the parties hereto may make or assert any claim under this Section 2.3 .

(d) No actions taken by the Buyer, on its own behalf or on behalf of the Company or the Company Subsidiaries, on or following the Closing Date shall be given effect for purposes of determining the Closing Working Capital or Assumed Indebtedness. During the period of time from and after the delivery of the Statement by the Buyer through the final determination of Closing Working Capital and Assumed Indebtedness in accordance with this Section 2.3 , the Buyer shall afford, and shall cause the Company and the Company Subsidiaries to afford, to the Seller and any accountants, counsel or financial advisers retained by the Seller in connection with the review of Closing Working Capital and Assumed Indebtedness in accordance with this Section 2.3 , direct access during normal business hours upon reasonable advance notice to all the properties, books, contracts, personnel, representatives (including the Company’s accountants) and records of the Company, the Company Subsidiaries and such representatives (including the work papers of the Company’s accountants) relevant to the review of the Statement and the Buyer’s determination of Closing Working Capital and Assumed Indebtedness in accordance with this Section 2.3 .

ARTICLE 3

THE CLOSING

3.1 Closing; Closing Date . The closing of the sale and purchase of the Shares contemplated hereby (the “ Closing ”) shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York 10019-6064, at 10:00 a.m. local time, on the last day of the calendar month which includes the first (1st) Business Day after the date that all of the conditions to the Closing set forth in Articles 8 and 9 (other than those conditions which, by their terms, are to be satisfied or waived at the Closing) shall have been satisfied or waived by the party entitled to waive the same, or at such other time, place and date that the Seller and the Buyer may agree in writing; provided, however, if the date of the Closing would otherwise occur on September 30, 2011, then such date shall occur on September 30, 2011 and the Closing shall be deemed effective as of 12:01 a.m. on October 1, 2011. The date upon which the Closing occurs is referred to herein as the “ Closing Date .”

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE SELLER

Except as set forth on the Schedules, the Seller represents and warrants to the Buyer as follows:

4.1 Organization . The Seller is duly organized, validly existing and in good standing (or the equivalent thereof) under the laws of the jurisdiction in which it is organized.

4.2 Binding Obligations . The Seller has all requisite organizational authority and power to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby and the execution, delivery and performance by the Seller of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Seller and no other proceedings on the part of the Seller is necessary to authorize the execution and delivery and performance of this Agreement by the Seller. This Agreement has been duly executed and delivered by the Seller and, assuming that this Agreement constitutes the legal, valid and binding obligations of the Buyer and the Company, constitutes the legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with its terms, except to the extent that the enforceability thereof may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors’ rights and remedies; and (ii) general principles of equity (collectively, the “ Equitable Exceptions ”).

4.3 No Defaults or Conflicts . The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Seller and performance by the Seller of its obligations hereunder (i) do not result in any violation of the applicable organizational documents of the Seller; (ii) except as set forth on Schedule 4.3 , do not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or create in any party the right to accelerate, terminate, modify or cancel any agreement or instrument to which the Seller is a party or by which it is bound or to which its properties are subject; and (iii) do not violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Authority having jurisdiction over the Seller or any of its properties; provided , however , that no representation or warranty is made in the foregoing clause (ii) with respect to matters that, individually or in the aggregate, would not reasonably be expected to materially impair the Seller’s ability to consummate the transactions contemplated hereby.

4.4 No Governmental Authorization Required . Except for applicable filing requirements under the HSR Act or as otherwise set forth in Schedule 4.4 , no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required to be obtained or made by the Seller in

connection with the due execution, delivery and performance by the Seller of this Agreement and the consummation by the Seller of the transactions contemplated hereby.

4.5 The Shares . Schedule 4.5 sets forth the Seller’s record ownership of the Company’s capital stock as of the date hereof. Other than the shares of capital stock of the Company listed on Schedule 4.5 hereto, the Seller has no other equity interests or rights to acquire equity interests in the Company or the Company Subsidiaries. The Seller has good and valid title to the Shares, free and clear of all Encumbrances, except (i) Permitted Encumbrances against the Shares all of which will be discharged on or prior to the Closing Date, (ii) Encumbrances on transfer imposed under applicable securities laws and (iii) Encumbrances created by the Buyer’s or its Affiliate’s acts. Assuming the Buyer has the requisite power and authority to be the lawful owner of the Shares, upon delivery to the Buyer at the Closing of certificates representing the Shares, duly endorsed by the Seller for transfer to the Buyer, and upon receipt of the Estimated Purchase Price by the Seller, good and valid title to the Shares will pass to the Buyer, free and clear of any Encumbrances, other than those arising from acts of the Buyer or its Affiliates and Encumbrances on transfer imposed under applicable securities laws.

4.6 Litigation . There is no claim, action, suit or legal proceeding pending or, to the knowledge of the Seller, threatened against the Seller, before any Governmental Authority which seeks to prevent the Seller from consummating the transactions contemplated by this Agreement.

4.7 Exclusivity of Representations . The representations and warranties made by the Seller in this Agreement are the exclusive representations and warranties made by the Seller. The Seller hereby disclaims any other express or implied representations or warranties. The Seller is not, directly or indirectly, making any representations or warranties regarding pro-forma financial information or financial projections relating the Company or the Company Subsidiaries.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth on the Schedules, each of the Seller and the Company represents and warrants to the Buyer as follows:

5.1 Organization and Qualification . The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its organization. Each Company Subsidiary is duly incorporated, validly existing and in good standing under the laws of the state of its organization. The Company and each Company Subsidiary have all requisite organizational power and authority to own, lease and operate their respective properties and carry on their business as presently owned or conducted. Except as set forth on Schedule 5.1 , the Company and each Company Subsidiary have been qualified, licensed or registered to transact business as a foreign corporation and is in good standing (or the equivalent thereof) in each jurisdiction in

which the ownership or lease of property or the conduct of their business requires such qualification, license or registration, except where the failure to be so qualified, licensed or registered or in good standing (or the equivalent thereof) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or result in a material adverse effect on the Company’s or the Company Subsidiaries’ ability to consummate the transactions contemplated hereby. The Company has delivered to the Buyer true and correct copies of the charter and by-laws for the Company and each Company Subsidiary as in effect on the date hereof.

5.2 Capitalization of the Company .

(a) Schedule 5.2(a) sets forth a complete and accurate list of the authorized, issued and outstanding capital stock of the Company. There are no other shares of capital stock or other equity securities of the Company authorized, issued, reserved for issuance or outstanding and no outstanding or authorized options, warrants, convertible or exchangeable securities, subscriptions, rights (including any preemptive rights), calls or commitments of any character whatsoever, relating to the capital stock of, or other equity or voting interest in, the Company, to which the Company or any of the Company Subsidiaries is a party or is bound requiring the issuance, delivery or sale of shares of capital stock of the Company. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the capital stock of, or other equity or voting interest in, the Company to which the Company is a party or is bound. The Company has no authorized or outstanding bonds, debentures, notes or other indebtedness the holders of which have the right to vote (or convertible into, exchangeable for, or evidencing the right to subscribe for or acquire securities having the right to vote) with the stockholders of the Company on any matter. There are no contracts to which the Company is a party or by which it is bound to (x) repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interest in, the Company or (y) vote or dispose of any shares of capital stock of, or other equity or voting interest in, the Company. There are no irrevocable proxies and no voting agreements with respect to any shares of capital stock of, or other equity or voting interest in, the Company.

(b) All of the issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable and free of any preemptive rights in respect thereto.

5.3 Subsidiaries . (a) Schedule 5.3(a) sets forth a complete and accurate list of the name and jurisdiction of each of the Company’s Subsidiaries (each a “ Company Subsidiary ,” and collectively, the “ Company Subsidiaries ”) and the authorized, issued and outstanding capital stock of each Company Subsidiary. Each of the outstanding shares of capital stock of each Company Subsidiary is duly authorized, validly issued, fully paid and non-assessable and is directly owned of record by the Company or a Company Subsidiary (as noted on Schedule 5.3(a) ), free and clear of any Encumbrances other than (i) Permitted Encumbrances, all of which will be discharged on or prior to the Closing Date, (ii) Encumbrances on transfer imposed under applicable securities law and (iii) Encumbrances created by the Buyer’s or its Affiliates’ acts. There

is no other capital stock or equity securities of any Company Subsidiary authorized, issued, reserved for issuance or outstanding and no outstanding or authorized options, warrants, convertible or exchangeable securities, subscriptions, rights (including any preemptive rights), stock appreciation rights, calls or commitments of any character whatsoever to which any Company Subsidiary is a party or may be bound requiring the issuance, delivery or sale of shares of capital stock of any Company Subsidiary. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the capital stock of, or other equity or voting interest in, any Company Subsidiary to which the Company or a Company Subsidiary is bound. No Company Subsidiary has any authorized or outstanding bonds, debentures, notes or other indebtedness, the holders of which have the right to vote (or convertible into, exchangeable for, or evidencing the right to subscribe for or acquire securities having the right to vote) with the equity holders of such Company Subsidiary on any matter. There are no contracts to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound to (i) repurchase, redeem or otherwise acquire any shares of the capital stock of, or other equity or voting interest in, any Company Subsidiary or (ii) vote or dispose of any shares of the capital stock of, or other equity or voting interest in, any Company Subsidiary. There are no irrevocable proxies and no voting agreements with respect to any shares of the capital stock of, or other equity or voting interest in, any Company Subsidiary.

(b) Neither the Company nor any Company Subsidiary owns, directly or indirectly, any capital stock of, or equity ownership or voting interest in, any Person (other than a Company Subsidiary).

5.4 Binding Obligations . The Company has all requisite corporate authority and power to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all required corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming that this Agreement constitutes the legal, valid and binding obligation of the Buyer, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Equitable Exceptions.

5.5 No Defaults or Conflicts . The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Company or the Seller and performance by the Company or the Seller of its respective obligations hereunder (i) does not result in any violation of the Certificate of Incorporation or By-laws (or other applicable governing documents) of the Company or any Company Subsidiary; (ii) except as set forth on Schedule 5.5 , does not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or create in any party the right to accelerate, terminate, modify or cancel any Material Contract or Lease; and (iii) does not violate any existing applicable law, rule, regulation,

judgment, order or decree of any Governmental Authority having jurisdiction over the Company, the Company Subsidiaries or any of their respective properties; provided , however , that no representation or warranty is made in the foregoing clause (iii) with respect to matters that would not, individually or in the aggregate, reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole.

5.6 No Governmental Authorization Required . Except for applicable filing requirements under the HSR Act or as otherwise set forth in Schedule 5.6 , no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required to be obtained or made by the Company in connection with the due execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby.

5.7 Financial Statements . (a) The consolidated balance sheets included in the Financial Statements fairly present, in all material respects, the consolidated financial position of the Company and each Company Subsidiary as of their respective dates, and the other related statements included in the Financial Statements, in all material respects, fairly present the results of their consolidated operations and cash flows for the periods indicated, in each case in accordance with GAAP applied on a consistent basis, with only such deviations from such accounting principles and/or their consistent application as are referred to in the notes to the Financial Statements and subject, in the case of the Unaudited Financial Statements, to normal year-end audit adjustments and the absence of related notes. The Financial Statements, including the footnotes thereto, have been prepared from the books and records of the Company and have been prepared in accordance with GAAP consistently applied.

(b) Except (i) as set forth in Schedule 5.7(b) , (ii) to the extent set forth in the Statement, (iii) as fully reflected or provided for in the Audited Balance Sheet or the Interim Balance Sheet, (iv) for liabilities incurred in the ordinary course of business, consistent with past practice, since the date of the Interim Balance Sheet, (v) for liabilities and obligations arising under contracts which are not attributable to any failure by the Company or any Company Subsidiary to comply with the terms thereof, and (vi) as would not, individually or in the aggregate, be material, the Company and the Company Subsidiaries do not have any liabilities, Indebtedness, debts, obligations of any nature (whether known or unknown, absolute, accrued, contingent or otherwise) that are required by GAAP to be reflected or reserved against in a balance sheet of the Company and the Company Subsidiaries.

(c) Except as set forth in the Audited Financial Statements, neither the Company nor any Company Subsidiary maintains any “off-balance sheet arrangement” within the meaning of Item 303 of Regulation S-K of the Securities and Exchange Commission.

5.8 Intellectual Property .

(a) Schedule 5.8(a) sets forth (i) all Intellectual Property owned by the Company or any Company Subsidiary that is registered, issued or subject to a pending application for registration or issuance (“ Registered Owned Intellectual Property ”) and (ii) all material license agreements relating to Intellectual Property to which the Company or any Company Subsidiary is a party (other than licenses for “off-the-shelf” or other software widely available on generally standard terms and conditions) (each such license, an “ IP License ”).

(b) Except as set forth on Schedule 5.8(b) , the Company or a Company Subsidiary, as applicable, owns, is licensed to use or otherwise has the right to use (in the manner currently used in connection with the operation of its business as of the date hereof) all of the Intellectual Property material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole, as of the date hereof, free and clear of any Encumbrances other than Permitted Encumbrances. Each IP License to which the Company or a Company Subsidiary is a party (i) is a legal and binding obligation of the Company or such Company Subsidiary, as applicable, and, to the knowledge of the Company, the other relevant parties thereto and (ii) is in full force and effect and, to the knowledge of the Company, enforceable in accordance with the terms thereof in all material respects.

(c) The use of the Intellectual Property owned by the Company or any Company Subsidiary as currently used in connection with the operation of its business as of the date hereof does not infringe or misappropriate any Intellectual Property of any other Person that is valid, enforceable and unexpired as of the date hereof. There is no action initiated by any Person pending or, to the knowledge of the Company, threatened in writing against the Company or any Company Subsidiary concerning the infringement or misappropriation of any Intellectual Property of any other Person.

(d) Neither the validity of, nor the Company’s or the applicable Company Subsidiary’s title to, any Registered Owned Intellectual Property, or any other material Intellectual Property owned by the Company or any Company Subsidiary is being challenged in any litigation to which the Company or a Company Subsidiary is a party, nor, to the knowledge of the Company, is any such litigation threatened.

(e) Except as set forth on Schedule 5.8(e) , to the knowledge of the Company, no Person is materially infringing or violating any of the Intellectual Property owned by the Company or any Company Subsidiary, and the manufacture, marketing, license, distribution, sale and use of products sold by the Company or a Company Subsidiary, as applicable, as of the date hereof, does not violate in any material respect any IP License to which the Company or a Company Subsidiary is a party.

(f) All statements contained in all applications prepared by the Company or any Company Subsidiary for the registration of its Registered Owned Intellectual Property are to the knowledge of the Company, true, correct and complete in all material respects.

(g) To the knowledge of the Company, each of the officers, directors and employees of the Company and any Company Subsidiary, and of Company’s or Company Subsidiary’s consultants and independent contractors have disclosed to the Company or Company Subsidiary in writing all inventions, ideas, improvements, devices, computer programs, trade secrets, know how, confidential manufacturing methods and the like relating to its business and conceived or developed by such Persons (“ Inventions ”). Each of such Persons is, to the extent permitted under applicable laws, contractually obligated to disclose and assign all rights in the Inventions to the Company or Company Subsidiary and to cooperate with the Company or Company Subsidiary in obtaining and perfecting ownership of patents, copyrights, and other statutory or other rights for the Inventions, and all such assignments have been executed to vest in the Company or Company Subsidiary full right, title and interest in any and all Inventions.

(h) No government funding, facilities of a university, college, or other educational institution or research center was used in the creation or development of the Registered Owned Intellectual Property. To the knowledge of the Company, no current or former employee, consultant or independent contractor who was directly involved in, or who contributed directly to, the creation or development of any Registered Owned Intellectual Property has performed services for any Governmental Authority, a university, college, or other educational institution or research center, during a period of time in which such employee, consultant or independent contractor was also performing services used in the creation or development of Intellectual Property for the Company or Company Subsidiary. The Company or Company Subsidiary is not party to any contract, license or agreement with any Governmental Authority that grants to such Governmental Authority, a university, college, or other educational institution or research center, any right or license with respect to the Registered Owned Intellectual Property.

5.9 Compliance with the Laws . The Company and each Company Subsidiary is (and has been at all times during the past two (2) years) in material compliance with all applicable federal, state, foreign, provincial, county, municipal, local laws, ordinances and regulations, including any applicable healthcare laws, ordinances and regulations. No representation or warranty is given under this Section 5.9 with respect to Taxes, ERISA or Environmental Laws, which matters are covered exclusively under Sections 5.12 , 5.14 and 5.15 , respectively.

5.10 Contracts . Schedule 5.10 lists or describes, as of the date hereof, and copies have been delivered to the Buyer of, all contracts, agreements and instruments (other than Company Plans, Leases and purchase orders) to which the Company or any Company Subsidiary is a party or to which their respective assets, property or business are bound or subject as of the date hereof, (a) which have resulted in payments by the Company or any Company Subsidiary of more than $500,000 in the twelve (12) calendar months ended June 30, 2011, or payments to the Company or any Company Subsidiary of more than $500,000 in the twelve (12) calendar months ended June 30, 2011; (b) which relate to Indebtedness, including surety bonds, performance bonds and letters of credit; (c) which are partnership, joint venture or similar agreements; (d) which relate to acquisitions or dispositions of a material portion of the assets or stock of any Person

(whether by merger, sale of stock, sale of asset or otherwise) after January 1, 2007 other than in the ordinary course of business consistent with past practices; (e) which restrict the Company or any Company Subsidiary from engaging in any aspect of its business anywhere in the world; (f) which involve any standstill or similar arrangement in effect on the date hereof; (g) which contain a right of first refusal, first offer or first negotiation; (h) which grant any exclusive relationship or right to any third party; (i) which grant any “most-favored nation” or similar status to any third party; (j) which require the Company or any Company Subsidiary to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions to which the Company or any Company Subsidiary is subject; (k) pursuant to which the Company or any Company Subsidiary sells any of its products directly to any healthcare facility, or (l) which are outside of the ordinary course of business, and are not otherwise disclosed pursuant to clauses (a) through (k), and are material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole (collectively, the contracts listed on Schedule 5.10 are referred to herein as the “ Material Contracts ”). With respect to all Material Contracts, neither the Company, any Company Subsidiary nor, to the knowledge of the Company, any other party to any such contract is in material breach thereof or default thereunder, and there does not exist under any thereof any event which, with the giving of notice or the lapse of time, would constitute such a material breach or default by the Company, any Company Subsidiary or, to the knowledge of the Company, any other party.

5.11 Litigation . Except as set forth in Schedule 5.11 , as of the date hereof, there are no material claims, actions or legal proceedings pending, or to the knowledge of the Company, threatened against the Company or any Company Subsidiary or any material portion of their respective properties or assets before any Governmental Authority against or involving the Company or any Company Subsidiary. Neither the Company nor any Company Subsidiary is subject to any unsatisfied order, judgment, injunction, ruling, decision, award or decree of any Governmental Authority.

5.12 Taxes . Except as set forth on Schedule 5.12 :

(a) All income Tax Returns and all other material Tax Returns required to be filed by or with respect to the Company or any Company Subsidiary have been timely (within any applicable extension periods) filed, and all such Tax Returns are true, complete and correct in all material respects.

(b) The Company and the Company Subsidiaries have fully and timely paid all Taxes shown to be due on the Tax Returns referred to in Section 5.12(a) , and all other material Taxes required to be paid, and have made adequate provision for any Taxes that are not yet due and payable, for all taxable periods, or portions thereof, ending on or before the date hereof.

(c) All material deficiencies for Taxes asserted or assessed in writing against the Company or the Company Subsidiaries have been fully and timely (within any applicable extension periods) paid, settled, or adequately reserved against on

the face of the respective balance sheets included in the Financial Statements in accordance with GAAP.

(d) Neither the Company nor any Company Subsidiary has received written notice of any proposed or threatened Tax proceeding, examination, investigation, audit or administrative or judicial proceeding (for purposes of this Section 5.12 , “ proceedings ”) against, or with respect to any Taxes of, the Company or any Company Subsidiary, and no such proceedings are currently pending. No claim has been made by any Governmental Authority in a jurisdiction in which the Company or any Company Subsidiary does not file a Tax Return that the Company or any Company Subsidiary is or may be subject to taxation by such jurisdiction.

(e) There are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or assessment or reassessment of, Taxes due from the Company or any Company Subsidiary for any taxable period and no request for any such waiver or extension is currently pending.

(f) There are no liens for Taxes upon the assets or properties of the Company or any Company Subsidiary, other than liens for current Taxes not yet due and payable or that are being contested in good faith and are adequately reserved against on the face of the respective balance sheets included in the Financial Statements in accordance with GAAP.

(g) The Company and the Company Subsidiaries have each withheld from their respective employees, independent contractors, creditors, stockholders and third parties and timely paid to the appropriate Governmental Authority proper and accurate amounts in all material respects for all periods ending on or before the Closing Date in compliance with all Tax withholding and remitting provisions of applicable laws and have each complied in all material respects with all Tax information reporting provisions of all applicable laws.

(h) Neither the Company nor any Company Subsidiary is a party to or is bound by any Tax sharing, allocation, indemnification, or similar agreement or arrangement (other than such an agreement or arrangement exclusively between or among the Company and the Company Subsidiaries). Neither the Company nor any Company Subsidiary (A) has been a member of a group filing a consolidated, combined or unitary Tax Return (other than a group the common parent of which was the Company) or (B) has any liability for the Taxes of any person (other than the Company or any Company Subsidiary) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, by contract or otherwise.

(i) Neither the Company nor any Company Subsidiary has been, within the past two years or otherwise as part of a “plan (or series of related transactions)” within the meaning of Section 355(e) of the Code of which the transactions contemplated by this Agreement are also a part, a “distributing corporation” or a

“controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify for tax-free treatment under Section 355 of the Code.

(j) Neither the Company nor any Company Subsidiary has been a party to a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Section 1.6011-4(b)(1) of the Treasury Regulations.

(k) There are currently no limitations on the net operating losses, net capital losses, or credits of the Company or any Company Subsidiary, including under Sections 382, 383, 384 or 269 of the Code.

(l) Neither the Company nor any Company Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

(i) change in method of accounting for a taxable period ending on or prior to the Closing Date;

(ii) “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date;

(iii) installment sale or open transaction disposition made on or prior to the Closing Date;

(iv) election by the Company under Section 108(i) of the Code; or

(v) prepaid amount received on or prior to the Closing Date.

5.13 Permits . The Company and each Company Subsidiary have all material consents, authorizations, registrations, waivers, privileges, exemptions, qualifications, quotas, certificates, filings, franchises, licenses, notices, permits and rights required for the lawful conduct of the Company’s and each Company Subsidiary’s businesses as presently conducted, or the lawful ownership of properties and assets or the operation of their businesses as conducted on the date hereof (collectively, “ Permits ”). Schedule 5.13 contains a true and complete list of such Permits, including their respective dates of issuance and expiration. All such Permits are in full force and effect, and no revocation, suspension, lapse or limitation of any such Permit (other than expiration upon the end of the applicable term) is pending or, to the knowledge of the Company, threatened.

5.14 Employee Benefit Plans .

(a) Schedule 5.14(a) contains a true and complete list of each “employee benefit plan” (within the meaning of Section 3(3) of ERISA), stock purchase, stock option, restricted stock, stock appreciation rights, restricted stock unit, welfare, medical, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation, profit sharing, pension, retirement and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, under which any current or former employee, officer, director or contractor of the Company or any Company Subsidiary and/or their spouses and dependents has or may have any present or future right to benefits or under which the Company or any Company Subsidiary has or may have any present or future liability (contingent or otherwise). All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the “ Company Plans .”

(b) With respect to each Company Plan (other than any “multiemployer plan” as defined in Section 3(37) of ERISA (a “ Multiemployer Plan ”)), the Seller has made available to the Buyer a current copy (or, to the extent no such copy exists, a description) thereof and, to the extent applicable: (i) any related trust agreement; (ii) the most recent IRS determination letter; (iii) the most recent summary plan description, and (iv) for the most recent plan year (A) the Form 5500 and attached schedules and (B) audited financial statements.

(c) Neither the Company nor any Company Subsidiary nor any ERISA Affiliates have now, or at any time within the previous six (6) years, maintained, contributed to or had any liability (contingent or otherwise) with respect to (i) any “employee benefit plan” (as defined in Section 3(3) of ERISA) subject to Sections 412 or 430 of the Code or Section 302 or Title IV of ERISA, (ii) any Multiemployer Plan; (iii) any “pension plan” as defined under Section 3(2) of ERISA that is not qualified under Section 401(a) of the Code; or (iv) any multiple employer plan within the meaning of Section 413(c) of the Code or Sections 4063, 4064 or 4066 of ERISA.

(d) No Company Plan is a multiple employer welfare arrangement as defined in Section 3(40) of ERISA.

(e) (i) Each Company Plan (other than a Multiemployer Plan) has been established and administered in accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations, except as would result in a liability which is not material to the Company; (ii) each Company Plan which is intended to be qualified within the meaning of Code Section 401(a) so qualifies and its related trust is tax-exempt or a timely application has been filed and remains pending with respect thereto, and to the knowledge of the Company nothing has occurred since the date of the most recent favorable determination letter or application with respect thereto that could reasonably be expected to cause the loss of such qualification or tax-exempt status; and (iii) for each Company Plan that is a “welfare plan” within the meaning of ERISA Section 3(1), and except as set forth in Schedule 5.14(e) , neither the Company nor any Company Subsidiary has any liability or obligation under any plan which provides medical or death benefits with respect to current or former employees, officers, directors or contractors of the Company or any

Company Subsidiary beyond their termination of employment (other than coverage mandated by Section 4980B of the Code (“ COBRA ”) or other applicable law and at the sole expense of the applicable participant).

(f) With respect to any Company Plan, (i) no actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or threatened and (ii) to the knowledge of the Company, no facts or circumstances exist that would reasonably be expected to give rise to any such actions, suits or claims, except, in each case, as would not, individually or in the aggregate, reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole.

(g) All contributions, premiums or payments which are due under each Company Plan have been paid by the applicable due date or within any extension period permitted by law and all such contributions, premiums and payments for which the due date will be after the Closing Date are properly accrued, except, as would not, individually or in the aggregate, reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole.

(h) (i) All required reports and descriptions (including Form 5500 Annual Reports, summary annual reports and summary plan descriptions) with respect to the Company Plans have been properly and timely filed with the appropriate governmental authority and/or distributed to participants as required by applicable law and (ii) the Company and its Company Subsidiaries have complied with the requirements of COBRA and all similar Laws, except, in each case, as would not, individually or in the aggregate, reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole.

(i) With respect to each Company Plan, (i) there have been no non-exempt “prohibited transactions” as defined in Section 406 of ERISA or Section 4975 of the Code, (ii) no “fiduciary” (as defined in Section 3(21) of ERISA) has any material liability for breach of any fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Company Plan, and (iii) no investigations or other proceedings by any governmental authority with respect to any Company Plan or any of the assets thereof are pending or threatened, and there exists no facts or circumstances that would give rise to or could be expected to give rise to any such investigations or proceedings.

(j) None of the assets of the Company or any Company Subsidiary are subject to any lien that has occurred or exists in connection with any Company Plan, including, without limitation, any lien under Section 302 of ERISA or Sections 412 or 430 of the Code.

(k) Each Company Plan that is subject to Section 409A of the Code is in compliance and has been operated and administered in compliance with

Section 409A of the Code except, as would not, individually or in the aggregate, reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole, or to any other party thereto. No violation of Section 409A has occurred with respect to any Company Plan.

(l) Each employee and contractor of the Company and its Company Subsidiaries has been properly classified as such for purposes of the Company Employee Plans and tax withholding purposes, except, as would not, individually or in the aggregate, reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole.

(m) Except as set forth in Schedule 5.14(a) , neither the Company nor any Company Subsidiary is a party to any oral or written (i) agreement with any employee, officer, director or other contractor providing any term of employment or compensation guarantee or providing severance benefits or other benefits after termination of employment or service; (ii) agreement or plan binding on the Company or any Company Subsidiary, any of the benefits of which shall be increased, or the vesting or payment of benefits of which shall be accelerated, by the occurrence of any of the transactions contemplated by this Agreement; or (iii) agreement or plan binding on the Company or any Company Subsidiary that will result in or satisfy conditions for the payment of any compensation that would, alone or in connection with any other payment or event, result in an “excess parachute payment” within the meaning of Section 280G(b) of the Code or constitute or involve a prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) or a breach of fiduciary responsibility within the meaning of Section 502(l) of ERISA or otherwise violate Part IV of Subtitle B of Title I of ERISA. There are no contracts or arrangements that provide for any gross-up payments to any current or former employee, director or consultant of the Company or any of its Company Subsidiary to cover any liability for tax under Sections 4999 or 409A of the Code.

(n) Except as would not, individually or in the aggregate, be or reasonably be expected to be material to the operation or financial condition of the business of the Company and the Company Subsidiaries, taken as a whole, with respect to each plan, program, policy, arrangement or agreement maintained or contributed to by, or entered into with, the Company or any Company Subsidiary with respect to current or former employees, officers, directors or contractors employed or serving outside the United States (each, a “ Foreign Plan ”), (i) each Foreign Plan is in compliance with the applicable provisions of the laws and regulations regarding employee benefits, mandatory contributions and retirement plans of each jurisdiction applicable to such Foreign Plan; (ii) each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities and (iii) the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Closing.

5.15 Environmental Compliance . Except as set forth on Schedule 5.15 , (a) each of the Company and each Company Subsidiary is in material compliance with all applicable Environmental Laws; (b) each of the Company and each Company Subsidiary have all material permits, authorizations and approvals required under any applicable Environmental Laws, and are each in material compliance with their respective requirements; (c) there are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company or any Company Subsidiary; (d) there has been no Release of Hazardous Materials in material contravention of Environmental Law with respect to the business or assets of the Company or any Company Subsidiary or any real property currently owned, operated or leased by the Company or any Company Subsidiary and to Seller’s knowledge no such Release has occurred on any real property currently owned, operated or leased by the Company or any Company Subsidiary; (e) neither the Company nor any Company Subsidiary has received any written notice that any real property currently or formerly owned, operated or leased in connection with the business of the Company or any Company Subsidiary (including soils, groundwater, surface water, buildings and other structure located on any such real property) has been contaminated with any Hazardous Material which could reasonably be expected to result in a material Environmental Claim against the Company or any Company Subsidiary; and (f) the Company has provided to the Buyer any and all material environmental reports, sampling data or site assessments with respect to any real property currently or formerly owned, operated or leased by the Company or any Company Subsidiary which are in the possession, custody or control of the Company or any Company Subsidiary.

5.16 Insurance . Schedule 5.16 contains a complete and accurate list of all material insurance policies (the “ Insurance Policies ”) with respect to the properties, assets, or business of the Company and the Company Subsidiaries. The Insurance Policies are in full force and effect and all premiums due and payable thereon have been paid in full. True and correct copies of the Insurance Policies have been provided to the Buyer. Neither the Company nor any Company Subsidiary has received either a written notice that could reasonably be expected to be followed by a written notice of cancellation or non-renewal of any Insurance Policy. The Company and the Subsidiaries have given timely notice to the applicable insurer of all material insured claims under the Insurance Policies. There are no material claims related to the properties, assets or business of the Company and the Company Subsidiaries pending under any such Insurance Policies as to which coverage has been denied or disputed in writing (other than such denials, disputes or other reservations received from the insurer in a “reservation of rights” letter, copies of which have been made available to the Buyer).

5.17 Real Property . The Company and the Company Subsidiaries do not own any real property. Schedule 5.17 contains a complete and accurate list of all real property previously owned by the Company or any Company Subsidiary since January 17, 2007. The Company and the Company Subsidiaries, as applicable, have valid leasehold interests in the real property specified on Schedule 5.17 under the heading “Leased Properties” (the “ Real Property ”). Schedule 5.17 contains a complete and accurate list as of the date hereof of all Real Property leased by the Company and the Company Subsidiaries as lessee, including all subleases and other arrangements relating

to the use or occupancy of the Real Property by the Company and the Company Subsidiaries (collectively, the “ Leases ”). Schedule 5.17 contains a complete and accurate list as of the date hereof of all Leases (and copies thereof have been delivered to the Buyer), as the same may have been amended, supplemented or otherwise modified from time to time. With respect to each Lease, neither the Company, any Company Subsidiary nor, to the knowledge of the Company, any other party to any such Lease is in material breach thereof or default thereunder and there does not exist under any thereof any event which, with the giving of notice or the lapse of time, would constitute such a material breach or default by the Company, any Company Subsidiary or, to the knowledge of the Company, any other party. All of the Leases are, to the knowledge of the Company, in full force and effect. Except as disclosed on Schedule 5.17 , neither the Company nor any Company Subsidiary is a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession, lease, occupancy or enjoyment of any of the Real Property. To the knowledge of the Company, no material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company or any Company Subsidiary. There are no claims, actions or legal proceedings pending nor, to the knowledge of the Company, threatened against or affecting the Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings.

5.18 Affiliate Transactions . Except for employment relationships and compensation, benefits, travel advances and employee loans in the ordinary course of business or as disclosed on Schedule 5.18 , neither the Company nor any Company Subsidiary is a party to any agreement with, or involving the making of any payment or transfer of assets to, (a) the Seller, (b) any stockholder, officer, member, partner or director of the Seller, (c) any officer or director of the Company or any Company Subsidiary, (d) any spouse, parent or child (including by adoption) of any of the individuals listed in clause (b) or (c), or (e) any Affiliate of any of the foregoing.

5.19 Absence of Certain Changes or Events . Except as set forth on Schedule 5.19 , or as otherwise contemplated by this Agreement, (i) during the period from the date of the Interim Balance Sheet to the date of this Agreement, the Company and each Company Subsidiary have conducted their respective businesses in the ordinary course of business and they have not undertaken, or agreed in writing to undertake, any action of the type described in Section 7.1(c) , (e) , (f) , (g) , (h) , (i) , (j) , (k) , (l) , (n) , (o) and (p) of this Agreement and (ii) since the date of the Audited Balance Sheet, there has been no Material Adverse Effect.

5.20 Suppliers and Customers .

(a) Schedule 5.20(a) sets forth the names of the ten largest suppliers of the Company measured by dollar value for the twelve (12) calendar months ended June 30, 2011. As of the date hereof, none of the suppliers listed on Schedule 5.20(a) has notified in writing the Company or any Company Subsidiary that it is (i) canceling or terminating its relationship with the Company or any Company

Subsidiary, or (ii) materially and adversely modifying its relationship with the Company or any Company Subsidiary.

(b) Schedule 5.20(b) sets forth the names of the ten largest customers of the Company measured by dollar value for the twelve (12) calendar months ended June 30, 2011. As of the date hereof, none of the customers listed on Schedule 5.20(b) has notified in writing the Company or any Company Subsidiary that it is (i) canceling or terminating its relationship with the Company or any Company Subsidiary, or (ii) materially and adversely modifying its relationship with any Company or any Company Subsidiary.

5.21 Title to Assets . The Company and the Company Subsidiaries have good and valid title to, or valid leasehold interests in, all material property and assets reflected on the Interim Balance Sheet or acquired after the date of the Interim Balance Sheet, other than properties and assets sold or otherwise disposed of in the ordinary course of business consistent with past practice since the date of the Interim Balance Sheet. All such properties and assets are free and clear of Encumbrances except for Permitted Encumbrances.

5.22 Condition and Sufficiency of Assets . The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Company and the Company Subsidiaries, taken as a whole, are in reasonably good operating condition subject to ordinary wear and tear. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property currently owned or leased by the Company and the Company Subsidiaries, together with all other properties and assets of the Company and the Company Subsidiaries, taken as a whole, are sufficient to enable the Company and the Company Subsidiaries to operate their businesses in substantially the same manner as conducted as of the date hereof, taken as a whole.

5.23 Inventory . All inventory reflected on the Interim Balance Sheet and the inventory acquired after the date thereof consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. No inventory is held on a consignment basis.

5.24 Accounts Receivable . The accounts receivable reflected on the Interim Balance Sheet and the accounts receivable arising after the date thereof have arisen from bona fide transactions entered into by the Company and the Company Subsidiaries involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice. To the knowledge of the Company, the debtors to which such accounts receivable relate are not in or subject to a bankruptcy or insolvency proceeding.

5.25 Labor Relations . Neither the Company nor the Company Subsidiaries are a party to, or bound by, any collective bargaining or other contract with a

labor organization representing any of its respective employees, and there are no labor organizations representing, or , to the knowledge of the Company, attempting to represent any employee of the Company or the Company Subsidiaries. As of the date hereof, there are no actual or, to the knowledge of the Company, threatened strikes, slowdowns, work stoppages, lockouts, concerted refusals to work overtime or other similar labor activity or dispute affecting the Company or the Company Subsidiaries or any of their respective employees.

5.26 Product Liability . Neither the Company nor the Company Subsidiaries has received any written notice with respect to any product liability claim against the Company or the Company Subsidiaries asserting that an alleged defect in any product of the Company or the Company Subsidiaries (including, without limitation, any past, prior or discontinued products) caused any material injury to any individual or property.

5.27 Internal Controls . Each of the Company and the Company Subsidiaries maintains a system of internal control over financial reporting sufficient in all material respects to provide reasonable assurance regarding the reliability of such entity’s financial reporting and the preparation of financial statements in accordance with GAAP and to provide reasonable assurance in all material respects that: (a) records are maintained in reasonable detail that accurately and fairly reflect in all material respects the transactions and dispositions of the assets of the Company and the Company Subsidiaries; (b) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that material transactions are being made only in accordance with authorizations of management and/or the board of directors (or equivalent entity) of the Company or the Company Subsidiaries, as applicable; and (c) unauthorized acquisition, use or disposition of the Company’s or any Company Subsidiary’s assets that could have a material effect on such entity’s financial statements are timely detected and/or prevented. To the knowledge of the Company, there are no significant deficiencies or material weaknesses in the design or operation of such system of internal control over financial reporting that are reasonably likely to adversely affect in any material respect the ability of the Company or any of the Company Subsidiaries to record, process, summarize and report financial information. To the knowledge of the Company, since July 1, 2009, there have been no instances of fraud, whether or not material, that involve the Company’s or any of the Company Subsidiary’s management or other employees who have a significant role in such entity’s system of internal control over financial reporting.

5.28 Brokers . Other than J.P. Morgan Securities Inc. (whose fees and expenses will be paid on behalf of the Company at Closing pursuant to Section 2.2(e) hereof), no broker, finder or similar intermediary has acted for or on behalf of the Company or any Company Subsidiary in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker’s, finder’s or similar fee or other commission in connection therewith based on any agreement with the Company or any Company Subsidiary or any action taken by them.

5.29 Exclusivity of Representations . The representations and warranties made by the Company in this Agreement are the exclusive representations and warranties made by the Company. The Company hereby disclaims any other express or implied representations or warranties. The Company is not, directly or indirectly, making any representations or warranties regarding the pro-forma financial information or financial projections relating the Company or any Company Subsidiary.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer represents and warrants to the Company and the Seller as follows:

6.1 Organization . The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with requisite corporate power and authority to own its properties and carry on its business in all material respects as presently owned or conducted, except where the failure to be so organized, existing and in good standing or to have such power or authority would not reasonably be expected, individually or in the aggregate, to materially impair the Buyer’s ability to effect the transactions contemplated hereby.

6.2 Binding Obligation . The Buyer has all requisite corporate organizational authority and power to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate organizational action on the part of the Buyer and no other corporate proceedings on the part of the Buyer are necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by the Buyer. This Agreement has been duly executed and delivered by the Buyer and, assuming that this Agreement constitutes the legal, valid and binding obligations of the Seller and the Company, constitute the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with its terms, except to the extent that the enforceability thereof may be limited by the Equitable Exceptions.

6.3 No Defaults or Conflicts . The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Buyer and performance by the Buyer of its obligations hereunder (i) do not result in any violation of the charter or by laws or other constituent documents of the Buyer, and (ii) except as set forth on Schedule 6.3 , do not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or create in any party the right to accelerate, terminate, modify or cancel any indenture, mortgage or loan or any other agreement or instrument to which the Buyer is a party or by which it is bound or to which its properties may be subject, and (iii) do not violate any existing applicable law, rule, regulation, judgment, order or decree or any Governmental Authority having jurisdiction over the Buyer or any of its properties; provided , however , that no representation or

warranty is made in the foregoing clause (ii) with respect to matters that would not reasonably be expected, individually or in the aggregate, to materially impair the Buyer’s ability to effect the transactions contemplated hereby.

6.4 No Authorization or Consents Required . Except for applicable filing requirements under the HSR Act or as otherwise set forth in Schedule 6.4 , no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person will be required to be obtained or made by the Buyer in connection with the due execution, delivery and performance by the Buyer of this Agreement and the consummation by the Buyer of the transactions contemplated hereby.

6.5 Brokers . No broker, finder or similar intermediary has acted for or on behalf of the Buyer in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker’s, finder’s or similar fee or other commission in connection therewith based on any agreement with the Buyer or any action taken by the Buyer.

6.6 Sufficient Funds . As of the date of this Agreement, the Buyer has, and as of the Closing Date, will have, sufficient cash in immediately available funds to pay the Estimated Purchase Price, any adjustments to the Estimated Purchase Price under Section 2.3 and all of its fees and expenses in order to consummate the transactions contemplated by this Agreement.

6.7 Litigation . There is no claim, action, suit or legal proceeding pending or to the knowledge of the Buyer, threatened against the Buyer or any material portion of its properties or assets before any Governmental Authority with respect to which there is a substantial possibility of a determination which questions the validity or legality of this Agreement or the transactions contemplated hereby or which seeks to prevent the transactions contemplated hereby or otherwise would reasonably be expected, individually or in the aggregate, to materially impair the Buyer’s ability to effect the transactions contemplated hereby.

6.8 Buyer’s Reliance . The Buyer acknowledges that none of the Seller, the Company or any other Person has made any representation or warranty, expressed or implied, as to the accuracy or completeness of any information regarding the Shares, the Company and the Company Subsidiaries furnished or made available to the Buyer and its representatives, except as expressly set forth in Articles 4 and 5 of this Agreement, and none of the Seller or any other Person (including any officer, director, member or partner of the Seller) shall have or be subject to any liability to the Buyer (except in the case of fraud), or any other Person, resulting from the Buyer’s use of any information, documents or material made available to the Buyer in any “data rooms,” management presentations, due diligence or in any other form in expectation of the transactions contemplated hereby. The Buyer acknowledges that, should the Closing occur, the Buyer shall acquire the Company and the Company Subsidiaries without any representation or warranty as to merchantability or fitness for any particular purpose of their respective assets, in an “as is” condition and on a “where is” basis, except as

otherwise expressly represented or warranted in Articles 4 and 5 of this Agreement; provided , however , that nothing in this Section 6.8 is intended to limit or modify the representations and warranties contained in Articles 4 and 5 . The Buyer acknowledges that, except for the representations and warranties contained in Articles 4 and 5 , neither the Company, the Seller nor any other Person has made, and the Buyer has not relied on any other express or implied representation or warranty by or on behalf of the Company or the Seller.

6.9 Investment Purpose . The Buyer will be purchasing the Shares for the purpose of investment and not with a view to, or for resale in connection with, the distribution thereof in violation of applicable federal, state or provincial securities laws. The Buyer acknowledges that the sale of the Shares hereunder has not been registered under the Securities Act of 1933 and the rules promulgated thereunder, as amended (the “ Securities Act ”) or any state securities laws, and that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated, or otherwise disposed of without registration under the Securities Act, pursuant to an exemption from the Securities Act or in a transaction not subject thereto. The Buyer represents that it is an “Accredited Investor” as that term is defined in Rule 501 of Regulation D of the Securities Act.

ARTICLE 7

COVENANTS

7.1 Conduct of Business of the Company . Except as contemplated by this Agreement or as otherwise set forth in Schedule 7.1 , during the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with Article 10 , the Company shall, and shall cause the Company Subsidiaries to, conduct their respective business and operations in the ordinary course and, without the prior written consent of the Buyer (which consent shall not be unreasonably withheld or delayed; provided , that the Buyer shall respond as soon as reasonably practicable but in no event later than five (5) Business Days following receipt of the Company’s written request for such response), shall not undertake any of the following actions:

(a) issue, sell or pledge, or authorize or propose the issuance, sale or pledge of (i) additional shares of capital stock of any class of the Company (including the Shares) or any Company Subsidiary, or securities convertible into or exchangeable for any such shares, or any rights, warrants or options to acquire any such shares or other convertible securities of the Company or any Company Subsidiary or (ii) any other securities in respect of, in lieu of, or in substitution for shares of capital stock of the Company (including the Shares) or any Company Subsidiary outstanding on the date hereof;

(b) redeem, purchase or otherwise acquire any outstanding shares of the capital stock of the Company or any Company Subsidiary; provided that nothing in this Agreement shall restrict the Company from paying any cash dividend or making any other cash distribution to the Seller prior to the Closing Date;

(d) incur any Indebtedness (other than ordinary course borrowings under the Credit Facilities and other performance bonds or letters of credit entered into in the ordinary course of business consistent with past practice);

(e) (i) increase the rate or terms of compensation or benefits of any of its employees, officers, directors or contractors, except as may be required under existing employment agreements, (ii) pay or agree to pay any pension, retirement allowance or other employee benefit not contemplated by any Company Plan to any employee, director, officer or contractor, whether past or present, or (iii) enter into, adopt or amend any employment, bonus, severance or retirement contract or adopt any employee benefit plan, or amend any Company Plan;

(f) (i) except in the ordinary course of business consistent with past practice, sell, lease, transfer or otherwise dispose of, any of its property or assets or (ii) create any Encumbrance (other than a Permitted Encumbrance) on any property or assets;

(g) make any loans, advances or capital contributions, except advances for travel and other normal business expenses to officers and employees in the ordinary course of business consistent with past practices;

(h) materially amend, become subject to, or terminate any contract of the type described in Section 5.10 or any Lease (other than (x) bidding for and entering into contracts with customers or suppliers in the ordinary course of business consistent with past practice, (y) terminations of contracts and Leases as a result of the expiration of the term of such contracts or Leases and (z) renewals of Leases in the ordinary course of business consistent with past practice);

(i) acquire any business or Person, by merger or consolidation, purchase of substantial assets or equity interests, or by any other manner, in a single transaction or a series of related transactions;

(j) write-off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business consistent with past practice charged to applicable reserves;

(k) make any change in any method of accounting or auditing practice other than as required by GAAP;

(l) plan, announce, implement or effect any reduction in force, lay-off, early retirement program, severance program or other program or effort concerning the termination of employment of employees of the Company or any Company Subsidiary that would constitute a “mass layoff” or “plant closing” (as defined under the Worker Adjustment and Retraining Notification Act of 1988 and similar state

and local laws) or enter into negotiations for the purpose of entering into or making any amendments to any collective bargaining agreement;

(m) enter into any transaction with an Affiliate;

(n) make any capital expenditure other than capital expenditures that are provided for in the annual budget for the fiscal year of the Company ending on June 30, 2012, a copy of which has been previously made available to the Buyer;

(o) make, change or revoke any material Tax election, change an annual Tax accounting period, adopt or change any Tax accounting method, file any amended Tax Return, enter into any closing agreement with respect to Taxes, settle any material Tax claim or assessment, or surrender any right to claim a refund of a material amount of Taxes;

(p) cancel or reduce any insurance coverage other than with respect to any Company Plan in the ordinary course of business consistent with past practice; or

(q) agree in writing to take any of the foregoing actions.

7.2 Access to Information; Confidentiality; Public Announcements .

(a) During the period from the date of this Agreement to the earlier of Closing Date and the termination of the Agreement in accordance with Article 10 , the Company shall give the Buyer and its authorized representatives reasonable access during normal business hours to all books, records, offices and other facilities and properties of the Company and each Company Subsidiary as the Buyer, or its authorized representatives, may from time to time reasonably request; provided , however , that any such access shall be conducted in a manner not to interfere unreasonably with the businesses or operations of the Company and the Company Subsidiaries, and the Buyer shall not conduct any invasive sampling or testing with respect to the Real Property. Notwithstanding anything to the contrary in this Agreement, neither the Company nor any Company Subsidiary shall be required to disclose any information to the Buyer, or its authorized representatives, if doing so would violate any agreement or federal, state, provincial, municipal, local or foreign law, rule or regulation to which the Company or any Company Subsidiary is a party or to which the Company or any Company Subsidiary are subject.

(b) Any information provided to or obtained by the Buyer or its authorized representatives pursuant to paragraph (a) above shall be “Information” (herein referred to as “ Information ”) as defined in the Reciprocal Confidentiality Agreement, dated as of June 9, 2011, by and between Attends Healthcare Products, Inc., on behalf of the Company, and the Buyer (the “ Confidentiality Agreement ”), and shall be held by the Buyer in accordance with and be subject to the terms of the Confidentiality Agreement. Notwithstanding anything to the contrary herein, the terms and provisions of the

Confidentiality Agreement shall survive the termination of this Agreement in accordance with the terms therein. In the event of the termination of this Agreement for any reason, the Buyer shall comply with the terms and provisions of the Confidentiality Agreement, including returning or destroying all Information and the non-soliciting of employees of the Company and the Company Subsidiaries. The Confidentiality Agreement shall terminate on the Closing Date.

(c) No party will issue or cause the publication of any press release or other public announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other parties hereto; provided , however , that nothing herein will prohibit any party from issuing or causing publication of any such press release or public announcement to the extent that such disclosure is upon advice of counsel required by law, in which case the party making such determination will, if practicable in the circumstances, use reasonable efforts to allow the other parties reasonable time to comment on such release or announcement in advance of its issuance.

7.3 Filings and Authorizations; Consummation .

(a) Each of the Seller and the Buyer represents and warrants that it has filed the Pre-Merger Notification and Report Form required to be filed under the HSR Act in connection with the transactions contemplated by this Agreement. The Buyer acknowledges and agrees that it shall pay and shall be solely responsible for the payment of all filing fees and other charges for the filing under the HSR Act; provided , however , that fifty percent (50%) of any and all such filing fees paid by the Buyer shall constitute Company Expenses.

(b) Each of the parties hereto, as promptly as practicable, shall make, or cause to be made, all other filings and submissions under laws, rules and regulations applicable to it, or to its Subsidiaries and Affiliates, as may be required for it to consummate the transactions contemplated herein and use its commercially reasonable efforts (which shall not require either party to make any payment or concession to any Person in connection with obtaining such Person’s consent) to obtain, or cause to be obtained, all other authorizations, approvals, consents and waivers from all Persons and Governmental Authorities necessary to be obtained by it, or its Subsidiaries or Affiliates, in order for it to consummate such transactions. In the event the Buyer elects to obtain title insurance reasonably acceptable to Buyer with respect to the Real Property, the Company, and/or the applicable Company Subsidiary shall execute and deliver to the Buyer (i) affidavits as to parties in possession and mechanic’s and materialmen’s liens in form reasonably satisfactory to the Buyer’s title company, and (ii) any other documents reasonably requested by the Buyer and/or the Buyer’s title company necessary for the Buyer to obtain title insurance with respect to the Real Property.

(c) The parties hereto shall coordinate and cooperate with one another in exchanging and providing such information to one another and in making the filings and requests referred to in paragraphs (a) and (b) above. The parties hereto shall

supply such reasonable assistance as may be reasonably requested by any other party hereto in connection with the foregoing.

(d) Subject to the Buyer’s compliance with Section 7.3(e) , and notwithstanding the foregoing, nothing in this Section 7.3 shall require, or be construed to require, the Buyer or any of its Affiliates to agree to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of the Buyer, the Company, any Company Subsidiary or any of their respective Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to the Buyer of the transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and conditions of this Agreement.

(e) Notwithstanding anything to the contrary herein, if (i) following the date hereof and prior to the Closing, the Buyer or any of its Affiliates acquires or enters into any agreement to acquire (by merger, consolidation, acquisition of equity interests or assets, joint venture or otherwise) the business of any Person which is similar to or competitive with the business of the Company and the Company Subsidiaries (other than pursuant to the transactions contemplated by this Agreement) and (ii) as a result of the actions of the Buyer or its Affiliates under clause (i) above, any order is made by any Governmental Authority or any suit is threatened or instituted challenging any of the transactions contemplated by this Agreement as violative of any Antitrust Law, the Buyer shall take any and all such actions (including, without limitation, agreeing to hold separate or to divest any of the businesses, product lines or assets of the Buyer or any of its Affiliates or of the Company, any Company Subsidiary or their respective Affiliates) as may be required (A) by the applicable Governmental Authority (including, without limitation, the Antitrust Division of the United States Department of Justice or the Federal Trade Commission) in order to resolve such objections as such Governmental Authority may have to such transactions under such Antitrust Law, or (B) by any domestic or foreign court or similar tribunal, in any suit brought by any Person or Governmental Authority challenging the transactions contemplated by this Agreement as violative of any Antitrust Law, in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order that has the effect of preventing the consummation of the transactions contemplated by this Agreement. If the Buyer or any of its Affiliates takes any of the actions set forth in clause (i) above, it shall not be deemed a failure to satisfy the conditions specified in Sections 8.4 or 9.4 , if in any suit brought by any Person or Governmental Authority challenging the transactions contemplated by this Agreement as violative of any Antitrust Law, a court enters or the applicable Governmental Authority makes an order or decree permitting the transactions contemplated by this Agreement, but requiring that any of the businesses, product lines or assets of any of the Buyer or its Affiliates or of the Company, the Company Subsidiaries or their respective Affiliates be divested or held separate by the Buyer, or that would otherwise limit the Buyer’s freedom of action with respect to, or its ability to retain, the Company and the Company Subsidiaries or any portion thereof or any of the Buyer’s or its Affiliates’ other assets or businesses.

(f) Each party hereto shall promptly inform the other parties of any material communication from the Federal Trade Commission, the Department of Justice or any other Governmental Authority regarding any of the transactions contemplated by this Agreement. If any party or any Affiliate thereof receives a request for additional information or documentary material from any such Governmental Authority with respect to the transactions contemplated by this Agreement, then such party will endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request. The Buyer will advise the Company promptly in respect of any understandings, undertakings or agreements (oral or written) which the Buyer proposes to make or enter into with the Federal Trade Commission, the Department of Justice or any other Governmental Authority in connection with the transactions contemplated by this Agreement.

7.4 Resignations . The Company shall cause to be delivered to the Buyer on the Closing Date such resignations of members of the Board of Directors and officers of the Company and each Company Subsidiary as requested in writing by the Buyer at least five (5) Business Days prior to the Closing Date, such resignations to be effective concurrently with the Closing.

7.5 Further Assurances . From the date hereof until the earlier of the Closing Date and the termination of this Agreement in accordance with Article 10 , each of the parties hereto shall execute such documents and perform such further acts as may be reasonably required to carry out the provisions hereof and the actions contemplated hereby. Each party shall, on or prior to the Closing Date, use its commercially reasonable efforts to fulfill or obtain the fulfillment of the conditions precedent to the consummation of the transactions contemplated hereby, including the execution and delivery of any documents, certificates, instruments or other papers that are reasonably required for the consummation of the transactions contemplated hereby.

7.6 Officer and Director Indemnification .

(a) The Buyer agrees that all rights to indemnification and exculpation from liability for acts or omissions occurring on or prior to the Closing Date now existing in favor of the current or former directors, officers or employees of the Company and the Company Subsidiaries, as provided in the respective certificates of incorporation or by-laws or in indemnification agreements, shall survive the Closing Date and shall continue in full force and effect in accordance with their respective terms for a period of not less than six (6) years after the Closing Date.

(b) On the Closing Date, the Seller shall pay for a non-cancelable run-off insurance policy, for a period of six (6) years after the Closing Date to provide insurance coverage for events, acts or omissions occurring on or prior to the Closing Date for all persons who were directors or officers of the Company or any Company Subsidiary on or prior to the Closing Date (which policy shall be of at least the same coverage and amounts and containing terms and conditions that are not materially less advantageous to the directors and officers of the Company or any Company

Subsidiary when compared to the insurance maintained by the Company as of the date hereof).

7.7 Termination of Affiliate Obligations . On or before the Closing Date, except as set forth on Schedule 7.7 hereto and liabilities relating to employment relationships and the payment of compensation and benefits in the ordinary course of business, all liabilities and obligations between the Company or any Company Subsidiary, on the one hand, and one or more of its Affiliates (including the Seller but not including the Company Subsidiaries) on the other hand, including (i) any and all Indebtedness between the Company on the one hand, and one or more of its Affiliates (including the Seller but not including the Company Subsidiaries), on the other hand, and (ii) any and all contracts, agreements and instruments (other than this Agreement and any ancillary agreement contemplated herein) between the Company or any Company Subsidiary on the one hand, and one or more of its Affiliates (including the Seller but not including the Company Subsidiaries), on the other hand, shall be terminated in full, without any liability for the Company or any Company Subsidiary thereof following the Closing.

7.8 Exclusivity . Until the earlier of the Closing and such time as this Agreement is terminated in accordance with Article 10 , except for the transactions contemplated by this Agreement, the Seller will not, and will cause the Company, the Company Subsidiaries, and their respective Representatives not to, directly or indirectly, solicit, encourage or enter into any negotiation, discussion, contract, agreement, instrument, arrangement or understanding with any party, with respect to the sale of the Shares or all or substantially all the assets of the Company and the Company Subsidiaries, or any merger, recapitalization or similar transaction with respect to the Company and the Company Subsidiaries or their business.

7.9 Waiver of Conflicts Regarding Representation . Recognizing that Paul, Weiss, Rifkind, Wharton & Garrison LLP (“ Paul, Weiss ”) has acted as legal counsel to the Seller, and may be deemed to have acted as legal counsel to the Company and the Company Subsidiaries prior to the Closing, and that Paul, Weiss intends to act as legal counsel to the Seller after the Closing, the Company hereby waives, on its own behalf and agrees to cause the Company Subsidiaries to waive, any conflicts that may arise in connection with Paul, Weiss representing the Seller after the Closing.

7.10 Employee Matters . Except as otherwise set forth in any “change in control” or similar agreement or instrument in effect as of the date hereof:

(a) During the period beginning on the Closing Date and ending on the first (1st) anniversary thereof, the Buyer shall, or shall cause the Company and each Company Subsidiary to, provide (i) a base salary or base wages, annual bonuses, long term incentive opportunities and severance, to each employee of the Company or any Company Subsidiary at an annual rate or amount that is no less than the annual rate or amount of the base salary or base wages, annual bonuses, long term incentive opportunities and severance, that was provided to such employee immediately prior to the Closing and (ii) employee benefits in the aggregate no less favorable to the

employees of the Company or any Company Subsidiary, taken as a whole, than the employee benefits provided to such employees immediately following the Closing Date (excluding special retention bonuses paid or payable with respect to arrangements established to ensure continuity of employment arising from this transaction); provided , however , that (A) except as otherwise set forth in any agreement (other than this Agreement) with any employee of the Company or any Company Subsidiary or applicable law, nothing herein shall preclude the Buyer, the Company or any Company Subsidiary from terminating the employment of any employee at any time on or after the Closing, and (B) nothing herein shall require the Buyer to provide or maintain any particular plan or benefit which was provided to or maintained for employees of the Company or any Company Subsidiary prior to the Closing.

(b) Except as specifically provided herein, the Buyer shall, and shall cause, service rendered by employees of the Company and each Company Subsidiary prior to the Closing Date to be taken into account for all purposes including participation, coverage, vesting and level of benefits (but not for purposes of benefit accruals under any defined benefit pension plan), as applicable, under all employee benefit plans, programs, policies and arrangements of the Buyer and its subsidiaries (including the Company and each Company Subsidiary) from and after the Closing Date, to the same extent as such service was taken into account under corresponding plans of the Company and each Company Subsidiary for such purposes; provided , however , that nothing herein shall result, or be construed to result, in the duplication of any benefits. Without limiting the foregoing, employees of the Company and each Company Subsidiary will not be subject to any pre-existing condition or limitation under any health or welfare plan of the Buyer or its subsidiaries (including the Company and each Company Subsidiary) for any condition for which such employee would have been entitled to coverage under the corresponding plan of the Company and each Company Subsidiary in which such employee participated immediately prior to the Closing Date. The Buyer shall, and shall cause, such employees to be given credit under such plans for co-payments made, and deductibles satisfied, prior to the Closing Date.

(c) Without in any way limiting the application of the provisions in Section 7.10(a) , with respect to any employee of the Company or any Company Subsidiary who participates in the Company’s Executive/Senior Management Plan for fiscal year 2011 as in effect on the date hereof (the “ 2011 Bonus Plan ”), the Buyer shall, or shall cause the Company and each Company Subsidiary to, make all bonus payments required to be made under the 2011 Bonus Plan in accordance with the terms of the 2011 Bonus Plan to the extent such obligations are reflected as a Current Liability shown on the face of the finally determined Statement.

(d) Notwithstanding anything to the contrary herein, nothing contained in this Section 7.10 shall (i) confer any rights, remedies or claims upon any employee of the Company or any Company Subsidiary or (ii) be considered to be an amendment of any Company Plan.

7.11 Escrow Agreement . On or prior to the Closing Date, the Seller, the Buyer and Wells Fargo Bank, National Association (the “ Escrow Agent ”) shall enter into

an escrow agreement in respect of the Indemnity Escrow Amount, substantially in the form attached hereto as Exhibit C (the “ Escrow Agreement ”).

7.12 Restrictive Covenant Agreement . Contemporaneously with the execution and delivery of this Agreement, each Person listed on Schedule 7.12 hereto and the Buyer or a Company Subsidiary, as applicable, shall enter into a mutually acceptable non-competition, non-solicitation and confidentiality agreement (each, a “ Restrictive Covenant Agreement ”), as further set forth on Schedule 7.12 hereto. With respect to each Restrictive Covenant Agreement to which any Company Subsidiary is a party, during the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with Article 10 , the Company shall not, and shall cause the Company Subsidiaries not to, amend, modify, cancel or terminate any such Restrictive Covenant Agreement.

7.13 Tax Matters . Promptly following the execution and delivery of this Agreement, the Company shall request an automatic extension to file the Company’s consolidated federal income Tax Return and state income Tax Returns for the year ended June 30, 2011. Until the earlier of the Closing and such time as this Agreement is terminated in accordance with Article 10 , the Company shall not file such Tax Returns. The Company shall file such Tax Returns at the time the Statement of Closing Working Capital becomes final. Such Tax Returns shall be prepared consistently with point 6 of Exhibit B and shall show a final tax liability equal to the amounts included in the Final Working Capital with respect thereto. In the event that the estimated state income Tax payments of the Company (made prior to the Closing Date) for the period ended June 30, 2011, result in an income Tax refund from the State of North Carolina or the State of California to the Company or the Buyer after the Closing Date, the Company shall pay to the Seller an amount equal to such refund received in amount not to exceed $2,000 with respect to North Carolina and $26,800 with respect to California, less any reasonable expenses of the Company or the Buyer to obtain such refund (not to include any costs associated with the preparation and filing of the applicable state income Tax Returns), within ten (10) Business Days after the receipt of such refund or the time at which such refund is used to reduce the Taxes (including estimated Taxes) otherwise payable by the Company. The Buyer shall use commercially reasonable efforts to obtain such North Carolina and California income Tax Refunds. Neither the North Carolina nor the California Tax refund shall be included in the Statement of Closing Working Capital or the Final Working Capital.

ARTICLE 8

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER

The obligations of the Buyer under this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of all of the following conditions, any one or more of which may be waived by the Buyer:

8.1 Representations and Warranties Accurate . Other than the representations and warranties of the Seller contained in Section 4.1 , Section 4.2 and

Section 4.5 , the representations and warranties of the Seller contained in Article 4 shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date (except for such representations and warranties expressly stated to relate to a specific date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date). The representations and warranties of the Seller contained in Section 4.1 , Section 4.2 and Section 4.5 shall be true and correct in all respects on and as of the Closing Date as though made on and as of the Closing Date (except for such representations and warranties expressly stated to relate to a specific date, in which case such representation and warranty shall be true and correct in all respects as of such earlier date). Other than the representations and warranties of the Company contained in Section 5.2 , Section 5.3 and Section 5.4 , the representations and warranties of the Company contained in Article 5 shall be true and correct on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties expressly stated to relate to a specific date, in which case each such representation and warranty shall be true and correct as of such earlier date); provided , however , that the foregoing portion of this condition shall be considered satisfied unless the failure of such representations or warranties to be true and correct, has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The representations and warranties of the Company contained in Section 5.2 , Section 5.3 and Section 5.4 shall be true and correct in all respects on and as of the Closing Date as though made on and as of the Closing Date (except for such representations and warranties expressly stated to relate to a specific date, in which case such representation and warranty shall be true and correct in all respects as of such earlier date).

8.2 Performance . The Company and the Seller shall have performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed and complied with by them prior to or on the Closing Date.

8.3 Officer’s Certificate . The Company, with respect to it, and the Seller, with respect to it, shall have delivered to the Buyer a certificate, signed by an executive officer of the Company in the case of the Company, and an executive officer of the Seller in the case of the Seller, dated as of the Closing Date, certifying the matters set forth in Sections 8.1 and 8.2 .

8.4 Legal Prohibition . On the Closing Date, there shall exist no injunction or other order issued by any Governmental Authority or court of competent jurisdiction which prohibits the consummation of the transactions contemplated under this Agreement.

8.5 HSR Act; Governmental Approvals .

(a) All required filings under the HSR Act shall have been completed and all applicable time limitations thereunder shall have expired without a request for further information by the relevant federal authorities under the HSR Act, or in the event of such a request for further information, the expiration of all applicable time

limitations under the HSR Act shall have occurred without the objection of such federal authorities.

(b) All Governmental Authorities, the consent of which is necessary under any applicable law, including Antitrust Laws, for the consummation of the transactions contemplated by this Agreement shall have consented to the transactions contemplated by this Agreement.

8.6 Stock Certificates . The Seller shall have delivered or caused to be delivered to the Buyer the certificates representing the Shares as provided in Section 2.2(a) .

8.7 Payoff Letters . The Buyer shall have received payoff letters reasonably acceptable to it with respect to the payment of the Credit Facilities Payoff Amount and the release of all of the Encumbrances related thereto.

8.8 FIRPTA Affidavit . The Buyer shall have received an affidavit of an officer of the Seller sworn to under penalty of perjury, setting forth the Seller’s name, address and Federal tax identification number and stating that the Seller is not a “foreign person” within the meaning of Section 1445 of the Code.

8.9 No Material Adverse Effect . From the date of this Agreement, there shall not have occurred any Material Adverse Effect.

8.10 Audited Financial Statements . The Buyer shall have received the audited consolidated balance sheet of the Company and the Company Subsidiaries as of June 30, 2011, and the related consolidated statements of operations, shareholders’ deficit and cash flows of the Company and the Company Subsidiaries for the year ended June 30, 2011, together with the notes and schedules thereto (the “ 2011 Audited Financial Statements ”) and an unqualified written opinion of the Company’s independent auditors thereon and the audited income statement shall be consistent in all material respects, without giving effect to any differences resulting from a reclassification of certain expenses under different line items as required by GAAP, to the unaudited income statement included in the Unaudited Financial Statements; provided that this condition shall automatically be deemed satisfied on the day following the full third (3 ^rd ) Business Day after receipt of the 2011 Audited Financial Statements by Buyer if Buyer does not notify the Company in writing prior to such date that it reasonably believes in good faith that this condition has not been satisfied.

8.11 Secretary’s Certificates . The Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of each of the Seller and the Company certifying (a) that attached thereto are true and complete copies of all resolutions adopted by the board of directors of the Seller or the Company, as applicable, authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and (b) the names and signatures of the officers of

Seller or the Company, as applicable, authorized to sign this Agreement and the other documents to be delivered hereunder.

8.12 Escrow Agreement . The Escrow Agreement shall have been executed and delivered by each party thereto.

8.13 Restrictive Covenant Agreement . Each Restrictive Covenant Agreement shall be in full force and effect.

ARTICLE 9

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER

The obligation of the Seller to effect the transactions contemplated by this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of all of the following conditions, any one or more of which may be waived by the Seller:

9.1 Representations and Warranties Accurate . The representations and warranties of the Buyer contained in Article 6 which are not subject to a materiality qualification shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties expressly stated to relate to a specific date, in which case such representations and warranties shall be true and correct in all material respects on such earlier date) and the representations and warranties of the Buyer which are subject to a materiality qualification, shall be true and correct in all respects on and as of the Closing Date (except for representations and warranties expressly stated to relate to a specific date, in which case such representations and warranties shall be true and correct on such earlier date).

9.2 Performance . The Buyer shall have performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed and complied with by it prior to or on the Closing Date.

9.3 Officer Certificate . The Buyer shall have delivered to the Company a certificate, signed by an executive officer of the Buyer, dated as of the Closing Date, certifying the matters set forth in Sections 9.1 and 9.2 .

9.4 Legal Prohibition . On the Closing Date, there shall exist no injunction or other order issued by any Governmental Authority or court of competent jurisdiction which prohibits the consummation of the transactions contemplated under this Agreement.

9.5 HSR Act; Governmental Approvals .

in the event of such a request for further information, the expiration of all applicable time limitations under the HSR Act shall have occurred without the objection of such federal authorities.

9.6 Escrow Agreement . The Escrow Agreement shall have been executed and delivered by each party thereto.

ARTICLE 10

TERMINATION

10.1 Termination . This Agreement may be terminated on or prior to the Closing Date as follows:

(i) by the mutual consent of the Buyer and the Seller;

(ii) at the election of the Buyer or the Seller if the Closing Date shall not have occurred on or before October 31, 2011 (the “ Termination Date ”); provided , however , that the terminating party is not in material breach of any representation, warranty, covenant or other agreement contained herein at the time of such termination;

(iii) by the Buyer (if it is not in material breach of its representations, warranties, covenants or agreements under this Agreement so as to cause any of the conditions set forth in Sections 9.1 or 9.2 not to be satisfied), upon written notice to the Seller, if there has been a material violation, breach or inaccuracy of any representation, warranty, covenant or agreement of the Company or the Seller contained in this Agreement, which violation, breach or inaccuracy would cause any of the conditions set forth in Sections 8.1 or 8.2 not to be satisfied, and such violation, breach or inaccuracy has not been waived by the Buyer or cured by the Seller, as applicable, within 10 Business Days after receipt by the Seller of written notice thereof from the Buyer or is not reasonably capable of being cured prior to the Termination Date;

(iv) by the Seller (if neither it nor the Company is in material breach of its representations, warranties, covenants or agreements under this Agreement so as to cause any of the conditions set forth in Sections 8.1 or 8.2 not to be satisfied), upon written notice to the Buyer, if there has been a material violation, breach or inaccuracy of any representation, warranty, agreement or covenant of the Buyer contained in this Agreement, which violation, breach or inaccuracy would cause any of the conditions set forth in Sections 9.1 or 9.2 not to be satisfied, and such violation, breach or inaccuracy has not been waived by the Seller or cured by the Buyer within 10

Business Days after receipt by the Buyer of written notice thereof from the Seller or is not reasonably capable of being cured prior to the Termination Date;

(v) by the Buyer or the Seller if a court of competent jurisdiction or other Governmental Authority shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated under this Agreement and such order or action shall have become final and nonappealable.

10.2 Survival After Termination . If this Agreement is terminated by the parties in accordance with Section 10.1 hereof, this Agreement shall become void and of no further force and effect; provided , however , that none of the parties hereto shall have any liability in respect of a termination of this Agreement, except that the provisions of Section 7.2(b) (Confidential Information), 12.1 (Expenses), 12.12 (Governing Law), 12.13 (Dispute Resolution), 12.14 (Consent to Jurisdiction) and 12.15 (Waiver of Jury Trial) shall survive the termination of this Agreement and that nothing herein shall relieve any party from any liability for any material breach of the provisions of this Agreement prior to the termination of this Agreement.

ARTICLE 11

INDEMNIFICATION

11.1 Survival . Each of the representations and warranties of the Seller contained in Article 4 (other than the Seller Specified Representations), of the Seller and the Company contained in Article 5 (other than the Company Specified Representations and the Other Representations) and of the Buyer contained in Article 6 (other than the Buyer Specified Representations) shall survive until the first anniversary of the Closing Date. Each of the Seller Specified Representations, the Company Specified Representations and the Buyer Specified Representations shall survive until the second anniversary of the Closing and the Other Representations shall survive until December 27, 2012. Each of the covenants and agreements of the parties set forth in this Agreement shall survive the Closing Date until the first anniversary of the Closing Date; provided that the covenants and agreements contained herein requiring performance after the Closing Date shall survive in accordance with their terms. The indemnification provided in Section 11.2(a)(vii) shall survive until (A) with respect to any North Carolina income and franchise Taxes for any taxable period ending on or before the Closing Date for which no Tax Return is filed on or prior to April 15, 2012, April 15, 2012 and (B) with respect to any North Carolina income and franchise Taxes for any taxable period ending on or before the Closing Date for which a Tax Return is filed on or prior to April 15, 2012, either (i) April 15, 2015 or (ii) if a Tax proceeding (as defined in Section 5.12 ) with respect to North Carolina income or franchise Taxes has commenced on or before April 15, 2015 with respect to one or more such Tax Returns, until the expiration of the applicable statute of limitations on assessment of Tax for the years subject to such Tax proceeding. If any Claims Notice (as defined below) is given in good faith in accordance with the terms of Section 11.4 on or prior to the applicable survival date set

forth in this Section 11.1 (as applicable, the “ Cut-Off Date ”) the claims specifically set forth in the Claims Notice shall survive until such time as such claim is finally resolved.

11.2 Indemnification by the Seller; Indemnification by the Buyer .

(a) Subject to the limitations set forth herein, from and after the Closing Date, the Seller agrees to indemnify and hold harmless the Buyer, its Affiliates and their respective officers, directors, employees, shareholders, partners, and members (each, a “ Buyer Indemnitee ”) from and against any and all losses, liabilities, expenses (including reasonable attorneys’ fees), claims, suits, actions and damages (collectively, “ Losses ”) arising from, or in connection with, (i) any breach or inaccuracy of any representation or warranty (other than any Seller Specified Representation) made by the Seller in this Agreement or in the certificate delivered pursuant to Section 8.3 , (ii) any breach of any covenant or agreement made hereunder by the Seller, (iii) any breach of any covenant or agreement made hereunder by the Company or any Company Subsidiary (solely with respect to covenants and agreements to be made or performed by the Company or any Company Subsidiary prior to Closing), (iv) any breach or inaccuracy of any representation or warranty (other than any Company Specified Representation) made by the Seller or the Company in this Agreement or in the certificate delivered pursuant to Section 8.3 , (v) any breach or inaccuracy of any Seller Specified Representation made by the Seller or breach or inaccuracy of any Company Specified Representation made by the Seller or the Company in this Agreement or in the certificate delivered pursuant to Section 8.3 , (vi) any breach or inaccuracy of any of the Other Representations made by the Seller or the Company in this Agreement or in the certificate delivered pursuant to Section 8.3 or (vii) seventy five percent (75%) of any North Carolina income or franchise Taxes of the Company or any Company Subsidiary for all taxable periods (or portions thereof) ending on or before the Closing Date.

(b) Subject to the limitations set forth herein, from and after the Closing Date, the Buyer hereby agrees to indemnify and hold harmless, the Seller, its officers, directors, employees, shareholders, partners, members and Affiliates, and prior to the Closing, the Company and each Company Subsidiary and their respective officers, directors and employees (each, a “ Seller Indemnitee ,” and together with the Buyer Indemnitees, the “ Indemnitees ” and each an “ Indemnitee ”), from and against any Losses arising from, or in connection with, any (i) breach or inaccuracy of any representation or warranty (other than any Buyer Specified Representation) made by the Buyer in this Agreement or in the certificate delivered pursuant to Section 9.3 , (ii) breach of any covenant or agreement made by the Buyer, and after the Closing, the Company and each Company Subsidiary, in this Agreement or (iii) breach or inaccuracy of any Buyer Specified Representation made by the Buyer in this Agreement or in the certificate delivered pursuant to Section 9.3 .

11.3 Limitations on Indemnification .

(a) Notwithstanding anything in this Agreement to the contrary, except in the event of fraud, in no event shall the cumulative indemnification obligations of the Seller under Section 11.2(a) (other than Section 11.2(a)(v) ) exceed the then existing Cap; provided , that the cumulative indemnification obligations of the Seller under Section 11.2(a)(v) shall in no event exceed the Final Purchase Price less any amounts paid by Seller to the Buyer Indemnitees under Article 11 of this Agreement (including payments made from the Indemnity Escrow Amount); provided , further , that the cumulative indemnification obligations of the Seller under Section 11.2(a)(vii) shall be subject to the Cap and in no event exceed $2,000,000.

(b) Notwithstanding anything in this Agreement to the contrary, no indemnification claims for Losses shall be asserted by the Seller Indemnitees or the Buyer Indemnitees, respectively, under Article 11 (other than Section 11.2(a)(v) , (vi) and (vii) with respect to indemnification claims asserted by the Buyer Indemnitees, or Section 11.2(b)(iii) , with respect to indemnification claims asserted by the Seller Indemnitees) unless any individual Loss or group or series of related Losses exceeds $20,000 (such Loss or group or series of related Losses that does not exceed $20,000, the “ DeMinimis Losses ”).

(c) Notwithstanding anything in this Agreement to the contrary, the Seller shall not be liable to the Buyer Indemnitees for indemnification under Section 11.2(a) (other than Section 11.2(a)(v) , (vi) and (vii) ) until the aggregate amount of all Losses that would otherwise be payable thereunder (which shall not include for such purposes DeMinimis Losses) exceed 1% of the Final Purchase Price (the “ Basket Amount ”), whereupon the Buyer Indemnitees shall be entitled to receive only amounts for Losses in excess of the Basket Amount, in which case, the Buyer Indemnitees shall be entitled to indemnification for the amount of such Losses up to the limits set forth in Section 11.3(a) .

(d) Notwithstanding anything in this Agreement to the contrary, the Buyer shall not be liable to the Seller Indemnitees for indemnification under Section 11.2(b) (other than Section 11.2(b)(iii) ) until the aggregate amount of all Losses that would otherwise be payable thereunder (which shall not include for such purposes DeMinimis Losses) exceed the Basket Amount, whereupon the Seller Indemnitees shall be entitled to receive only amounts for Losses in excess of the Basket Amount, in which case, the Seller Indemnitees shall be entitled to indemnification for the amount of such Losses up to the then available Indemnity Escrow Amount (as reduced from time to time to reflect payments for indemnification made by the Buyer hereunder).

(e) Notwithstanding anything to the contrary in this Agreement, except in the event of fraud, or with respect to breaches or inaccuracies of any of the Seller Specified Representations and the Company Specified Representations, Buyer shall have recourse for indemnification under this Article 11 solely to, and to the extent of, the then available Indemnity Escrow Amount in accordance with Section 11.10 ; provided , that, from and after the date that is immediately following the

first anniversary of the Closing Date until December 27, 2012 or, in the case of an indemnification claim under Section 11.2(a)(vii) , until the applicable Cut-Off Date if later than December 27, 2012, the Buyer shall have recourse for indemnification under Sections 11.2(a)(vi) and (vii) solely to, and to the extent of, the then available Cap; provided, further, that in no event shall the amount of Losses paid by the Seller under Section 11.2(a) exceed the Final Purchase Price less any amounts paid by Seller to the Buyer Indemnitees under Article 11 of this Agreement (including payments made from the Indemnity Escrow Amount).

(f) No party hereto shall be obligated to indemnify any other Person with respect to (i) any Losses with respect to any matter if such matter was included in the calculation of the adjustment to the Estimated Purchase Price pursuant to Section 2.3 (to the extent so included), (ii) for any Losses for which a Claims Notice was not duly delivered prior to the applicable Cut-Off Date.

(g) For purposes of this Article 11 , any inaccuracy in or breach of any representation or warranty (other than the representations and warranties in Section 5.7 (Financial Statements), Section 5.19(ii) (Absence of Certain Changes or Events) and Section 5.27 (Internal Controls)) shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty; provided , however , any such qualification shall not be disregarded solely to the extent that it modifies the identification of applicable lists of agreements, contracts, instruments or permits.

11.4 Indemnification Claim Process .

(a) All claims for indemnification by either a Seller Indemnitee or Buyer Indemnitee under this Article 11 shall be asserted and resolved in accordance with Sections 11.4 , 11.5 and 11.10 .

(b) If a Buyer Indemnitee intends to seek indemnification for a Third Party Claim pursuant to this Article 11 , the Buyer Indemnitee shall promptly, but in no event more than thirty (30) calendar days following such Buyer Indemnitee’s knowledge of such claim, notify the Seller in writing of such claim, describing such claim in reasonable detail and the amount or estimated amount of such Losses (the “ Claims Notice ”). The failure to give such prompt written notice shall not, however, relieve the Seller of its indemnification obligations, except and only to the extent that the Seller forfeits rights or defenses by reason of such failure.

(c) If a Seller Indemnitee intends to seek indemnification for a Third Party Claim pursuant to this Article 11 , the Seller Indemnitee shall promptly, but in no event more than thirty (30) calendar days following the Seller’s knowledge of such claim, deliver a Claims Notice to the Buyer. The failure to give such prompt written notice shall not, however, relieve the Buyer of its indemnification obligations, except and only to the extent that the Buyer forfeits rights or defenses by reason of such failure.

(d) The Indemnitor shall have thirty (30) days from the date on which the Indemnitor received the Claims Notice to notify the Indemnitee that the Indemnitor desires to assume the defense or prosecution of the Third Party Claim and any litigation resulting therefrom with counsel reasonably acceptable to the Indemnitee; provided , that the Indemnitor shall not be entitled to assume such defense if (i) such Third Party relates to or arises in connection with any criminal allegation, (ii) such Third Party Claim seeks an injunction or equitable relief against an Indemnitee, (iii) an adverse determination with respect to such Third Party Claim would be materially detrimental to or materially injure the Indemnitee’s reputation or future business prospects, or (iv) the Indemnitee reasonably believes that the Losses relating to such Third Party Claim could exceed the maximum amount that such Indemnitee could then be entitled to recover under this Article 11 . If the Indemnitor assumes the defense of such claim in accordance herewith: (i) the Indemnitee may retain separate co-counsel at its sole cost and expense and participate in the defense of such Third Party Claim, but the Indemnitor shall control the investigation, defense and settlement thereof; (ii) the Indemnitee shall not file any papers or consent to the entry of any judgment or enter into any settlement with respect to such Third Party Claim without the prior written consent of the Indemnitor; and (iii) the Indemnitor shall not consent to the entry of any judgment or enter into any settlement with respect to such Third Party Claim without the prior written consent of the Indemnitee (which shall not be unreasonably withheld) unless the judgment or settlement provides solely for the payment of money, the Indemnitor makes such payment in full and the Indemnitee receives an unconditional release. The parties shall act in good faith in responding to, defending against, settling or otherwise dealing with Third Party Claims, and cooperate in any such defense and give each other reasonable access to all information relevant thereto. Whether or not the Indemnitor has assumed the defense of such Third Party Claim, the Indemnitor will not be obligated to indemnify the Indemnitee hereunder with respect to any settlement entered into or any judgment consented to without the Indemnitor’s prior written consent (which shall not be unreasonably withheld).

(e) If the Indemnitor does not assume the defense of such Third Party Claim within thirty (30) days of receipt of the Claims Notice, the Indemnitee will be entitled to assume such defense, at its sole cost and expense (or, if the Indemnitee incurs a Loss with respect to the matter in question for which the Indemnitee is entitled to indemnification pursuant to Article 11 , at the expense of the Indemnitor), upon delivery of notice to such effect to the Indemnitor; provided , however , that: the Indemnitor (i) shall have the right to participate in the defense of the Third Party Claim at its sole cost and expense and (ii) shall not be obligated to indemnify the Indemnitee hereunder for any settlement entered into or any judgment consented to without the Indemnitor’s prior written consent.

(f) The Buyer Indemnitee shall, and shall cause the Company and the Company Subsidiaries to, provide reasonable cooperation with the Seller in all aspects of any investigation, defense, pretrial activities, trial, compromise, settlement or discharge of any claim in respect of which a Buyer Indemnitee is seeking indemnification pursuant to this Article 11 that the Seller has elected to control, including, but not limited

to, by providing the Seller with reasonable access to books, records, employees and officers (including as witnesses) of the Company and the Company Subsidiaries.

11.5 Indemnification Procedures for Non-Third Party Claims . The Indemnitee will deliver a Claims Notice to the Indemnitor promptly upon its discovery of any matter for which the Indemnitor may be liable to the Indemnitee hereunder that does not involve a Third Party Claim, which Claims Notice shall also (a) state that the Indemnitee has paid or properly accrued Losses or anticipates that it will incur liability for Losses for which such Indemnitee is entitled to indemnification pursuant to this Agreement, and (b) the date such item was paid or accrued. The Indemnitee shall reasonably cooperate and assist the Indemnitor in determining the validity of any claim for indemnity by the Indemnitee and in otherwise resolving such matters. Such assistance and cooperation shall include providing reasonable access to and copies of information, records and documents relating to such matters, furnishing employees to assist in the investigation, defense and resolution of such matters and providing legal and business assistance with respect to such matters.

11.6 Exclusive Remedy . Notwithstanding anything to the contrary herein, except in the case of fraud or in connection with a dispute under Section 2.3 (which shall be governed exclusively by Section 2.3 ), the indemnification provisions of Article 11 shall be the sole and exclusive remedy of parties following the Closing for any and all breaches or alleged breaches of any representations, warranties, covenants or agreements of the parties, or any other provision of this Agreement or the transactions contemplated hereby. For the avoidance of doubt, (a) the Buyer hereby acknowledges and agrees that all Losses of the Company and the Company Subsidiaries, other than those for which a Buyer Indemnitee is entitled to recover in accordance with this Article 11 , shall be the sole responsibility of the Buyer, and after the Closing, the Company and the Company Subsidiaries and (b) the Seller hereby acknowledges and agrees that the Seller shall have no right of contribution or other claim against the Company with respect to any breach of any covenant or agreement made hereunder by the Company or any Company Subsidiary (solely with respect to covenants and agreements to be made or performed by the Company or any Company Subsidiary prior to Closing) or any breach or inaccuracy of any of the Company Representations.

11.7 Calculation of Losses; Limitations . The amount of any Loss for which indemnification is provided under this Article 11 shall be net of any amounts actually recovered by any Indemnitee under insurance policies with respect to such Loss (provided, however, with respect to any Buyer Indemnitee, such reduction shall apply only with respect to amounts actually recovered under insurance policies maintained by the Company or any Company Subsidiary prior to the Closing Date) and net of amounts accrued on the Company or any Company Subsidiary’s balance sheet as of the Closing Date and included in Closing Working Capital with respect to such Loss, and shall be (i) increased to take account of any net Tax cost actually incurred by the Indemnitee arising from the receipt of indemnity payments hereunder (grossed up for such increase) and (ii) reduced to take account of any net Tax benefit actually realized by the Indemnitee arising from the incurrence or payment of any such Loss. In computing the amount of any such

Tax cost or Tax benefit, the Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any indemnified Loss.

11.8 Tax Treatment of Indemnity Payments . Unless otherwise required by applicable law, any indemnity payment made under this Agreement shall be treated by all parties as an adjustment to the Final Purchase Price for all federal, state, local and foreign Tax purposes, and the parties shall file their Tax Returns accordingly.

11.9 Subrogation . In the event of payment by or on behalf of any Indemnitor to any Indemnitee (including pursuant to this Article 11 ) in connection with any claim or demand by any Person other than the parties hereto or their respective Affiliates, such Indemnitor shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such claim or demand against any claimant or plaintiff asserting such claim or demand. Such Indemnitee shall cooperate with such Indemnitor in a reasonable manner, and at the cost of such Indemnitor, in presenting any subrogated right, defense or claim.

11.10 Indemnity Escrow .

(a) In the event any Buyer Indemnitee shall have, prior to the first anniversary of the Closing Date, delivered a Claims Notice in respect of indemnification under this Agreement, such Buyer Indemnitee and the Seller shall negotiate in good faith to reach an agreement upon (i) the Buyer Indemnitee’s right for indemnification under this Agreement and the amount of such Buyer Indemnitee’s Losses and (ii) the amount on deposit in the Indemnity Escrow account that should be reserved (the “ Reserved Amount ”) in respect of such Claims Notice. Pending or absent a mutual agreement of the Reserved Amount in respect of any Claims Notice, the Reserved Amount therefor shall be the amount in good faith estimate by the Buyer Indemnitee based on back-up documentation containing such detail as is reasonable under the circumstances.

(b) Upon the agreement by the Seller and the Buyer Indemnitee or as finally determined by a court of competent jurisdiction in respect of any Claims Notice, the Seller and the Buyer shall jointly instruct the Escrow Agent under the Escrow Agreement to pay to the Buyer Indemnitee the lesser of (i) the amount of the Losses in respect of such Claims Notice and (ii) the balance then on deposit in the Indemnity Escrow Account.

(c) On the first anniversary of the Closing Date, the Seller and the Buyer shall jointly instruct the Escrow Agent under the Escrow Agreement to pay to Seller the excess of the balance then on deposit in the Indemnity Escrow Account over the aggregate Reserved Amounts in respect of all unresolved claims for indemnification made by the Buyer Indemnitees prior to such date, in each case, if any.

(d) Following the first anniversary of the Closing Date, from time to time, upon resolution of any Claims Notice in respect of any individual claim for indemnification made by the Buyer Indemnitees and the appropriate amount from the Indemnity Escrow Account shall have been paid to the Buyer Indemnitees in respect of such Claims Notice, the Seller and the Buyer shall jointly instruct the Escrow Agent to release to Seller the excess of the balance then on deposit in the Indemnity Escrow Account over the aggregate Reserved Amounts in respect of all remaining unresolved claims for indemnification made by the Buyer Indemnitees prior to such date, in each case, if any.

ARTICLE 12

MISCELLANEOUS

12.1 Expenses . Except as expressly provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses; provided, however, if the Closing occurs, any Company Expenses not otherwise taken into account in determining the Estimated Purchase Price shall remain the responsibility of the Seller.

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

12.3 Entire Agreement . This Agreement including the Schedules and Exhibits attached hereto which are deemed for all purposes to be part of this Agreement, and the other documents, delivered pursuant to this Agreement and the Confidentiality Agreement, contain all of the terms, conditions and representations and warranties agreed upon or made by the parties relating to the subject matter of this Agreement and the businesses and operations of the Company and supersede all prior and contemporaneous agreements, negotiations, correspondence, undertakings and communications of the parties or their representatives, oral or written, respecting such subject matter.

12.4 Headings . The headings contained in this Agreement are intended solely for convenience and shall not affect the rights of the parties to this Agreement.

12.5 Notices . Any notice or other communication required or permitted under this Agreement shall be deemed to have been duly given and made if (i) in writing and served by personal delivery upon the party for whom it is intended, (ii) if delivered by facsimile with receipt confirmed, or (iii) if delivered by certified mail, registered mail, courier service, return-receipt received to the party at the address set forth below, with copies sent to the Persons indicated:

If, to the Seller or, prior to the Closing, the Company or the Company Subsidiaries:


		c/o KPS Capital Partners, LP 485 Lexington Avenue, 31 ^st Floor New York, NY 10017 Attention: Raquel Vargas Palmer Facsimile: (212) 867-7980

With a copy to:

		Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Angelo Bonvino, Esq. Facsimile: (212) 757-3990

If to the Buyer or, after the Closing, to the Company or the Company Subsidiaries:

		Domtar Corporation 395 de Maisonneuve Blvd. West Montreal, QC H3A 1L6. Canada Attention: Zygmunt Jablonski Facsimile: (514) 848-6850

With a copy to:

		Troutman Sanders LLP 600 Peachtree Street, Suite 5200 Atlanta, Georgia 30308 Attention: W. Brinkley Dickerson Jr. Facsimile: (404) 962-6743

Such addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section 12.5 .

12.6 Exhibits and Schedules .

(a) Any matter, information or item disclosed in the Schedules delivered under any specific representation, warranty or covenant or Schedule number hereof, shall be deemed to have been disclosed for all purposes of this Agreement in response to every representation, warranty or covenant in this Agreement in respect of which such disclosure is reasonably apparent on its face. The inclusion of any matter, information or item in any Schedule to this Agreement shall not be deemed to constitute an admission of any liability by the Seller or the Company to any third party or otherwise imply, that any such matter, information or item is material or creates a measure for materiality for the purposes of this Agreement.

(b) The Schedules and Exhibits hereto are hereby incorporated into this Agreement and are hereby made a part hereof as if set out in full in this Agreement.

12.7 Waiver . Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement.

12.8 Binding Effect; Assignment . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns. No party to this Agreement may assign or delegate, by operation of law or otherwise, all or any portion of its rights, obligations or liabilities under this Agreement without the prior written consent of the other parties to this Agreement, which any such party may withhold in its absolute discretion; provided , however , that the Buyer may, without the prior written consent of any other party, assign all or any portion of its rights under this Agreement to one or more of its Affiliates; provided , further , that no assignment shall relieve the assigning party of any of its obligations hereunder. Any purported assignment without such required prior written consents shall be void.

12.9 No Third Party Beneficiary . Nothing in this Agreement shall confer any rights, remedies or claims upon any Person or entity not a party or a permitted assignee of a party to this Agreement, except for the current and former officers, directors and employees of the Company as set forth in Section 7.6 , Article 11 and Section 12.11 .

12.10 Counterparts . This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement.

12.11 Release . Except in the case of fraud and as provided in Article 11 and all other documents delivered pursuant to this Agreement, the Buyer agrees (and, from and after the Closing, shall cause the Company and each Company Subsidiary to agree) that none of KPS Capital Partners, L.P., its Affiliates (other than the Company or any Company Subsidiary), the current or former employees, officers and directors of KPS Capital Partners, L.P. and of any of its Affiliates (other than the Company or any Company Subsidiary) as of or prior to the Closing Date shall have any liability or responsibility to the Buyer or the Company or any Company Subsidiary for (and the Buyer hereby unconditionally releases (and from and after the Closing shall cause the Company and each Company Subsidiary to unconditionally release) KPS Capital Partners, L.P., any of its Affiliates (other than the Company or any Company Subsidiary) and any of their current or former employees, officers and directors from) any obligations or liability:

(a) arising out of, or relating to, the organization, management, operation of the businesses of the Company or any Company Subsidiary relating to any matter, occurrence, action or activity on or prior to the Closing Date;

(b) relating to this Agreement and the transactions contemplated hereby;

(c) arising out of or due to any inaccuracy or breach of any representation or warranty or the breach of any covenant, undertaking or other agreement contained in this Agreement, the Schedules and Exhibits hereto or in any certificate contemplated hereby and delivered in connection herewith; or

(d) relating to any information (whether written or oral), documents or materials furnished by or on behalf of the Seller, the Company and the Company Subsidiaries, including the Information, except with respect to the Seller, as specifically provided in this Agreement.

12.12 Governing Law and Jurisdiction . This Agreement and any claim or controversy hereunder shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflict of laws thereof.

12.13 Dispute Resolution . The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy. Any party may give the other party written notice of any dispute. Within 15 days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and response shall include with reasonable particularity (a) a statement of each party’s position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 30 days after delivery of the notice, the executives of both parties shall meet at a mutually acceptable time and place. Unless otherwise agreed in writing by the negotiating parties, the above-described negotiation shall end at the close of the first meeting of executives described above (the “ First Meeting ”). Such closure shall not preclude continuing or later negotiations, if desired. At no time prior to the First Meeting shall either side initiate a legal action related to this Agreement except to pursue a provisional remedy that is authorized by law or by agreement of the parties. However, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of this Section 12.13 .

12.14 Consent to Jurisdiction and Service of Process . Any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby may only be instituted in any state or federal court in the State of Delaware, and each party waives any objection which such party may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding.

12.15 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED (WHETHER BASED

ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

12.16 Conveyance Taxes . The Buyer and the Seller shall each pay 50% of all sales, use, value added, transfer, stamp, registration, documentary, excise, real property transfer or gains, or similar Taxes incurred as a result of the transactions contemplated by this Agreement and the Seller and the Buyer agree to jointly file all required change of ownership and similar statements.

12.17 Specific Performance . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with the terms hereof or were otherwise breached and that each party hereto shall be entitled to seek an injunction or injunctions to prevent breaches of the provisions hereof and to specific performance of the terms hereof, in addition to any other remedy at law or equity.

12.18 Severability . If any term, provision, agreement, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, agreements, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. Upon such a determination, the parties 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 reasonably acceptable manner so that the transactions contemplated hereby may be consummated as originally contemplated to the fullest extent possible.

[Remainder of page intentionally left blank]

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


DOMTAR CORPORATION

By:		/s/ Patrick Loulou
Name:		Patrick Loulou
Title:		SVP Corporate Development

ATTENDS HEALTHCARE HOLDINGS, LLC

By:		/s/ Raquel Palmer
Name:		Raquel Palmer
Title:		Manager

ATTENDS HEALTHCARE, INC.

By:		/s/ R. Todd Browder
Name:		R. Todd Browder
Title:		Chief Financial Officer

Signature Page – Stock Purchase Agreement

Exhibit A

Exh. A – Page 1

Exhibit B

Working Capital Rules

1. .

Exh. B – Page 1

Schedule B-1

Form of Working Capital Calculation

Exh. B – Page 2

Exhibit C

Form of Escrow Agreement

Exh. C – Page 1

Exhibit 4.1

FIFTH SUPPLEMENTAL INDENTURE

FOR ADDITIONAL NOTE GUARANTEE

This Fifth Supplemental Indenture, dated as of September 7, 2011 (this “ Supplemental Indenture ”), among each new Subsidiary Guarantor set forth on the signature pages hereto (each, a “ New Subsidiary Guarantor ”, and together, the “ New Subsidiary Guarantors ”), Domtar Corporation, a Delaware corporation (together with its successors and assigns, the “ Company ”) and The Bank of New York Mellon, as successor to The Bank of New York, as Trustee (the “ Trustee ”), under the Indenture referred to below.

W I T N E S S E T H:

WHEREAS, the Company, the subsidiary guarantors party thereto (the “ Subsidiary Guarantors ”) and the Trustee have heretofore executed and delivered a Senior Indenture, dated as of November 19, 2007 (as supplemented by the Supplemental Indenture, dated as of February 15, 2008, the Second Supplemental Indenture, dated as of February 20, 2008, the Third Supplemental Indenture, dated as of June 9, 2009, and the Fourth Supplemental Indenture, dated as of June 23, 2011, and as amended, supplemented, waived or otherwise modified, the “ Indenture ”), providing for the issuance from time to time of series of the Company’s Securities (as defined in the Indenture);

WHEREAS, pursuant to Section 1011 of the Indenture, the Company is required to cause each U.S. Subsidiary (as defined in the Indenture) that guarantees indebtedness of the Company or any of the Company’s subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such U.S. Subsidiary will unconditionally guarantee, jointly and severally with each other Subsidiary Guarantor, the Company’s full and prompt payment of the principal of, premium, if any, and interest on the Securities on a senior basis and all other obligations under the Indenture; and

WHEREAS, pursuant to Section 901 of the Indenture, the Company and the Trustee are authorized to execute and deliver this Supplemental Indenture to supplement the Indenture, without the consent of any Holder;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Subsidiary Guarantors, the Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Defined Terms . Unless otherwise defined in this Supplemental Indenture, terms defined in the Indenture are used herein as therein defined.

ARTICLE II

AGREEMENT TO BE BOUND; GUARANTEE

Section 2.1. Agreement to be Bound . Subject to the provisions of Article Fourteen of the Indenture, each New Subsidiary Guarantor hereby becomes a party to the Indenture as a Subsidiary Guarantor and as such will have all of the rights and be subject to all of the obligations and agreements of a Subsidiary Guarantor under the Indenture. Each New Subsidiary Guarantor hereby agrees to be bound by all of the provisions of the Indenture applicable to a Subsidiary Guarantor and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.

Section 2.2. Guarantee . Each New Subsidiary Guarantor hereby fully, unconditionally and irrevocably guarantees as primary obligor and not merely as surety, jointly and severally with each other Subsidiary Guarantor, to each Holder of the Securities and the Trustee, the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the principal of, premium, if any, and interest on the Securities and all other obligations and liabilities of the Company under the Indenture, all as more fully set forth in Article Fourteen thereof.

ARTICLE III

MISCELLANEOUS

Section 3.1. Notices . Any notice or communication delivered to the Company under the provisions of the Indenture shall constitute notice to the New Subsidiary Guarantors.

Section 3.2. Parties . Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.

Section 3.3. Governing Law, etc . This Supplemental Indenture shall be governed by the provisions set forth in Section 112 of the Indenture.

Section 3.4. Severability . In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.

Section 3.5. Ratification of Indenture; Supplemental Indenture Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. The Trustee makes no representation or warranty as to the validity or sufficiency of this Supplemental Indenture.

Section 3.6. Duplicate and Counterpart Originals . The parties may sign any number of copies of this Supplemental Indenture. One signed copy is enough to prove this Supplemental Indenture. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be an original, but all of them together represent the same agreement.

Section 3.7. Headings . The headings of the Articles and Sections in this Supplemental Indenture have been inserted for convenience of reference only, are not intended to be considered as a part hereof and shall not modify or restrict any of the terms or provisions hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.


DOMTAR CORPORATION

By:		/s/ Razvan Theodoru
Name:		Razvan Theodoru
Title:		Vice-President, Corporate Law and Secretary

DOMTAR AI INC., as New Subsidiary Guarantor

By:		/s/ Razvan Theodoru
Name:		Razvan Theodoru
Title:		Secretary

ATTENDS HEALTHCARE PRODUCTS INC., as New Subsidiary Guarantor

By:		/s/ Razvan Theodoru
Name:		Razvan Theodoru
Title:		Vice President and Secretary


THE BANK OF NEW YORK MELLON, as Trustee

By:		/s/ Erika Walker
Name:		Erika Walker
Title:		Vice President

Exhibit 12.1

Domtar Corporation

Computation of ratio of earnings to fixed charges

(In millions of dollars, unless otherwise noted)


	Three months ended				Nine months ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
	$		$		$		$
Available earnings:

Earnings before income taxes		162		212		426		322
Add fixed charges:

Interest expense incurred		20		20		58		117

Amortization of debt expense and discount		5		4		9		9

Interest portion of rental expense		2		3		6		8


Total earnings as defined		189		239		499		456

Fixed charges:

Interest expense incurred		20		20		58		117

Amortization of debt expense and discount		5		4		9		9

Interest portion of rental expense		2		3		6		8


Total fixed charges		27		27		73		134

Ratio of earnings to fixed charges		7.0		8.9		6.8		3.4

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John D. Williams, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Domtar Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affected, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2011

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Buron, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Domtar Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2011

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies that to his knowledge, the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011 (the “Form 10-Q”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer