CASCADES INC (Form: 40-F, Received: 03/29/2012 09:15:39)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended December 31, 2011

Commission File Number 333-105024

CASCADES INC.

(Exact name of Registrant as specified in its charter)

Quebec, Canada

(Province or other jurisdiction of incorporation or organization)

2600

(Primary Standard Industrial Classification Code Number)

98-0140192

(I.R.S. Employer Identification Number)

404 Marie-Victorin Blvd.

Kingsey Falls, Quebec

Canada J0A 1B0

(819) 363-5100

(Address and telephone number of Registrant’s principal executive offices)

Cascades USA Inc.

1200 Forest Street

Eau Claire, WI 54703

(715) 834-3461

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Not Applicable.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Not Applicable.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act*:

Not Applicable.

For annual reports, indicate by check mark the information filed with this Form:

x Annual information form x Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

94,647,165 shares of common stock outstanding as of December 31, 2011.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 ¨ No ¨

* The registrant is currently not required to file reports, including this report, under Section 13 or 15(d) of the Securities Exchange Act of 1934 but is voluntarily filing this report with the Securities and Exchange Commission.

Annual Audited Consolidated Financial Statements

For the Annual Audited Consolidated Financial Statements, including the Independent Auditors Report with respect thereto, of Cascades Inc. (the “Registrant” or “Cascades” or the “Corporation”), see the excerpt of Cascades’ 2011 Annual Report attached hereto as Exhibit 13.2.

Management’s Discussion and Analysis

For management’s discussion and analysis of the operating results and financial position, see the excerpt of Cascades’ 2011 Annual Report attached hereto as Exhibit 13.3.

Disclosure Controls and Procedures

Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Registrant in the reports that the Registrant files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified under Canadian securities laws and specified in the United States Securities and Exchange Commission’s (the “SEC”) rules and forms and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the President and Chief Executive Officer (CEO) and the Vice-President and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

The Registrant conducted an evaluation (under the supervision and with the participation of the Registrant’s management, including the Chief Executive Officer and Chief Financial Officer) as of December 31, 2011, pursuant to Rule 13a-15 promulgated under the Exchange Act and under National Instrument 52-109 adopted by the Canadian Securities regulatory authorities, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on this evaluation, the Registrant’s Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures were effective as of December 31, 2011.

It should be noted that while the Registrant’s Chief Executive Officer and Chief Financial Officer believe that the Registrant’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Registrant’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Management’s Report on Internal Control over Financial Reporting

Management’s Report to the shareholders of Cascades Inc. on internal control over financial reporting for the fiscal year ended December 31, 2011 is filed as Exhibit 13.2 to this Annual Report on Form 40-F.

Management conducted an assessment of the effectiveness of the Corporation’s internal control over financial reporting, as at December 31, 2011 based on the framework and criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Corporation’s internal control over financial reporting was effective as at December 31, 2011.

Management has excluded Reno de Medici from its assessment of internal control over financial reporting as at December 31, 2011 because Reno de Medici became a consolidated entity during the second quarter of 2011. Reno de Medici’s total assets and total revenues represented 15.2% and 14.5%, respectively, of the related consolidated financial statement amounts of the Corporation as at and for the year ended December 31, 2011.

Changes in Internal Controls over Financial Reporting

There was no change in the Registrant’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect its internal controls over financial reporting.

Code of Ethics

The Corporation has adopted a Code of Ethics that applies to all directors, officers and employees, including the Corporation’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. For a discussion of the Corporation’s Code of Ethics, including the amendments thereto, see page 14 of Cascades’ Annual Information Form for the year ended December 31, 2011 (“AIF”) attached hereto as Exhibit 13.1. There were neither amendments to nor waivers, including implicit waivers, from any provision of the Code of Ethics during the fiscal year ended December 31, 2011 that applied to the Corporation’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is available on the Corporation’s website at www.cascades.com .

Audit Committee

The Registrant has a separately designated standing audit committee (the “Audit Committee”) as defined in Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is composed entirely of directors who are “independent”, as such term is defined in the listing standards of the New York Stock Exchange. All members of the Audit Committee are financially literate and there are two “audit committee financial experts”. In considering criteria for the determination of financial literacy, the Board of Directors considers the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Registrant’s financial statements. In determining whether Audit Committee members are “audit committee financial experts”, the Board of Directors and the Audit Committee have considered the attributes set forth in Form 40-F. The “audit committee financial experts” are Robert Chevrier and James B.C. Doak. The other members of the Audit Committee are Laurent Verreault and Georges Kobrynsky.

Principal Accountant Fees and Services

The aggregate fees for professional services rendered by our Independent Auditors, PricewaterhouseCoopers LLP, for the Corporation for the 2011 and 2010 fiscal years are shown in the table below:


Fees in Canadian dollars	Year ended December 31, 2011		Year ended December 31, 2010
Audit Fees	$	1,768,065	$	2,010,910
Audit-Related Fees	$	573,981	$	899,084
Tax Fees	$	461,911	$	278,969
All Other Fees		N/A		N/A
Total	$	2,803,957	$	3,188,963

The nature of each category of fees is described below:

Audit Fees: Includes services provided by the independent auditors in connection with statutory and regulatory filings and audit of the annual financial statements of the Corporation.

Audit Related Fees: Includes services provided by the independent auditors in connection with consultations on accounting and regulatory matters.

Tax Fees: Includes services rendered by the independent auditors regarding compliance with income tax laws.

All Other Fees: None.

Audit and Non-Audit Services Pre-Approval Policy

The Corporation’s Audit Committee has adopted a Pre-approval Policy and Procedures, as amended, for services provided by the Corporation’s independent auditors, PricewaterhouseCoopers LLP which sets forth the procedures and the conditions pursuant to which permissible services proposed to be performed by the independent auditors are pre-approved. Under the terms of the policy, services that involve annual fees of less than $25,000 up to an annual limit of $50,000 are pre-approved. The Audit Committee has delegated to the Chairman of the Audit Committee pre-approval authority for any services not previously approved by the Audit Committee that involve the payment of unbudgeted fees up to a maximum of $100,000 per mandate. Services that involve fees of more than $100,000 require pre-approval of all the members of the Audit Committee. All of the non-audited services set forth above were approved in this pre-approval policy.

Percentage of Services Approved by the Audit Committee

For the year ended December 31, 2011, the services described above requiring pre-approval were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements as of December 31, 2011.

Tabular Disclosure of Contractual Obligations

For a tabular disclosure and discussion of contractual obligations, see the section entitled “Contractual Obligations and other commitments” on page 30 of Cascades’ Management’s Discussion and Analysis attached hereto as Exhibit 13.3.

Forward-Looking Statements

Certain statements in this annual report including statements regarding future results and performance on Form 40-F or in documents incorporated by reference herein are forward-looking statements (as such term is defined under the United States Private Securities Litigation Reform Act of 1995) based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation’s products, the prices and availability of raw materials and energy costs, Cascades’ exposure to significant competition, including competition with firms that may enjoy cost advantages or economies of scale, compliance costs associated with environmental laws and regulations, including unforeseen expenditures as a result of environmental liabilities, casualty of other losses that are not fully covered by insurance, labor disputes, work stoppages or increased labor costs, difficulty recouping its investments in joint ventures of other companies that Cascades does not control, difficulties associated with acquiring companies, or integrating acquired companies, as part of Cascades’ growth strategy, the impairment of Cascades’ goodwill or other intangible assets, changes in the control of Cascades’ equity capital, changes in strategy or management brought about by its existing shareholders or similar changes relating to its control and management, Cascades’ inability to retain key personnel or attract and retain other talented employees, and fluctuations in currency exchange rates. Reference is made to the section entitled “Risk Factors” on page 14 of the AIF and to the section entitled “Risk Factors” on page 35 in Cascades’ Management’s Discussion and Analysis” (which is incorporated by reference in the AIF) and attached hereto as Exhibit 13.1 and 13.3, respectively.

Consequently, all of the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results on developments anticipated by the Corporation will be realized. The Corporation undertakes no obligation to update or revise any forward-looking statements.

Website Information

Notwithstanding any reference to the Registrant’s website on the internet in the AIF or in the documents attached as Exhibits hereto, the information contained in the Registrant’s website or any other website on the internet referred to in the Registrant’s website is not a part of this Form 40-F and, therefore, is not filed with the SEC.

Undertaking

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

Consent to Service of Process

The Registrant has previously filed with the Commission a written consent to service of process and power of attorney on Form F-X/A (333-105024). A Form F-X/A is being filed concurrently with this Form 40-F to report a change of address of the Registrant’s agent for service.

Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

S IGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

CASCADES INC.



By :		/s/ Allan Hogg
Name:		Allan Hogg
Title :		Vice President and Chief Financial Officer
Date :		March 29, 2012

E XHIBIT I NDEX


Exhibit Number	Description of Exhibit (and document from which incorporated by reference, if applicable)	Note

3.1	Articles of Amalgamation of Cascades Inc. filed with the Inspector General of Financial Institutions of Quebec on January 10, 2004	(C)

3.2	Articles of Amendment of Cascades Inc. filed with the Registrar of Companies of Quebec on July 27, 2011	(I)

3.3	By-law No. 2011-1 of Cascades Inc., adopted by the Board of Directors of Cascades Inc. on March 14, 2011 and ratified by the Shareholders on May 12, 2011	(I)

4.1	Indenture, dated as of February 5, 2003, among Cascades Inc., the Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(A)

4.2	First Supplemental Indenture, dated May 30, 2003, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(B)

4.3	Second Supplemental Indenture, dated December 30, 2003, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(C)

4.4	Third Supplemental Indenture, dated March 16, 2004, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and The Bank of New York, as Trustee	(C)

4.5	Fourth Supplemental Indenture, dated July 8, 2004, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and The Bank of New York, as Trustee	(C)

4.6	Fifth Supplemental Indenture, dated August 26, 2004, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(C)

4.7	Sixth Supplemental Indenture, dated November 30, 2004, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York Trustee	(C)

4.8	Seventh Supplemental Indenture, dated April 27, 2006, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and The Bank of New York, as Trustee	(D)

4.9	Eighth Supplemental Indenture, dated September 20, 2006, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and The Bank of New York, as Trustee	(D)

4.10	Ninth Supplemental Indenture, dated November 8, 2006, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantor named therein and The Bank of New York, as Trustee	(D)

4.11	Tenth Supplemental Indenture, dated December 28, 2006, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(D)

4.12	Eleventh Supplemental Indenture, dated August 17, 2007, to the Indenture, dated February 5,2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(E)

4.13	Twelfth Supplemental Indenture, dated October 30,2009, to the Indenture, dated February 5,2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York Mellon, as Trustee	(G)

4.14	Thirteenth Supplemental Indenture, dated February 26, 2010, to the Indenture, dated February 5,2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York Mellon, as Trustee	(G)



4.14.1	Fourteenth Supplemental Indenture, dated September 2, 2011, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York Mellon, as Trustee	(I)

4.14.2	Fifteenth Supplemental Indenture, dated November 18, 2011, to the Indenture, dated February 5, 2003, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of New York Mellon, as Trustee	(I)

4.15	Indenture, dated May 28, 2003, among Norampac Inc., the Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(D)

4.16	First Supplemental Indenture, dated July 30, 2004, to the Indenture, dated May 28, 2003, among Norampac Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(D)

4.17	Second Supplemental Indenture, dated December 28, 2006, to the Indenture, dated May 28, 2003, among Norampac Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(D)

4.18	Third Supplemental Indenture, dated as of December 29, 2006, to the Indenture dated as of May 28, 2003 among Norampac Inc. as predecessor issuer, the Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee, among Cascades Inc., the Subsidiary Guarantors named therein and The Bank of New York, as Trustee	(D)

4.19	Fourth Supplemental Indenture, dated as of August 30, 2007, to the Indenture dated as of May 28, 2003 among Norampac Inc. as predecessor issuer, the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein, and The Bank of Nova Scotia Trust Company of New York, as Trustee	(E)

4.20	Fifth Supplemental Indenture, dated as of October 30, 2009, to the Indenture dated as of May 28, 2003 among Norampac Inc. as predecessor issuer, the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein, and The Bank of Nova Scotia Trust Company of New York, as Trustee	(G)

4.21	Sixth Supplemental Indenture, dated as of February 26, 2010, to the Indenture dated as of May 28, 2003 among Norampac Inc. as predecessor issuer, the Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(G)

4.21.1	Seventh Supplemental Indenture, dated as of September 2, 2011, to the Indenture dated as of May 28, 2003 among Norampac Inc. as predecessor issuer, the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein, and The Bank of Nova Scotia Trust Company of New York, as Trustee	(I)

4.21.2	Eighth Supplemental Indenture, dated as of November 28, 2011, to the Indenture dated as of May 28, 2003 among Norampac Inc. as predecessor issuer, the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein, and The Bank of Nova Scotia Trust Company of New York, as Trustee	(I)

4.22	Indenture dated as of December 3, 2009, among Cascades Inc., the Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(G)

4.22.1	First Supplemental Indenture, dated as of September 2, 2011, to the Indenture dated as of December 3, 2009, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein, and The Bank of Nova Scotia Trust Company of New York, as Trustee	(I)

4.22.2	Second Supplemental Indenture, dated as of November 18, 2011, to the Indenture dated as of December 3, 2009, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein, and The Bank of Nova Scotia Trust Company of New York, as Trustee	(I)



4.23	Indenture dated as of December 3, 2009, among Cascades Inc., the Subsidiary Guarantors named therein and Computershare Trust Company of Canada, as Trustee	(G)

4.23.1	First Supplemental Indenture, dated as of September 2, 2011, to the Indenture dated as of December 3, 2009, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and Computershare Trust Company of Canada, as Trustee	(I)

4.23.2	Second Supplemental Indenture, dated as of November 18, 2011, to the Indenture dated as of December 3, 2009, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and Computershare Trust Company of Canada, as Trustee	(I)

4.24	Indenture dated as of December 23, 2009, among Cascades Inc., the Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(G)

4.24.1	First Supplement Indenture, dated as of September 2, 2011, to the Indenture dated as of December 23, 2009, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(I)

4.24.2	Second Supplement Indenture, dated as of November 18, 2011, to the Indenture dated as of December 23, 2009, among Cascades Inc., the Existing Subsidiary Guarantors named therein, the New Subsidiary Guarantors named therein and The Bank of Nova Scotia Trust Company of New York, as Trustee	(I)

10.1	Amended and Restated Credit Agreement, dated February 10, 2011, among Cascades Inc., Cascades USA Inc. and Cascades Europe SAS, National Bank of Canada, as administrative agent, The Bank of Nova Scotia, as collateral agent and syndication agent, Canadian Imperial Bank of Commerce, and a syndicate of lenders named therein, as lenders	(H)

10.2	Purchase and Sale Agreement by and among Cascades USA Inc., as Seller, Reynolds Group Holdings Limited, as Purchaser, Cascades Inc., as Guarantor, with respect to the sale of all of the issued and outstanding capital stock of Dopaco, Inc. and Dopaco Canada, Inc., dated as of March 3, 2011.	(I)



10.3	Limited Liability Company Agreement of Greenpac Holding LLC, by and among 27102009 USA LLC, 19J LLC, 56P LLC, CDPQ Investment GML Inc. and Containerboard Partners Inc. dated as of June 27, 2011.	(I)

13.1	Annual Information Form for the year ended December 31, 2011	(I)

13.2	Audited Consolidated Financial Statements for the year ended December 31, 2011 together with Management’s Report and the Independent Auditors’ Report	(I)

13.3	Management’s Discussion and Analysis for the year ended December 31, 2011	(I)

23.1	Independent Auditors’ Consent	(I)

31.1	CEO Section 302 Certification	(I)

31.2	CFO Section 302 Certification	(I)

32.1	CEO and CFO Section 906 Certification	(I)

(A)	Previously filed as an exhibit to Cascades Inc.’s Registration Statement on Forms F-4 and S-4 (Reg. No. 333-105024), filed on May 6, 2003 and incorporated herein by reference.

(B)	Previously filed as an exhibit to Amendment No. 1 to Cascades Inc.’s Registration Statement on Forms F-4 and S-4 (Reg. No. 333-105024), filed on July 18, 2003 and incorporated herein by reference.

(C)	Previously filed as an exhibit to Cascades Inc.’s Annual Report on Form 40-F, filed on March 24, 2005 and incorporated herein by reference.

(D)	Previously filed as an exhibit to Cascades Inc.’s Annual Report on Form 40-F, filed on March 26, 2007 and incorporated herein by reference.

(E)	Previously filed as an exhibit to Cascades Inc.’s Annual Report on Form 40-F, filed on March 27, 2008 and incorporated herein by reference.

(F)	Intentionally omitted.

(G)	Previously filed as an exhibit to Cascades Inc.’s Annual Report on Form 40-F, filed on March 30, 2010 and incorporated herein by reference.

(H)	Previously filed as an exhibit to Cascades Inc.’s Annual Report on Form 40-F, filed on March 30, 2011 and incorporated herein by reference.

(I)	Filed herewith.

Exhibit 3.2

(OFFICE TRANSLATION OF THE ARTICLES ISSUED IN FRENCH)

QUEBEC

CERTIFICATE OF AMENDMENT

Business Corporations Act

I hereby attest that the business corporation

CASCADES INC.

has amended its Articles on July 27, 2011 at 0:00 min, under the Business Corporations Act, as indicated in the Articles of Amendment attached hereto.

Filed with the registry on August 1 ^st , 2011 under the

Quebec business number 1141741828

/s/ Registrar of Companies

Registrar

of Companies

QUEBEC

CASCADES INC.

NEQ : 1141741741828

Acknowledgement

The Application has been successfully transmitted on July 27, 2011 at 11:56 a.m.

The reference number is 020200002221026

Thank you for using our on-line services

Identification of the Company


Name of the Company		CASCADES INC.

Quebec Company Number (NEQ)		1141741828

Authorized Share Capital

No change to the description of the share capital

Restrictions on the transfer of titles or shares and other provisions

See attached document

Restrictions on its activities

No change to the description of its activities

Effective date and hour of the Articles


Effective date		July 27, 2011

Effective hour		0:00 a.m.

The other provisions of the corporation are amended by the addition of the two(2) following provisions:

5. The annual meetings of the shareholders may be held at a place outside of the Province of Quebec.

6. The directors may appoint one or more additional directors to hold office for a term expiring not later than the close of the next annual shareholders meeting, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual shareholders meeting.

Exhibit 3.3

CASCADES INC.

BY-LAWS

BY-LAW NO. 2011-1

ARTICLE I - INTERPRETATION

1.	Definitions

“Act” means the Business Corporations Act (Quebec), R.S.Q., c. S-31.1 as well as any amendment made thereto;

“Board” or “Board of Directors” also means all the directors of the Corporation;

“Corporation” means “Cascades Inc;

“directors” also means the Board of Directors;

“by-laws” means these by-laws, any other by-laws, such as those provided in section 726 of the Act, as well as any amendments made thereto.

The terms and expressions defined in the Act have the same meaning when used in the by-laws.

2.	Rules of Interpretation

Terms used in the singular only include the plural and vice versa and terms used in the masculine gender include the feminine gender and vice versa, and words and expressions denoting natural persons also refer to legal persons including corporations and all other unincorporated groups.

Titles

Titles used in these by-laws are for ease of reference only and shall not be considered in the interpretation of the provisions contained herein nor shall they be deemed to modify or explain the scope or meaning of such terms and provisions.

ARTICLE II - HEAD OFFICE

1.	Head Office

Subject to the following, the Corporation’s head office is located within the limits of the Judicial District of Drummond.

The Corporation may, by special resolution of the shareholders, transfer its head office to another judicial district.

The Corporation may, by resolution of the Board of Directors, relocate its head office within the judicial district in which it is located.

Offices

The Corporation may have offices anywhere in Quebec, in Canada or elsewhere as the directors may determine from time to time by resolution.

ARTICLE III - MEETINGS OF SHAREHOLDERS

1.	Annual Meeting

The annual shareholders meeting shall be held each year on the date and at the time that the Board of Directors determines, for the purpose of receiving the financial statements and auditors’ report, electing the directors and appointing the auditors and authorizing the Board of Directors to set their compensation and taking cognizance of and transacting any business that may legally be brought before the meeting.

The annual shareholders meeting shall be held at the head office of the Corporation or at such other place as may be determined by the Board of Directors.

An annual meeting may also constitute a special meeting for the purpose of taking cognizance of and transacting any business that may be transacted at a special meeting.

2.	Special Meeting

A special shareholders meeting, whether general or not, may be called at any time by order of the Chairman of the Board of Directors, the President of the Corporation or the Board of Directors. A special meeting, whether general or not, may be held separately or as part of an annual meeting.

Special shareholders meetings shall be held at the head office of the Corporation or at such other place as may be determined by the Board of Directors.

3.	Calling of a Special General Meeting by Shareholders

The Board of Directors shall be required to call a special general meeting of shareholders when holders of not less than 10% of the issued shares of the Corporation that carry the right to vote so requisition in a written notice signed by at least one of the shareholders. This requisition must state the business to be transacted at the meeting and must be sent to each director and to the head office of the Corporation. The Board of Directors must call the shareholders meeting on receiving the requisition. If the meeting is not called within twenty-one (21) days after receiving the requisition, any shareholder who signed the requisition may call the special general meeting.

4.	Notices and Other Communications

Subject to the provisions of paragraph 3 of this Article III, a written notice specifying the time, place and business to be transacted at the meeting must be sent to each shareholder entitled

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to vote at the meeting and to each director. The notice must be sent not less than 21 days and not more than 60 days before the meeting. Such notice shall be given by the Secretary or by any other officer of the Corporation appointed by the directors or by the shareholder who signed the requisition. The notice does not need to be signed by hand.

Any notice, communication or document that the Corporation must give, pursuant to the Act, the articles, these by-laws or otherwise, to a shareholder, director, officer or auditor shall be sufficiently given if delivered personally to the person to whom it is to be given, or if delivered to his recorded address, or if mailed by prepaid mail addressed to him at this recorded address.

In addition to the foregoing, any such notice, communication or document required to be given may instead be delivered by the Corporation in an electronic or other technologically enhanced format, provided that the requirements of the applicable law in respect of such delivery have been complied with in all respects, including, where required, receipt by the Corporation of the prior consent of the recipient to the delivery of such notice, communication or document in electronic or other technologically enhanced format and the designation by the recipient of the information system for receipt thereof.

5.	Address of Shareholders

Every shareholder shall provide the Corporation with a postal address or an electronic address at which all notices intended for such shareholder may be sent. Any notice sent to the shareholder whose name appears on the registers of the Corporation at the time of such sending is enforceable against any other person who has acquired any rights to such shares as long as such party has not otherwise requested that the registers of the Corporation be amended by entering his own name and address.

6.	Failure to Give Notice

Any involuntary failure to send a notice of a meeting or non-receipt of such notice by a shareholder shall not invalidate any resolution passed or any proceedings conducted at such meeting.

7.	Incomplete Notice

Any involuntary failure to mention in the notice of annual or special meeting any matter which the Act or the by-laws require to be dealt with at such meeting shall not prevent the meeting from validly dealing with such matter.

8.	Waiver of Notice

Any shareholder or duly appointed proxyholder of a shareholder may, either before or after the meeting is held, waive the notice of an annual or special meeting, or any irregularity which occurred during such meeting or contained in the notice of meeting. A shareholder’s presence at a meeting, either in person or by proxy, shall constitute a waiver of the notice of such meeting, unless he attends specifically to object to its being held based on the irregularity of its calling. A certificate from the Secretary or any other duly authorized officer of the Corporation or from the registrar or transfer agent of the Corporation shall constitute irrefutable proof that a notice was sent to shareholders.

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Quorum

Subject to provisions of the articles to the contrary, two (2) persons present in person and who are themselves shareholders entitled to vote at such meeting or proxyholders for an absent shareholder entitled to vote at such meeting and representing personally or by proxy twenty-five percent (25%) of the issued and outstanding shares of the Corporation carrying the right to vote at the meeting, shall constitute the required quorum to transact business at any meeting of shareholders. If a quorum is present when the meeting is opened, the shareholders who are in attendance may transact all business at such meeting, notwithstanding the fact that there may not have been a quorum throughout the entire meeting.

10.	Adjournment

Whether or not there is a quorum, any meeting of shareholders may be adjourned from time to time by a vote of the majority of the shareholders then present in person or represented by proxy to a date (provided such adjournment is for at least fifteen (15) days) and at the place and time determined by such shareholders without further notice than the announcement made at the meeting, if the meeting is adjourned for less than thirty (30) days. Otherwise, a notice of at least twenty-one (21) days from the date of the adjourned meeting must be given as for an original meeting. Any business that could have been transacted at a meeting prior to its adjournment may also be transacted at the meeting at which there is a quorum, in accordance with the provisions of paragraph 9 of this Article III or the articles, as the case may be.

11.	Record Date

The Board of Directors may set a date prior to the date on which a meeting is to be called or held as the record date for the purpose of determining shareholders entitled to receive notice of or to vote at the meeting, and only those shareholders registered on the date so set shall be so entitled, notwithstanding any transfer of shares in the registers of the Corporation between the record date and the date on which the meeting is called or held. The record date must be not less than twenty-one (21) days and not more than sixty (60) days before the meeting.

The Board of Directors may set a date for the payment of dividends, award of rights or any other form of distribution, as the record date for determining the shareholders entitled to receive such dividend, right or distribution, and only those shareholders registered on the date so set shall be so entitled, notwithstanding any transfer of shares in the registers of the Corporation between the record date and the date the dividend is paid, the rights are granted or the distributions are made.

The Board of Directors may, in addition, fix a record date for the purpose of determining shareholders entitled to participate in a liquidation distribution or for any other purpose that it determines, in accordance with the Act.

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12.	Voting and Qualification

Unless otherwise prescribed by the Act or by the articles, each shareholder shall be entitled to one vote per share held at any meeting of shareholders. The registered shareholders who are entitled to vote at a meeting of shareholders and the number of shares held by them shall respectively be determined according to the Corporation’s securities register as at the close of business on the record date for the holding of the meeting.

If two (2) or more persons hold shares jointly, the person attending the meeting of shareholders may, in the absence of the others, vote such shares. However, if two (2) or more co-holders are present or represented by proxy at the meeting and wish to vote thereat, they may only do so as one and the same person.

13.	Proxyholders

Votes may be cast by the shareholder himself or by his proxyholder or by one or more substitute proxyholders. Any person, whether or not a shareholder of the Corporation, may carry out the duties of a proxyholder and act in the manner, to the extent and in accordance with the instructions set forth in the proxy. A proxyholder may also be appointed by a legal person holding at least one share of the share capital of the Corporation carrying the right to vote at the meeting.

Unless otherwise prescribed in the notice of meeting, such proxy shall be provided to the Secretary of the Corporation at least 24 hours before the meeting.

14.	Participation

Any person entitled to attend a shareholders meeting may participate in the meeting by means of equipment enabling all participants to communicate directly with one another if the Corporation makes such equipment available to shareholders. A shareholder participating in a meeting by such means may vote using any equipment made available to shareholders by the Corporation, enabling votes to be cast in a way that allows them to be verified afterwards and protects the secrecy of the vote when a ballot has been requested.

15.	Chairman of the Meeting

The Chairman of the Board of Directors shall chair at every meeting of shareholders. In his absence, the Executive Vice-Chairman of the Board of Directors, or in his absence, the President of the Corporation, or in his absence, any person chosen by shareholders among one of their number, shall chair at such meeting. If the meeting only consists of proxyholders, a proxyholder elected by the meeting shall then act as chairman.

16.

Secretary

At every meeting of shareholders, the Secretary of the Corporation, or in his absence, an Assistant Secretary, or in the absence of the Secretary and any Assistant-Secretaries, a person appointed by the Chairman of the meeting, shall act as secretary.

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17.	Resolutions

Unless otherwise prescribed by the Act, the articles or any other provision of the by-laws, all matters submitted to meetings of shareholders, including the election of directors, shall be decided by majority vote.

18.	Vote by Show of Hands

Unless otherwise prescribed by the Act, all voting shall be conducted by a show of hands at all shareholders’ meetings, unless a ballot is demanded by a person holding or representing by proxy at least 10% of shares entitled to vote at the meeting. A declaration by the chairman of the meeting that a resolution of the shareholders has been carried, or carried unanimously, or by a specified majority, or rejected, and that an entry to that effect has been made in the minutes of the meeting is, in the absence of any evidence to the contrary, proof of that fact, without it being necessary to prove the number or proportion of the votes recorded.

19.	Vote by Secret Ballot

If the Chairman of the meeting so orders or if another person who also holds or represents by proxy not less than 10% of the shares entitled to vote at the meeting so demands, voting shall be by secret ballot (either before or immediately after the result of the vote by a show of hands). In such instance, the secret ballot shall be held in the manner determined by the chairman of the meeting.

20.	Scrutineers

The Chairman of the meeting may appoint scrutineers (who may but need not be directors, officers, employees or shareholders of the Corporation) who shall act according to his instructions.

ARTICLE IV - DIRECTORS

Number

Subject to the provisions of the Act,

1.1

The Corporation shall be administered by a Board of Directors consisting of a minimum of one (1) member and a maximum of fifteen (15);

1.2

The number of members in office shall be determined from time to time by resolution of the Board of Directors or by ordinary resolution of the shareholders but any reduction in the number of members shall not have the effect of reducing the term of office of the directors in office.

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2.	Eligibility

Unless otherwise provided for in the articles, a director shall not be required to be a shareholder of the Corporation. A director shall be at least eighteen (18) years of age but it is not necessary that he be a resident of Canada or Quebec.

3.	Election and Term of Office

Unless otherwise provided for in the by-laws, the directors shall be elected by the shareholders at the annual meeting; the outgoing directors may be reelected. Such election shall be by a show of hands unless a ballot is requested in accordance with the provisions of paragraph 19 of Article III.

If the election of the directors does not take place at the annual meeting, it can be held at a subsequent special general meeting duly called for such purpose. The outgoing directors shall remain in office until their successors are elected.

If the articles so provide, the directors may appoint one or more additional directors to hold office for a term expiring not later than the close of the next annual shareholders meeting, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual shareholders meeting.

A director’s mandate ends upon death, resignation, removal or at such time that the director becomes disqualified to act as a director.

Vacancies

So long as the directors remaining in office constitute a quorum, they shall be entitled to act even if there is a vacancy on the Board of Directors. The Board of Directors shall also be entitled to elect a new director to fill a seat left vacant following the death, resignation, disqualification or removal of a director which has not been filled by the shareholders. The shareholders who are entitled to vote shall also be entitled to elect directors in the case of vacancy at any annual meeting, or at a special general meeting duly called to fill such vacancies.

5.	Remuneration

The Board of Directors may, from time to time, by resolution of the Board, determine the remuneration of the directors. The directors shall be entitled to be reimbursed for their travel expenses to attend meetings of the Board of Directors or of any committee of the Board of Directors, as well as all costs, charges and expenses reasonably incurred in the exercise of their functions.

6.	Disqualification

The office of a director shall be vacated ipso facto if the director:

6.1

ceases to be qualified, or

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6.2

becomes bankrupt or insolvent or makes a compromise or arrangement with his creditors, or

6.3

is interdicted or is placed under tutorship or curatorship, or

6.4

is of unsound mind, or found incapable by a court of another province or country, or

6.5

is removed from office as set forth below;

but any acts performed in good faith by a disqualified director shall be valid.

7.	Resignation

Any director may at any time tender his resignation in writing. Such resignation shall become effective at the time the written resignation is received by the Corporation or the time specified in the resignation, whichever is later.

8.	Removal from Office

The holders of the majority of the shares of the Corporation carrying the right to vote may, at any time, at a special general meeting of shareholders duly called for such purpose, remove any director of the Corporation from office before the end of the director’s term, with or without cause. The director who is to be removed from office shall be informed of the place and time of the meeting within the same time as for the calling of the meeting. He may attend the meeting and be heard or, in a written statement read by the person presiding over the meeting, explain why he opposes the resolution proposing his removal.

9.	General Powers of Directors

The Board of Directors shall exercise all the powers necessary to manage, or supervise the management of, the business and affairs of the Corporation.

10.	Conflict of Interest

A director shall avoid placing himself in a situation where his personal interest would be in conflict with his obligations as a director of the Corporation and shall disclose in the manner set forth in the Act the nature and value of any interest he has in a contract or transaction to which the Corporation is party.

Furthermore, a director shall disclose in the manner set forth in the Act any contract or transaction to which the Corporation and (a) an associate of the director, (b) a group of which the director is a director or officer, or (c) a group in which the director or an associate of the director has an interest, are party.

As required by the Act, a director who has such an interest shall abstain from participating in deliberations and voting on the matter. However, this rule shall not apply to matters relating to the director’s remuneration, his conditions of employment and other exceptions set forth in the Act.

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The director who has such an interest shall leave the meeting while the Board of Directors deliberates and votes on the transaction or contract in question. The same principle applies to a director who holds an interest in an offeror making a takeover bid for the shares of the Corporation while the Board of Directors deliberates and votes on said bid.

11.

Borrowing

Without limiting the powers of the directors under the Act, the directors may from time to time on behalf of the Corporation:

11.1

borrow money upon the credit of the Corporation;

11.2

issue, pledge or sell debentures and other securities of the Corporation at such prices and for such amounts as are deemed appropriate;

11.3

hypothecate or otherwise encumber the immovable and movable property of the Corporation;

11.4

delegate in whole or in part the aforementioned powers to one or more officers of the Corporation, to such extent and upon such terms and conditions as are set forth in the resolution respecting the delegation of powers.

The provisions of this paragraph are in addition to those of any borrowing by-law adopted for banking purposes. However, the provisions of any such borrowing by-law do not have the effect of limiting the directors’ powers under section 115 of the Act nor shall they be interpreted so as to limit their powers thereunder.

ARTICLE V - MEETINGS OF THE BOARD OF DIRECTORS

1.	Regular Meetings

Unless it decides otherwise, the Board of Directors shall, without notice, meet immediately after the annual meeting of shareholders and at the same place, or immediately after a special general meeting of shareholders at which directors were elected and at the same place, to elect a Chairman of the Board, appoint the officers of the Corporation and transact any other business.

The Board of Directors may set a day or days in any month for the holding of regular meetings of the Board of Directors, at the place and time set by the Board. A copy of any resolution of the Board of Directors setting the place and time of such regular meeting shall be sent to each director immediately after it is passed. No other notice shall be required for any regular meeting except where the Act requires that the purpose or the business to be transacted at such meetings be specified.

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2.	Other Meetings

The Board of Directors may meet at any time and at any place and for any purpose whatsoever, at the call of the Chairman of the Board, the President of the Corporation or a director, provided that a notice is duly sent to each director, or without notice if all of the directors are present or waive the notice of meeting in writing or by other, electronic means of communication.

3.	Participation

The directors may participate in a meeting of the Board of Directors by such means, particularly by telephone or video-conferencing, as permit all persons participating in the meeting to hear each other. They shall then be deemed to have been present at the meeting.

4.	Notices of Meetings

In all instances, a notice shall be deemed to be sufficient if it indicates the time and place of the meeting and is sent by any methods of transmission permitted under the Act and the by-laws at least forty-eight (48) hours before the meeting. It shall be sent to the director’s last known business or home address. In the event of an emergency, such time shall be shortened to twenty-four (24) hours. The notice shall be given by the Secretary or by any other officer designated by the President of the Corporation or the directors. To the extent permitted under the Act, the notice need not be signed or specify the nature of the business to be transacted at the meeting.

Quorum

A majority of the directors in office from time to time shall constitute a quorum at any meeting of the Board of Directors. Quorum shall exist for the entire meeting of the Board.

6.	Adjournment

Whether or not there is a quorum, any meeting of the Board of Directors may be adjourned from time to time by a vote of a majority of the directors present and subsequently resumed without the requirement that a new notice be given, if the time and place of the adjourned meeting is announced at the same time as the adjournment. At the adjourned meeting, the Board of Directors may validly transact business in accordance with the terms established at the time of the adjournment provided that there is a quorum. The directors who constituted a quorum at the original meeting do not have to constitute the quorum at the adjourned meeting. If there is no quorum at the adjourned meeting, the meeting is deemed to have ended at the preceding meeting at which the adjournment was announced.

Voting

Subject to the provisions of the Act and the by-laws limiting the right to vote, each director is entitled to one vote. Any matters submitted to a meeting of the directors shall be decided by a majority of votes. Voting shall be by show of hands unless a ballot is requested by the person presiding over the meeting or by a director, in which case the vote shall be by ballot. If voting is by ballot, the secretary of the meeting shall be the scrutineer and shall count the ballots. Voting by proxy is not allowed for meetings of directors.

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8.	Chairman of the Board

The Chairman of the Board shall preside over all meetings of the Board of Directors. If there is no Chairman of the Board or if he is absent, the meeting shall be chaired by the Executive Vice-Chairman of the Board if there is one or, if there is no Executive Vice-Chairman or if he is absent, by the President of the Corporation if he is a director or, if he is not a director or he is absent, by a Vice-President if he is a director. In their absence, any director chosen by the majority of the members of the Board of Directors shall preside over the meeting.

Secretary

At any meeting of the directors, the Secretary of the Corporation or, in his absence, an Assistant Secretary, or in the absence of an Assistant Secretary, any person appointed by the person presiding over the meeting shall act as secretary.

10.	Waiver of Notice

Any director may, in writing, waive notice of a meeting of the Board either before or after the meeting is held. Attendance of a director at the meeting shall be a waiver unless the director attends for the sole purpose of objecting to the meeting on the grounds that it was not lawfully called.

11.	Validity of Acts of Directors

Any act by the Board of Directors or by any person acting as a director, even if it is later discovered that there is an irregularity in the election or appointment of the director or the person acting as such or a defect in the qualification of one or more members of the Board of Directors, shall be as valid as if each such person had been duly appointed or elected or were qualified to be a director.

12.	Written Resolutions

Resolutions in writing, signed by all the directors entitled to vote on such resolutions at meetings of the Board or a committee, have the same force as if they had been passed during such meetings. A copy of such resolutions shall be kept with the minutes of the meetings of the Board or the committee in question.

ARTICLE VI - OFFICERS

Officers

The Board of Directors may appoint any officers and any other mandataries as it deems appropriate and determine their titles, functions, powers and remuneration. The same person may hold more than one office. Except for the Chairman of the Board, who must be a director, an officer need not be a director or shareholder of the Corporation. Each officer or mandatary may be removed at any time by the Board of Directors. Any officer or mandatary may resign at any time by way of notice to the Corporation.

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ARTICLE VII - COMMITTEES

1.	Committees of Directors

The Board of Directors may create a committee or committees of directors, the designation and composition of which shall be at the discretion of the Board of Directors, and may delegate to such committee or committees all the powers of the Board of Directors except those which, under the Act, must be exercised by the Board of Directors or those which the Board of Directors may expressly reserve for itself. The Board of Directors may, by choosing among its members, fill any vacancy occurring on any of its committees for any reason whatsoever. Members of any Board committee shall have the right to receive for their services the remuneration that the directors may determine by resolution.

Procedure

The meetings of each committee shall be held at the specified time and place at the call of the chairman of the committee or, in his absence, of a member of the said committee. Unless otherwise determined by the Board of Directors, each committee shall have the power to determine the quorum provided it is not be not less than a majority of the members, appoint its chairman and determine its internal procedure. The powers of the committee may be exercised at a meeting at which there is a quorum or by written resolution signed by all of the members entitled to vote on such resolution. The members of any committee may, if all the members consent, participate in a meeting of such committee by such means, particularly by telephone or teleconferencing, as permit all persons participating in the meeting to hear each other. They shall then be deemed to have been present at the meeting.

ARTICLE VIII - SEAL

1.	Description

The Corporation may possess a seal on which its name shall be engraved. The seal or any amendment thereto shall be adopted by resolution of the directors. It shall be authenticated by the signature of the President or Secretary.

ARTICLE IX - LIABILITY OF DIRECTORS, OFFICERS AND OTHER PERSONS

1.	Limitation of Liability

Within the limits permitted under the Act, no director or officer of the Corporation shall be liable for the acts, omissions or default of any other director, officer, mandatary or employee, or for any loss, damage or expense incurred by the Corporation due to an insufficiency or deficiency of title to any property acquired by or on behalf of the Corporation, or the insufficiency of any security in or upon which the Corporation has invested money, or for any loss or damage arising from the bankruptcy, the insolvency or the delictual or quasi-delictual acts

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of any person, firm or group with whom or which moneys, securities or effects have been lodged or deposited or for any other loss, damage or misfortune whatsoever which may happen in the execution of his duties or in relation thereto.

2.	Indemnification

The Corporation shall indemnify any director or officer of the Corporation, any former director or officer of the Corporation, or any person who acts or acted at the Corporation’s request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses reasonably incurred in the exercise of their functions, including an amount paid to settle an action or satisfy a judgment if:

2.1

The person acted with honesty and loyalty in the interest of the Corporation or the aforesaid group; and

2.2

In the case of a proceeding that is enforced by a monetary penalty, the person had reasonable grounds to believe that his conduct was lawful.

Nothing in the present paragraph shall limit the ability of the Corporation to offer greater indemnities, within the limits permitted under the Act.

Insurance

Subject to the provisions of the Act, the Corporation may purchase and maintain, for the benefit of the persons mentioned in paragraph 2 of this Article IX and the Corporation’s other mandataries, as well as any other person who acts or acted in such capacity or who, at the Corporation’s request, acts or acted in such capacity for another group, such insurance as may be determined from time to time by the Board of Directors.

ARTICLE X - SHARE CAPITAL

1.	Certificates and Transfer of Shares

Certificates representing the shares of the share capital of the Corporation shall bear the signatures of the President or a Vice-President and of the Secretary or an Assistant Secretary of the Corporation. Any certificate bearing a signature of an authorized officer shall be valid, notwithstanding that the signatory has since ceased to hold that position.

2.	Transfer Agents

The Board of Directors may appoint or remove transfer agents or registrars and adopt provisions governing the transfer of shares and the registration thereof. Any share certificate issued after such appointment must be countersigned by such agents, failing which the certificate shall be invalid.

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3.	Lost, Wrongfully Taken, Mutilated or Destroyed Certificates

In the event that a share certificate held by a shareholder is lost, wrongfully taken, mutilated or destroyed, the fact of such loss, wrongful taking, mutilation or destruction shall be reported to the Corporation or transfer agent (if any) by such shareholder with proof by way of an affidavit or a statutory declaration by the shareholder or other proof that the directors may require concerning such loss, wrongful taking, mutilation or destruction and the circumstances thereof, accompanied by the shareholder’s request to have a new certificate issued in replacement of the one that was lost, wrongfully taken, mutilated or destroyed. Upon reception by the Corporation (or if there are one or more transfer agents and registrars, then by the Corporation and by such transfer agents and registrars or by any one of them) of such security (if any) as may be required by the Board of Directors (or by the transfer agents and registrars, if any) in a form approved by the Corporation’s legal counsel, indemnifying the Corporation (and its transfer agents and registrars, if any) against any loss, damage or costs which the Corporation and/or the transfer agents and registrars, if any, may incur by issuing a new certificate to the said shareholder, a new certificate may be issued to replace the one that was lost, wrongfully taken, mutilated or destroyed, provided that such issuance is ordered by the President or a Vice-President or the Secretary or Treasurer of the Corporation then in office or by the Board of Directors.

4.	Joint Shareholders

If two (2) or more persons are registered as the joint holders of any share, the Corporation shall not be required to issue more than one certificate to such persons, and the delivery of such a certificate to one of such persons shall be sufficient in respect of all such persons. Each such person may give a receipt for the certificate issued to such persons or for any dividends, bonuses, discounts or other moneys payable or purchase rights relating to such share.

5.	Deceased Shareholders

In the event a shareholder or one of the joint shareholders dies, the Corporation shall not be required to enter any registrations in this regard in the security register or make any payment of dividends on such shares or other distribution in respect thereof without the prior filing of any documents that may be required under the Act and in accordance with the reasonable requirements of the Corporation and its transfer agent, if any.

ARTICLE XI - FISCAL YEAR AND DIVIDENDS

1.	Fiscal Year

The Corporation’s fiscal year shall end each year on the last day of the month of December.

Dividends

The Board of Directors may, from time to time and in compliance with the Act, declare and pay dividends to the shareholders according to their respective rights.

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The directors may declare dividends payable in cash, in assets or in fully paid shares and pay same to the shareholders according to their entitlement and interest. Any cash dividends shall be paid by cheque or money order sent by mail to the address shown in the registers or, in the case of joint holders, to the address of the holder appearing first in the registers as one of the joint holders of such shares, or by any electronic means deemed acceptable by the Board of Directors. Such cheques or money orders shall be made to the order of the registered holder and, in the case of joint holders, jointly in the names of all the joint holders. The sending of such cheques or money orders shall release the Corporation from any liability for such dividend up to the amount represented by such cheque or money order plus the amount of any taxes deducted or withheld, unless such cheque or money order is not paid upon presentation. No unpaid dividends shall bear interest.

In the event that a cheque or money order representing a dividend amount is not received by the person to whom it was sent as mentioned above, the Corporation shall issue such person a cheque or money order in replacement of the cheque or money order not received for a similar amount on such conditions regarding indemnification, reimbursement of costs and proof of non-receipt and title as the Board of Directors may prescribe from time to time, in general or in a specific case.

Any dividends unclaimed after a period of six (6) years from the date they were declared payable shall be forfeited and shall revert to the Corporation.

ARTICLE XII - NEGOTIABLE INSTRUMENTS, CONTRACTS, VOTING OF SHARES AND INTERESTS AND JUDICIAL DECLARATIONS

1.	Cheques, Bills of Exchange, etc.

All cheques, bills of exchange, promissory notes and other negotiable instruments shall be signed by the person or officer designated by the Board of Directors or any committee or person to whom the Board shall delegate this authority, generally or specifically. Unless a resolution to the contrary is passed by the Board of Directors, all endorsements of cheques, bills of exchange, promissory notes or other negotiable instruments payable to the Corporation shall be made for collection and deposit to the credit of the Corporation with a bank or duly authorized depository. Such endorsements may be made by way of a stamp or other device.

2.	Contracts, etc.

Any contracts or other documents in writing made in the normal course of the business of the Corporation and requiring the Corporation’s signature may be validly signed by the Chairman of the Board, the President of the Corporation, any Vice-President, the Secretary, the Treasurer or the Assistant Secretary, and all contracts or other documents made in writing so signed shall bind the Corporation, without further formality or authorization. The Board of Directors shall have the power to appoint, by resolution and from time to time, any other officer or any other person to sign contracts or other documents made in writing on behalf of the Corporation, which authorization may be general or specific. The Corporation’s seal may, if required, be affixed to such contracts or other documents in writing signed as aforesaid.

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3.	Voting of Shares and Interests of Other Legal Persons or Other Unincorporated Groups

Unless otherwise decided by the Board of Directors, the Chairman of the Board, the President of the Corporation, any Vice-President, the Secretary, the Treasurer or the Assistant Secretary shall each have the power and authority, for and on behalf of the Corporation to:

3.1

Attend, act and vote at any meeting of the shareholders or other holders of interests of any corporation, legal person or other group in which the Corporation may, from time to time, hold shares or other interests and at such meeting he shall be entitled to exercise each and every one of the rights and powers attaching to the ownership of such shares or other interests as though he were the owner thereof; or

3.2

Issue one or more proxies authorizing other persons to act in the manner described above.

The Directors may, from time to time, grant the same powers to any other person.

4.	Judicial Declarations

The Chairman of the Board, the President of the Corporation, any Vice-President, the Secretary, the Treasurer or the Assistant Secretary, shall be authorized under this by-law to make, on behalf of the Corporation, any garnishment declaration, before or after judgment, and to answer any examination on the facts and particulars and other proceedings which may be necessary in any litigation involving the Corporation to make any application for dissolution or liquidation, or any petition in bankruptcy against any debtor of the Corporation and grant powers of attorney in connection with such proceedings; to represent the Corporation at any meeting of creditors in which the Corporation has interests to be safeguarded and to vote and make any decisions at such meetings. It shall, however, be in the board’s discretion to appoint, by resolution, any other person for the purpose of representing the Corporation for the above-mentioned purposes.

ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 14, 2011

RATIFIED BY THE SHAREHOLDERS ON MAY 12 , 2011

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Exhibit 4.14.1

EXECUTION VERSION

FOURTEENTH SUPPLEMENTAL INDENTURE

dated as of September 2, 2011

to the

INDENTURE

dated as of February 5, 2003

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NEW YORK MELLON,

as Trustee,

as amended

FOURTEENTH SUPPLEMENTAL INDENTURE (this “ Fourteenth Supplemental Indenture ”), dated as of September 2, 2011, among CASCADES INC. (the “Company”) and 7678169 Canada Inc., Cascades GIE Inc. and Cascades Energy Action Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NEW YORK MELLON (f/k/a The Bank of New York), as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture, dated as of February 5, 2003, as amended (as so amended as of the date hereof, the “ Indenture ”), providing for the issuance of the Company’s 7 ¹ / 4 % Senior Notes due 2013 (the “ Notes ”);

WHEREAS, the Company has issued and outstanding $675,000,000 of Notes under the Indenture;

WHEREAS, Section 9.01 of the Indenture provides that the Company and the Trustee may amend or supplement the Indenture without the consent of any Holder of a Note to add additional Subsidiary Guarantees with respect to the Notes as provided or permitted under the Indenture;

WHEREAS, the Company is supplementing the Indenture to add the New Subsidiary Guarantors, which pursuant to Section 9.01(f) of the Indenture provides additional rights or benefits to the Holders; and

WHEREAS, pursuant to Sections 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this Fourteenth Supplemental Indenture;

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

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Fourteenth Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this Fourteenth Supplemental Indenture refer to this Fourteenth Supplemental Indenture as a whole and not to any particular section hereof.

2. Agreement to Guarantee . The New Subsidiary Guarantors hereby agree, jointly and severally with the existing Subsidiary Guarantors, to guarantee the Company’s obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture. From and after the date hereof, the New Subsidiary Guarantors shall be Subsidiary Guarantors for all purposes under the Indenture and the Notes.

3. Ratification of Indenture; Fourteenth 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 Fourteenth Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Miscellaneous .

4.1 Governing Law . THIS FOURTEENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

4.2 Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Fourteenth Supplemental Indenture, or for or in respect of the recitals contained herein.

4.3 Counterparts . The parties may sign any number of copies of this Fourteenth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

4.5 Conflict with TIA . If any provision of this Fourteenth Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this Fourteenth Supplemental Indenture, the provision of the TIA shall control. If any provision of this Fourteenth Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this Fourteenth Supplemental Indenture, as the case may be.

4.6 Severability . In case any provision of this Fourteenth 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.

4.7 No Third Party Beneficiaries . Nothing in this Fourteenth Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Fourteenth Supplemental Indenture or the Notes

As of the date hereof, Annex A to this First Supplemental Indenture lists the current Subsidiary Guarantors.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

7678169 CANADA INC.



By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Assistant Secretary


CASCADES GIE INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Secretary


CASCADES ENERGY ACTION INC.

By:		/s/ Louise Paul
		Name: Louise Paul
		Title: Assistant Secretary

Fourteenth Supplemental Indenture


Trustee:

THE BANK OF NEW YORK MELLON

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

Fourteenth Supplemental Indenture

ANNEX A

SUBSIDIARY GUARANTORS AS OF SEPTEMBER 2, 2011

7251637 CANADA INC.

7678169 CANADA INC.

CASCADES CANADA ULC (formerly known as CASCADES CANADA INC.)

CASCADES ENERGY ACTION INC.

CASCADES ENVIROPAC HPM LLC

CASCADES FINE PAPERS GROUP INC.

CASCADES GIE INC.

CASCADES HOLDING US INC. (formerly known as CASCADES AUBURN FIBER INC.)

CASCADES MOULDED PULP, INC.

CASCADES PAPERBOARD INTERNATIONAL INC.

CASCADES PLASTICS INC.

CASCADES SPG SALES INC.

CASCADES TENDERCO INC.

CASCADES TISSUE GROUP – ARIZONA INC.

CASCADES TISSUE GROUP – IFC DISPOSABLES INC.

CASCADES TISSUE GROUP – NEW YORK INC.

CASCADES TISSUE GROUP – SALES INC.

CASCADES TISSUE GROUP – TENNESSEE INC.

CASCADES TISSUE LLC (formerly known as CASCADES TISSUE GROUP – MARYLAND LLC)

CASCADES TRANSPORT INC.

CASCADES USA INC.

KINGSEY FALLS INVESTMENTS INC.

NORAMPAC EXPORT SALES INC.

NORAMPAC FINANCE US INC.

NORAMPAC INDUSTRIES INC.

NORAMPAC NEW ENGLAND INC.

NORAMPAC NEW YORK CITY INC.

NORAMPAC SCHENECTADY INC.

Fourteenth Supplemental Indenture

Exhibit 4.14.2

EXECUTION VERSION

FIFTEENTH SUPPLEMENTAL INDENTURE

dated as of November 18, 2011

to the

INDENTURE

dated as of February 5, 2003

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NEW YORK MELLON,

as Trustee,

as amended

FIFTEENTH SUPPLEMENTAL INDENTURE (this “ Fifteenth Supplemental Indenture ”), dated as of November 18, 2011, among CASCADES INC. (the “Company”) and Papersource Converting Mill Corp. and 7973900 Canada Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NEW YORK MELLON (f/k/a The Bank of New York), as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has issued and outstanding $675,000,000 of Notes under the Indenture;

WHEREAS, the Company is supplementing the Indenture to add the New Subsidiary Guarantors, which pursuant to Section 9.01(f) of the Indenture provides additional rights or benefits to the Holders; and

WHEREAS, pursuant to Sections 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this Fifteenth Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Fifteenth Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this Fifteenth Supplemental Indenture refer to this Fifteenth Supplemental Indenture as a whole and not to any particular section hereof.

3. Ratification of Indenture; Fifteenth 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 Fifteenth Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Miscellaneous .

4.1 Governing Law . THIS FIFTEENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

4.2 Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Fifteenth Supplemental Indenture, or for or in respect of the recitals contained herein.

4.3 Counterparts . The parties may sign any number of copies of this Fifteenth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

4.5 Conflict with TIA . If any provision of this Fifteenth Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this Fifteenth Supplemental Indenture, the provision of the TIA shall control. If any provision of this Fifteenth Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this Fifteenth Supplemental Indenture, as the case may be.

4.6 Severability . In case any provision of this Fifteenth 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.

4.7 No Third Party Beneficiaries . Nothing in this Fifteenth Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Fifteenth Supplemental Indenture or the Notes

EXECUTION VERSION

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


Company:
CASCADES INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall Title: Vice President, Legal Affairs and Corporate Secretary
New Subsidiary Guarantors:
PAPERSOURCE CONVERTING MILL CORP.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall Title: Assistant Secretary
7973900 CANADA INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall Title: Secretary

Fifteenth Supplemental Indenture


Trustee:
THE BANK OF NEW YORK MELLON

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

Fifteenth Supplemental Indenture

Exhibit 4.21.1

EXECUTION VERSION

SEVENTH SUPPLEMENTAL INDENTURE

dated as of September 2, 2011

to the

INDENTURE

dated as of May 28, 2003

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK,

as Trustee,

as amended

SEVENTH SUPPLEMENTAL INDENTURE (this “ Seventh Supplemental Indenture ”), dated as of September 2, 2011, among CASCADES INC. (the “ Company ”) and 7678169 Canada Inc., Cascades GIE Inc. and Cascades Energy Action Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, Norampac Inc., a Canadian corporation, as predecessor issuer, heretofore executed and delivered to the Trustee an indenture, dated as of May 28, 2003 (as so amended as of the date hereof, the “ Indenture ”), providing for the issuance of the Company’s 6 ³ / 4 % Senior Notes due 2013 (the “ Notes ”);

WHEREAS, the Company has issued and outstanding $250,000,000 of Notes under the Indenture;

WHEREAS, the Company is supplementing the Indenture to add the New Subsidiary Guarantors, which pursuant to Section 9.01(f) of the Indenture provides additional rights or benefits to the Holders; and

WHEREAS, pursuant to Sections 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this Seventh Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Seventh Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this Seventh Supplemental Indenture refer to this Seventh Supplemental Indenture as a whole and not to any particular section hereof.

3. Ratification of Indenture; Seventh 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 Seventh Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Miscellaneous .

4.1 Governing Law . THIS SEVENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

4.2 Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Seventh Supplemental Indenture, or for or in respect of the recitals contained herein.

4.3 Counterparts . The parties may sign any number of copies of this Seventh Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

4.5 Conflict with TIA . If any provision of this Seventh Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this Seventh Supplemental Indenture, the provision of the TIA shall control. If any provision of this Seventh Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this Seventh Supplemental Indenture, as the case may be.

4.6 Severability . In case any provision of this Seventh 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.

4.7 No Third Party Beneficiaries . Nothing in this Seventh Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Seventh Supplemental Indenture or the Notes.

As of the date hereof, Annex A to this Seventh Supplemental Indenture lists the current Subsidiary Guarantors.

[remainder of page left intentionally blank]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Vice President, Legal Affairs and Corporate Secretary


New Subsidiary Guarantors:

7678169 CANADA INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Assistant Secretary


CASCADES GIE INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Secretary


CASCADES ENERGY ACTION INC.

By:		/s/ Louise Paul
		Name: Louise Paul
		Title: Assistant Secretary

Seventh Supplemental Indenture


Trustee:

THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

By:		/s/ John F. Neylan
		Name: John F. Neylan
		Title: Trust Officer

Seventh Supplemental Indenture

ANNEX A

SUBSIDIARY GUARANTORS AS OF SEPTEMBER 2, 2011

7251637 CANADA INC.

7678169 CANADA INC.

CASCADES CANADA ULC (formerly known as CASCADES CANADA INC.)

CASCADES ENERGY ACTION INC.

CASCADES ENVIROPAC HPM LLC

CASCADES FINE PAPERS GROUP INC.

CASCADES GIE INC.

CASCADES HOLDING US INC. (formerly known as CASCADES AUBURN FIBER INC.)

CASCADES MOULDED PULP, INC.

CASCADES PAPERBOARD INTERNATIONAL INC.

CASCADES PLASTICS INC.

CASCADES SPG SALES INC.

CASCADES TENDERCO INC.

CASCADES TISSUE GROUP – ARIZONA INC.

CASCADES TISSUE GROUP – IFC DISPOSABLES INC.

CASCADES TISSUE GROUP – NEW YORK INC.

CASCADES TISSUE GROUP – SALES INC.

CASCADES TISSUE GROUP – TENNESSEE INC.

CASCADES TISSUE LLC (formerly known as CASCADES TISSUE GROUP – MARYLAND LLC)

CASCADES TRANSPORT INC.

CASCADES USA INC.

KINGSEY FALLS INVESTMENTS INC.

NORAMPAC EXPORT SALES INC.

NORAMPAC FINANCE US INC.

NORAMPAC INDUSTRIES INC.

NORAMPAC NEW ENGLAND INC.

NORAMPAC NEW YORK CITY INC.

NORAMPAC SCHENECTADY INC.

Seventh Supplemental Indenture

Exhibit 4.21.2

EXECUTION VERSION

EIGHTH SUPPLEMENTAL INDENTURE

dated as of November 18, 2011

to the

INDENTURE

dated as of May 28, 2003

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK,

as Trustee,

as amended

EIGHTH SUPPLEMENTAL INDENTURE (this “ Eighth Supplemental Indenture ”), dated as of November 18, 2011, among CASCADES INC. (the “Company”) and Papersource Converting Mill Corp. and 7973900 Canada Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has issued and outstanding $250,000,000 of Notes under the Indenture;

WHEREAS, the Company is supplementing the Indenture to add the New Subsidiary Guarantors, which pursuant to Section 9.01(f) of the Indenture provides additional rights or benefits to the Holders; and

WHEREAS, pursuant to Sections 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this Eighth Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Eighth Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this Eighth Supplemental Indenture refer to this Eighth Supplemental Indenture as a whole and not to any particular section hereof.

3. Ratification of Indenture; Eighth 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 Eighth Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Miscellaneous .

4.1 Governing Law . THIS EIGHTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

4.2 Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Eighth Supplemental Indenture, or for or in respect of the recitals contained herein.

4.3 Counterparts . The parties may sign any number of copies of this Eighth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

4.5 Conflict with TIA . If any provision of this Eighth Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this Eighth Supplemental Indenture, the provision of the TIA shall control. If any provision of this Eighth Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this Eighth Supplemental Indenture, as the case may be.

4.6 Severability . In case any provision of this Eighth 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.

4.7 No Third Party Beneficiaries . Nothing in this Eighth Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Eighth Supplemental Indenture or the Notes.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:	/s/ Robert F. Hall
	Name:	Robert F. Hall
	Title:	Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

PAPERSOURCE CONVERTING MILL CORP.

By:	/s/ Robert F. Hall
	Name:	Robert F. Hall
	Title:	Assistant Secretary


7973900 CANADA INC.

By:	/s/ Robert F. Hall
	Name:	Robert F. Hall
	Title:	Secretary

Eighth Supplemental Indenture



Trustee:

THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

By:		/s/ John F. Neylan
		Name: John F. Neylan
		Title: Trust Officer

Eighth Supplemental Indenture

Exhibit 4.22.1

EXECUTION VERSION

FIRST SUPPLEMENTAL INDENTURE

dated as of September 2, 2011

to the

INDENTURE

dated as of December 3, 2009

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NOVA SCOTIA TRUST

COMPANY OF NEW YORK,

as Trustee,

as amended

FIRST SUPPLEMENTAL INDENTURE (this “ First Supplemental Indenture ”), dated as of September 2, 2011, among CASCADES INC. (the “ Company ”) and 7678169 Canada Inc., Cascades GIE Inc. and Cascades Energy Action Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture, dated as of December 3, 2009 (the “ Indenture ”), providing for the issuance of the Company’s 7 ³ / 4 % Senior Notes due 2017 (the “ Notes ”);

WHEREAS, the Company has issued and outstanding $500,000,000 of Notes under the Indenture;

WHEREAS, Section 4.17 of the Indenture provides that the Company shall cause each person that becomes its Canadian or U.S. Restricted Subsidiary to execute and deliver to the Trustee a Subsidiary Guarantee as soon as practicable after such time such person becomes a Canadian or U.S. Restricted Subsidiary;

WHEREAS, each of the New Subsidiary Guarantors is a Canadian or U.S. Restricted Subsidiary of the Company;

WHEREAS, pursuant to Sections 4.17, 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this First Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this First Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this First Supplemental Indenture refer to this First Supplemental Indenture as a whole and not to any particular section hereof.

3. Ratification of Indenture; First 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 First Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Miscellaneous .

4.1 Governing Law . THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

4.2 Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture, or for or in respect of the recitals contained herein.

4.3 Counterparts . The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

4.5 Conflict with TIA . If any provision of this First Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this First Supplemental Indenture, the provision of the TIA shall control. If any provision of this First Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this First Supplemental Indenture, as the case may be.

4.6 Severability . In case any provision of this First 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.

4.7 No Third Party Beneficiaries . Nothing in this First Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this First Supplemental Indenture or the Notes.

As of the date hereof, Annex A to this First Supplemental Indenture lists the current Subsidiary Guarantors.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall Title: Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

7678169 CANADA INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall Title: Assistant Secretary

CASCADES GIE INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall Title: Secretary

CASCADES ENERGY ACTION INC.

By:		/s/ Louise Paul
		Name: Louise Paul Title: Assistant Secretary

First Supplemental Indenture


Trustee:
THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

By:		/s/ John F. Neylan
		Name: John F. Neylan Title: Trust Officer

First Supplemental Indenture

ANNEX A

SUBSIDIARY GUARANTORS AS OF SEPTEMBER 2, 2011

7251637 CANADA INC.

7678169 CANADA INC.

CASCADES CANADA ULC (formerly known as CASCADES CANADA INC.)

CASCADES ENERGY ACTION INC.

CASCADES ENVIROPAC HPM LLC

CASCADES FINE PAPERS GROUP INC.

CASCADES GIE INC.

CASCADES HOLDING US INC. (formerly known as CASCADES AUBURN FIBER INC.)

CASCADES MOULDED PULP, INC.

CASCADES PAPERBOARD INTERNATIONAL INC.

CASCADES PLASTICS INC.

CASCADES SPG SALES INC.

CASCADES TENDERCO INC.

CASCADES TISSUE GROUP – ARIZONA INC.

CASCADES TISSUE GROUP – IFC DISPOSABLES INC.

CASCADES TISSUE GROUP – NEW YORK INC.

CASCADES TISSUE GROUP – SALES INC.

CASCADES TISSUE GROUP – TENNESSEE INC.

CASCADES TISSUE LLC (formerly known as CASCADES TISSUE GROUP – MARYLAND LLC)

CASCADES TRANSPORT INC.

CASCADES USA INC.

KINGSEY FALLS INVESTMENTS INC.

NORAMPAC EXPORT SALES INC.

NORAMPAC FINANCE US INC.

NORAMPAC INDUSTRIES INC.

NORAMPAC NEW ENGLAND INC.

NORAMPAC NEW YORK CITY INC.

NORAMPAC SCHENECTADY INC.

First Supplemental Indenture

Exhibit 4.22.2

EXECUTION VERSION

SECOND SUPPLEMENTAL INDENTURE

dated as of November 18, 2011

to the

INDENTURE

dated as of December 3, 2009

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NOVA SCOTIA TRUST

COMPANY OF NEW YORK,

as Trustee,

as amended

SECOND SUPPLEMENTAL INDENTURE (this “ Second Supplemental Indenture ”), dated as of November 18, 2011, among CASCADES INC. (the “ Company ”) and Papersource Converting Mill Corp. and 7973900 Canada Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has issued and outstanding $500,000,000 of Notes under the Indenture;

WHEREAS, each of the New Subsidiary Guarantors is a Canadian or U.S. Restricted Subsidiary of the Company;

WHEREAS, pursuant to Sections 4.17, 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this Second Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Second Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this Second Supplemental Indenture refer to this Second Supplemental Indenture as a whole and not to any particular section hereof.

3. Ratification of Indenture; Second 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 Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Miscellaneous .

4.1 Governing Law . THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

4.2 Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Second Supplemental Indenture, or for or in respect of the recitals contained herein.

4.3 Counterparts . The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

4.5 Conflict with TIA . If any provision of this Second Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this Second Supplemental Indenture, the provision of the TIA shall control. If any provision of this Second Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this Second Supplemental Indenture, as the case may be.

4.6 Severability . In case any provision of this Second 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.

4.7 No Third Party Beneficiaries . Nothing in this Second Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Second Supplemental Indenture or the Notes.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

PAPERSOURCE CONVERTING MILL CORP.



By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Assistant Secretary


7973900 CANADA INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Secretary


Trustee:

THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

By:		/s/ John F. Neylan
		Name: John F. Neylan
		Title: Trust Officer

Second Supplemental Indenture

Exhibit 4.23.1

EXECUTION VERSION

FIRST SUPPLEMENTAL INDENTURE

dated as of September 2, 2011

to the

INDENTURE

dated as of December 3, 2009

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

COMPUTERSHARE TRUST COMPANY

OF CANADA,

as Trustee,

as amended

FIRST SUPPLEMENTAL INDENTURE (this “ First Supplemental Indenture ”), dated as of September 2, 2011, among CASCADES INC. (the “ Company ”) and 7678169 Canada Inc., Cascades GIE Inc. and Cascades Energy Action Inc. (collectively, the “ New Subsidiary Guarantors ”) and COMPUTERSHARE TRUST COMPANY OF CANADA, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has issued and outstanding C$200,000,000 of Notes under the Indenture;

WHEREAS, each of the New Subsidiary Guarantors is a Canadian or U.S. Restricted Subsidiary of the Company;

WHEREAS, pursuant to Sections 4.17, 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this First Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

4. Miscellaneous .

4.1 Governing Law . THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF QUEBEC AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN AND WILL BE TREATED IN ALL RESPECTS AS QUEBEC CONTRACTS.

4.3 Counterparts . The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

As of the date hereof, Annex A to this First Supplemental Indenture lists the current Subsidiary Guarantors.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

7678169 CANADA INC.



By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Assistant Secretary


CASCADES GIE INC.

By:		/s/ Robert F. Hall
		Name: Robert F. Hall
		Title: Secretary


CASCADES ENERGY ACTION INC.

By:		/s/ Louise Paul
		Name: Louise Paul
		Title: Assistant Secretary

First Supplemental Indenture


Trustee:

COMPUTERSHARE TRUST COMPANY OF CANADA

By:		/s/ Sophie Brault
		Name: Sophie Brault
		Title: Corporate Trust Officer

By:		/s/ Fabienne Pinatel
		Name: Fabienne Pinatel
		Title: Gestionnaire Fiduciaire – Corporate Trust Officer

First Supplemental Indenture

ANNEX A

SUBSIDIARY GUARANTORS AS OF SEPTEMBER 2, 2011

7251637 CANADA INC.

7678169 CANADA INC.

CASCADES CANADA ULC (formerly known as CASCADES CANADA INC.)

CASCADES ENERGY ACTION INC.

CASCADES ENVIROPAC HPM LLC

CASCADES FINE PAPERS GROUP INC.

CASCADES GIE INC.

CASCADES HOLDING US INC. (formerly known as CASCADES AUBURN FIBER INC.)

CASCADES MOULDED PULP, INC.

CASCADES PAPERBOARD INTERNATIONAL INC.

CASCADES PLASTICS INC.

CASCADES SPG SALES INC.

CASCADES TENDERCO INC.

CASCADES TISSUE GROUP – ARIZONA INC.

CASCADES TISSUE GROUP – IFC DISPOSABLES INC.

CASCADES TISSUE GROUP – NEW YORK INC.

CASCADES TISSUE GROUP – SALES INC.

CASCADES TISSUE GROUP – TENNESSEE INC.

CASCADES TISSUE LLC (formerly known as CASCADES TISSUE GROUP – MARYLAND LLC)

CASCADES TRANSPORT INC.

CASCADES USA INC.

KINGSEY FALLS INVESTMENTS INC.

NORAMPAC EXPORT SALES INC.

NORAMPAC FINANCE US INC.

NORAMPAC INDUSTRIES INC.

NORAMPAC NEW ENGLAND INC.

NORAMPAC NEW YORK CITY INC.

NORAMPAC SCHENECTADY INC.

First Supplemental Indenture

Exhibit 4.23.2

EXECUTION VERSION

SECOND SUPPLEMENTAL INDENTURE

dated as of November 18, 2011

to the

INDENTURE

dated as of December 3, 2009

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

COMPUTERSHARE TRUST COMPANY

OF CANADA,

as Trustee,

as amended

SECOND SUPPLEMENTAL INDENTURE (this “ Second Supplemental Indenture ”), dated as of November 18, 2011, among CASCADES INC. (the “ Company ”) and Papersource Converting Mill Corp. and 7973900 Canada Inc. (collectively, the “ New Subsidiary Guarantors ”) and COMPUTERSHARE TRUST COMPANY OF CANADA, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has issued and outstanding C$200,000,000 of Notes under the Indenture;

WHEREAS, each of the New Subsidiary Guarantors is a Canadian or U.S. Restricted Subsidiary of the Company;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

4. Miscellaneous .

4.1 Governing Law . THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF QUEBEC AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN AND WILL BE TREATED IN ALL RESPECTS AS QUEBEC CONTRACTS.

4.3 Counterparts . The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:	/s/ Robert F. Hall
	Name: Title:	Robert F. Hall Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

PAPERSOURCE CONVERTING MILL CORP.

By:	/s/ Robert F. Hall
	Name: Title:	Robert F. Hall Assistant Secretary


7973900 CANADA INC.

By:	/s/ Robert F. Hall
	Name: Title:	Robert F. Hall Secretary


Trustee:

COMPUTERSHARE TRUST COMPANY OF CANADA

By:	/s/ Sophie Brault
	Name:	Sophie Brault
	Title:	Corporate Trust Officer

By:	/s/ Ekaterini Galouzis
	Name:	Ekaterini Galouzis
	Title:	Gestionnaire Fiduciaire Adjointe – Associate Trust Officer

Second Supplemental Indenture

Exhibit 4.24.1

EXECUTION VERSION

FIRST SUPPLEMENTAL INDENTURE

dated as of September 2, 2011

to the

INDENTURE

dated as of December 23, 2009

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NOVA SCOTIA TRUST

COMPANY OF NEW YORK,

as Trustee,

as amended

W I T N E S S E T H :

WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture, dated as of December 23, 2009 (the “ Indenture ”), providing for the issuance of the Company’s 7 ⁷ / 8 % Senior Notes due 2020 (the “ Notes ”);

WHEREAS, the Company has issued and outstanding $250,000,000 of Notes under the Indenture;

WHEREAS, each of the New Subsidiary Guarantors is a Canadian or U.S. Restricted Subsidiary of the Company;

WHEREAS, pursuant to Sections 4.17, 9.01 and 9.06 of the Indenture, the Trustee, the Company and the New Subsidiary Guarantors are authorized to execute and deliver this First Supplemental Indenture;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

4. Miscellaneous .

4.3 Counterparts . The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

As of the date hereof, Annex A to this First Supplemental Indenture lists the current Subsidiary Guarantors.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:
CASCADES INC.
By:	/s/ Robert F. Hall
	Name:	Robert F. Hall
	Title:	Vice President, Legal Affairs and Corporate Secretary
New Subsidiary Guarantors:
7678169 CANADA INC.
By:	/s/ Robert F. Hall
	Name:	Robert F. Hall
	Title:	Assistant Secretary


CASCADES GIE INC.
By:	/s/ Robert F. Hall
	Name:	Robert F. Hall
	Title:	Secretary
CASCADES ENERGY ACTION INC.
By:	/s/ Louise Paul
	Name:	Louise Paul
	Title:	Assistant Secretary

First Supplemental Indenture


Trustee: THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

By:		/s/ John F. Neylan
		Name: John F. Neylan
		Title: Trust Officer

First Supplemental Indenture

ANNEX A

SUBSIDIARY GUARANTORS AS OF SEPTEMBER 2, 2011

7251637 CANADA INC.

7678169 CANADA INC.

CASCADES CANADA ULC (formerly known as CASCADES CANADA INC.)

CASCADES ENERGY ACTION INC.

CASCADES ENVIROPAC HPM LLC

CASCADES FINE PAPERS GROUP INC.

CASCADES GIE INC.

CASCADES HOLDING US INC. (formerly known as CASCADES AUBURN FIBER INC.)

CASCADES MOULDED PULP, INC.

CASCADES PAPERBOARD INTERNATIONAL INC.

CASCADES PLASTICS INC.

CASCADES SPG SALES INC.

CASCADES TENDERCO INC.

CASCADES TISSUE GROUP – ARIZONA INC.

CASCADES TISSUE GROUP – IFC DISPOSABLES INC.

CASCADES TISSUE GROUP – NEW YORK INC.

CASCADES TISSUE GROUP – SALES INC.

CASCADES TISSUE GROUP – TENNESSEE INC.

CASCADES TISSUE LLC (formerly known as CASCADES TISSUE GROUP – MARYLAND LLC)

CASCADES TRANSPORT INC.

CASCADES USA INC.

KINGSEY FALLS INVESTMENTS INC.

NORAMPAC EXPORT SALES INC.

NORAMPAC FINANCE US INC.

NORAMPAC INDUSTRIES INC.

NORAMPAC NEW ENGLAND INC.

NORAMPAC NEW YORK CITY INC.

NORAMPAC SCHENECTADY INC.

First Supplemental Indenture

Exhibit 4.24.2

EXECUTION VERSION

SECOND SUPPLEMENTAL INDENTURE

dated as of November 18, 2011

to the

INDENTURE

dated as of December 23, 2009

among

CASCADES INC.,

as the Company,

THE SUBSIDIARY GUARANTORS named therein, and

THE BANK OF NOVA SCOTIA TRUST

COMPANY OF NEW YORK,

as Trustee,

as amended

SECOND SUPPLEMENTAL INDENTURE (this “ Second Supplemental Indenture ”), dated as of November 18, 2011, among CASCADES INC. (the “Company”) and Papersource Converting Mill Corp. and 7973900 Canada Inc. (collectively, the “ New Subsidiary Guarantors ”) and THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, the Company has issued and outstanding $250,000,000 of Notes under the Indenture;

WHEREAS, each of the New Subsidiary Guarantors is a Canadian or U.S. Restricted Subsidiary of the Company;

1. Definitions . (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

4. Miscellaneous .

4.3 Counterparts . The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

4.4 Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction thereof.

[ remainder of page left intentionally blank ]

EXECUTION VERSION

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


Company:

CASCADES INC.

By:	/s/ Robert F. Hall
	Name: Title:	Robert F. Hall Vice President, Legal Affairs and Corporate Secretary

New Subsidiary Guarantors:

PAPERSOURCE CONVERTING MILL CORP.

By:	/s/ Robert F. Hall
	Name: Title:	Robert F. Hall Assistant Secretary


7973900 CANADA INC.

By:	/s/ Robert F. Hall
	Name: Title:	Robert F. Hall Secretary

Second Supplemental Indenture


Trustee:

THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

By:	/s/ John F. Neylan
	Name:	John F. Neylan
	Title:	Trust Officer

Second Supplemental Indenture

Exhibit 10.2

EXECUTION COPY

PURCHASE AND SALE AGREEMENT

BY AND AMONG

CASCADES USA INC.

a Delaware corporation

as Seller,

REYNOLDS GROUP HOLDINGS LIMITED

a company organized under the laws of New Zealand,

as Purchaser,

and

CASCADES INC.

a Québec corporation,

as Guarantor

with respect to

THE SALE OF ALL OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF

DOPACO, INC. AND DOPACO CANADA, INC.

Dated

As of March 3, 2011

TABLE OF CONTENTS


		Page

ARTICLE I DEFINITIONS			3

1.1	Definitions		3

ARTICLE II PURCHASE AND SALE			16

2.1	Agreement to Purchase and Sell the Dopaco Stock		16

2.2	Purchase Price		16

2.3	Closing		16

2.4	Purchase Price Adjustments		16

2.5	Withholding		18

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER			19

3.1	Approval of Agreement and Transactions		19

3.2	Seller’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions		19

3.3	The Companies’ Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions		20

3.4	No Material Interest		21

3.5	Capital Structure; No Liens		21

3.6	Subsidiaries and Investments		22

3.7	Financial Statements		22

3.8	Books and Records		22

3.9	Properties; Encumbrances; Condition; Leases; Licenses		22

3.10	Contracts		24

3.11	No Governmental Authority Restrictions		26

3.12	No Litigation		26

3.13	Taxes		27

3.14	Insurance		28

3.15	Patents; Trademarks; Other Intellectual Property		28

3.16	Compliance with Laws; Regulatory Matters		29

3.17	Employees		29

3.18	Employee Benefits		30

3.19	Bank Accounts and Powers of Attorney; Lock Boxes		32

3.20	No Changes Since the Balance Sheet Date		33

3.21	No Investment Banker’s, Broker’s or Finder’s Fees		35

– i –

TABLE OF CONTENTS

(continued)


		Page

3.22	Environmental Matters		35

3.23	Transactions With Certain Persons		36

3.24	No Foreign Person		36

3.25	Taxable Canadian Properties		36

3.26	Relations with Customers		37

3.27	Entirety of Representations and Warranties; Disclaimer of Representations and Warranties		37

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER			38

4.1	Approval of Agreement and Transactions		38

4.2	Purchaser’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions		38

4.3	No Governmental Authority Restrictions		39

4.4	No Investment Banker’s, Broker’s or Finder’s Fees		39

4.5	Investment		39

4.6	Financial Ability to Perform		40

4.7	Purchaser’s Due Diligence		40

ARTICLE V COVENANTS			40

5.1	Conduct of Business of the Companies		40

5.2	Coordination		40

5.3	Purchaser’s Access to the Companies		41

5.4	Confidentiality; Announcements		41

5.5	Hart-Scott-Rodino; Competition Act		42

5.6	Insurance Cooperation		42

5.7	Cash Distributions		43

5.8	Affiliate Agreements; Intercompany Payables and Receivables		43

5.9	Non-Competition		43

5.10	Exclusivity		44

5.11	Further Assurances		45

5.12	Additional Due Diligence Materials		45

5.13	Financial Statements		46

5.14	Use of “Dopaco” Name		47

5.15	Workers Compensation Claims		47

– ii –

TABLE OF CONTENTS

(continued)


		Page

5.16	Blended Contracts		48

5.17	Release and Substitution		48

5.18	Employee Benefits		48

ARTICLE VI TAX MATTERS			50

6.1	Post Closing Elections		50

6.2	Post Closing Transactions		50

6.3	Preparation and Filing of Tax Returns		50

6.4	Transfer Taxes		52

6.5	Tax Indemnity		52

6.6	Apportionment		52

6.7	Refunds		52

6.8	Settlement of Deficiencies and Adjustments		53

6.9	Cooperation and Exchange of Information		53

6.10	Termination of Prior Tax Sharing Agreement; Powers of Attorney		54

6.11	Tax Covenant		54

6.12	Coordination; Survival Period		54

6.13	Treatment of Tax Indemnity Payments		55

ARTICLE VII INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES			55

7.1	Indemnification of Purchaser		55

7.2	Indemnification of Seller		56

7.3	Indemnification Procedure		56

7.4	Survival of Representations and Warranties		58

7.5	Treatment of Indemnity Payments		59

7.6	Sole and Exclusive Remedy		59

ARTICLE VIII CLOSING CONDITIONS			59

8.1	Conditions to Purchaser’s Obligations		59

8.2	Conditions to Seller’s Obligations		61

ARTICLE IX TERMINATION			62

9.1	Termination		62

ARTICLE X MISCELLANEOUS			63

– iii –

TABLE OF CONTENTS

(continued)


		Page

10.1	Notices		63

10.2	Entire Agreement		64

10.3	Amendments and Modifications		65

10.4	Successors and Assigns		65

10.5	No Third Party Beneficiaries; Binding Effect		66

10.6	Governing Law; Jurisdiction		66

10.7	Specific Performance		66

10.8	Severability		66

10.9	Titles and Subtitles		67

10.10	Expenses		67

10.11	Counterpart; Facsimile or PDF Signatures		67

10.12	Guarantee		67

– iv –

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “ Agreement ”) is made and entered into as of March 3, 2011, by and among Cascades USA Inc., a Delaware corporation (“ Seller ”), Reynolds Group Holdings Limited, a company organized under the laws of New Zealand (“ Purchaser ”), and Cascades Inc., a Québec corporation, solely with respect to Section 10.12 (the “ Guarantor ”).

RECITALS

WHEREAS, Dopaco, Inc., a Pennsylvania corporation (“ Dopaco US ”), and Dopaco Canada, Inc., a Canada corporation (“ Dopaco Canada ”), together with their Affiliates (as defined herein), manufacture, market and sell cold and hot cups with lids, fry cartons, pizza and other clamshells, food trays, auto bottom boxes, handled barn boxes, and other food containers, in each case (other than lids) manufactured from boxboard (collectively, the “ Products ”), and otherwise engage in business related to the foregoing (the “ Business ”);

WHEREAS, the Products are manufactured at certain converting facilities owned or leased by (i) Dopaco US located in Downington, PA, Kinston, NC, St. Charles, IL, and Stockton, CA, and (ii) Dopaco Canada located in London, Ontario and Brampton, Ontario (each, a “ Converting Facility ”, and, collectively, the “ Converting Facilities ”);

WHEREAS, Dopaco US owns all of the right, title and interest in and to seventy-nine percent (79%) of the issued and outstanding limited liability company interest (the “ Majority Dopaco Pacific Interest ”) of Dopaco Pacific LLC, a Delaware limited liability company (“ Dopaco Pacific ”), and Seller owns all of the right, title and interest in and to twenty-one percent (21%) of the issued and outstanding limited liability company interest (the “ Minority Dopaco Pacific Interest ” and together with the Majority Dopaco Pacific Interest, the “ Dopaco Pacific Interest ”);

WHEREAS, Dopaco US owns all of the right, title and interest in and to 49% of the limited liability company interest (the “ Union Packaging Interest ”) of Union Packaging, LLC, a Delaware limited liability company (“ Union Packaging ”), and Providence Packaging Group, Inc., which owns all of the right, title and interest in and to the remaining fifty-one percent (51%) of the limited liability company interest of Union Packaging, has exercised its right under the provisions of Section 7.7 of the Union Packaging LLC Agreement, and, pursuant thereto, Dopaco US will sell to Providence Packaging Group, Inc., and Providence Packaging Group, Inc. will purchase from Dopaco US, the Union Packaging Interest (the “ Union Packaging Sale ”) for a purchase price anticipated to be Two Million Four Hundred Thousand Dollars ($2,400,000) in cash (the “ Union Packaging Sale Proceeds ”);

WHEREAS, Dopaco US owns all of the right, title and interest in and to all of the issued and outstanding limited partnership interest (the “ Dopaco Partnership LP Interest ”) of Dopaco Limited Partnership, a Delaware limited partnership (“ Dopaco LP ”), and Dopaco Pacific owns all of the right, title and interest in and to all of the issued and outstanding general partnership interest of Dopaco LP (the “ Dopaco Partnership GP Interest ”);

– 1 –

WHEREAS, Dopaco Canada owns all of the right, title and interest in and to all of the issued and outstanding capital stock (the “ Garven Stock ”) of Garven Incorporated, an Ontario corporation (“ Garven ”);

WHEREAS, Garven owns all of the right, title and interest in and to all of the issued and outstanding capital stock (the “ Conference Cup Stock ”) of Conference Cup Ltd., an Ontario corporation (“ Conference Cup ”);

WHEREAS, Cascades Canada Inc., an Affiliate of Seller, (“ Cascades Canada ”) through its division, Cascades Boxboard Group - Jonquière, owns and operates certain assets located in Jonquière, Québec used in connection with the manufacturing of boxboard which is supplied by Cascades Canada to Dopaco US and Dopaco Canada in order to produce the Products;

WHEREAS, following the Closing (as hereinafter defined), Cascades Canada will continue to supply boxboard to Dopaco US and Dopaco Canada pursuant to the terms of that certain Supply Agreement (the “ Boxboard Supply Agreement ”) in the form annexed hereto as Exhibit A ;

WHEREAS, following the Closing, Cascades Canada Inc., through its Norampac division, will continue to supply corrugated boxes to Dopaco US and Dopaco Canada pursuant to the terms of that certain Supply Agreement (the “ Corrugated Boxes Supply Agreement ”) in the form annexed hereto as Exhibit B ;

WHEREAS, Seller owns all of the right, title and interest in and to all of the issued and outstanding capital stock of Dopaco US (the “ Dopaco US Stock ”) and all of the issued and outstanding capital stock of Dopaco Canada (the “ Dopaco Canada Stock ” and together with the Dopaco US Stock, the “ Dopaco Stock ”);

WHEREAS, prior to the Closing, Seller shall cause each of Dopaco Pacific and Dopaco LP to be dissolved or transferred to and held by an entity other than a Company pursuant to documentation that will not impose any post-Closing obligation or liability on any Company with respect to such entities (the “ Subsidiary Disposition ”);

WHEREAS, Guarantor, as the indirect sole stockholder of Seller, anticipates deriving material benefits from the Transactions contemplated by this Agreement; and

WHEREAS, Seller desires to sell, transfer and otherwise convey to Purchaser and Purchaser desires to purchase from Seller, all of the right, title and interest in and to the Dopaco Stock in each case subject to, and in accordance with, the terms and conditions hereof.

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NOW, THEREFORE, in consideration of the foregoing facts, the mutual representations, warranties, covenants and agreements contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions .

Capitalized terms used in this Agreement shall have the meaning indicated below. Unless the context otherwise requires: (a) ”or” is not exclusive; (b) ’’including” means “including without limitation”; (c) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (d) words in the singular include the plural and words in the plural include the singular; (e) words in the masculine include the feminine and words in the feminine include the masculine; (f) any date specified for any action that is not a Business Day shall be deemed to mean the first Business Day after such date; (g) a reference to a Person includes its successors and assigns; (h) “dollars,” or “$” means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts; and (i) C$ means the currency of Canada that, as at the time of payment, is legal tender for the payment of public and private debts. Any calculation of $ hereunder requiring a conversion from C$ shall be calculated using the applicable US$ exchange rate published in The Wall Street Journal for the close of the Business Day immediately preceding the date of such calculation, which exchange rate is quoted at 4:00PM Eastern Time by Reuters.

“ 2011 Quarterly Statements ” has the meaning set forth in Section 5.13(b) .

“ Accountant Arbitrator ” has the meaning set forth in Section 2.4(e) .

“ Additional Due Diligence Materials ” means (i) the numerical pricing detail which has been redacted from each contract between any of the Companies and the customers thereof provided to Purchaser prior to the execution of this Agreement; (ii) the commission percentages which have been redacted from each contract between any of the Companies and the brokers and other sales representatives thereof provided to Purchaser prior to the execution of this Agreement; (iii) a schedule of Top Customers of the Companies with the revenues and margins associated with each of the Top Customers for the fiscal years 2009, 2010 and forecast 2011; and (iv) working papers and other information requested by PwC supporting the EBITDA bridge, to the extent already in existence, for the fiscal years 2009, 2010 and forecast 2011, but only to the extent they reflect the information referred to in clause (iii) above.

“ Adjustment Cap ” has the meaning set forth in Section 2.4(c) .

“ Affiliate ” means any Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise and/or the ownership, directly or indirectly, of more than 10% of the voting or equity securities or other interests of any such Person.

“ Agreement ” has the meaning set forth in the preamble.

“ Applicable Accounting Principles ” means ( i ) the GAAP principles, procedures and elections used in the preparation of the Financial Statements for the 2010 fiscal year,

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consistently applied, and (ii) the principles, procedures and elections specified on Schedule 1.1 (which, for the avoidance of doubt, shall take priority over clause (i) in the event of any inconsistency).

“ Audited Financial Statements ” has the meaning set forth in Section 5.13(a) .

“ Balance Sheet ” means the consolidated balance sheet of the Companies as of the Balance Sheet Date included in the Financial Statements.

“ Balance Sheet Date ” means December 26, 2010.

“ Basket Amount ” has the meaning set forth in Section 7.1.1 .

“ Boxboard Supply Agreement ” has the meaning set forth in the recitals.

“ Business ” has the meaning set forth in the recitals.

“ Business Day ” means any day other than (a) a Saturday or a Sunday, or (b) a day on which banking institutions are authorized or required by Law to be closed in the State of New York or the Province of Québec.

“ Canada Benefit Plan ” means each written or oral employee benefit plan, scheme, program, policy, arrangement and contract (including but not limited to, any Canada bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, or other equity-based arrangement, retention, change in control, leave of absence, layoff, vacation, day or dependent care, legal services, life, health, accident, disability or other insurance, severance, or separation plan, program, policy, arrangement or contract, but does not include any statutory plan, including but not limited to the Canada Pension Plan, or any plan administered under provincial health tax, workers compensation and safety insurance and employment insurance legislation).

“ Canadian Pension Plans ” has the meaning set forth in Section 3.18.1 .

“ Cascades Canada ” has the meaning set forth in the recitals.

“ Cascades Credit Agreement ” has the meaning set forth in Section 8.1.12 .

“ Cash and Cash Equivalents ” means the cash and cash equivalent assets (including marketable securities, short-term investments and cash held by trust(s) established in connection with the Dopaco, Inc. Supplemental Executive Retirement Plan, which trust, for the avoidance of doubt, does not apply to Mr. Cauffman) of the Companies, provided that Cash and Cash Equivalents shall exclude (i) the actual amount of the Union Packaging Sale Proceeds in the event the Union Packaging Sale occurs prior to the Closing Date and (ii) any workers compensation or lease deposits. Cash and Cash Equivalents shall include all “cut” but uncashed checks (i.e. outstanding checks) issued by the Companies that are outstanding as of the opening of business on the Closing Date. Notwithstanding the foregoing, the calculation of Cash and Cash Equivalents shall be made without giving effect to any of the transactions contemplated by this Agreement.

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“ Claim ” has the meaning set forth in Section 7.3.1 .

“ Claim Notice ” has the meaning set forth in Section 7.3.1 .

“ Closing ” has the meaning set forth in Section 2.2 .

“ Closing Adjustment Certificate ” has the meaning set forth in Section 2.4(d) .

“ Closing Balance Sheet ” has the meaning set forth in Section 2.4(d) .

“ Closing Date ” has the meaning set forth in Section 2.3 .

“ Code ” means the U.S. Internal Revenue Code of 1986, as amended, and the final and temporary regulations promulgated thereunder, and any successor legislation.

“ Companies ” means, collectively, Dopaco US, Dopaco Canada, the Dopaco US Subsidiaries and the Dopaco Canada Subsidiaries (and each of the foregoing hereinafter referred to as a “ Company ”).

“ Company Consents ” has the meaning set forth in Section 3.3.2 .

“ Company Plans ” has the meaning set forth in Section 3.18.1 .

“ Company Title IV Plan ” has the meaning set forth in Section 3.18.3 .

“ Competing Business Transaction ” means (i) a sale, grant, authorization or issuance by any of the Companies of (or the sale, grant, authorization, issuance or announcement of any right to purchase) any debt or equity securities (or securities convertible into or exchangeable for debt or equity securities of any class or series of capital stock) of any Company (ii) any sale, transfer, license, lease, pledge, mortgage, or other disposition of a material portion of the assets of any Company (other than sales of inventory), or (iii) any plan or agreement of complete or partial liquidation, dissolution, restructuring, merger, consolidation, business combination, joint venture, recapitalization, reorganization, financing, tender offer, share exchange, dissolution or other extraordinary transaction involving a Company, provided, however, that a “Competing Business Transaction” shall not include the Subsidiary Disposition.

“ Competition Act ” means the Competition Act (Canada) and the rules and regulations adopted pursuant thereto, as amended.

“ Conference Cup ” has the meaning set forth in the recitals.

“ Conference Cup Stock ” has the meaning set forth in the recitals.

“ Consents ” has the meaning set forth in Section 3.3.2 .

“ Continuing Company Plans ” has the meaning set forth in Section 5.18.2 .

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“ Converting Facilities ” has the meaning set forth in the recitals.

“ Corrugated Boxes Supply Agreement ” has the meaning set forth in the recitals.

“ Covered Taxes ” means, without duplication, any and all:

(a) Taxes of or payable by any Company for any Pre-Closing Tax Period, together with any interest, penalty or additions to Tax accruing after the Closing Date on Taxes described in this clause (a),

(b) Taxes arising as a result of any inclusion under Section 951(a) of the Code (or any similar or corresponding provision of state or local Tax Law) with respect to any Company attributable to (i) “subpart F income,” within the meaning of Section 952 of the Code (or any similar or corresponding provision of state or local Tax Law), received or accrued on or prior to the Closing Date or (ii) the holding of “United States property,” within the meaning of Section 956 of the Code (or similar or corresponding provision of state or local Tax Law), on or prior to the Closing Date, computed, in each case, based on the amount of such Taxes that would be payable with respect to any Company if the relevant Tax period ended on the Closing Date, and

(c) (i) Taxes that arise under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Law by virtue of any Company having been a member of a consolidated, combined, affiliated, unitary or other similar tax group prior to the Closing, (ii) Taxes of or payable by any Company having liability for Taxes of another Person arising under principles of transferee or successor liability or by contract as a result of activities or transactions taking place at or prior to the Closing, (iii) Taxes that arise from or are attributable to any inaccuracy in or breach of any representation or warranty made in Section 3.13 (Taxes) 3.24 (No Foreign Person) or 3.25 (Taxable Canadian Properties), (iv) Taxes that arise from or are attributable to any breach of any Tax covenant by Seller under this Agreement, (v) Taxes that are a withholding Tax on any payment by Purchaser, any Company or any of their respective Affiliates to Seller or any of its Affiliates pursuant to this Agreement, and (vi) any Taxes that are attributable to the transactions contemplated by Section 5.8, 8.1.13 or 8.1.14 .

“ Current Assets ” means the trade accounts receivable and miscellaneous receivables (both net of an allowance for doubtful accounts and cash discount reserves), inventories (net of reserves), prepaid expenses, workers’ compensation of Dopaco US and lease deposits, and other current assets of the Companies (excluding, however, any Cash and Cash Equivalents of the Companies, any Union Packaging Sale Proceeds, any Income Tax assets and prepaid business insurance), all as of the opening of business on the Closing Date and as determined in accordance with the Applicable Accounting Principles. For the avoidance of doubt, all receivables incurred in the ordinary course of business between any Company, on the one hand, and Seller or its Affiliates (other than the Companies), on the other hand to be settled post-Closing as contemplated by Section 5.8 shall be included in Current Assets and all intercompany receivables within the Companies shall be excluded from Current Assets.

“ Current Liabilities ” means trade accounts payable, accrued liabilities and other current obligations and liabilities of the Companies (including any obligations or reserves in

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respect of Permitted Liens) (excluding, however, any Income Tax liabilities, accrued auditing fees, accrued workers compensation liabilities of Dopaco US and any obligation or liability in respect of Indebtedness that is discharged and paid in full (or as to which the Companies are fully released) as of the Closing), all as of the opening of Business on the Closing Date and as determined in accordance with the Applicable Accounting Principles. For the avoidance of doubt, all payables incurred in the ordinary course between any Company, on the one hand, and Seller or its Affiliates (other than the Companies), on the other hand, to be settled post-Closing as contemplated by Section 5.8 shall be included in Current Liabilities and all intercompany payables within the Companies shall be excluded from Current Liabilities.

“ Customer Risk ” means any change with respect to any of the customers of the Companies or the relationship between any of such customers and all or any of the Companies for any reason including, without limitation, the announcement of the execution and delivery hereof, but excluding any changes arising from (i) any material failure of any Company to comply with the material terms of any applicable agreement with any of the Top Customers or to supply any such Top Customers, in all material respects, with products or services in the same manner and of the same type as have been provided by the Companies during the twelve month period prior to the date hereof, and (ii) any plans or intentions (including changes in specifications, anticipated purchasing levels, or contractual arrangements) communicated in writing by a Top Customer to any Company during the twelve month period prior to the date hereof, or of which there otherwise is Seller’s Knowledge, other than such plans or intentions as may have already been reflected in the terms of a Top Customer Contract.

“ Disputed Items ” has the meaning set forth in Section 2.4(e) .

“ Dissatisfaction Notice ” has the meaning set forth in Section 5.12 .

“ Dissatisfaction Reasons ” has the meaning set forth in Section 5.12 .

“ Dopaco Canada ” has the meaning set forth in the recitals.

“ Dopaco Canada Company Plans ” has the meaning set forth in Section 3.18.1 .

“ Dopaco Canada Stock ” has the meaning set forth in the recitals.

“ Dopaco Canada Subsidiaries ” means, collectively, Garven and Conference Cup (and each of the foregoing hereinafter referred to as a “ Dopaco Canada Subsidiary ”).

“ Dopaco Interests ” means, collectively, the Dopaco Stock, the Dopaco Pacific Interest, the Union Packaging Interest, the Dopaco LP Interest, the Garven Stock and the Conference Cup Stock.

“ Dopaco LP ” has the meaning set forth in the recitals.

“ Dopaco LP Interest ” has the meaning set forth in the recitals.

“ Dopaco Pacific ” has the meaning set forth in the recitals.

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“ Dopaco Pacific Interest ” has the meaning set forth in the recitals.

“ Dopaco Partnership GP Interest ” has the meaning set forth in the recitals.

“ Dopaco Partnership LP Interest ” has the meaning set forth in the recitals.

“ Dopaco Stock ” has the meaning set forth in the recitals.

“ Dopaco US ” has the meaning set forth in the recitals.

“ Dopaco US Company Plans ” has the meaning set forth in Section 3.18.1 .

“ Dopaco US Stock ” has the meaning set forth in the recitals.

“ Dopaco US Subsidiaries ” means, collectively, Dopaco Pacific, Union Packaging and Dopaco LP (and each of the foregoing hereinafter referred to as a “ Dopaco US Subsidiary ”).

“ Employees ” has the meaning set forth in Section 3.17.1 .

“ Environmental Requirement ” has the meaning set forth in Section 3.22.1(a) .

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

“ ERISA Affiliate ” shall mean any trade or business, whether or not incorporated, other than the Companies, which has employees who are or have been at any date of determination occurring within the preceding two years treated pursuant to Section 414(b), (c), (m) or (o) of the Code as employees of a single employer which includes any of the Companies.

“ Estimated Adjustment Certificate ” has the meaning set forth in Section 2.4(a) .

“ Estimated Net Debt Amount ” means the estimated Net Debt Amount set forth in the Estimated Adjustment Certificate.

“ Estimated Working Capital ” means the estimated Working Capital as reflected in the Estimated Adjustment Certificate.

“ Estimated Working Capital Adjustment ” means the amount by which Estimated Working Capital is less than, or more than, the Working Capital Target.

“ Excess Adjustment Amount ” has the meaning set forth in Section 2.4(c) .

“ Final Adjustment Certificate ” has the meaning set forth in Section 2.4(e) .

“ Final Net Debt Amount ” means the final Net Debt Amount as reflected in the Final Adjustment Certificate.

“ Final Working Capital ” means the final Working Capital as reflected in the Final Adjustment Certificate.

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“ Financial Statements ” has the meaning set forth in Section 3.7 .

“ GAAP ” means United States generally accepted accounting principles as in effect from time to time.

“ Garven ” has the meaning set forth in the recitals.

“ Garven Stock ” has the meaning set forth in the recitals.

“ General Indemnity Cap ” has the meaning set forth in Section 7.1.1 .

“ Governmental Authority ” means any government, or any governmental department, commission, agency, authority, instrumentality or subdivision, or any judicial or administrative body, whether domestic, foreign, federal, state, provincial or local, having competent jurisdiction over the matter or matters in question.

“ Guarantor ” has the meaning set forth in the preamble.

“ Hazardous Material ” has the meaning set forth in Section 3.22.1(b) .

[REDACTED]

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

“ Improvements ” means all structures, fixtures, improvements and equipment which are owned, used, leased or held by the Companies as of the date hereof and as of the Closing Date.

“ Income Tax Act ” means the Income Tax Act (Canada) and the rules and regulations adopted pursuant thereto, as amended.

“ Income Taxes ” means Taxes with respect to net or gross income.

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“ Income Tax Returns ” mean Tax Returns with respect to Income Taxes.

“ Indebtedness ” means, with respect to any Person, (I) all obligations of such Person respecting any of the following: (a) for borrowed money, (b) evidenced by notes, bonds, debentures or similar instruments, (c) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (d) under capital leases, (e) in the nature of guarantees of the obligations described in clauses (a) through (d) above of any other Person, and all principal, interest, fees, prepayment penalties (including those amounts that would be owed in connection with any repayment of debt on the Closing Date) or amounts due or owing with respect to the foregoing, or (f) the present value of the accrued benefit obligations of the Dopaco, Inc. Supplemental Executive Retirement Plan (which, for the avoidance of doubt, does not apply to Mr. Cauffman) within the meaning of Statement of Financial Accounting Standards 132, as set forth in the most recent actuarial report provided to Dopaco US, and as of the measurement date set forth therein, as adjusted for payments made to beneficiaries thereunder and the recording of periodic pension expenses, and (II) in the case of the Companies, to the extent any Union Packaging Sales Proceeds are received prior to the Closing and are the subject of a dividend or other distribution prior to the Closing, the amount of such declared and paid dividend, provided that in each of the foregoing clauses, Indebtedness shall not include any liabilities included within the definition of Current Liabilities hereof.

“ Indemnified Party ” has the meaning set forth in Section 7.3.1 .

“ Indemnifying Party ” has the meaning set forth in Section 7.3.1 .

“ Intellectual Property ” has the meaning set forth in Section 3.15 .

“ Interim Reviewed Statements ” has the meaning set forth in Section 5.13(b) .

“ Investment Canada Act ” means the Investment Canada Act (Canada), and the rules and regulations adopted pursuant thereto, as amended.

“ Law ” means, (a) any statute, law, regulation, ordinance, code, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement or other governmental restriction or any interpretation or administration of any of the foregoing by any Governmental Authority, and (b) any directive, guideline, policy, requirement or any similar form of decision of or determination by any Governmental Authority, in each case, as currently, and on the Closing Date, in effect.

“ Leased Real Property ” has the meaning set forth in Section 3.9.1.1 .

“ Liabilities ” means all Indebtedness, obligations, claims, causes of action, actions, covenants, mortgages, bonds, liabilities, damages, judgments and executions of whatever nature, whether known or unknown, whether accrued or unaccrued, whatsoever in law or equity.

“ Liens ” means any lien, pledge, security interest, charge, claim, mortgage, deed of trust, option, warrant, purchase right or option, right of first refusal or similar right, lease, easement or other encumbrance or restriction of any kind.

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“ Losses ” has the meaning set forth in Section 7.1 .

“ Majority Dopaco Pacific Interest ” has the meaning set forth in the recitals.

“ Management Reports ” has the meaning set forth in Section 5.13(c) .

“ Material Adverse Change ” means any change, effect or circumstance that, individually or in the aggregate, has had, or would reasonably be expected to result in a material adverse change in the businesses, operations, properties, assets or financial condition of all of the Companies collectively taken as a whole, and shall exclude any change resulting or arising from: (a) any change in Law; (b) any change in interest rates or general economic conditions; (c) any change in GAAP; (d) any change that is generally applicable to the industries in which the Companies operate; (e) any national or international political or social conditions, including, without limitation, the engagement by the United States or Canada in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States or Canada, or any of their territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States or Canada; or (f) any Customer Risk, provided that the exclusions in clauses (a) through (e) above shall only apply to the extent the items referred to in such clauses have not had or would not be reasonably expected to have a disproportionate impact on the Companies in comparison to others operating in the same industry.

“ Material Adverse Effect ” means any change, effect or circumstance that, individually or in the aggregate, has had, or would reasonably be expected to have a material adverse effect in the businesses, operations, properties, assets or financial condition of all of the Companies collectively taken as a whole, and shall exclude any effect resulting or arising from: (a) any change in Law; (b) any change in interest rates or general economic conditions; (c) any change in GAAP; (d) any change that is generally applicable to the industries in which the Companies operate; (e) any national or international political or social conditions, including, without limitation, the engagement by the United States or Canada in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States or Canada, or any of their territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States or Canada; or (f) any Customer Risk, provided that the exclusions in clauses (a) through (e) above shall only apply to the extent the items referred to in such clauses have not had or would not be reasonably expected to have a disproportionate impact on the Companies in comparison to others operating in the same industry.

“ Material Contracts ” has the meaning set forth in Section 3.10.1 .

“ Minority Dopaco Pacific Interest ” has the meaning set forth in the recitals.

“ Multiemplover Plan ” means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA, or a multi-employer pension plan as defined in Section 1(1) of the Pensions Benefits Act (Ontario) or similar legislation of another Canadian jurisdiction.

“ Net Debt Amount ” means an amount by which Cash and Cash Equivalents of the Companies exceeds Indebtedness of the Companies (or, in the event Indebtedness of the

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Companies exceeds Cash and Cash Equivalents of the Companies, the amount of such excess expressed as a negative number), all as of the opening of business on the Closing Date and as determined in accordance with the Applicable Accounting Principles, provided that for purposes of this definition, Cash and Cash Equivalents shall not exceed Ten Million Dollars ($10,000,000).

“ Non-Union Employees ” has the meaning set forth in Section 5.18.1 .

“ Notice Period ” has the meaning set forth in Section 7.3.1 .

“ Obligations ” has the meaning set forth in Section 10.12 .

“ Order ” means any writ, judgment, decree, injunction or similar order of any Governmental Authority.

“ Outside Date ” has the meaning set forth in Section 9.1(d) .

“ Owned Real Property ” has the meaning set forth in Section 3.9.1.1 .

“ Parent Insurance ” has the meaning set forth in Section 5.6(a) .

“ Permits ” means all agreements, issuances, orders, licenses, franchises, permits and authorizations that have been issued by, or entered into with, any Governmental Authority, necessary to own and operate the Business as currently owned and operated.

“ Permitted Liens ” means with respect to any Person, any one or more of the following: (a) Liens for Taxes either not yet due and payable or which are being contested in good faith by appropriate proceedings diligently prosecuted and as to which adequate reserves shall have been set aside in conformity with GAAP, (b) deposits or pledges to secure the payment of workers’ compensation, unemployment insurance, social security benefits or obligations arising under similar legislation, or to secure the performance of public or statutory obligations, surety or appeal bonds, and other obligations of a like nature incurred in the ordinary course of business as to which adequate reserves have been established, (c) materialmen’s, mechanics’, workmen’s, repairmen’s, employees’, landlords’, lessors’ or other like Liens arising in the ordinary course of business to secure obligations not more than thirty (30) days past due or being contested in good faith and as to which adequate reserves shall have been set aside in conformity with GAAP, (d) any obligations or duties affecting any of the property of such Person to any Governmental Authority with respect to any Permit which do not materially impair the use or value of such property for the purposes for which it is held, and (e) utility easements, rights of way, building restrictions and other similar encumbrances or charges against real property (other than monetary Liens) which are of a nature generally existing with respect to properties of a similar character and which do not materially affect the marketability of the same, detract from the value of the same, or interfere with the use thereof in the business of such Person, in each case as in existence on the date hereof.

“ Person ” means any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental Authority or any other entity.

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“ Personal Property ” means all machinery, equipment, spare parts, furniture, computers, software, tools, supplies, inventories, consumable supplies, contracts, agreements, purchase orders, use licenses, reports, data, books, documents and records, including, without limitation, any and all of the foregoing located at the Converting Facilities of the Companies, owned, leased or held for use by the Companies as of the date hereof and as of the Closing Date.

“ Post-Closing Tax Period ” means any Tax period beginning after the Closing Date and, with respect to a Straddle Period, the portion of such Straddle Period beginning after the Closing Date.

“ Pre-Closing Tax Period ” means any Tax period ending on or before the Closing Date and, with respect to a Straddle Period, the portion of such Straddle Period ending on the Closing Date.

“ Products ” has the meaning set forth in the recitals.

“ Prohibited Business ” has the meaning set forth in Section 5.9 .

“ Purchase Price ” has the meaning set forth in Section 2.2 .

“ Purchaser ” has the meaning set forth in the preamble.

“ Purchaser Breach ” has the meaning set forth in Section 10.7 .

“ Purchaser Indemnified Parties ” has the meaning set forth in Section 7.1 .

“ Purchaser Plans ” has the meaning set forth in Section 5.18.1 .

“ Purchasing Entity ” has the meaning set forth in Section 10.4 .

“ PwC ” means PricewaterhouseCoopers LLP.

“ R. Cauffman Employment Agreement ” means that certain Amended and Restated Employment Agreement by and between Dopaco US and Robert L. Cauffman, dated as of June 16, 2008, as amended by that certain Amendment No. 1, effective December 5, 2008, and that certain Amendment No. 2, effective February 1, 2011, and by that certain letter from Mr. Cauffman to Dopaco US, dated September 23, 2009.

“ Real Property ” has the meaning set forth in Section 3.9.1.1 .

“ Real Property Leases ” has the meaning set forth in Section 3.9.1.1 .

“ Release ” has the meaning set forth in Section 3.22.1(c) .

“ Release and Substitution ” has the meaning set forth in Section 5.17 .

“ Satisfaction Notice ” has the meaning set forth in Section 5.12 .

“ Securities Act ” has the meaning set forth in Section 4.5 .

“ Seller ” has the meaning set forth in the preamble.

“ Seller Breach ” has the meaning set forth in Section 10.7 .

“ Seller Consents ” has the meaning set forth in Section 3.2.2 .

“ Seller Indemnified Parties ” has the meaning set forth in Section 7.2 .

“ Seller’s Knowledge ” means, with respect to a Seller, the actual knowledge or awareness of each or any of the persons listed with respect to such Seller on Exhibit D , provided that for purposes of the definition of Customer Risk as applied in Section 3.26 , such Knowledge shall be measured after due inquiry of those individuals who serve as the Companies’ sales representatives for the Top Customers.

“ Specified Dispute ” means the dispute and any related proceedings disclosed as item (3) on Schedule 3.12.1 .

“ Specified Litigation ” means the proceeding identified as item (1) on Schedule 3.12.1 .

“ Straddle Period ” means any taxable period beginning on or before the Closing Date and ending after the Closing Date.

“ Subsidiary Disposition ” has the meaning set forth in the recitals.

“ Survival Expiration Date ” has the meaning set forth in Section 7.1.1 .

“ Tax Arbitrator ” has the meaning set forth in Section 6.3.3 .

“ Taxes ” means any federal, state, provincial, local or foreign taxes, assessments, interest, penalties, deficiencies, additions to tax, fees and other governmental charges or impositions (including all net or gross income tax, gross receipts, net proceeds, unemployment compensation, social security, payroll, withholding, employment, sales and use, value added, privilege, property, alternative or add-on minimum and any other tax or similar governmental charge imposed by any Governmental Authority).

“ Taxing Authority ” means any Governmental Authority having or purporting to exercise jurisdiction with respect to any Tax.

“ Tax Proceeding ” shall mean any contest, assessment or other proposed adjustment with respect to Taxes.

“ Tax Returns ” means any return (including any information return and any applicable elections), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Taxing Authority in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Law relating to any Tax.

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“ Termination Fee ” has the meaning set forth in Section 5.12 .

“ Top Customer Contracts ” means the contracts with respect to any of the Top Customers and any of the Companies.

“ Top Customers ” means the ten largest end user customers of the Companies by 2010 dollar volume.

“ Transactions ” has the meaning set forth in Section 3.1 .

“ Treasury Regulation ” means a provision of the regulations of the Department of the Treasury promulgated under the Code, as amended from time to time, or the corresponding provision or provisions of succeeding regulations.

“ Union Employees ” has the meaning set forth in Section 5.18.3 .

“ Union Packaging ” has the meaning set forth in the recitals.

“ Union Packaging Interest ” has the meaning set forth in the recitals.

“ Union Packaging LLC Agreement ” means that certain Limited Liability Company Agreement of Union Packaging, dated as of December 21, 1999, by and between Providence Packaging Group, Inc. and Dopaco US.

“ Union Packaging Sale ” has the meaning set forth in the recitals.

“ Union Packaging Sale Proceeds ” has the meaning set forth in the recitals.

“ US Benefit Plan ” means each written or oral employee benefit plan, scheme, program, policy, arrangement, and contract (including, but not limited to, any “employee benefit plan,” as defined in Section 3(3) of ERISA, whether or not subject to ERISA, and any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, or other equity-based arrangement, and any employment, termination, retention, change in control, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workers compensation or other insurance, severance, or separation plan, program, policy, arrangement or contract)

“ Working Capital ” means an amount equal to the total Current Assets, less the total Current Liabilities.

“ Working Capital Adjustment ” means an amount by which Working Capital exceeds the Working Capital Target or, if the Working Capital Target exceeds Working Capital, the amount of such excess, expressed as a negative number.

“ Working Capital Target ” means $65,829,176.

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ARTICLE II

PURCHASE AND SALE

2.1 Agreement to Purchase and Sell the Dopaco Stock .

Subject to the terms and conditions hereof, at the Closing, Seller shall sell, assign, transfer and convey, free and clear of all Liens, the Dopaco Stock, and Purchaser shall purchase and accept the sale, assignment, transfer and conveyance to it of the Dopaco Stock.

2.2 Purchase Price .

In consideration of the purchase and sale described in Section 2.1 , upon the closing thereof (the “ Closing ”), Purchaser shall pay to Seller in consideration of the sale of the Dopaco Stock an amount equal to Four Hundred Million Dollars ($400,000,000) (the “ Purchase Price ”), which shall be subject to adjustment as set forth in Section 2.4 , and which shall be paid at the Closing in cash, by wire transfer of immediately available funds to an account or accounts specified by Seller to Purchaser in writing in advance of the Closing, which Purchase Price shall be allocated in accordance with Exhibit E hereto. Prior to the Closing, the parties shall adjust the allocation set forth on Exhibit E to reflect the Estimated Working Capital Adjustment. Following the Closing, the parties shall further adjust the allocation set forth on Exhibit E to reflect the Final Adjustment Certificate.

2.3 Closing .

Subject to the terms and conditions hereof, the Closing shall take place on May 2, 2011 or such later date that is five Business Days subsequent to the day on which the last of the conditions precedent to Closing set forth in Article VIII shall have been either satisfied or waived by the party for whose benefit such conditions precedent exist (other than those conditions to be satisfied by certificate deliveries at the Closing, but subject to the satisfaction of such delivery requirements), or at some other time as the parties may agree, (the “ Closing Date ”) at 10:00 a.m. Eastern Time at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022.

2.4 Purchase Price Adjustments .

(a) On the date that is two Business Days prior to the Closing Date, Seller shall deliver to Purchaser a certificate of Dopaco US’s Chief Financial Officer, prepared in good faith in accordance with defined terms herein and based on available information setting forth its estimate of the Net Debt Amount, the Working Capital and Working Capital Adjustment and including reasonable supporting documentation for such calculations (the “ Estimated Adjustment Certificate ”). Without modifying the terms of this Agreement, the parties agree that Schedule 1.2 is instructive as to the manner of calculating Working Capital and the Net Debt Amount hereunder, as it reflects the inclusion and exclusion of accounts that would have been used in the calculation of Working Capital and the Net Debt Amount applying the definitions referred to herein to the extent that such calculation of Working Capital and the Net Debt Amount had been made as of the opening of business on December 26, 2010 rather than as of the opening of business on the Closing Date.

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(b) The Estimated Adjustment Certificate shall be used by the parties to make a preliminary adjustment to the Purchase Price on the Closing Date pursuant to Section 2.4(c) , subject to further adjustment in accordance with Section 2.4(e) .

(c) In the event that the Estimated Working Capital Adjustment is a negative number, the Purchase Price shall be reduced in an amount equal to the Estimated Working Capital Adjustment. In the event that the Estimated Working Capital Adjustment is a positive number, the Purchase Price shall be increased in an amount equal to the Estimated Working Capital Adjustment, but in no event in such case shall the Estimated Working Capital Adjustment exceed Ten Million Dollars ($10,000,000) (the “ Adjustment Cap ”). In the event the amount of the Estimated Working Capital Adjustment would have exceeded the Adjustment Cap but for the existence of the Adjustment Cap pursuant to the provisions of the immediately preceding sentence, the amount of such excess shall be defined as “ Excess Adjustment Amount ”. In the event the Net Debt Amount is a positive number, the Purchase Price shall be increased by such amount and if the Net Debt Amount is a negative number, the Purchase Price shall be reduced by such amount.

(d) Within 60 days after the Closing Date, Purchaser shall deliver to Seller a certificate setting forth, in reasonable detail, its calculation of the Net Debt Amount, Working Capital and Working Capital Adjustment as of the Closing Date (the “ Closing Adjustment Certificate ”), together with a consolidated balance sheet of the Companies as of the Closing Date (the “ Closing Balance Sheet ”), which shall be prepared in accordance with the Applicable Accounting Principles. Seller shall provide Purchaser with reasonable access to books, records and personnel of Seller and work papers of its accountants as reasonably necessary and within Seller’s control or possession to enable Purchaser to prepare the Closing Balance Sheet.

(e) Seller shall have 30 days from the date on which the Closing Adjustment Certificate and the Closing Balance Sheet have been delivered to it to raise any objection(s) to the calculations set forth in the Closing Adjustment Certificate, on the basis that they were not prepared accurately in accordance with Section 2.4(d), by delivery of written notice to Purchaser setting forth such objection(s) in reasonable detail (the “ Disputed Items ”). In the event that Seller shall not deliver any such objection(s) with respect to the Closing Adjustment Certificate within such thirty-day period, then the Closing Adjustment Certificate shall be deemed final for purposes of this Section 2.4 (such final Closing Adjustment Certificate, the “ Final Adjustment Certificate ”). In the event that any such objection(s) are so delivered, the Closing Adjustment Certificate shall be deemed not final and Purchaser and Seller shall attempt, in good faith, to resolve the Disputed Items and, if they are unable to resolve all of the Disputed Items within 15 Business Days of delivery of such notice, shall, five Business Days thereafter (or such earlier date as mutually agreed) designate the New York office of Ernst & Young LLP to serve as the “Accountant Arbitrator” hereunder (the “ Accountant Arbitrator ”). The Accountant Arbitrator shall resolve all remaining Disputed Items in accordance herewith within 20 Business Days from the date of its designation. In connection with the foregoing, the Accountant Arbitrator shall be instructed to and must (i) limit its determination(s) only to the remaining Disputed Items, (ii) make its determination(s) as to each remaining Disputed Item based upon the application of this Section 2.4 and (iii) not assign a value to any remaining Disputed Item greater than the higher value for such Disputed Item claimed by either Purchaser or Seller or less than

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the lower value for such Disputed Item claimed by Purchaser or Seller. All determinations by the Accountant Arbitrator shall be final and binding upon the parties for purposes of this Section 2.4 , absent fraud or manifest error. The fees and expenses of the Accountant Arbitrator shall be allocated between Purchaser and Seller in the same proportion to which the dollar amounts of their respective positions on Disputed Items are accepted or rejected by the Accountant Arbitrator. Purchaser and Seller acknowledge and agree that any adjustment made under this Section 2.4 is and shall be treated as an adjustment to the Purchase Price.

(f) At such time as the Closing Adjustment Certificate shall become the Final Adjustment Certificate in accordance with Section 2.4(e) , the Estimated Working Capital shall be compared to the Final Working Capital and the Estimated Net Debt Amount shall be compared to the Final Net Debt Amount. In the event that the Final Working Capital shall be a number greater than the Estimated Working Capital, Purchaser shall pay to Seller an amount equal to such difference, plus, if there was an Excess Adjustment Amount, the amount of such Excess Adjustment Amount. In the event that the Final Working Capital shall be a number less than the Estimated Working Capital, either (i) Seller shall pay Purchaser an amount equal to such difference to the extent that such difference is greater than the Excess Adjustment Amount; or (ii) if subtracting such difference from the Excess Adjustment Amount results in a positive number, Purchaser shall pay an amount equal to such positive number to Seller. In any event, if there was an Excess Adjustment Amount, Purchaser shall pay Seller interest on the Excess Adjustment Amount accruing at a rate of five percent (5%) per annum during the period commencing on the Closing Date and concluding upon the date that payment is to be made pursuant to this Section 2.4(f) . If the Final Net Debt Amount is a number greater than the Estimated Net Debt Amount, Purchaser shall pay to Seller an amount equal to such difference. If Final Net Debt Amount is a number less than the Estimated Net Debt Amount, Seller shall pay to Purchaser an amount equal to such difference. For the avoidance of doubt, the payments in respect of Working Capital and Net Debt contemplated by this Section 2.4(f) may be aggregated and netted against one another, if applicable, for purposes of the payments to be made between the parties. Any payment to be made pursuant to this Section 2.4(f) shall be made within five Business Days from the date that the Final Adjustment Certificate is finally determined pursuant to Section 2.4(e) , by wire transfer of immediately available funds (i) if due to Purchaser, to an account designated in writing by Purchaser and (ii) if due to Seller, to an account designated in writing by Seller. Any amount so owing and not paid within such five Business Days shall begin accruing interest until paid at the rate of five percent (5%) per annum.

(g) Notwithstanding the existence of Disputed Items, if other aspects of the calculation of Working Capital or Net Debt are undisputed, payment shall be made between the parties with respect to such items as soon as practicable and the payment mechanisms in Section 2.4(f) shall be adjusted to reflect such earlier payments.

2.5 Withholding .

Notwithstanding any other provision of this Agreement, and for the avoidance of doubt, (a) each payment made pursuant to this Agreement shall be made net of any Taxes required by applicable Law to be deducted or withheld from such payment and (b) any amounts deducted or withheld from any such payment shall be remitted to the applicable Taxing Authority and shall be treated for all purposes of this Agreement as having been paid. The party

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making any such deduction or withholding shall furnish to the other party official receipts (or copies thereof) evidencing the payment of any such Taxes. If either Purchaser or Seller becomes aware that any amount is required to be so deducted or withheld, it shall promptly provide notice to the other party. Notwithstanding the foregoing, if any amount is deducted or withheld from any payment made pursuant to this Agreement and Seller receives less than five (5) days notice prior to the making of such deduction or withholding, then, to the extent permitted by Law, any such deduction or withholding shall not be remitted to the applicable Taxing Authority earlier than the date that is five (5) days after Seller received notice of such deduction or withholding and Seller shall be entitled to raise any objection with respect to such deduction or withholding during such period.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

As of the date hereof and as of the Closing Date, Seller represents and warrants to Purchaser as follows:

3.1 Approval of Agreement and Transactions .

This Agreement and the transactions described herein (the “ Transactions ”) have been duly authorized, and this Agreement, and each other agreement, instrument or other document contemplated herein and to which Seller is a party, has been duly executed and delivered by Seller, and all appropriate action has been properly taken with respect thereto, in accordance with the organizational and governing documents of Seller and applicable Law.

3.2 Seller’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions .

3.2.1 Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Seller has full legal right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder, including the consummation of the Transactions, and each of the other agreements, instruments and other documents delivered pursuant hereto or otherwise in connection herewith. Assuming valid execution and delivery by Purchaser, this Agreement and, when executed and delivered by Seller, each of the other agreements, instruments and other documents delivered pursuant hereto or otherwise contemplated herein, constitute the legal, valid and binding obligations of Seller enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws in effect from time to time relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Seller has provided to Purchaser a copy of a resolution adopted by the Board of Directors of Seller duly certified by an appropriate officer authorizing Seller to execute, deliver and perform its obligations under this Agreement, including the consummation of the Transactions, and each other agreement, instrument or other document delivered herewith or otherwise pursuant hereto or otherwise contemplated herein.

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3.2.2 Except as set forth on Schedule 3.2.2 (collectively, the “ Seller Consents ”), the execution, delivery and performance of this Agreement and each other agreement, instrument or other document contemplated herein and to which Seller is a party, do not (i) conflict with Seller’s organizational and governing documents; or (ii) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of, loss of any right under or create in any party the right to accelerate, terminate, modify or cancel any agreement to which Seller is a party.

3.3 The Companies’ Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions .

3.3.1 Dopaco US is a corporation validly existing and in good standing under the Laws of the Commonwealth of Pennsylvania. Dopaco Pacific is a limited liability company, validly existing and in good standing under the Laws of the State of Delaware. Union Packaging is a limited liability company, validly existing and in good standing under the Laws of the State of Delaware. Dopaco LP is a limited partnership, validly existing and in good standing under the Laws of the State of Delaware. Dopaco Canada is a corporation validly existing and in good standing under the Laws of Canada. Each of Garven and Conference Cup is a corporation validly existing and in good standing under the Laws of Ontario. Each Company is qualified to do business in every jurisdiction where the character or location of the properties owned or leased by it, or the nature of the business conducted by it, requires such qualification, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. Seller has provided or made available to Purchaser or its representatives correct and complete copies of the Articles of Incorporation, Certificates of Organization and Certificates of Formation, as applicable, and Bylaws, Limited Liability Company Agreements and Limited Partnership Agreements, as applicable, of each Company, and all other organizational and governing documents of each Company, including all amendments to the foregoing in each case as listed on Schedule 3.3 . No Company is in default of any of the terms or conditions of any of its respective governing documents.

3.3.2 Except as set forth on Schedule 3.3.2 (collectively, “ Company Consents ”, and together with the Seller Consents, the “ Consents ”), the execution, delivery and performance of each agreement, instrument or other document contemplated herein and to which a Company is a party, do not (i) conflict with such Company’s organizational and governing documents; or (ii) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of, loss of any right under or create in any party the right to accelerate, terminate, modify or cancel any agreement to which such Company is a party, including any Material Contract.

3.3.3 Investment Canada Act .

The value of the assets of Dopaco Canada and the Dopaco Canada Subsidiaries, calculated in the manner prescribed by the Investment Canada Act, does not equal or exceed Three Hundred Twelve Million Canadian Dollars (C$312,000,000).

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3.4 No Material Interest .

Seller has no direct or indirect equity, partnership or other ownership interest in any creditor, competitor, supplier, lessor, customer or lessee of the Companies, except as may be set forth in Schedule 3.4 hereto.

3.5 Capital Structure: No Liens .

The issued and outstanding stock, limited liability company interests, and partnership interests, as applicable, of the Companies are owned by the Persons and in the amounts set forth in Schedule 3.5 . All shares, limited liability company interests and partnership interests, as applicable, of the Companies have been duly authorized and validly issued and are fully paid and non-assessable. As of the date hereof and as of the Closing Date:

(a) Seller owns all of the issued and outstanding capital stock of Dopaco US and Dopaco Canada;

(b) [REDACTED];

(d) [REDACTED];

(e) Dopaco Canada owns all of the issued and outstanding capital stock of Garven;

(f) Garven owns all of the issued and outstanding capital stock of Conference Cup; and

(g) None of the foregoing capital stock, limited liability company interests or partnership interests was issued in violation of the preemptive rights of any Person. Except for this Agreement and as set forth in Schedule 3.5 , there are no outstanding equity interests and no options, warrants, rights, calls, subscriptions, commitments, conversion rights, rights of exchange, rights of first refusal, plans or other agreements of any character providing for the purchase, issuance or sale by any Person of any shares of capital stock, limited liability company interests, partnership interests or other ownership interests, as the case may be, of any Company. There are no shares of capital stock, limited liability company interests, partnership interests or other ownership interests, as the case may be, of any Company reserved for issuance for any purpose. All of the equity interests described in this Section 3.5 are and shall be conveyed directly or indirectly, as the case may be, to Purchaser at Closing free and clear of all Liens [REDACTED] Dopaco Pacific and Dopaco LP are inactive entities that do not participate in the conduct of the Business or hold assets used in the conduct of the Business.

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3.6 Subsidiaries and Investments .

Except as set forth in Schedule 3.6 hereto, and as otherwise set forth in Schedule 3.5 , none of the Companies directly or indirectly owns or has any commitment or right to purchase any capital stock or other equity or ownership or proprietary interest in any Person, nor does any Company have any direct or indirect subsidiary.

3.7 Financial Statements .

Attached hereto as Schedule 3.7(a) are: the unaudited balance sheets, statements of income and statements of cash flow of Dopaco US for the years ended December 28, 2008, December 27, 2009, and December 26, 2010, each of which consolidates the Companies (the “ Financial Statements ”). Except as disclosed on Schedule 3.7(b) , the Financial Statements have been prepared from the books and records of Dopaco US and Dopaco Canada and each of the Dopaco US Subsidiaries and the Dopaco Canada Subsidiaries and have been prepared in accordance with GAAP, consistently applied. Each Financial Statement fairly presents in all material respects the financial condition of the Companies at the date thereof, and the related statements of income and changes in financial position fairly present in all material respects the results of the operations and changes in financial position of the Companies to which it pertains for the period indicated, except as otherwise indicated on Schedule 3.7(b) .

3.8 Books and Records .

All material logs and records pertaining to operational matters of the Companies have been accurately maintained in all material respects, and there are no material inaccuracies or material discrepancies of any kind contained or reflected therein. The minute books of the Companies contain materially accurate records of all meetings of, and corporate actions or written consents taken by, or with respect to, the Companies.

3.9 Properties: Encumbrances: Condition; Leases: Licenses .

3.9.1 Real Property .

3.9.1.1 Schedule 3.9.1.1(a) contains a description of all tracts or parcels of, or other interests in, real property owned by each of the Companies (together with all improvements and fixtures located thereon or attached thereto, and together with any fixtures or improvements owned by any of the Companies and located on or attached to, the Leased Real Property (as defined below), the “ Owned Real Property ”) and sets forth the address, beneficial owner and registered title holder of each parcel of Owned Real Property; and Schedule 3.9.1.1(b) contains a description of all tracts or parcels of, or other interests in, real property leased, subleased or used under a license or occupancy agreement by any of the Companies (the “ Leased Real Property ” and together with the Owned Real Property, the “ Real Property ”), and a list of all leases for such Leased Real Property to which each Company is a party (the “ Real Property Leases ”) and sets forth the address, landlord and tenant for each Real Property Lease.

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3.9.1.2 Each of the respective Companies has good, valid and marketable title, in fee simple, to the Owned Real Property owned by it, and, as of the Closing Date, such Owned Real Property shall be free and clear of all Liens, other than Permitted Liens, and other than as set forth on Schedule 3.9.1.2 , which liens shall be released on or prior to the Closing Date.

3.9.1.3 Each of the respective Companies has good and valid rights under the Real Property Leases to which it is a party, and, as of the Closing Date, such rights shall be free and clear of all Liens, other than Permitted Liens, and other than as set forth on Schedule 3.9.1.3 . Each of the respective Companies has the right to use the Leased Real Property in accordance with the terms of the applicable Real Property Lease to which it is a party, in each case for the conduct of its business as presently conducted.

3.9.1.4 Each of the Real Property Leases is valid, binding and enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws in effect from time to time relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and no renewal, extension or termination options have been granted to any party thereunder other than as expressly set forth therein. All rents, royalties and other payments due from each respective Company as of the Closing Date on each of the Real Property Leases shall have been paid in full in all material respects as of the Closing Date.

3.9.1.5 Each of the respective Companies is in peaceable and undisturbed possession of the Real Property owned, leased or occupied by it, and none of the Companies is in default under any of its material obligations under any of the Real Property Leases and no waiver of its obligations thereunder has been granted by any lessor, lessee, grantor or licensor, as the case may be. None of the Companies has sent a written notice to the other party to a Real Property Lease stating that such other party is in default thereunder, which default remains uncured.

3.9.1.6 None of the Companies or Seller has received any written notice from any Governmental Authority claiming that any Company is currently violating, or any of the Real Property or Improvements is in violation, in any material respect, of any building or zoning Law with respect to the Real Property. The use and operation of the Real Property in the conduct of the Business do not violate in any material respect any covenant, condition, restriction, easement, license, permit or agreement.

3.9.1.7 Except as set forth in Schedule 3.9.1.7 , neither Seller nor any of the Companies has received written notice of any condemnation proceedings pending against the Real Property or the Improvements and to Seller’s Knowledge, there is no threatened condemnation proceeding with respect thereto.

3.9.1.8 Except as set forth on Schedule 3.9.1.8 , none of the Companies or Seller is a lessor, sublessor or grantor under any lease, sublease or other instrument granting to another Person any right to the possession, use, lease, occupancy or enjoyment of any of the Real Property.

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3.9.1.9 Except as set forth on Schedule 3.9.1.9 , none of the Companies or Seller owns, holds, has granted or is obligated under any option, right of first offer, right of first refusal or other contractual right to purchase, acquire, sell or dispose of the Real Property or any portion thereof or interest therein.

3.9.2 Personal Property .

3.9.2.1 Schedule 3.9.2.1 sets forth an accurate and complete list of all Personal Property having a net book value, as of the date hereof, in excess of One Hundred Thousand Dollars ($100,000) which is owned, leased, used or held for use by each of the respective Companies.

3.9.2.2 Schedule 3.9.2.2(a) lists all leases of Personal Property under which each Company is a lessee, excluding, however, any lease requiring an annual aggregate payment by the lessee thereunder of less than One Hundred Thousand Dollars ($100,000). Except as set forth on Schedule 3.9.2.2(b) each Company has or will have as of the Closing Date good and valid title to, or leasehold interests pursuant to such leases in, all of the Personal Property used by it in the conduct of its business as presently conducted, including, without limitation, (a) all the Personal Property reflected in the Balance Sheet and as described in this Agreement, and (b) all the Personal Property purchased by the Companies since the Balance Sheet Date, except for Personal Property reflected in the Balance Sheet or acquired since the Balance Sheet Date which has been sold or otherwise disposed of in the ordinary course of business and in accordance with this Agreement. As of the Closing Date, all of the Personal Property shall be free of all Liens, other than Permitted Liens and those set forth on Schedule 3.9.2.2(c) .

3.9.3 Assets .

The assets of the Companies constitute all of the assets and rights required to conduct the Business following the Closing in substantially the same manner in which the Business is currently being conducted and in which the Business has been conducted since January 1, 2010. Except as set forth in Schedule 3.9.3 , Seller and its Affiliates have conducted the Business through the Companies and not through any other division or any other subsidiary or Affiliate of the Companies. The Companies do not hold any assets, rights or liabilities other than those used to conduct, or which are otherwise primarily related to, the Business.

3.10 Contracts .

3.10.1 Except as set forth in Schedule 3.10.1 (such contracts required to be so disclosed, collectively, the “ Material Contracts ”), no Company is a party to, nor is it otherwise bound by:

(a) any agreement providing any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement, sick pay, vacation pay, severance pay or other employee benefit requiring or providing for the payment of Two Hundred Thousand Dollars ($200,000) or greater in the aggregate in any period of 12 months;

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(b) any agreement containing restrictions with respect to payment of dividends or any other distribution in respect of its capital stock, limited partnership interests or limited liability company interests, as applicable;

(c) any agreement relating to capital expenditures of Five Hundred Thousand Dollars ($500,000) or greater in the aggregate in any period of 12 months;

(d) any loan or advance to, or investment in, any other Person in the amount of One Hundred Thousand Dollars ($100,000) or greater in the aggregate in any period of 12 months, or the making of any such loan, advance or investment;

(e) any agreement in respect of Indebtedness and any guarantee or other contingent liability in respect of any Indebtedness or obligation of any other Person;

(f) any management, service, employment, consulting or any other similar type of contract requiring the payment of Five Hundred Thousand Dollars ($500,000) or greater in the aggregate in any period of 12 months;

(g) any agreement which materially restricts the freedom of any of the Companies to engage in any line of business or to compete with any other Person;

(h) any franchise agreement requiring the payment of Five Hundred Thousand Dollars ($500,000) or greater in the aggregate in any period of 12 months;

(i) any mortgage, pledge, conditional sale or title retention, security, equipment obligation, guaranty, lease or lease purchase agreement requiring the payment of Five Hundred Thousand Dollars ($500,000) or greater in the aggregate in any period of 12 months;

(j) any purchase and sale orders and commitments, except for those in the ordinary course of business;

(k) any contracts or other commitments requiring any government, military, or other security clearances or similar approvals;

(l) any military, defense or similar contracts or other commitments;

(m) any lease where any Company is the lessor of any real or personal property requiring or providing for the payment of Five Hundred Thousand Dollars ($500,000) or greater in the aggregate in any period of 12 months;

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(n) any indemnities or guarantees, whether contingent or otherwise requiring or providing for the payment of Two Hundred Thousand Dollars ($200,000) or greater in the aggregate in any period of 12 months;

(o) any agreement required to be disclosed on Schedule 3.23 ;

(p) any agreement setting forth rights or obligations with respect to the Union Packaging Interest or Union Packaging;

(q) any agreement with any customer or supplier that was (based on amounts received or paid) a Top Customer or supplier in 2010;

(r) any agreement providing for the licensing of Intellectual Property material to the Business (other than “off the shelf’ shrink wrap licenses); and

(s) any agreement pursuant to which any goods, services, rights or other assets are provided to both the Companies and Seller or any affiliate of Seller other than the Companies.

3.10.2 Copies of all of the Material Contracts (including all amendments thereto) have been delivered or made available to Purchaser or its representatives, except, as of the date hereof, with respect to the Additional Due Diligence Materials. Each of the Material Contracts is valid, binding and enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws in effect from time to time relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at Law) and none of the Companies is, nor, to Seller’s Knowledge, is any other party thereto, in material default thereunder, and no event has occurred, or, as a result of the Transactions, will occur, which, with the giving of notice, the lapse of time, or both, would become a default thereunder, except as otherwise may be noted in Schedule 3.10.2 .

3.11 No Governmental Authority Restrictions .

Except as required pursuant to the HSR Act, the Competition Act and as set forth on Schedule 3.11 , neither Seller nor any of the Companies is a party to, or otherwise subject to, any Order or Law which (a) would require authorization or approval of, or filing with any Governmental Authority in connection with the execution and delivery of this Agreement or the Transactions; or (b) would prevent consummation of the Transactions contemplated in this Agreement or any other agreement, instrument or other document delivered herewith or pursuant hereto or otherwise contemplated herein, and the compliance by Seller with the terms, conditions and provisions of this Agreement.

3.12 No Litigation .

3.12.1 Except as set forth in Schedule 3.12.1 , there is no action, suit or proceeding at law or in equity by any Person, or grievance, any arbitration or any administrative

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or other proceeding, or to Seller’s Knowledge, any investigation by, any Governmental Authority, pending or, to Seller’s Knowledge, threatened with respect to any Company, any of the partners, shareholders, members, managers, officers or directors thereof (in their capacities as such), any of their respective properties or rights, or any of the Companies’ ownership interests or shares of capital stock, limited partnership interests or limited liability company interests, as the case may be, nor is any Company subject to any Order entered in any lawsuit, arbitration or similar proceeding.

3.12.2 No voluntary proceeding or petition has been instituted by any of the Companies and no proceeding has been instituted or, to Seller’s Knowledge, threatened to be instituted against any of the Companies under the bankruptcy Laws of the United States or any other country or any political subdivision thereof. None of the Companies has made any assignment of any assets or properties for the benefit of creditors, consented to the appointment of a receiver or trustee for any assets or properties, been adjudicated bankrupt or made a bulk sale or taken any action which contemplates the making of a bulk sale. No court has entered any order appointing a receiver or trustee for any assets or properties of any of the Companies or has assumed the custody of or sequestered any assets or properties of any of the Companies and no attachment has been made on any assets or properties of any of the Companies or any of the members, partners or stockholders, as applicable, thereof.

3.13 Taxes .

3.13.1 Each of the Companies has filed or caused to be filed (on a timely basis) all income and other material Tax Returns that are or were required to be filed. All such Tax Returns were correct and complete in all material respects. All material Taxes due and owing by the Companies have been timely paid, except for such Taxes, if any, as are being contested in good faith and have been accrued and provided for on the books and records of the Companies. Each of the Companies has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, partner, or other third party, and all applicable Tax forms (including, without limitation, with respect to Dopaco US and Dopaco US Subsidiaries, all Internal Revenue Service Forms W-2 and 1099) required with respect to such Taxes have been properly completed and timely filed. The Companies are not currently the beneficiary of any extension of time within which to file any Tax Return.

3.13.2 Except as provided on Schedule 3.13 , there are no pending or threatened audits, examinations or other administrative or court proceedings for the assessment, adjustment or collection of Taxes of any of the Companies.

3.13.3 Except as provided on Schedule 3.13 , there are no outstanding written requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment or collection of any Taxes or Tax deficiencies of any of the Companies.

3.13.4 No claim has been made by a Taxing Authority in a jurisdiction where a Company does not file Tax Returns of a certain type that such Company is or may be subject to taxation of such type by that jurisdiction.

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3.13.5 None of the Companies has participated in a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(c) or any transaction or arrangement reportable under any similar foreign Tax Law.

3.13.6 None of the Companies has been a “distributing corporation” or a “controlled corporation” within the meaning of Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution that could otherwise constitute a “plan” or “series of related transactions” in conjunction with the transaction contemplated by this Agreement.

3.13.7 None of the Companies will be required to include any income or gain in any Post-Closing Tax Period (i) under Section 453 of the Code (or any similar provision of state, local or foreign Law) in respect of any transaction occurring on or prior to the Closing Date, (ii) under Section 108(i) of the Code (or any similar provision of state, local or foreign Law) in respect of any reacquisition occurring on or prior to the Closing Date, or (iii) as a result of any adjustment under Section 481 of the Code (or any similar provision of state, local or foreign Law) as a result of the manner in which any item was reported by any of the Companies with respect to any Pre-Closing Tax Period.

3.13.8 Schedule 3.13 lists each entity classification election and change in entity classification that has been made under Treasury Regulation Section 301.7701-3 with respect to each Company for U.S. federal income Tax purposes.

3.13.9 Seller is the parent of the U.S. consolidated tax group that includes Dopaco US.

3.13.10 Except as provided on Schedule 3.13 , none of the Companies is a party to a tax sharing, tax allocation or other similar agreement.

3.14 Insurance .

Set forth in Schedule 3.14(a) hereto is a complete and accurate list of insurance policies which each Company currently maintains or which is maintained by any other Person with respect to any Company or its property, and has maintained since January 1, 2008, including all deductibles, self insured levels and retained liabilities. Such policies are in full force and effect, and all premiums due on such policies have been timely paid. Attached as Schedule 3.14(b) hereto is a summary of each Company’s claims experience under its insurance policies since January 1, 2008.

3.15 Patents; Trademarks; Other Intellectual Property .

Except as may be set forth in Schedule 3.15 hereto: (a) none of the Companies has any material patents, patent rights, trademarks, trade names or service marks, copyrights, inventions, formulas, confidential proprietary technical information, trade secrets, websites, domain names, artwork, graphics, know-how or other intellectual property, (individually, and collectively, the “ Intellectual Property ”) whether registered or unregistered, or applications with respect thereto, nor, to Seller’s Knowledge, does any Company require any such rights, in connection with its business as presently and formerly conducted; (b) each Company is the

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exclusive owner of its respective Intellectual Property, and the inventions covered thereby, listed in Schedule 3.15 , if any, free and clear of all Liens as of the Closing Date except Permitted Liens; (c) to Seller’s Knowledge, none of the Companies is infringing, or otherwise acting adversely to, any such rights of others in a manner reasonably expected to be material to the Business; (d) since January 1, 2010, no Company has received written notice regarding any alleged infringement or adverse action of the type described in clause (c) of this Section 3.15 ; (e) to Seller’s Knowledge, none of the Intellectual Property is being infringed on by any other Person; (f) none of the Companies has received any written opinions of counsel relating to the infringement, invalidity or unenforceability of any Intellectual Property; (g) none of the Companies nor any employee or consultant of any of the Companies has any agreements or arrangements with former employers or, in the case of consultants, former or current clients, which result in such employees, consultants or former or current clients of such consultants having any rights in, or claims on any of the Intellectual Property; and (h) each Intellectual Property registration and filing listed on Schedule 3.15 is valid and in full force and effect.

3.16 Compliance with Laws; Regulatory Matters .

Except as set forth in Schedule 3.16 , (a) all Permits are in full force and effect; (b) the Companies are, and since January 1, 2009, have been in compliance with their respective Permits and all applicable Laws, except where the failure to be in compliance would not reasonably be expected to be material to the Business; (c) there is no pending notice alleging, and there are no current material violations of, any Permit or Law, nor any circumstances that, without redress in the normal course, will cause a material violation of a Permit or Law; and (d) there are no claims or proceedings, pending or, to Seller’s Knowledge, threatened, challenging the validity of or seeking to discontinue or materially alter any Permit.

3.17 Employees .

3.17.1 Annexed hereto as Schedule 3.17 is a true and complete list of the names, job functions, length of service and current annual base compensation rates and terms of any bonus, including a history from January 1, 2008 with respect thereto, of all salaried and hourly employees of the Companies (the “ Employees ”). Except as will be in accordance with the Companies’ policies respecting vacation and severance as set forth in Schedule 3.17 hereto, none of such Employees is now, or will by the passage of time hereafter become, entitled to receive any vacation time, vacation pay or severance pay, or any other similar amounts, attributable to services rendered, or circumstances occurring, prior to the date hereof.

3.17.2 Except as may be set forth in Schedule 3.17 hereto:

(a) There is no labor strike, dispute, slowdown or work stoppage occurring or, to Seller’s Knowledge, threatened against any of the Companies or involving any of the Employees.

(b) The Companies have not been approached by any individual or organization claiming or seeking to represent any of the Employees within the last one year, and no individual or organization is presently seeking or claiming to represent the Employees.

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(d) There has been no labor strike, slowdown, picketing, concerted refusal to work overtime by, lockout of, or work stoppage with respect to the Employees during the last three years.

3.18 Employee Benefits .

3.18.1 Set forth on Schedule 3.18.1(a) is a list of all US Benefit Plans maintained or contributed to by Dopaco US and the Dopaco US Subsidiaries or any their ERISA Affiliates, or with respect to which any of them could incur liability under the Code or ERISA or any similar non-U.S. law, in each case for the benefit of the Employees of Dopaco US and the Dopaco US Subsidiaries (including a written description of any oral US Benefit Plans) (the “ Dopaco US Company Plans ”). Set forth on Schedule 3.18.1(b) is a list of all Canada Benefit Plans maintained or contributed to by Dopaco Canada and the Dopaco Canada Subsidiaries or any of their Affiliates, in each case for the benefit of the Employees or any former officer, employee, or director of Dopaco Canada and the Dopaco Canada Subsidiaries, and their dependents or beneficiaries, (including a written description of any oral Canada Benefit Plans) (the “ Dopaco Canada Company Plans ”, and together with the Dopaco US Company Plans, the “ Company Plans ”). Schedule 3.18.1(b) identifies each Canada Benefit Plan that is a “registered pension plan” as that term is defined in Subsection 248(1) of the Income Tax Act (Canada) (the “ Canadian Pension Plans ”).

3.18.2 With respect to each Company Plan, Seller has provided or made available to Purchaser complete, to the extent applicable, up-to-date, current and correct copies of: (i) all related plan documents, trust agreements, insurance contracts, or other funding arrangements; (ii) the two most recent actuarial reports for both ERISA (or similar applicable Canadian pensions standards legislation) funding and financial statement purposes; (iii) the two most recent Forms 5500 with all attachments required to have been filed with the Internal Revenue Service or the Department of Labor or any similar reports filed with any comparable Governmental Authority in any non-U.S. jurisdiction having jurisdiction over any Company Plan, and all schedules thereto; (iv) the most recent IRS determination letter with respect to each Company Plan intended to be qualified under Section 401(a) of the Code; (v) all current summary plan descriptions; (vi) all material communications received from or sent to the IRS, the Pension Benefit Guaranty Corporation, the Department of Labor, or any other Governmental Authority (including a written description of any oral communication); (vii) the most recent actuarial study of any pension, disability, post-employment life, or medical benefits provided under any such Company Plan; (viii) all current employee handbooks and manuals; (ix) statements or communications regarding withdrawal or other Multiemployer Plan liabilities (or similar liabilities pertaining to any non-U.S. employee benefit plan sponsored by the Companies, if any); and (x) all amendments and modifications to any such Company Plan or related document. None of the Companies has communicated to any current or former employee any intention or commitment to amend or modify any Company Plan or to establish or implement any other employee or retiree benefit or compensation plan or arrangement.

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3.18.3 Each Company Plan intended to be qualified under Section 401(a) of the Code, and the trust (if any) forming a part thereof, is so qualified and has a received a favorable determination letter from the IRS, or is entitled to rely on a favorable opinion letter issued by the Internal Revenue Service, and, except as set forth on Schedule 3.18.3 , to the Seller’s Knowledge, there are no existing circumstances or events that would reasonably be expected to adversely affect the qualified status of any such Company Plan. Except as set forth on Schedule 3.18.3 , all amendments and actions required to bring each Company Plan into conformity with the applicable provisions of ERISA, the Code, and other applicable Law have been made or taken, except to the extent such amendments or actions are not required by law to be made or taken until after the Closing Date. Each Company Plan has been operated in all material respects in accordance with the terms of such Company Plan and applicable Law. Except as set forth on Schedule 3.18.3 , the Dopaco US Company Plans and the Dopaco Canada Company Plans have complied, in all material respects, with the requirements of all Laws applicable thereto. None of the Companies or any of their respective ERISA Affiliates would be liable for any amount pursuant to Section 4062, 4063, or 4064 of ERISA if any Company Plan that is subject to Title IV of ERISA (a “ Company Title IV Plan ”) were to terminate as of the date hereof. Schedule 3.18.3 sets forth, with respect to each Company Title IV Plan, the fair market value of the assets of such Company Title IV Plan and the present value of the accrued benefit obligations and projected benefit obligations of such Company Title IV Plan (within the meaning of Statement of Financial Accounting Standards 132), as set forth in the most recent actuarial report provided to the Companies with respect to such Company Title IV Plan (and as of the measurement date set forth therein). Each Company Plan that is subject to the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA satisfies such standards and no waiver of such funding has been sought or obtained. In addition, no Company Plan subject to the Code or ERISA has incurred an “accumulated funding deficiency” within the meaning of the predecessors to Section 412 or 302 of the Code and ERISA, respectively, whether or not waived.

3.18.4 None of the Companies or any of their ERISA Affiliates has been involved in any transaction that could cause the Companies, or following the Closing Date, the Purchaser or any of its respective Affiliates, to be subject to liability under 4069 or 4212 of ERISA. Except as set forth on Schedule 3.18.4 , none of the Companies or any of their ERISA Affiliates has incurred (either directly or indirectly, including as a result of an indemnification obligation) any penalty, excise tax, prohibited transaction liability or liability for breach of fiduciary duty under or pursuant to Title I or IV of ERISA or the penalty, excise Tax, or joint and several liability provisions of the Code relating to employee benefit plans, and no event, transaction, or condition has occurred or exists that could result in any such liability to the Companies, any of their ERISA Affiliates, or following the Closing Date, the Purchaser or any of its Affiliates. Except as set forth on Schedule 3.18.4 , all contributions and premiums required to have been paid by the Companies or any of their ERISA Affiliates to any Company Plan under the terms of any such plan or its related trust, insurance contract, or other funding arrangement, or pursuant to any applicable Law (including ERISA and the Code) or collective bargaining agreement, have been paid within the time prescribed by any such plan, agreement, or applicable Law.

3.18.5 Other than routine claims for benefits and as set forth on Schedule 3.18.5 , there are no pending, or to the Seller’s Knowledge, threatened or anticipated claims: (A) by or on behalf of any Company Plan or any employee or beneficiary with respect to any

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Company Plan, or otherwise involving any Company Plan or its assets; or (B) by or on behalf of any current or former employees of the Companies relating to his or her employment, termination of employment, compensation, or employee benefits. None of the Company Plans is presently under audit or examination by the IRS, the Department of Labor, or any other Governmental Authority, domestic or foreign.

3.18.6 None of the Companies or any of their ERISA Affiliates contributes to or is obligated to contribute to, or within the three years preceding this Agreement contributed to or was obligated to contribute to, a Multiemployer Plan or a “multiple employer plan” within the meaning of Section 4063 or 4064 of ERISA.

3.18.7 Except as set forth on Schedule 3.18.7 , none of the Companies has any liability in respect of post-retirement health, medical, or life insurance benefits for retired, former, or current employees of the Companies except as required to avoid the excise tax under 4980B of the Code.

3.18.8 Except as set forth on Schedule 3.18.8 , the execution, delivery, and performance of this Agreement by the Seller, and the consummation by the Seller of the transactions contemplated by this Agreement, will not (alone or in combination with any other event): (i) entitle any current or former employee, consultant, officer, or director of the Companies to severance pay or any other payment; (ii) result in any payment becoming due, accelerate the time of payment or vesting of benefits, or increase the amount of compensation due to any such employee, consultant, officer, or director; (iii) result in any forgiveness of indebtedness, trigger any funding obligation under any Company Plan, or impose any restrictions or limitations on the Companies’ rights to administer, amend, or terminate any Company Plan; or (iv) result in any payment (whether in cash or property or the vesting of property) to any “disqualified individual” (as such term is defined in Treasury Regulation Section 1.280G-1) that could reasonably be construed, individually or in combination with any other such payment, to constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code). No person is entitled to receive any additional payment (including any tax gross-up or other payment) from any of the Companies as a result of the imposition of the excise taxes required by Section 4999 of the Code or any taxes required by Section 409A of the Code.

3.18.9 Except as set forth on Schedule 3.18.9 , each of the Canadian Pension Plans is fully funded on a going concern, solvency and wind-up basis pursuant to the actuarial assumptions and methodology set out in the most recently filed actuarial valuation for such Canadian Pension Plan. No event has occurred respecting a Canadian Pension Plan which would entitle any Person to cause the wind-up or termination of such Canadian Pension Plan in whole or in part. There have been no withdrawals, applications or transfers of assets from any Canadian Pension Plan or the trusts or other funding media relating thereto except in accordance with the terms of such Canadian Pension Plans, applicable Law and all applicable agreements.

3.19 Bank Accounts and Powers of Attorney; Lock Boxes .

Set forth in Schedule 3.19(a) hereto is an accurate and complete list of (a) each bank or other financial institution in which each Company has an account or safe deposit box and the authorized signatories with respect thereto, and (b) the names of all persons, if any, holding

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powers of attorney with respect thereto from each Company. Set forth in Schedule 3.19(b) is an accurate and cumulative list of each bank or other financial institution in which each Company maintains a lock box for the receipt of accounts receivable and the terms and conditions of each of them.

3.20 No Changes Since the Balance Sheet Date .

Except as may be set forth in Schedule 3.20 hereto, or as otherwise contemplated herein, since the Balance Sheet Date, or, in the case of clauses (a), (b), (c), (d), (i), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t) or, to the extent applicable to these aforementioned clauses, (u) since September 30, 2010, none of the Companies has:

(a) incurred any liability or obligation of any nature whether accrued, absolute, contingent or otherwise, except for current Taxes not yet due and payable, and except in the ordinary course of business;

(b) discharged or satisfied any Liens or Liabilities, whether absolute, accrued, contingent or otherwise, whether due or to become due, other than current liabilities shown on the Balance Sheet and current liabilities of a similar type incurred since the Balance Sheet Date in the ordinary course of business;

(d) sold, leased, transferred or otherwise disposed of any assets except for sales of inventory in the ordinary course of business;

(e) made any individual capital expenditure or commitment therefor of more than Five Hundred Thousand Dollars ($500,000) in any individual case, or One Million Dollars ($1,000,000) in the aggregate;

(f) declared or paid any dividend, except for any cash dividends declared and paid prior to the opening of business on the Closing Date (which shall not include any cash held in trust established in connection with the Dopaco, Inc. Supplemental Executive Retirement Plan), or made any distribution on any of its limited liability company interests, limited partnership interests or shares of capital stock, or issued or redeemed, purchased or otherwise acquired any of its limited liability company interests, limited partnership interests or shares of capital stock or any option, warrant or other right to purchase or acquire any such limited liability company interests, limited partnership interests or shares of capital stock;

(g) increased its indebtedness for borrowed money, or made any loan to any Person, except in the ordinary course of business;

(h) written down the value of any work in progress, or written off as uncollectible any notes or accounts receivable, except in the ordinary course of business;

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(i) cancelled or waived any claims or rights of value, except in the ordinary course of business;

(j) made any material change in any method of accounting or auditing practice (except as may be required by changes in GAAP);

(k) conducted its business or entered into any transaction, except in the ordinary course of business;

(l) received any notice of termination of any Material Contract, or other material lease or other material agreement or suffered any material damage, destruction or loss, whether or not covered by insurance;

(m) received any notice of any new labor union organizing activity, any actual or threatened employee strikes, work stoppages, slowdowns or lockouts, or any Material Adverse Change in its relations with any of the Employees, agents, partners or other co-owners in any venture, suppliers, consultants, subcontractors or independent contractors;

(n) transferred or granted any rights under, or entered into any settlement regarding, the breach or infringement of, or entered into any agreement or commitment relating to, any Intellectual Property, or modified any existing rights with respect thereto;

(o) changed any of its banking, safe deposit, lock box, or power of attorney arrangements;

(p) been subjected to, instituted, settled or agreed to settle, or suffered any adverse determination in, any litigation, action, proceeding or arbitration before any court or governmental body or arbitration body relating to it or its properties or services;

(q) made or suffered any material change in or amendment to its organizational or governing documents;

(r) entered into or amended any contract or commitment of more than Five Hundred Thousand Dollars ($500,000) in any individual case, or One Million Dollars ($1,000,000) in the aggregate;

(s) modified the terms of any agreement or other transaction with Seller or any Affiliate of Seller;

(t) (i) except as otherwise required by Law, existing Company Plans or this Agreement, taken any action with respect to the grant of any material severance or termination pay (other than pursuant to policies or agreements of any Company in effect on the date of this Agreement) which will become due and payable after the Closing Date; (ii) made any material change in the key management structure of any Company, including the hiring of additional officers or the termination of existing officers, other than in the ordinary

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course of business, consistent with past practice; (iii) amended any Company Plan, other than in a manner that does not materially enhance any benefits provided under, or materially increase the cost of such Company Plan; or (iv) entered into any new material employment, consulting or similar agreement or amended any existing employment agreement; or

(u) made a commitment, whether or not in writing, to do any of the foregoing.

3.21 No Investment Banker’s, Broker’s or Finder’s Fees .

No investment banker, agent, broker, person or firm acting or purporting to act on behalf of Seller is, or will be, entitled to any financial advisory, commission or broker’s or finder’s fee from any of the parties hereto, or any other Person respecting the Transactions other than Bank of America Merrill Lynch, who has been engaged by Seller and its Affiliates and whose fee will be paid by Seller and its Affiliates (other than a Company).

3.22 Environmental Matters .

3.22.1 For the purposes of this Agreement:

(a) “ Environmental Requirement ” means each and every applicable Law or Order regulating or otherwise relating in any way to the protection of human health or the environment or the Release or threatened Release of Hazardous Material into the environment;

(b) “ Hazardous Material ” means any “hazardous substance,” “hazardous waste,” “pollutant,” “contaminant,” or words of similar meaning or effect as defined in or regulated under applicable Environmental Requirements, including, without limitation, polychlorinated biphenyls (PCBs), asbestos, petroleum, and urea- formaldehyde foam insulation (UFFI); and

(c) “ Release ” means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping or disposing into the environment.

3.22.2 Except as set forth in Schedule 3.22.2 hereto:

(a) The Companies are and have been in compliance in all material respects with all Environmental Requirements and are in possession of, and compliance with, all material Permits required under Environmental Requirements. There is no uncured violation of any Environmental Requirement with respect to any of the Companies’ operations or the Real Property.

(b) There are no pending or, to Seller’s Knowledge, threatened proceedings, claims or liabilities against any of the Companies or with respect to the Real Property arising under or with respect to any Environmental Requirement or any Permit required thereunder.

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(c) (i) there have been no Releases of Hazardous Materials resulting from the operations of the Companies at, on, under or from any property currently or formerly owned, leased or operated by any Company, and (ii) the Companies have not Released, transported, arranged for the transportation of, or disposed of any Hazardous Materials in a manner or to a location, that, in each instance set forth in clauses (i) and (ii), has resulted or would reasonably be expected to result in any material liability or claim.

3.22.3 Schedule 3.22.3 identifies all environmental reports in the possession of any of the Companies or Seller with respect to the Real Property or any of the Companies’ operations, in each case prepared on or after January 1, 2005, which reports have been made available to the Purchaser.

3.22.4 Except as set forth in Section 3.11 , this Section 3.22 contains all the representations and warranties made by Seller with respect to matters arising under Environmental Requirements.

3.23 Transactions With Certain Persons .

Except as set forth on Schedule 3.23 , since December 31, 2009: (a) no Company has, directly or indirectly, purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased to others or otherwise disposed of any property or furnished any services to, or otherwise dealt with, in the ordinary course of business or otherwise, (i) Seller, or (ii) any Affiliate of the Companies or Seller; (b) no Company owes any amount to, nor do they have any contract with or commitment to, Seller or any of its Affiliates, shareholders, directors, officers, employees or consultants, and none of such Persons owes any amount to any Company; and (c) no part of the property or assets of Seller is used by any Company.

3.24 No Foreign Person .

Seller is not a “foreign person” within the meaning of Section 1445 of the Code and is a non resident of Canada within the meaning of Subsection 248(1) of the Income Tax Act.

3.25 Taxable Canadian Properties .

The shares of Dopaco Canada are not taxable Canadian properties within the meaning of Subsection 248(1) of the Income Tax Act since at no time in the 60-month period that immediately preceding the Closing Date was the fair market value of the shares of Dopaco Canada derived principally (more than 50%), directly or indirectly, from one or any combination of:

(i)

real or immovable property situated in Canada;

(ii)

Canadian resource properties;

(iii)

timber resource properties; or

(iv)

an option or interest in a property described in (i) to (iii) above.

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3.26 Relations with Customers .

During the twelve-month period prior to the date of the execution and delivery hereof, and except to the extent already reflected in a Top Customer Contract, (i) none of the Top Customers has notified any Company in writing, and there is not otherwise Seller’s Knowledge, that any such Top Customer intends to or is contemplating materially reducing its purchases from any Company, or materially changing the terms (including price or pricing mechanism) pursuant to which it transacts business with any Company, and (ii) to Seller’s Knowledge, there is no fact or circumstance that could reasonably be expected to cause any such Top Customer to materially reduce its purchases from any Company, or materially change the terms (including price or pricing mechanism) pursuant to which it transacts business with any Company.

3.27 Entirety of Representations and Warranties; Disclaimer of Representations and Warranties .

3.27.1 IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER AND ITS AFFILIATES ARE NOT MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS, IMPLIED, AT COMMON LAW, STATUTORY OR OTHERWISE, EXCEPT FOR THE EXPRESS REPRESENTATIONS OR WARRANTIES SET FORTH IN THIS ARTICLE III, AND IT IS UNDERSTOOD THAT PURCHASER, EXCEPT TO THE EXTENT OTHERWISE SET FORTH IN THIS ARTICLE III, TAKES THE DOPACO STOCK, THE COMPANIES, AND ALL ASSETS OF THE COMPANIES, INCLUDING, WITHOUT LIMITATION, THE REAL PROPERTY, IMPROVEMENTS AND ALL PERSONAL PROPERTY, “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS.” WITHOUT LIMITING THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE, BUT WITHOUT LIMITING ANY REPRESENTATION OR WARRANTY IN ARTICLE III, OR ANY OTHER TERM OF THIS AGREEMENT, (I) SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT COMMON LAW, STATUTORY, OR OTHERWISE, RELATING TO CUSTOMER RISK, AND EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, TO THE CONDITION OF THE REAL PROPERTY, IMPROVEMENTS, THE PERSONAL PROPERTY AND THE OTHER ASSETS OF THE COMPANIES (INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, OF WORKING CONDITION OR OF THE STATE OF REPAIR) AND (II) PURCHASER HAS AGREED NOT TO RELY ON ANY REPRESENTATION OR WARRANTY MADE BY SELLER WITH RESPECT TO THE CONDITION, QUALITY, OR STATE OF THE REAL PROPERTY, IMPROVEMENTS, THE PERSONAL PROPERTY OR OTHER ASSETS OF THE COMPANIES EXCEPT FOR THOSE SET FORTH IN THIS ARTICLE III OF THIS AGREEMENT, BUT RATHER, AS A SIGNIFICANT PORTION OF THE CONSIDERATION GIVEN TO SELLER FOR THIS PURCHASE AND SALE, HAS AGREED TO RELY SOLELY AND EXCLUSIVELY UPON ITS OWN EVALUATION OF THE COMPANIES, THE REAL PROPERTY, IMPROVEMENTS, THE PERSONAL PROPERTY AND THE OTHER ASSETS OF THE COMPANIES, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN. THE PROVISIONS CONTAINED IN THIS AGREEMENT ARE THE

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RESULT OF EXTENSIVE NEGOTIATIONS BETWEEN PURCHASER AND SELLER AND NO OTHER ASSURANCES, REPRESENTATIONS OR WARRANTIES ABOUT THE QUALITY, CONDITION, OR STATE OF THE COMPANIES, THE REAL PROPERTY, THE IMPROVEMENTS, THE PERSONAL PROPERTY OR OTHER ASSETS OF THE COMPANIES WERE MADE BY SELLER IN THE INDUCEMENT THEREOF, EXCEPT AS SET FORTH IN THIS AGREEMENT.

3.27.2 WITHOUT LIMITING THE GENERALITY OF SECTION 3.27.1, BUT WITHOUT LIMITING ANY REPRESENTATION OR WARRANTY IN THIS ARTICLE III OR ANY OTHER TERM OF THIS AGREEMENT, SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, STATUTORY OR OTHERWISE, WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE DUE DILIGENCE MATERIALS PROVIDED BY SELLER IN ITS DATAROOM, INCLUDING, WITHOUT LIMITATION, INFORMATION, RECORDS, AND DATA NOW, HERETOFORE, OR HEREAFTER MADE AVAILABLE TO PURCHASER IN CONNECTION WITH THIS AGREEMENT (INCLUDING ANY DESCRIPTION OF THE COMPANIES, THE REAL PROPERTY, IMPROVEMENTS, THE PERSONAL PROPERTY AND OTHER ASSETS OF THE COMPANIES, REVENUE, PRICE AND EXPENSE ASSUMPTIONS, OR ENVIRONMENTAL INFORMATION, OR ANY OTHER INFORMATION FURNISHED TO PURCHASER BY SELLER, ITS AFFILIATES OR ANY DIRECTOR, OFFICER, EMPLOYEE, COUNSEL, AGENT, OR ADVISOR THEREOF).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

As of the date hereof and as of the Closing Date, Purchaser represents and warrants to Seller as follows:

4.1 Approval of Agreement and Transactions .

This Agreement and the Transactions have been duly authorized, and the Agreement, and each other agreement, instrument or other document contemplated herein and to which Purchaser is a party, has been duly executed and delivered by Purchaser and all appropriate action has been properly taken with respect thereto, in accordance with the organizational and governing documents of Purchaser, and applicable Law.

4.2 Purchaser’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions .

4.2.1 Purchaser is a company duly incorporated and is validly existing under the Laws of New Zealand. Purchaser has full legal right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder, including the consummation of the Transactions, and each of the other agreements, instruments and other documents delivered pursuant hereto or otherwise in connection herewith. Assuming valid execution and delivery by Seller, this Agreement and, when executed and delivered by Purchaser, each of the other agreements, instruments and other documents delivered pursuant

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hereto or otherwise contemplated herein, constitute the legal, valid and binding obligation of Purchaser enforceable in accordance with its terms except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws in effect from time to time relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Purchaser has provided to Seller a copy of a resolution adopted by Purchaser’s Board of Directors, duly certified by an appropriate officer authorizing Purchaser to execute, deliver and perform its obligations under this Agreement, including the consummation of the Transactions, and each other agreement, instrument or other document delivered herewith or otherwise pursuant hereto or otherwise contemplated herein to which Purchaser is a party.

4.2.2 Except as set forth on Schedule 4.2.2 , the execution, delivery and performance of this Agreement and each other agreement, instrument or other document contemplated herein and to which Purchaser is a party, do not (i) conflict with Purchaser’s organizational and governing documents; or (ii) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any agreement to which Purchaser is a party.

4.3 No Governmental Authority Restrictions .

Except as required pursuant to the HSR Act, the Competition Act and as set forth on Schedule 4.3 , Purchaser is not subject to any Order or Law which (a) would require authorization or approval of, or filing with any Governmental Authority in connection with the execution and delivery of this Agreement or the Transactions; or (b) would prevent consummation of the Transactions contemplated in this Agreement or any other agreement, instrument or other document delivered herewith or pursuant hereto or otherwise contemplated herein, and the compliance by Purchaser with the terms, conditions and provisions of this Agreement. Purchaser is a “WTO investor” as that term is defined in the Investment Canada Act.

4.4 No Investment Banker’s, Broker’s or Finder’s Fees .

No investment banker, agent, broker, person or firm acting or purporting to act on behalf of Purchaser is, or will be, entitled to any financial advisory commission or broker’s or finder’s fee from either of the parties hereto, or any other person respecting the Transactions.

4.5 Investment .

Purchaser is acquiring the Dopaco Interests for its own account for investment purposes and not with a view toward any resale or distribution thereof. Purchaser acknowledges that the Dopaco Interests have not been registered under the Securities Act of 1933 or any equivalent legislation in Canada (the “ Securities Act ”), as amended and that it may not sell any of the Dopaco Interests except in accordance with the Securities Act, or applicable exemptions therefrom.

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4.6 Financial Ability to Perform .

Purchaser has available cash funds and/or access to existing credit facilities sufficient to consummate the Transactions contemplated by this Agreement in accordance with the terms and conditions hereof.

4.7 Purchaser’s Due Diligence .

Without limiting the representations or warranties of Seller or any other term of this Agreement, in deciding to enter into this Agreement, and, subject to the terms of this Agreement, to consummate the Transactions, Purchaser has relied solely upon its own knowledge, investigation, and analysis (and that of its representatives) and not on any disclosure or representation made by, or any duty to disclose on the part of, Seller, its Affiliates, or any of their representatives, other than the express representations and warranties of Seller set forth in Article III herein and the other terms of this Agreement, which Purchaser is relying on.

ARTICLE V

COVENANTS

5.1 Conduct of Business of the Companies .

During the period from the date of this Agreement to the Closing Date, Seller shall cause each Company to conduct its business and operations only according to its ordinary and usual course of business as presently conducted and shall, without relieving Purchaser of Customer Risk as provided elsewhere herein, cause each Company to use commercially reasonable efforts to attempt to maintain intact the Business and relations with customers, suppliers and others material to the ongoing conduct of the Business. Pending the Closing Date and except as may be first approved in writing by Purchaser or as is otherwise permitted or required by this Agreement, Seller will not and Seller will not cause or allow any Company to take any action which if it had been taken after the Balance Sheet Date (or, as specified in Section 3.20 , September 30, 2010) and prior to the date hereof would have resulted in a misrepresentation or breach of warranty under Article III of this Agreement. Notwithstanding anything to the contrary contained herein, it shall not be a breach of any representation or warranty or covenant herein if Seller or any of the Companies take any action otherwise prohibited by this Section 5.1 without Purchaser’s consent if such action is reasonably determined by Seller to be necessary in the interest of health or safety in circumstances in which Seller could not reasonably obtain Purchaser’s prior approval, or if such action is set forth in Schedule 5.1 . The parties acknowledge and agree that the foregoing covenants are subject in each case to Section 5.7 hereof.

5.2 Coordination .

After the date hereof and prior to the Closing Date, Seller and Purchaser agree to use commercially reasonable efforts to discuss, from time to time and as reasonably requested by Purchaser, the ongoing operations and business of the Companies, subject in each instance to compliance with applicable Law as advised by each party’s respective legal counsel. Seller agrees to notify Purchaser promptly of any event after the date hereof which can reasonably be expected to result in a breach of any representation or warranty under Article III or a Material Adverse Change.

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5.3 Purchaser’s Access to the Companies .

After the fifth Business Day following the date hereof and prior to the Closing Date, Seller shall, and shall cause the Companies to, permit Purchaser and its representatives to have, upon reasonable notice, reasonable access during regular business hours to the premises of the Companies and the books and records of the Companies, and to cause the Companies to furnish Purchaser with such financial and operating data and other information with respect to the business and properties of the Companies as Purchaser shall from time to time reasonably request, subject in each instance to compliance with applicable Law as advised by each party’s respective legal counsel.

5.4 Confidentiality; Announcements .

5.4.1 In replacement of that certain confidentiality agreement entered into between Cascades Inc. and Rank Group Limited, on behalf of itself and its affiliates, including Purchaser, dated as of October 20, 2010, which confidentiality agreement shall terminate upon the execution and delivery hereof, without, however, affecting any rights or obligations of the parties accruing prior to such termination, Purchaser agrees that it shall, and shall cause its employees, officers, directors and Affiliates to, keep confidential all information (whether written or otherwise) provided to it by Seller or Seller’s agents and representatives, except that Purchaser may provide such information to its financial advisors, potential financing sources, legal counsel and other advisors and consultants assisting Purchaser, provided that such advisors, counsel and consultants agree to become bound by the terms of this Section 5.4 . In the event this Agreement is terminated prior to Closing, Purchaser shall return to Seller all information provided to it by or on behalf of Seller or shall provide Seller with evidence reasonably satisfactory to Seller that Purchaser has destroyed such information. Purchaser’s obligations under this Section 5.4 shall not extend to information which (a) has been in the possession of or known by Purchaser on a non-confidential basis prior to the receipt thereof from Seller or its agents or representatives, (b) has become generally available to the public other than as a result of disclosure by Purchaser or its agents or representatives, (c) has become available to Purchaser on a non-confidential basis from a third party not prohibited from making such disclosure to Purchaser, or (d) is required to be disclosed to comply with any applicable Law, provided that before Purchaser makes such disclosure Purchaser use commercially reasonable efforts to give Seller prompt notice of the requirement or request for disclosure and use commercially reasonable efforts to secure or cooperate with Seller in securing a protective order or other arrangement to limit disclosure of such confidential information only to parties agreeing to be bound by the terms of the protective order or other arrangement.

5.4.2 From and after the date hereof, Seller shall not (and shall cause the Companies and their other Affiliates not to) without the prior written consent of Purchaser and Purchaser shall not (and shall cause its Affiliates not to) without the prior written consent of Seller issue or permit to be issued any media, newspaper, wire service, trade journal or any other public statement, in each case concerning the Transactions, except as otherwise provided herein or as may be required by applicable Law, stock exchange rule or other applicable disclosure

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obligations, in which case the issuing party shall provide the other party, in writing, no less than one Business Day prior to such proposed statement, the content of the proposed statement and an opportunity to comment on the statement.

5.5 Hart-Scott-Rodino; Competition Act .

Seller and Purchaser shall promptly make, or cause to make, such filings as are required under the HSR Act and Competition Act and shall (and shall cause their respective Affiliates to) furnish the other party hereto such information and cooperation as may reasonably be requested by such party in connection with the preparation and submission of such filings under the foregoing. Seller and Purchaser shall promptly keep each other informed of any developments with the Canadian Competition Bureau and provide the other and its legal counsel with an opportunity to provide comments on draft correspondence to the Canadian Competition Bureau and on the proposed responses to any requests for information from the Canadian Competition Bureau. Seller and Purchaser shall each use their commercially reasonable efforts to resist any assertion that the Transactions constitute a violation of federal, state or provincial antitrust Laws and shall seek early termination of any waiting periods under the HSR Act, and shall seek the appropriate orders or approvals in order to consummate the Transactions.

5.6 Insurance Cooperation .

(a) Inasmuch as all insurance coverage with respect to the Business is maintained by the parent company of Seller and such coverage (the “ Parent Insurance ”) will not continue subsequent to the Closing Date, Purchaser shall make arrangements to have similar coverage provided through its own insurance policies as of the Closing Date, and Seller shall provide reasonable cooperation to Purchaser in such regard.

(b) Notwithstanding Section 5.6(a) , Seller agrees that it or one of its Affiliates, shall, with respect to any incident from which a liability of a Company arises or that relates to any damage, impairment or loss of an asset of a Company, that is potentially covered by a Parent Insurance policy in effect prior to the Closing Date, (i) report such incident to the appropriate insurer as promptly as practicable and in accordance with the terms and conditions of the Parent Insurance policy after such incident is reported to Seller, (ii) include Purchaser on material correspondence and possible litigation proceedings relating to such incident and (iii) instruct that such proceeds are paid directly to the injured party in settlement of any claims relating to such incident, rather than to Seller or one of its Affiliates, or, if such proceeds are received by Seller or any of its Affiliates, pay such proceeds over to the Company subject to such claim; provided that Purchaser shall notify Seller promptly of any potential claim, shall cooperate in the investigation and pursuit of any claim, shall have the right to effectively associate in the pursuit of any claim, including but not limited to the ability to withhold its consent to any proposed claim settlement (such consent not to be unreasonably conditioned, withheld or delayed) and shall bear all reasonable out-of-pocket expenses incurred by Seller or its Affiliates in connection with the foregoing. From time to time (but for no longer than five years following the Closing), Seller will reasonably cooperate with Purchaser upon reasonable notice and with any out-of-pocket costs borne by Purchaser to provide Purchaser with historical insurance claims information regarding the Business (including workers compensation experience) to the extent reasonably necessary to enable Purchaser and its subsidiaries to establish loss experience in establishing new insurance arrangements with new carriers.

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5.7 Cash Distributions .

Notwithstanding anything to the contrary herein, each of the parties hereto acknowledges and agrees that prior to the Closing Date, each of Dopaco US, the Dopaco US Subsidiaries, Dopaco Canada and the Dopaco Canada Subsidiaries may, at any time or from time to time, prior to the opening of business on the Closing Date, distribute all cash held by it to Seller or its designee, other than any cash held in trust established in connection with the Dopaco, Inc. Supplemental Executive Retirement Plan.

5.8 Affiliate Agreements; Intercompany Payables and Receivables .

Except to the extent otherwise provided in the next succeeding sentence, prior to the Closing Date, Seller and its Affiliates will cause all contracts or other transactions between Seller and its Affiliates (other than the Companies), on the one hand, and the Companies, on the other, with respect to which there could be further or continuing liability or obligation on the part of Purchaser or any of its Affiliates (including the Companies after the Closing) to be settled or terminated prior to the Closing Date without any further or continuing Liability on the part of Purchaser or any of its Affiliates (including Liability arising from such termination) so that no such contract or transaction remains in effect. Prior to the Closing, and subject to the proviso at the end of this sentence, Seller shall cause all intercompany receivables and payables outstanding between any Company, on the one hand, and Seller or its Affiliates (other than the Companies), on the other hand, to be satisfied and paid in full such that such intercompany receivables and payables are no longer outstanding as of the opening of business on the Closing Date, provided that this shall not apply to any receivables or payables incurred in the ordinary course of business between any Company, on the one hand, and Seller or its Affiliates (other than the Companies), on the other hand, on account of (and only on account of) (i) waste paper sales by any Company, and boxboard and corrugated box purchases by any Company, or (ii) payments by any Company to Seller on account of workers compensation claims, all of which obligations contained in clauses (i) and (ii) shall survive the Closing and be paid in the ordinary course of business. For the avoidance of doubt, accrued auditing fees shall be terminated prior to the opening of Business on the Closing Date.

5.9 Non-Competition .

For a period of two (2) years after the Closing, neither Seller nor any of its Affiliates shall, directly or indirectly, engage in any business in North America with respect to manufacturing or selling any products which are the same as any of the Products as in existence on the date hereof through and including the Closing Date in sales to customers in the Quick Service Restaurant and Food Service Distribution businesses (a “ Prohibited Business ”); provided, however, nothing in this Section 5.9 shall prohibit or prevent Seller or any of its Affiliates from:

(i) continuing to conduct any business it is currently conducting that is not part of the Business and which would constitute a Prohibited Business, provided that revenues attributed to such business shall not in any twelve month period exceed Fifteen Million Dollars ($15,000,000);

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(ii) selling boxboard used to make the Products or used to make any other items to any Person, including competitors of the Business;

(iii) owning or acquiring up to an aggregate of 10% of the ownership interest of any entity engaged in any Prohibited Business or making passive investments in the ordinary course of business in investment funds that make investments in entities engaged in any Prohibited Business, provided that, in either case, none of such Persons is active in the management or governance of such entity; or

(iv) owning or operating any Prohibited Business if such Prohibited Business was acquired as a result of a merger or other acquisition; provided , (x) the revenue generated by any Prohibited Business of such acquired entity or business for the preceding fiscal year do not account for more than 25% of the total revenues of such entity or business for such period; and (y) no later than 12 months after such acquisition, the applicable acquiring Person shall have entered into an agreement providing for a divestiture of any Prohibited Business so acquired, so that following the closing of such divestiture the activities of the entity or business so acquired will once again be in compliance with this Section 5.9 .

5.10 Exclusivity .

Seller agrees, on behalf of itself and its Affiliates, that from the date hereof until the earlier of the Closing Date and the date that this Agreement is terminated pursuant to Article IX , each such Person shall not, and shall instruct its agents, representatives and Affiliates not to, directly or indirectly (a) make available any non-public information to any third party (including via access to any data room or other records), other than Purchaser, or their agents, representatives and Affiliates with respect to the Business in connection with any Competing Business Transaction, (b) solicit, facilitate, initiate, respond to or encourage proposals, offers or inquiries from a third party, other than Purchaser, with respect to any Competing Business Transaction, (c) solicit, facilitate, initiate, respond to or participate in any negotiations or discussions with any third party, other than Purchaser, or its agents, representatives and Affiliates with respect to any Competing Business Transaction, or (d) enter into a letter of intent or other agreement or arrangement with a third party, other than Purchaser, with respect to any Competing Business Transaction. Seller and its Affiliates shall immediately upon execution hereof terminate any and all discussions, negotiations or communications involving itself or any of their respective agents, representatives, subsidiaries and Affiliates regarding any Competing Business Transaction and immediately subsequent to the receipt of a Satisfaction Notice pursuant to Section 5.12 shall request the return or destruction of any confidential or proprietary information regarding the Business Seller or its subsidiaries previously made available to any third party in connection with discussions or the evaluation of any Competing Business Transaction.

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5.11 Further Assurances .

Seller and Purchaser shall cooperate reasonably with each other and with their respective representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information, (b) execute and deliver to each other such other documents (including, but not limited to, documents to vest title of the Dopaco Stock in Purchaser and, documents reasonably required by a title company to issue a title insurance policy with the standard exceptions omitted, provided any exceptions for native land claims, original crown patents and unpatented mining claims shall not be considered standard exceptions, and a non-imputation endorsement attached thereto, which title insurance policy shall be procured at Purchaser’s expense), and (c) do such other acts and things, all as the other party may reasonably request for the purposes of carrying out the intent of this Agreement and the Transactions contemplated hereby, (including, but not limited to granting reasonable access to the Owned Real Property to Purchaser and its consultants in connection with the procurement of surveys of the Owned Real Property, which surveys shall be procured at Purchaser’s expense). Seller shall use commercially reasonable efforts to obtain all Consents prior to Closing. In the event Seller shall not have obtained one or more Company Consents on or prior to the Closing Date, Seller shall thereafter continue to use commercially reasonable efforts to obtain such Company Consents, and, to the extent permitted by Law, shall act after the Closing Date as Purchaser’s agent in order to obtain for it the benefits of the agreements with respect to which the Company Consents are required but have not yet been obtained, and shall cooperate, to the extent permitted by Law, with Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser.

5.12 Additional Due Diligence Materials .

Upon the execution and delivery hereof, Seller shall provide to Purchaser a complete and correct copy of the Additional Due Diligence Materials and shall make available appropriate members of the management team either in person or by phone in order to answer questions related to the Additional Due Diligence Materials. Within five Business Days thereafter, Purchaser shall notify Seller in writing either (i) that it is satisfied with the results of its review of the Additional Due Diligence Materials (a “ Satisfaction Notice ”), or (ii) that it is not so satisfied with the Additional Due Diligence Materials, and reasons therefor (the “ Dissatisfaction Reasons ”) which Dissatisfaction Reasons shall not include Customer Risk or relate to any due diligence materials provided to Purchaser other than the Additional Due Diligence Materials, and must be reasonable and material and set forth with reasonable particularity (a “ Dissatisfaction Notice ”). In the event Purchaser delivers a timely Satisfaction Notice, or fails timely to deliver such a Notice or a Dissatisfaction Notice, the parties shall proceed to Closing pursuant and subject to the terms of this Agreement, which terms shall not be limited by this Section 5.12 . In the event Purchaser delivers a timely Dissatisfaction Notice, then so long as it contains Dissatisfaction Reasons meeting the foregoing requirements, Purchaser shall be entitled to terminate this Agreement pursuant to Section 9.1(b)(4) , provided, however, that as a condition to doing so Purchaser must first pay to Seller a termination fee equal to two and one-half percent (2.5%) of the Purchase Price (the “ Termination Fee ”), provided further that, such Termination Fee shall not be payable if the Dissatisfaction Reason would otherwise provide Purchaser with the right to terminate the Agreement pursuant to Article IX hereof.

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5.13 Financial Statements .

(a) As soon as practicable following the date hereof, Seller shall use its commercially reasonable efforts to have prepared at Purchaser’s expense and delivered to Purchaser audited combined financial statements of the Companies prepared in accordance with GAAP for the fiscal years ended December 31, 2008, December 31, 2009 and December 31, 2010, which shall comply with Regulation S-X and Regulation S-K promulgated under the Securities Act, and which shall be accompanied by a report and opinion of PwC or another registered independent public accounting firm reasonably acceptable to Purchaser, which report and opinion shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit (the “ Audited Financial Statements ”). Seller shall instruct the accounting firm referred to in the immediately preceding sentence to undertake its audit to the standards required by the Public Company Accounting Oversight Board.

(b) As soon as practicable following the date hereof, seller shall use its commercially reasonable efforts to have prepared at Purchaser’s expense and delivered to Purchaser combined interim financial statements of the Companies prepared in accordance with GAAP for (i) each of the fiscal quarters ended March 28, 2010, June 27, 2010, September 26, 2010 (the “ Interim Reviewed Statements ”) and (ii) each fiscal quarter in 2011 ending after the date hereof and prior to the Closing Date (the “ 2011 Quarterly Statements ”), it being agreed that the 2011 Quarterly Statements for any given fiscal quarter shall be delivered to Purchaser no later than 45 days following the completion of such fiscal quarter. The Interim Reviewed Statements and the 2011 Quarterly Statements delivered to Purchaser shall be accompanied by a report from PwC stating that such reports have been reviewed in accordance with the Statement on Auditing Standards number 100.

(c) As soon as practicable following March 27, 2011, Seller shall have delivered to Purchaser management financial reports for the Companies, as of and for the three month period ended March 27, 2011 prepared in the same manner and with the same level of detail as has was provided in such management financial reports of the Companies for 2010 (the “ Management Reports ”).

(d) As soon as practicable, but in no event later than 60 days following the Closing, Seller shall use its commercially reasonable efforts to cooperate in any way reasonably requested by Purchaser to assist with the preparation and delivery to Purchaser at Purchaser’s expense of audited financial statements of the Companies prepared in accordance with GAAP for the period December 27, 2010 through and including the Closing Date, which financial statements shall comply with Regulation S-X and Regulation S-K promulgated under the Securities Act, and which shall be accompanied by a report and opinion of PwC, or an other independent certified public accountant reasonably acceptable to Purchaser, which report and opinion shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit.

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(e) If requested by Purchaser at any time prior to the first anniversary of the Closing Date, Seller shall use commercially reasonable efforts to furnish Purchaser and its financing sources as promptly as practicable (with any out of pocket third party expenses borne by Purchaser) with financial or other pertinent information regarding the Companies as may be reasonably requested by Purchaser, including financial data, audit reports, management representation letters and other information regarding the Companies of the type that would be required (A) to enable Purchaser to prepare any schedule describing the material qualitative and quantitative differences between the GAAP financial statements referred to in this Section 5.13 and financial statements as of the same dates and for the same periods prepared in accordance with International Financial Reporting Standards or (B) by Regulation S-X or Regulation S-K promulgated under the Securities Act for a registered public offering of non-convertible debt securities, to the extent the same is of the type and form customarily included in an offering memorandum for private placements of non-convertible high-yield bonds under Rule 144A promulgated under the Securities Act, or to receive from PwC (and any other accountant to the extent financial statements audited or reviewed by such accountants are or would be included in such offering memorandum) customary “comfort” (including “negative assurance” comfort), together with drafts of customary comfort letters that such independent accountants are prepared to deliver, with respect to the financial statements described in sections (a) and (b) above.

5.14 Use of “Dopaco” Name .

Seller covenants and agrees that from and following the Closing Date it shall not, directly or indirectly, use or do business under or permit any of its respective Affiliates to use or do business under the name “Dopaco” or any name or trademark confusingly similar to “Dopaco”, and, to the extent that either Dopaco LP or Dopaco Pacific is in existence following the Subsidiary Disposition, Seller shall cause the name of such entity to be changed in order to eliminate the word “Dopaco” therefrom.

5.15 Workers Compensation Claims .

Notwithstanding anything to the contrary contained in Section 5.6 hereof:

5.15.1 Subsequent to the Closing Purchaser shall, and shall cause the Companies to, use commercially reasonable efforts in defending and otherwise dealing with any workers compensation obligations of any of the Companies arising from a pre-Closing occurrence, using a standard of care consistent with the Companies’ past practices that a reasonable person would utilize in the absence of any indemnification by a third party with respect thereto, and Seller shall have a right of consultation with respect to all of the foregoing; and

5.15.2 Subsequent to the Closing, but subject to the next sentence, Purchaser shall, and shall cause the Companies to (i) with respect to all workers compensation clams arising out of occurrences prior to November 1, 2007, pay Zurich Insurance Company amounts billed by such insurance company with respect thereto, and (ii) with respect to all workers compensation clams arising out of occurrences on or subsequent to November 1, 2007 and prior to the Closing Date, pay Seller amounts billed by Seller with respect thereto, in each case contemplated in clauses (i) and (ii) in the ordinary course of business consistent with the

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past practices of the Companies. Seller shall reimburse the Companies for all amounts paid by them as contemplated in clauses (i) and (ii) in excess of an aggregate amount of $1,879,113.50, such reimbursement to be made within thirty days subsequent to the issuance to Seller by the Companies of a monthly invoice therefor, and, from and after such time as Seller is obligated to make such reimbursement payments, Seller shall cease sending invoices referred in clause (ii) of the immediately preceding sentence and the Companies shall have no payment obligation under such clause (ii). At such time following the Closing as any of the Companies, on the one hand, or Seller or one of its Affiliates, on the other, shall receive the return of any workers compensation deposit with respect to a workers compensation insurance policy in effect prior to the Closing, the receiving party (or its Affiliate) shall remit to the other party hereunder one-half (1/2) of the amount of such deposit.

5.16 Blended Contracts .

With respect to the contracts referred to in clause (s) of Section 3.10.1 , unless otherwise agreed, each of the parties hereto will use commercially reasonable efforts to (i) obtain prior to the Closing from the counterparty to each such contract (A) a new separate contract with one of the Companies for the portion of the goods or services purchased from or supplied to the Business under such contract, and (B) a new separate contract with Seller or one of its Affiliates for the portion of the goods or services purchased from or supplied to the continuing business of Seller and its Affiliates (other than the Companies), in each case upon terms and conditions substantially similar to the existing contracts or otherwise reasonably satisfactory to Purchaser and Seller, and (ii) terminate the existing contracts referred to in clause (s) of Section 3.10.1 .

5.17 Release and Substitution .

Following the date hereof, each of Seller and Purchaser shall cooperate together and use commercially reasonable efforts to cause the counterparties to each of the agreements listed on Schedule 5.17 to release Cascades Inc. as a party to such agreement (including with respect to all of its responsibilities and obligations thereunder) and to substitute Purchaser in lieu of Cascades Inc. as a party thereto (the “ Release and Substitution ”).

5.18 Employee Benefits .

5.18.1 Non-Union Employees . For a period of one (1) year following the Closing Date, except as may otherwise be agreed with any particular employee with respect to such employee, Purchaser shall cause the Companies to provide to each employee of the Companies who is not represented by a union or labor organization (each, a “ Non-Union Employee ”) compensation and employee benefits (but excluding any compensation triggered in whole or in part by the consummation of the Transactions) that are no less favorable in the aggregate to the compensation and employee benefits provided to such Non-Union Employee immediately prior to the Closing Date. Subject to the foregoing, nothing herein shall prevent the Companies from amending or terminating any employee benefit plan, program or arrangement following the Closing Date to the extent permitted under applicable Law. With respect to each benefit plan, program, practice, policy or arrangement maintained by the Companies following the Closing Date which is not a Company Plan and in which Non-Union Employees participate (the “ Purchaser Plans ”), for purposes of determining eligibility to participate, vesting and

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entitlement to benefits with respect to such Purchaser Plans service with the Companies (or predecessor employers to the extent the Companies provide past service credit) shall be treated as service with the Companies; provided however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits. Such service also shall apply for purposes of satisfying any waiting periods or evidence of insurability requirements. Each of the Purchaser Plans shall waive pre-existing condition limitations to the extent waived or not applicable under the corresponding Company Plan. Non-Union Employees shall be given credit under the applicable Purchaser Plans for amounts paid prior to the Closing Date during the year in which the Closing Date occurs under a corresponding Company Plan during the same period for purposes of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the Purchaser Plan.

5.18.2 Continuing Company Plans . As of the Closing Date, Purchaser shall cause the Companies to honor in accordance with their terms the employment, employment termination, severance and other compensation agreements, plans and arrangements (collectively, the “ Continuing Company Plans ”), in each case existing immediately prior to the execution of this Agreement; provided, however, that, subject to the limitations set forth in Section 5.18.1 , nothing herein shall prevent Purchaser from amending or terminating any Continuing Company Plan to the extent permitted under applicable Law.

5.18.3 Union Employees . With respect to employees of the Companies who are represented by a union or labor organization (the “ Union Employees ”). Purchaser agrees to cause the Companies to assume and honor all existing collective bargaining agreements between the Companies and a labor union or labor organization and provide such Union Employees with compensation and benefits as set forth in such collective bargaining agreements.

5.18.4 Assumption of Certain Post-Employment Health Insurance Benefit Liabilities . Notwithstanding anything in this Agreement to the contrary, Seller shall or shall cause one or more of its Affiliates to assume all Liabilities and, if any, Taxes, arising as a result of the provisions contained in Paragraph 3 of the R. Cauffman Employment Agreement Amendment No. 2 entitled “Extension of Post-Employment Health Insurance Benefit”, it being understood that all other Liabilities and, if any, Taxes, under or in respect of the R. Cauffman Employment Agreement, including with respect to Liabilities and, if any, Taxes, associated with health insurance benefits as in existence prior to such Amendment No. 2, are not being assumed hereunder, but shall in all respects remain the responsibility of one or more of the Companies. The foregoing Post-Employment Health Insurance Benefit shall be provided by one or more of the Companies pursuant to such Amendment No. 2, and the Liabilities and, if any, Taxes, assumed hereunder with respect thereto shall be invoiced to Seller by one or more of the Companies and Seller shall promptly pay each such invoice.

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ARTICLE VI

TAX MATTERS

6.1 Post Closing Elections .

At Seller’s request, Purchaser shall cause any of Dopaco US, the Dopaco US Subsidiaries and Dopaco Canada to make and/or join with Seller in making any Tax elections (including with regard to Dopaco Canada, an election relating to the covenant not to compete contained in Section 5.9) after the Closing Date that may relate to any taxable period ending on or before the Closing Date if the making of such election does not have an adverse impact on Purchaser, any Company or any of their Affiliates for any taxable period ending after the Closing Date. Furthermore, Purchaser shall not make any election under Section 338(g) of the Code with respect to the Companies without Seller’s prior written consent. At Purchaser’s request, Seller shall make (or cause its Affiliates to make) and/or join with Purchaser (or any of its Affiliates) in making any Tax elections if the making of such election does not have an adverse impact on Seller (or any of its Affiliates, including any Company with respect to a Pre-Closing Tax Period).

6.2 Post Closing Transactions .

Purchaser and Seller agree to report all transactions engaged in by Dopaco US or the Dopaco US Subsidiaries not in the ordinary course of business occurring on the Closing Date after the Closing on Purchaser’s federal Income Tax Return to the extent permitted by Treasury Regulation Section 1.1502-76(b)(1)(ii)(B), and Purchaser agrees to provide written notice to Seller describing any such transactions within 30 days after the Closing Date. Notwithstanding the foregoing, Purchaser agrees to indemnify Seller for any additional U.S. federal and applicable state Income Tax owed by Seller (including any additional U.S. federal and applicable state Income Tax imposed on Seller as a result of any payment described in this Section 6.2) resulting from any transaction engaged in by Dopaco US or the Dopaco US Subsidiaries not in the ordinary course of business occurring on the Closing Date after the Closing (taking into account any investment adjustment or similar item that results from such transaction or payment) other than any action contemplated by this Agreement. To the extent any amount for which Purchaser is responsible pursuant to this Section 6.2 is required to be paid after the Closing (including estimated Taxes), Purchaser shall pay such amount to Seller upon the later of (i) two (2) days following notice by Seller that such amount is or will be due and (ii) one (1) day before such amount is due to a Taxing Authority.

6.3 Preparation and Filing of Tax Returns .

6.3.1 To the extent permitted by Law, Seller shall prepare and timely file, or cause to be prepared and timely filed, in a manner consistent with the Companies’ past practices, all Tax Returns for taxable periods ending on or before the Closing Date. Except as otherwise provided under this Article VI , Seller and Purchaser agree to allocate all items accruing through the Closing Date to Dopaco US’s and the Dopaco US Subsidiaries’ taxable period ending on the Closing Date pursuant to Treasury Regulation Section 1.1502- 76(b)(l)(ii)(A)(l) (and not pursuant to the “next day” rule under Treasury Regulation Section 1.1502-76(b)(l)(ii)(B) or pursuant to the ratable allocation method under Treasury Regulation Section 1.1502-76(b)(2)(ii) or 1.1502-76(b)(2)(iii)). To the extent allowable under

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applicable Tax Law and except as otherwise provided under this Article VI , the parties will apply the same (or substantially the same) principles in allocating items of income and deduction for any similar state or local “consolidated”, “unitary”, or “combined” Income Tax Returns for all taxable periods ending on or before the Closing Date. Seller shall make or cause to be made (and shall not make and shall cause not to be made, as applicable) Tax elections (including on a protective basis) so that none of the Companies shall suffer any reduction in tax basis or other attributes pursuant to Treasury Regulations Section 1.1502-36. Seller shall not make (and shall cause not to be made) any election under Section 108(i) of the Code (or any similar provision under state, local or foreign Law) that applies to any income or deduction realized by any the Companies prior to the Closing.

6.3.2 Purchaser shall prepare and timely file, or cause to be prepared and timely filed, in a manner consistent with the Companies’ past practices, all Tax Returns for any Straddle Period.

6.3.3 Each of Seller and Purchaser shall, with respect to any Tax Return which such party is responsible hereunder for preparing and filing, or causing to be prepared and filed, make such Tax Return and related work papers available for review by the other party if the Tax Return is with respect to Taxes for which the other party or one of its Affiliates may be liable hereunder or under applicable Law. The filing party shall use its reasonable efforts to make Tax Returns available for review as required under this Section 6.3 at least thirty (30) days in advance of the due date for filing such Tax Returns to provide the non-filing party with a meaningful opportunity to analyze and comment on such Tax Returns and have such Tax Returns modified before filing. Each of Seller and Purchaser shall, and shall cause its employees to, cooperate fully, as and to the extent reasonably requested by any other party, in connection with the filing of Tax Returns. The parties shall retain all such Tax Returns, schedules and work papers and all material records and other documents relating thereto, until the expiration of the applicable statute of limitations, including any extension thereof, of the Tax period to which such Tax Returns and other documents and information relate. Each party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided. If the non-filing party objects to any item on any such Tax Return, it shall, within fifteen (15) days after delivery of such Tax Return, notify the party responsible for the preparation of such Tax Return in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection is duly delivered, the parties shall negotiate in good faith and use their reasonable best efforts to resolve such items. In the event of any disagreement that can not be resolved by the parties, such disagreement shall be resolved by an accounting firm of international reputation mutually agreeable to Seller and Purchaser (the “ Tax Arbitrator ”), and any such determination by the Tax Arbitrator shall be final. The fees and expenses of the Tax Arbitrator shall be borne equally by Seller and Purchaser. If the Tax Arbitrator does not resolve any differences between Seller and Purchaser with respect to such Tax Return at least five days prior to the due date therefor, such Tax Return shall be filed as prepared by the party preparing such Tax Return and amended to reflect the Tax Arbitrator’s resolution.

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6.4 Transfer Taxes .

All sales, use, transfer, documentary, stamp, registration, value added and other similar Taxes incurred in connection with the transfer of the Dopaco Stock to Purchaser shall be borne and paid by Purchaser when due. Purchaser shall, at its own expense, prepare and file, or cause to be prepared and filed, all Tax Returns and other documentation required to be filed with respect to any such Taxes.

6.5 Tax Indemnity .

From and after the Closing, Seller shall indemnify Purchaser and its Affiliates (including the Companies) and hold them harmless from and against all Covered Taxes and related Losses (other than any Covered Taxes actually included in Final Working Capital). Purchaser and Seller agree that the Companies shall be deemed, for the purpose of Seller’s obligations under this Section 6.5 , not to have the benefit of any net operating loss, net capital loss or other Tax attribute, credit or benefit that is attributable to, arises from or relates to any Post-Closing Tax Period. To the extent any amount for which Seller is responsible pursuant to this Section 6.5 is required to be paid after Closing (including estimated Taxes), Seller shall pay such amount to Purchaser upon the later of (i) two (2) days following notice by Purchaser that such amount is or will be due and (ii) one (1) day before such amount is due to a Taxing Authority. The indemnification made pursuant to this Section 6.5 shall not be subject to the limitations on indemnification contained in Section 7.1.1 .

6.6 Apportionment .

For purposes of this Agreement, in the case of any Taxes that are imposed on a periodic basis and payable for a Straddle Period, the portion of such Tax which relates to the Pre-Closing Tax Period shall (i) in the case of any real and personal property Taxes, be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period, and (ii) in the case of any other Tax, be deemed equal to the amount which would be payable if the relevant Straddle Period ended on the Closing Date.

6.7 Refunds .

If Purchaser or any of the Companies receives a refund (or a credit of Taxes paid in lieu of a refund) of Covered Taxes (other than to the extent such refund or credit results from the carryback of a Tax attribute relating to a Post-Closing Tax Period or the extent such refund was included in Final Working Capital), Purchaser will pay to Seller, within thirty (30) days following the receipt of such refund, an amount equal to such refund less any reasonable out-of-pocket expenses incurred in connection with obtaining such refund and less any Taxes incurred by Purchaser, its Affiliates, or any of the Companies in connection with the receipt of such refund. If Seller or any of its Affiliates receives a refund (or a credit of Taxes paid in lieu of a refund) (i) of or with respect to the any of the Companies other than in respect of Covered Taxes, (ii) attributable to the carryback of a Tax attribute relating to a Post-Closing Tax Period, or (iii) that was actually included in Final Working Capital, Seller will pay to Purchaser, within thirty

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(30) days following the receipt of such refund, an amount equal to such refund less its reasonable out-of-pocket expenses incurred in connection with obtaining such refund and less any Taxes incurred by it or its Affiliates in connection with the receipt of such refund.

6.8 Settlement of Deficiencies and Adjustments .

If any Taxing Authority issues to Purchaser, any Company or any of their Affiliates a notice of deficiency or any other type of proposed adjustment of Taxes of a Company that could give rise to Covered Taxes, Purchaser shall notify Seller within thirty (30) Business Days of receipt of the notice of deficiency or other proposed adjustment, provided that failure to give such notification shall not affect the indemnification provided pursuant to Section 6.5 except to the extent Seller shall have been actually prejudiced as a result of such failure. If any Taxing Authority issues to Seller or any of its Affiliates a notice of deficiency or any other type of proposed adjustment that could give rise to any Taxes payable by any of the Companies or any payment required by Section 6.2 or 6.5 , Seller shall notify Purchaser within thirty (30) Business Days of receipt of the notice of deficiency or other proposed adjustment provided that failure to give such notification shall not affect the indemnification provided pursuant to Section 6.2 except to the extent Purchaser shall have actually been prejudiced as a result of such failure. Except as otherwise provided herein, (i) Seller (at its own expense) shall control any Tax Proceeding to the extent such Tax Proceeding relates to a Tax Return described in Section 6.3.1 and (ii) Purchaser (at its own expense) shall control any Tax Proceeding that is not described in clause (i). In the case of any Tax Proceeding relating to a Tax Return described in Section 6.3.1 or Section 6.3.2 , the party controlling such Tax Proceeding shall (to the extent related to a Company) (i) notify the other party of significant developments with respect to such Tax Proceeding and keep the other party reasonably informed and consult with the other party as to the resolution of any issue that would materially affect such other party, (ii) give to the other party a copy of any Tax adjustment proposed in writing with respect to such Tax Proceeding and copies of any other written correspondence with the relevant Tax authority relating to such Tax Proceeding, (iii) not settle or compromise any issue without the consent of such other party, which consent shall not be unreasonably withheld and (iv) otherwise permit the other party to participate in all aspects of such Tax Proceeding, at such other party’s own expense.

6.9 Cooperation and Exchange of Information .

Seller and Purchaser shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return, amended return or claim for refund, determining a liability for Taxes or a right to refund of Taxes or in conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of all relevant Tax Returns, together with accompanying schedules and related workpapers, documents relating to rulings or other determinations by taxing authorities and records concerning the ownership and tax basis of property, which either party may possess. Each party shall make its employees available on a mutually convenient basis to provide explanation of any documents or information provided hereunder. Except as otherwise provided in this Agreement, the party requesting assistance hereunder shall reimburse the other for any reasonable out of pocket costs incurred in providing any return, document or other written information, and shall compensate the other for any reasonable costs (excluding wages and salaries) of making employees available, upon receipt of

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reasonable documentation of such costs. Any information obtained under this Section 6.9 shall be kept confidential, except as may be otherwise necessary in connection with the filing of returns or claims for refund or in conducting any audit or other proceeding. Purchaser and Seller further agree, upon request and at the cost of the requesting party, to use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

6.10 Termination of Prior Tax Sharing Agreement; Powers of Attorney .

Seller shall cause, effective as of the Closing, all tax sharing, tax allocation or other similar agreements, whether or not written, to which Seller or any of its Affiliates, on the one hand, and any of the Companies, on the other hand, is a party to be terminated and the Companies to have no further rights or obligations thereunder. Except as provided on Schedule 6.10 , Seller shall cause any and all existing powers of attorney with respect to Taxes or Tax Returns to which any the Companies is a party to be terminated as of the Closing.

6.11 Tax Covenant .

Notwithstanding anything to the contrary contained herein, during the period from the date of this Agreement until the Closing, Seller will not and will not permit any of the Companies to make or change any material Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, amend any material Tax Returns or file any claims for material Tax refunds, enter into any material closing agreement, settle any material Tax claim, audit or assessment or surrender any right to claim a material Tax refund, offset or other reduction in Tax liability, in each case, with respect to any of the Companies, provided that, with respect to the audit of Seller’s U.S. consolidated tax group that is ongoing as of the date of this Agreement and to the extent that such audit relates to any of the Companies, Seller may settle such audit with Purchaser’s prior written consent, which shall not be unreasonably withheld.

6.12 Coordination; Survival Period .

In the event of a conflict between a provision in Article VI and a provision in Article VII , the provision in Article VI shall control. Furthermore, (i) Purchaser shall be entitled to make any claim for Covered Taxes or a breach of a representation or warranty under Section 3.13 (Taxes), 3.24 (No Foreign Person) or 3.25 (Taxable Canadian Properties) exclusively in accordance with the provisions of this Article VI and not under Article VII , and (ii) notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt the representations and warranties set forth in Section 3.13 (Taxes), 3.24 (No Foreign Person) and 3.25 (Taxable Canadian Properties) shall survive until the expiration of all applicable statutes of limitations for all Covered Taxes. Notwithstanding the preceding sentence, any breach of representation or warranty under Section 3.13, 3.24 or 3.25 in respect of which indemnity may be sought under this Article VI shall survive the time at which it would otherwise terminate pursuant to the preceding sentence, if notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time.

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6.13 Treatment of Tax Indemnity Payments .

It is the intent of the parties that amounts paid under this Article VI shall represent an adjustment to the Purchase Price and (to the extent permitted by Law) the parties will report such payments consistent with such intent.

ARTICLE VII

INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES

7.1 Indemnification of Purchaser .

Seller hereby agrees to defend, indemnify, and hold harmless Purchaser, its Affiliates, and each of their respective officers, directors, stockholders, members, managers, employees, representatives, agents, successors and assigns (individually, and collectively, the “ Purchaser Indemnified Parties ”) against and in respect of any and all losses, liabilities, damages, actions, suits, proceedings, claims, demands, orders, assessments, amounts paid in settlement, fines, costs or deficiencies, including, without limitation, interest, penalties and reasonable attorneys fees and costs, including the cost of seeking to enforce the indemnity provisions hereof, whether or not arising from a third party claim, (collectively, “ Losses ”), caused by or resulting or arising from, or otherwise with respect to, (i) any inaccuracy in or any breach of any of Seller’s representations or warranties contained in this Agreement or in any other instrument or other document delivered pursuant hereto, (ii) any breach of or any failure to perform or comply with any of Seller’s covenants contained in this Agreement, (iii) any liability or obligation of any Company, whether asserted prior to or following the Closing, arising from any act or omission prior to the Closing that did not occur as part of, or in a manner reasonably related to, the conduct of the Business, (iv) any liability or obligation arising in connection with the Specified Litigation or otherwise arising under Environmental Requirements in connection with properties or facilities formerly owned, leased or used in connection with the Business, and (v) any liability or obligation arising in connection with the Specified Dispute; provided, however , that in each case Losses shall be calculated net of any indemnification recovered from third parties and insurance proceeds.

7.1.1 Claim Threshold; Materiality; Time Within Which Claim Must be Asserted; Limitation on Amounts to be Paid . Notwithstanding anything to the contrary contained herein, Seller shall not be liable to Purchaser Indemnified Parties with respect to a claim for indemnification under clause (i) of Section 7.1 : (i) until such time as the aggregate of all amounts otherwise indemnifiable exceeds an aggregate threshold amount hereunder of [REDACTED] (the “ Basket Amount ”), at which time all such amounts shall be indemnifiable hereunder, excluding the Basket Amount, up to an aggregate maximum indemnity amount hereunder of [REDACTED] (the “ General Indemnity Cap ”), except that the foregoing limitations shall not apply (A) to claims respecting the representations and warranties set forth in Sections 3.1 (Approval of Agreement and Transaction), 3.2 (Seller’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions), 3.3 (The Companies’ Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions), 3.5 (Capital Structure; No Liens), 3.11 (No Governmental Authority Restrictions); and 3.21 (No Investment Banker’s, Broker’s or Finder’s Fees) for which, however, in no event shall Seller’s obligations for indemnification with respect to the representations and warranties

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identified in this Section 7.1.1(i)(A) exceed the Purchase Price, or (B) to claims for fraud; and (ii) unless such claim is asserted in writing on or prior to the date on which the survival of the representation or warranty at issue expires pursuant to Section 7.4 (the “ Survival Expiration Date ”).

7.2 Indemnification of Seller .

Purchaser hereby agrees to defend, indemnify, and hold harmless Seller, its Affiliates, and each of their respective officers, directors, stockholders, members, managers, employees, representatives, agents, successors and assigns (individually, and collectively, the “ Seller Indemnified Parties ”) against and in respect of any and all Losses caused by or resulting or arising from, or otherwise with respect to, (i) any inaccuracy in or any breach of any of Purchaser’s representations or warranties contained in this Agreement or in any other instrument or other document delivered pursuant hereto, (ii) any breach of or any failure to perform or comply with any of Purchaser’s covenants contained in this Agreement, and (iii) any Losses resulting from the inability to obtain any Release and Substitution.

7.2.1 Claim Threshold; Materiality; Time Within Which Claim Must be Asserted; Limitation on Amounts to be Paid . Notwithstanding anything to the contrary contained herein, Purchaser shall not be liable to Seller Indemnified Parties with respect to a claim for indemnification hereunder under clause (i) of Section 7.2 (i) until such time as the aggregate of all amounts otherwise indemnifiable hereunder exceeds the Basket Amount, at which time all such amounts shall be indemnifiable hereunder, excluding the Basket Amount, up to the General Indemnity Cap, except that the foregoing limitations shall not apply (A) to claims respecting breaches of the representations and warranties set forth in Section 4.1 (Approval of Agreement and Transaction), 4.2 (Purchaser’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions), 4.3 (No Governmental Authority Restrictions) and 4.4 (No Investment Banker’s, Broker’s or Finder’s Fees), for which, however, in no event shall Purchaser’s obligations for indemnification with respect to the representations and warranties identified in this Section 7.2.1(i)(A) exceed the Purchase Price, or (B) to claims for fraud; and (ii) unless such claim is asserted in writing on or prior to the Survival Expiration Date.

7.3 Indemnification Procedure .

All claims for indemnification under Sections 7.1 and 7.2 hereof shall be asserted and resolved as set forth in this Section 7.3 :

7.3.1 In the event that any claim for which a party (the “ Indemnifying Party ”) may be liable to the other party (the “ Indemnified Party ”) hereunder (a “ Claim ”) is asserted against an Indemnified Party by a third party, the Indemnified Party shall with reasonable promptness (but subject to Section 7.3.3 ) notify the Indemnifying Party of such Claim, specifying the nature of such Claim and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such Claim) (the “ Claim Notice ”). The Indemnifying Party shall have 30 days from the receipt of the Claim Notice (the “ Notice Period ”) to notify the Indemnified Party (i) whether or not the Indemnifying Party disputes the Indemnifying Party’s liability to the Indemnified Party hereunder with respect to such Claim and (ii) whether or not the Indemnifying Party desires, at

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the sole cost and expense of the Indemnifying Party, to defend against such Claim. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that the Indemnifying Party desires to defend the Indemnified Party against such Claim, the Indemnifying Party shall have the right to defend by appropriate proceedings, which proceedings shall be promptly settled or defended by the Indemnifying Party to a final conclusion. Notwithstanding the foregoing, an Indemnified Party shall have the right to assume the defense and employ separate counsel, reasonably acceptable to the Indemnifying Party, of any Claim in which the parties (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party or that there may be legal defenses available to such Indemnified Party that are different from or in addition to those available to the Indemnifying Party, and the Indemnifying Party shall be liable, in such action or substantially similar but related actions, for the fees and expenses of one separate firm of attorneys (in addition to any local counsel) for the Indemnified Party. The Indemnifying Party, in the circumstances contemplated in the immediately preceding sentence, may not settle any Claim without the consent of the Indemnified Party, which consent may not be unreasonably withheld. If the Indemnified Party desires to participate in, but not control, any such defense or settlement the Indemnified Party may do so at the Indemnified Party’s sole cost and expense. If the Indemnifying Party elects not to defend the Indemnified Party against such Claim, whether by not giving the Indemnified Party timely notice as provided above or otherwise, then the Indemnified Party, without waiving any rights against the Indemnifying Party, may settle or defend against any such Claim in the Indemnified Party’s sole discretion and, if it is ultimately determined that the Indemnifying Party is responsible therefor under this Article VII , then the Indemnified Party shall be entitled to recover from the Indemnifying Party the amount of any settlement or judgment and all indemnifiable costs and expenses of the Indemnified Party with respect thereto. If the Indemnifying Party has defended or settled any such Claim and it is ultimately determined that the Indemnifying Party is not responsible therefor under this Article VII , the Indemnified Party shall promptly pay to the Indemnifying Party the amount of the judgment or settlement paid by the Indemnifying Party and all defense costs, including reasonable attorneys fees. Except with the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed, no Indemnifying Party, in the defense of any Claim, shall consent to entry of any judgment or order, interim or otherwise, or enter into any settlement that (i) would lead to liability or create any financial or other obligation on the part of the Indemnified Party, (ii) does not contain, as an unconditional term thereof, the release of the Indemnified Party from all liability in respect of such Claim or such Claim is not dismissed against the Indemnified Party with prejudice and without the imposition of any financial or other obligation on the Indemnified Party or (iii) admits the liability or fault of the Indemnified Party.

7.3.2 In the event the Indemnified Party should have a Claim against the Indemnifying Party hereunder which does not involve a Claim being asserted against or sought to be collected by a third party, the Indemnified Party shall with reasonable promptness (but subject to Section 7.3.3 ) send a Claim Notice with respect to such claim to the Indemnifying Party. The Indemnifying Party shall notify the Indemnified Party in writing within the Notice Period that the Indemnifying Party accepts or disputes such Claim. If the Indemnifying Party disputes any such Claim and the parties thereto are unable to resolve the dispute within twenty (20) days, the dispute shall be resolved pursuant to the resolution procedures set forth in Section 10.6 hereof.

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7.3.3 Nothing herein shall be deemed to prevent the Indemnified Party from making a Claim hereunder for contingent Claims provided the Claim Notice sets forth the specific basis for any such contingent Claim to the extent then feasible and the Indemnified Party has reasonable grounds to believe that such a Claim may be made, and the Indemnified Party sets forth with reasonable detail the basis for such belief, provided that if no such Claim is in fact made within one year after the contingent Claim relating thereto is made, such Claim shall not be qualified for indemnification hereunder (it being agreed that this proviso shall not apply with respect to any Claim arising from a third party Claim that remains unresolved as of such one year anniversary date). The Indemnified Party’s failure to give reasonably prompt notice under Section 7.3.1 or 7.3.2 to the Indemnifying Party of any actual, threatened or contingent Claim which may give rise to a right of indemnification hereunder shall not relieve the Indemnifying Party of any liability which the Indemnifying Party may have to the Indemnified Party except to the extent the failure to give such notice materially and adversely prejudiced the Indemnifying Party.

7.3.4 In connection with any Claim, the Indemnified Party shall give the Indemnifying Party reasonable access to the books, records and assets of the Indemnified Party which relate to the act, omission or occurrence giving rise to such Claim and the right, upon prior notice during normal business hours, to interview any appropriate personnel of the Indemnified Party with respect thereto and the Indemnified Party otherwise shall cooperate with the Indemnifying Party (and with its insurance company, if applicable) in defending a Claim, provided that the provisions of this Section 7.3.4 shall not govern in the event of a Claim being asserted directly between an Indemnified Party and an Indemnifying Party.

7.4 Survival of Representations and Warranties .

The representations and warranties of the parties contained herein shall survive for a period of [REDACTED] months from and after the Closing Date and shall not survive beyond such period, provided that the representations and warranties set forth in (i) Section 3.22 (Environmental Matters) shall survive for a period of [REDACTED] months after the Closing Date and shall not survive beyond such period, and (ii) Section 3.1 (Approval of Agreement and Transaction), 3.2 (Seller’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions), 3.3 (The Companies’ Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions), 3.5 (Capital Structure; No Liens), 3.11 (No Governmental Authority Restrictions), 3.18 (Employee Benefits) 3.21 (No Investment Banker’s, Broker’s or Finder’s Fees), 4.2 (Purchaser’s Existence and Good Standing; Authority; Binding Obligation; No Conflicts or Restrictions), 4.3 (No Governmental Authority Restrictions) and 4.4 (No Investment Banker’s, Broker’s or Finder’s Fees) shall survive until the expiration of any applicable statute of limitations and shall not survive beyond such period. Notwithstanding anything to the contrary contained herein, the survival of the representations and warranties set forth in Sections 3.13 (Taxes), 3.24 (No Foreign Person) and 3.25 (Taxable Canadian Properties) shall be governed by Section 6.12 .

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7.5 Treatment of Indemnity Payments .

It is the intent of the parties that amounts paid under this Article VII shall represent an adjustment to the Purchase Price and (to the extent permitted by Law) the parties will report such payments consistent with such intent.

7.6 Sole and Exclusive Remedy .

Purchaser and Seller acknowledge and agree (on behalf of themselves and their Affiliates) that from and after the Closing, their sole and exclusive remedy with respect to any and all claims for monetary relief relating to or arising out of the subject matter of this Agreement shall be pursuant to the provisions of Article VI and this Article VII .

ARTICLE VIII

CLOSING CONDITIONS

8.1 Conditions to Purchaser’s Obligations .

The obligation of Purchaser to purchase the Dopaco Stock from Seller pursuant to this Agreement is subject to the satisfaction prior to or on the Closing Date of the following conditions, any of which may be waived in whole or in part in writing by Purchaser:

8.1.1 The representations and warranties of Seller contained herein (except those representations and warranties which are no longer true and correct as a result of the Subsidiary Disposition and, if it shall have occurred prior to the Closing, the Union Packaging Sale, and except as otherwise provided with respect to Section 3.7 in the final proviso in this Section 8.1.1 ) shall be true and correct, in all material respects, as of the Closing Date with the same effect as though made on the Closing Date, (provided that by their terms the representations and warranties set forth in Section 3.26 shall continue to be true and correct, in all material respects, as of the date of the execution and delivery hereof), and provided further that the representations and warranties of Seller contained in Section 3.7 need not be true and correct in all material respects, so long as such failure does not constitute a Material Adverse Effect (but in no event shall this proviso affect the rights of any of the Purchaser Indemnified Parties with respect to Section 3.7 pursuant to the provisions of Section 7.1 (i) ), and Seller shall have delivered to Purchaser a certificate, dated the Closing Date, to such effect.

8.1.2 Seller shall have complied with all agreements, obligations and covenants contained herein, in all material respects, and Seller shall have delivered to Purchaser a certificate, dated the Closing Date, to such effect.

8.1.3 All applicable periods under the HSR Act shall have expired without any indication by the Department of Justice or the Federal Trade Commission that either of them intends to challenge the Transactions, or early termination thereof, if requested, shall have been granted. Purchaser shall have received an advance ruling certificate under section 102 of the Competition Act in respect of the Transactions or (i) the waiting period under section 123 of the Competition Act shall have expired or been terminated, or the obligations to submit a notification under Part IX of the Competition Act shall have been waived under paragraph 113(c)

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of Competition Act and (ii) Purchaser shall have received a written letter from the Commissioner of Competition, or any person duly authorized by the Commissioner of Competition for such purposes, confirming that she does not, at that time, have grounds upon which to apply to the Competition Tribunal under section 92 of the Competition Act in respect of the Transactions.

8.1.4 Purchaser shall have received the Boxboard Supply Agreement and the Corrugated Boxes Supply Agreement, each duly executed and delivered by all of the parties thereto (other than Purchaser).

8.1.5 All approvals and consents and notices specified in Schedules 3.2.2 and 3.11 shall have been obtained or made, which approvals, consents and notices shall be in effect on the Closing Date.

8.1.6 On the Closing Date, there shall be no suit, action or other proceeding, or Order of any nature issued by a Governmental Authority directing that the Transactions provided for herein not be consummated as herein provided and no proceeding or lawsuit shall have been commenced or threatened by or before any Governmental Authority with respect to any of the Transactions.

8.1.7 Seller shall have delivered to Purchaser or its representatives (a) copies of the Articles of Incorporation, Certificates of Organization and Certificates of Formation, as applicable, of the Companies certified as of a recent date by the appropriate Secretary or Department of State or the appropriate Canadian Governmental Authority, and Bylaws, Limited Liability Company Agreements and Limited Partnership Agreements (including all amendments thereto), as applicable, of each of the Companies certified by the Secretary or other appropriate officer of the respective Company, and (b) certificates from the Secretary of State of Delaware, the Pennsylvania Department of State and the appropriate Canadian Governmental Authority as well as of all states and provinces in which each of the Companies is qualified to do business, as of a recent date, to the effect that each such Company is in good standing in its jurisdiction of incorporation, organization or formation, as applicable, and in any state or province where it is qualified to do business.

8.1.8 On the Closing Date, there shall have been no uncured Material Adverse Change since the date hereof, and Seller shall have delivered to Purchaser a certificate, dated the Closing Date, to such effect.

8.1.9 Purchaser shall not have cause to terminate this Agreement pursuant to the terms of Section 5.12 .

8.1.10 Seller shall have delivered to Purchaser written resignations of such directors of the Companies as may be designated by Purchaser no fewer than 10 days prior to the Closing.

8.1.11 Seller shall have delivered to Purchaser a statement, meeting the requirements of Section 1.1445-2(b) of the Treasury Regulations, to the effect that Seller is not a “foreign person within the meaning of Section 1445 of the Code and the Treasury Regulations thereunder.”

– 60 –

8.1.12 Seller shall have caused The Bank of Nova Scotia, as agent under that certain Credit Agreement, dated as of December 29, 2006, by and among Cascades Inc., Seller, Cascades Europe SAS, Cascades Arnsberg Gmbh, The Bank of Nova Scotia, as administrative agent and collateral agent, National Bank of Canada, as co-administrative agent, and the lenders from time to time a party thereto (the “ Cascades Credit Agreement ”), to (i) release any and all security interests, Liens, mortgages, deeds of trust, claims or other encumbrances of any kind on the Dopaco Stock and the assets of any Company securing the indebtedness evidenced by the Cascades Credit Agreement and (ii) release each Company, as applicable, as a guarantor thereunder such that no Company shall have any further obligation in respect of such Indebtedness.

8.1.13 Seller shall have caused the [REDACTED] to be repaid in full in cash and all obligations of the Companies with respect thereto to be released in full pursuant to the HOC Termination Documents.

8.1.14 Seller shall have effected the Subsidiary Disposition.

8.1.15 The Audited Financial Statements, the Interim Reviewed Statements and the Management Reports shall have been delivered to Purchaser in accordance with Section 5.13 .

8.2 Conditions to Seller’s Obligations .

The obligation of Seller to sell the Dopaco Stock to Purchaser pursuant to this Agreement is subject to the satisfaction prior to or on the Closing Date of the following conditions, any of which may be waived in writing in whole or in part by Seller:

8.2.1 The representations and warranties of Purchaser contained herein shall be true and correct, in all material respects, as of the Closing Date with the same effect as though made on the Closing Date, and Purchaser shall have delivered to Seller a certificate, dated the Closing Date, to such effect.

8.2.2 Purchaser shall have complied with all agreements, obligations and covenants contained herein, in all material respects, and Purchaser shall have delivered to Seller a certificate, dated the Closing Date, to such effect.

8.2.3 All applicable periods under the HSR Act shall have expired without any indication by the Department of Justice or the Federal Trade Commission that either of them intends to challenge the Transactions, or early termination thereof, if requested, shall have been granted. Purchaser shall have received an advance ruling certificate under section 102 of the Competition Act in respect of the Transactions or (i) the waiting period under section 123 of the Competition Act shall have expired or been terminated, or the obligations to submit a notification under Part IX of the Competition Act shall have been waived under paragraph 113(c) of Competition Act and (ii) Purchaser shall have received a written letter from the Commissioner of Competition, or any person duly authorized by the Commissioner of Competition for such purposes, confirming that she does not, at that time, have grounds upon which to apply to the Competition Tribunal under section 92 of the Competition Act in respect of the Transactions.

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8.2.4 All approvals and consents specified in Schedules 4.2.2 and 4.3 shall have been obtained, which consents and approvals shall be in effect on the Closing Date.

8.2.5 Seller shall have received the Boxboard Supply Agreement and the Corrugated Boxes Supply Agreement, each duly executed and delivered by all of the parties thereto (other than Seller).

8.2.6 On the Closing Date, there shall be no suit, action or other proceeding, or Order of any nature issued by a Governmental Authority directing that the Transactions provided for herein not be consummated as herein provided and no proceeding or lawsuit shall have been commenced or threatened by or before any Governmental Authority with respect to any of the Transactions.

ARTICLE IX

TERMINATION

9.1 Termination .

This Agreement and the Transactions may be terminated at any time prior to the Closing Date:

(a) by mutual written consent of the parties hereto;

(b) by Purchaser, if (1) Seller fails to comply in any material respect with any of its respective covenants or agreements contained herein following demand therefor, (2) any of the representations and warranties of Seller set forth in Article III hereof is breached or is inaccurate in any material respect and is not cured within the lesser of 30 days after demand therefor and the number of days remaining until the Outside Date, (3) there shall be on the Closing Date an uncured Material Adverse Change since the execution and delivery hereof; provided, however, that Purchaser may not terminate this Agreement pursuant to this Section 9.1(b) if Purchaser has, prior to the notice of termination, breached in any material respect any of its representations, warranties or obligations under this Agreement, or (4) it shall be entitled to do so pursuant to the provisions of Section 5.12 ;

(c) by Seller, if (1) Purchaser fails to comply in any material respect with any of its respective covenants or agreements contained herein following demand therefor, or (2) any of the representations and warranties of Purchaser set forth in Article IV hereof is breached or is inaccurate in any material respect and is not cured prior to the Outside Date after demand therefor; provided, however, that Seller may not terminate this Agreement pursuant to this Section 9.1(c) if Seller has, prior to the notice of termination, breached in any material respect any of its representations, warranties or covenants under this Agreement; and

(d) by either Purchaser or Seller (provided such party seeking to terminate is not at such time in material default of its obligations hereunder), at any time after June 30, 2011 (the “ Outside Date ”), if the Closing shall not have occurred on or prior to such date; provided, however, that no party may terminate this Agreement pursuant to this Section 9.1(d) if the failure of the Closing to occur on such date is caused by any material breach of any of such party’s representations, warranties or covenants under this Agreement.

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(e) In the event of termination of this Agreement pursuant to Section 9.1(b) , (c) or (d) , the party entitled to terminate shall provide written notice to the other party and this Agreement shall terminate and the Transactions shall be abandoned without further action by any party. Each of the terminating party or the other party may pursue all rights it may have at law or in equity against the other party hereto in the event of termination under Section 9.1(b) , (c) or (d) .

ARTICLE X

MISCELLANEOUS

10.1 Notices .

All notices, requests and other communications to any party hereunder shall be in writing (including telecopier, electronic mail or similar writing) and shall be given to such party at its address, telecopier number or electronic mail address set forth below, or such other address, telecopier number or electronic mail address as such party may hereinafter specify for the purpose to the party giving such notice. Each such notice, request or other communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 10.1 and the appropriate electronic confirmation is received, or (b) if given by overnight mail, electronic mail or by any other means, when delivered at the address specified in this Section 10.1 .

If to Seller:

Cascades USA Inc.

404, rue Marie Victorin

C.P. 30

Kingsey Falls

Québec J0A1B0

Canada

Attn: Mr. Robert F. Hall

Tel: 819-363-5116

Telecopy: 819-363-5127

Email: rhall@cascades.com

with a copy (which shall not constitute notice) to:

K&L Gates LLP

599 Lexington Avenue

New York, New York 10022

Attn: Sandy K. Feldman, Esq.

Tel: 212-536-4089

Telecopy: 212-536-3901

Email: sandy.feldman@klgates.com

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If to Guarantor:

Cascades Inc.

404, rue Marie Victorin

C.P. 30

Kingsey Falls

Québec J0A1B0

Canada

Attn: Mr. Robert F. Hall

Tel: 819-363-5116

Telecopy: 819-363-5127

Email: rhall@cascades.com

with a copy (which shall not constitute notice) to:

K&L Gates LLP

599 Lexington Avenue

New York, New York 10022

Attn: Sandy K. Feldman, Esq.

Tel: 212-536-4089

Telecopy: 212-536-3901

Email: sandy.feldman@klgates.com

If to Purchaser:

Reynolds Group Holdings Limited

1900 West Field Court

Lake Forest, Illinois 60045

Attn: Mr. Joseph E. Doyle, Esq., General Counsel

Tel: 847-482-2409

Telecopy: 847-615-6417

Email: jdoyle@pactiv.com

with a copy (which shall not constitute notice) to:

Debevoise & Plimpton

919 Third Avenue

New York, New York 10022

Attn: Kevin M. Schmidt, Esq.

Tel: 212-909-6000

Telecopy: 212-909-6836

Email: kmschmidt@debevoise.com

10.2 Entire Agreement .

This Agreement together with each Schedule and Exhibit, and the other agreements and documents executed and delivered in connection herewith and therewith,

– 64 –

constitutes the entire agreement by and among the parties concerning the purchase of the Dopaco Stock by Purchaser and supersedes any prior understandings, agreements or representations by or between the parties, written or oral, to the extent they have related in any way to the subject matter hereof. Information disclosed in a Schedule of Seller annexed hereto shall constitute a disclosure for the specific section referenced therein and any other section hereof to the extent the applicability of such cross reference is reasonably apparent. Any and all duties and obligations which Seller may have to Purchaser or which Purchaser may have to Seller with respect to or in connection with this Agreement, or the Transactions are limited to those set forth in or entered into in connection with this Agreement and the Transactions. Neither the duties nor obligations of any party, nor the rights of any party hereto, shall be expanded beyond the terms of this Agreement or any other agreement entered into in connection therewith or otherwise in connection with the Transactions on the basis of any legal or equitable principle or on any other basis whatsoever. Neither any equitable nor legal principle nor any implied obligation of good faith or fair dealing nor any other matter requires any party hereto to incur, suffer or perform any act, condition or obligation contrary, or in addition, to the terms of this Agreement, whether or not existing and whether foreseeable or unforeseeable.

10.3 Amendments and Modifications .

This Agreement may be amended or modified only by an instrument in writing duly executed by the parties hereto. This Agreement (or any provision hereof) may not be waived except pursuant to a writing executed by the waiving party. The representations and warranties of the Seller on the one hand, and the Purchaser, on the other hand, that are contained in this Agreement (as brought down on the applicable Closing Date) shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Purchaser or the Seller, as the case may be (including but not limited to by any of their advisors, consultants or representatives), or by reason of the fact that the Purchaser or the Seller, as the case may be, or any of their respective advisors, consultants or representatives knew or should have known that any such representation or warranty is or might be inaccurate; provided that if Purchaser or Seller asserts a post-Closing claim for fraud as contemplated by Article VII , this sentence shall be disregarded for purposes of allowing Seller to defend such claim.

10.4 Successors and Assigns .

All the terms and conditions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto. No party may assign any of its rights, benefits, interests or obligations under this Agreement without the prior written consent of Seller, in the case of Purchaser, and Purchaser, in the case of Seller, provided that Purchaser may designate one or more of its Affiliates to purchase the Dopaco Stock (any such designated person, a “ Purchasing Entity ”) or assign to them any other rights or obligations contained herein, provided further that Purchaser will remain liable for the obligations so assigned. Each Purchasing Entity will be deemed Purchaser in respect of such Dopaco Stock and (subject to the other provisions of this Agreement) any such Dopaco Stock will be transferred by Seller directly to such Purchasing Entity and each Purchasing Entity shall pay the portion of the Purchase Price to Seller that corresponds to the allocation to such Dopaco Stock contemplated under Section 2.2 (as adjusted by Section 2.4 ). Appropriate reconciliation payments shall be made between the relevant Purchasing Entity and Seller to reflect the final adjusted Purchase Price.

– 65 –

10.5 No Third Party Beneficiaries; Binding Effect .

Except as otherwise specifically provided herein (including, without limitation, Article VII ), nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto, their respective successors and assigns or any Purchasing Entity designated by Purchaser in accordance with Section 10.4 , any rights, remedies, obligations, or Liabilities under or by reason of this Agreement, provided that, to the extent reasonably permitted, Purchaser shall act as agent for any Purchasing Entity in connection with its enforcement of any rights hereunder. This Agreement shall inure to the benefit of, and be binding upon, the parties and their respective heirs, legal representatives, successors, permitted assigns and any Purchasing Entity designated by Purchaser in accordance with Section 10.4 .

10.6 Governing Law; Jurisdiction .

This Agreement shall be governed by and construed in accordance with the Laws of the State of New York without regard to the Law of the conflicts of law of such State. The parties consent to the exclusive jurisdiction of the United States District Court for the Southern District of New York in connection with any civil action concerning any controversy, dispute or claim arising out of or relating to this Agreement, or any other agreement contemplated by, or otherwise with respect to, this Agreement or the breach hereof, unless such court would not have subject matter jurisdiction thereof, in which event the parties consent to the exclusive jurisdiction of the Supreme Court of the State of New York, County of New York.

10.7 Specific Performance .

Each of Purchaser and Seller acknowledges and agrees that: (a) Seller would be irreparably injured in the event of a breach by Purchaser of its obligations to close the Transactions (or any other of its obligations) hereunder (a “ Purchaser Breach ”), and Purchaser would be irreparably injured in the event of a breach by Seller of its obligations to close the Transactions (or any other of its obligations) hereunder (a “ Seller Breach ”); (b) monetary damages would not be an adequate remedy for Seller, in the event of a Purchaser Breach, or Purchaser, in the event of a Seller Breach; and (c) Seller, in the event of a Purchaser Breach, and Purchaser, in the event of a Seller Breach, shall be entitled to seek injunctive relief with respect thereto (without posting of a bond), in addition to any other remedy that it may have in equity or at law.

10.8 Severability .

If one or more provisions of this Agreement are held to be unenforceable under applicable Law, such provision or provisions shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision or provisions were so excluded and shall be enforceable in accordance with its terms.

– 66 –

10.9 Titles and Subtitles .

The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

10.10 Expenses .

Except as the parties may otherwise agree in writing or as otherwise provided herein, Purchaser and Seller shall bear their own respective fees, costs and expenses (including attorneys’ and accountants’ fees) in connection with this Agreement and the Transactions (whether consummated or not). For the avoidance of doubt, (i) none of such expenses or any other fees, costs or expenses incurred in connection with a contemplated sale of the Companies shall be an obligation of any of the Companies at or subsequent to the Closing (other than any fees, costs or expenses of Purchaser that Purchaser may transfer to the Companies at or subsequent to the Closing) and Seller shall retain and discharge all such amounts, and (ii) this Section 10.10 shall not apply to Transfer Taxes, which are governed under Section 6.4 .

10.11 Counterpart; Facsimile or PDF Signatures .

This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be delivered by facsimile or PDF, and such facsimile and PDF signatures shall be treated as original signatures for all applicable purposes.

10.12 Guarantee .

Guarantor hereby irrevocably and unconditionally guarantees the due and punctual payment and the performance of all of Seller’s obligations pursuant to this Agreement (the “ Obligations ”). The Obligations under this guaranty are absolute and unconditional, are not subject to any counterclaim, setoff, deduction, abatement or defense based upon any claim Seller may have against Purchaser (other than those that would be available to Seller hereunder if a claim had been asserted against Seller rather than Guarantor), and shall remain in full force and effect without regard to (i) any agreement or modification to any of the terms of this Agreement; (ii) any exercise, non-exercise or waiver by Purchaser of any right, power, privilege or remedy under or in respect of this Agreement; (iii) any insolvency, bankruptcy, dissolution, liquidation, reorganization or the like of Seller or Guarantor at any time or (iv) absence of any notice to, or knowledge by, Guarantor of the existence or occurrence of any of the matters or events set forth in the foregoing subdivisions (i) through (iii). Guarantor unconditionally waives (i) any and all notice of default, non-performance or non-payment by Seller, in each case, to the extent notice of same has been provided to Seller in accordance with this Agreement, (ii) all notices which may be required by statute, rule of law or otherwise to preserve intact any rights of Purchaser against Guarantor, including, without limitation, any demand, presentment or protest, or proof of notice of non-payment under this Agreement, and (iii) any right to the enforcement, assertion or exercise by Purchaser of any right, power, privilege or remedy conferred in this Agreement or otherwise.

– 67 –

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


SELLER:

CASCADES USA INC.

By:		/s/ Louise Paul
Name:		Louise Paul
Title:		Assistant Secretary

PURCHASER:

REYNOLDS GROUP HOLDINGS LIMITED

By:		/s/ Helen Golding
Name:		Helen Golding
Title:		Authorized Signatory

GUARANTOR (solely with respect to Section 10.12 ):

CASCADES INC.

By:		/s/ Alain Lemaire
Name:		Alain Lemaire
Title:		President, Chief Executive Officer

Exhibit 10.3

EXECUTION VERSION

L IMITED L IABILITY C OMPANY A GREEMENT

G REENPAC H OLDING LLC

TABLE OF CONTENTS


		Page

ARTICLE I DEFINITIONS			1

S ECTION 1.1	D EFINITIONS		1

ARTICLE II THE COMPANY			12

S ECTION 2.1	F ORMATION		12
S ECTION 2.2	N AME OF C OMPANY		13
S ECTION 2.3	B USINESS OF THE C OMPANY		13
S ECTION 2.4	P RINCIPAL P LACE OF B USINESS		13
S ECTION 2.5	R EGISTERED O FFICE ; R EGISTERED A GENT		13
S ECTION 2.6	T ERM		13
S ECTION 2.7	E NTITY D ECLARATION		13
S ECTION 2.8	T AX C LASSIFICATION OF THE C OMPANY		13
S ECTION 2.9	A DOPTION OF THIS A GREEMENT		14
S ECTION 2.10	T ITLE TO C OMPANY P ROPERTY		14

ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS			14

S ECTION 3.1	I N G ENERAL		14
S ECTION 3.2	C ONFIDENTIALITY		15
S ECTION 3.3	F INANCIAL I NFORMATION		16
S ECTION 3.4	T AXES		16
S ECTION 3.5	C ONTINGENT C REDIT S UPPORT		16

ARTICLE IV CONTRIBUTIONS			17

S ECTION 4.1	C APITAL C OMMITMENTS		17
S ECTION 4.2	I NITIAL C APITAL C ONTRIBUTIONS , C APITAL C ALLS		17
S ECTION 4.3	C APITAL C ALLS IN E XCESS OF C APITAL C OMMITMENTS		19
S ECTION 4.4	A LTERNATIVE F UNDING IN E VENT OF AN E XCESS F UNDING D EFAULT		21
S ECTION 4.5	C ONSEQUENCES OF E XCESS F UNDING D ECLINATION		21
S ECTION 4.6	C ONTRIBUTIONS P URSUANT TO C ONTRIBUTION A GREEMENT		22
S ECTION 4.7	R ETURN OF C APITAL		22
S ECTION 4.8	I NTEREST ON C APITAL C ONTRIBUTIONS		23
S ECTION 4.9	F RACTIONAL U NITS		23

ARTICLE V CAPITAL ACCOUNTS			23

S ECTION 5.1	M AINTENANCE OF C APITAL A CCOUNTS		23
S ECTION 5.2	E FFECT OF T RANSFER ON C APITAL A CCOUNTS		24
S ECTION 5.3	C OMPLIANCE WITH S ECTION 704( B ) OF THE C ODE		24
S ECTION 5.4	N O N EGATIVE C APITAL A CCOUNT R ESTORATION		24

ARTICLE VI ALLOCATIONS			24

S ECTION 6.1	A LLOCATIONS OF P ROFIT AND L OSS		24
S ECTION 6.2	S PECIAL A LLOCATIONS		25
S ECTION 6.3	C URATIVE A LLOCATIONS		26
S ECTION 6.4	L OSS L IMITATION		27


S ECTION 6.5	O THER A LLOCATION R ULES	27
S ECTION 6.6	T AX A LLOCATIONS : C ODE S ECTION 704( C )	27

ARTICLE VII DISTRIBUTIONS		28

S ECTION 7.1	D ISTRIBUTIONS	28
S ECTION 7.2	L IMITATION ON D ISTRIBUTIONS	28
S ECTION 7.3	T AX D ISTRIBUTION	29
S ECTION 7.4	A MOUNTS W ITHHELD	29
S ECTION 7.5	P RIORITY OF , AND L IMITATIONS ON , D ISTRIBUTIONS	29
S ECTION 7.6	O FFSET	30
S ECTION 7.7	S ALE OF THE C OMPANY OR ITS A SSETS	30
S ECTION 7.8	R EFINANCING OF I NDEBTEDNESS	30

ARTICLE VIII MANAGEMENT OF THE COMPANY; ROLE OF MEMBERS		31

S ECTION 8.1	M ANAGEMENT	31
S ECTION 8.2	B OARD OF M ANAGERS	33
S ECTION 8.3	P OWERS OF I NDIVIDUAL M EMBERS AND M ANAGERS	33
S ECTION 8.4	C ONFLICTS OF I NTEREST	34
S ECTION 8.5	D UTIES AND O BLIGATIONS OF THE M ANAGERS	35
S ECTION 8.6	I NDEPENDENT M ANAGER	36

ARTICLE IX MEETINGS OF MANAGERS		37

S ECTION 9.1	M EETINGS OF THE B OARD OF M ANAGERS	37
S ECTION 9.2	N OTICE OF M EETINGS	37
S ECTION 9.3	Q UORUM AND M ANNER OF A CTING	38
S ECTION 9.4	A CTION W ITHOUT A M EETING	38
S ECTION 9.5	P ARTICIPATION IN B OARD OF M ANAGERS M EETINGS BY C ONFERENCE T ELEPHONE ; P ROXIES	38
S ECTION 9.6	A UTHORITY OF M ANAGERS	38

ARTICLE X OFFICERS OF THE COMPANY		39

S ECTION 10.1	O FFICERS E NUMERATED	39
S ECTION 10.2	E LECTION AND T ERM OF O FFICE	39
S ECTION 10.3	T HE C HIEF E XECUTIVE O FFICER	39
S ECTION 10.4	T HE P RESIDENT	39
S ECTION 10.5	T HE V ICE P RESIDENTS	39
S ECTION 10.6	T HE S ECRETARY	39
S ECTION 10.7	C HIEF F INANCIAL O FFICER AND T REASURER	40

ARTICLE XI MEMBERS		40

S ECTION 11.1	N AMES AND A DDRESSES OF M EMBERS	40
S ECTION 11.2	A CTIONS R EQUIRING M AJORITY A PPROVAL OF M EMBERS	40
S ECTION 11.3	A CTIONS R EQUIRING S UPERMAJORITY A PPROVAL OF M EMBERS	41
S ECTION 11.4	A CTIONS R EQUIRING U NANIMOUS A PPROVAL OF M EMBERS	43
S ECTION 11.5	N ATURE OF O BLIGATIONS A MONG M EMBERS	44
S ECTION 11.6	U NITS	44
S ECTION 11.7	V OTING	44



ARTICLE XII MEETINGS OF MEMBERS		45

S ECTION 12.1	M EETINGS	45
S ECTION 12.2	N OTICE	45
S ECTION 12.3	Q UORUM	45
S ECTION 12.4	M ANNER OF A CTING	45
S ECTION 12.5	A CTION W ITHOUT M EETING	46
S ECTION 12.6	T ELEPHONIC M EETINGS	46
S ECTION 12.7	P ROXIES	46

ARTICLE XIII UNIT CERTIFICATES		46

S ECTION 13.1	U NIT C ERTIFICATES	46
S ECTION 13.2	M UTILATED , L OST , S TOLEN OR D ESTROYED U NIT C ERTIFICATES	47
S ECTION 13.3	U NIT C ERTIFICATE L EDGER	47
S ECTION 13.4	L EGENDS	47

ARTICLE XIV TRANSFER OF UNITS		48

S ECTION 14.1	C OMPANY ’ S R ESTRICTION ON T RANSFER	48
S ECTION 14.2	M EMBERS ’ R ESTRICTION ON T RANSFER	48
S ECTION 14.3	P LEDGE OF U NITS	48
S ECTION 14.4	C ONDITIONS FOR T RANSFER	49

ARTICLE XV INDEMNIFICATION		50

S ECTION 15.1	L IMITATION OF L IABILITY	50
S ECTION 15.2	I NDEMNIFICATION OF THE M EMBERS AND M ANAGERS	50
S ECTION 15.3	A DVANCEMENT OF E XPENSES	51
S ECTION 15.4	C ONTRACTUAL A RTICLE	51
S ECTION 15.5	N ON -E XCLUSIVITY	51
S ECTION 15.6	I NSURANCE	51
S ECTION 15.7	I NDEMNIFICATION OF E MPLOYEES OR A GENTS	52
S ECTION 15.8	M EMBER N OTIFICATION	52

ARTICLE XVI DISSOLUTION, WITHDRAWAL AND WINDING UP		52

S ECTION 16.1	D ISSOLUTION	52
S ECTION 16.2	W INDING UP THE C OMPANY	53
S ECTION 16.3	T ERMINATION	53
S ECTION 16.4	F INAL S TATEMENT	53
S ECTION 16.5	A RTICLES OF D ISSOLUTION	53
S ECTION 16.6	D EFICIT C APITAL A CCOUNTS	54

ARTICLE XVII ACCOUNTING, BOOKS, AND REPORTS		54

S ECTION 17.1	A CCOUNTING M ETHOD	54
S ECTION 17.2	B OOKS AND R ECORDS ; F INANCIAL S TATEMENTS	54
S ECTION 17.3	T AX M ATTERS	55

ARTICLE XVIII		56

S ECTION 18.1	S PECIAL P URPOSE P ROVISIONS	56

iii



ARTICLE XIX MISCELLANEOUS PROVISIONS		58

S ECTION 19.1	A MENDMENT OF THIS A GREEMENT	58
S ECTION 19.2	N OTICES	58
S ECTION 19.3	P ARTITION	58
S ECTION 19.4	M ERGER OF P RIOR A GREEMENTS	59
S ECTION 19.5	G OVERNING L AW	59
S ECTION 19.6	S PECIFIC P ERFORMANCE	59
S ECTION 19.7	N O W AIVER	59
S ECTION 19.8	S EVERABILITY	59
S ECTION 19.9	C APTIONS	59
S ECTION 19.10	G ENDER AND N UMBER ; D AYS	60
S ECTION 19.11	F URTHER A CTIONS	60
S ECTION 19.12	B INDING A GREEMENT	60
S ECTION 19.13	N O R IGHTS C REATED IN T HIRD P ERSONS	60
S ECTION 19.14	C OUNTERPARTS E XECUTION	60
S ECTION 19.15	D ELIVERY BY E MAIL OR F ACSIMILE	60

[REDACTED]

LIMITED LIABILITY COMPANY AGREEMENT

This Limited Liability Company Agreement of Greenpac Holding LLC, a Delaware limited liability company (the “ Company ”), is made effective as of June 24, 2011 by and among the undersigned (individually a “ Member ” and collectively the “ Members ”).

R ECITALS

W HEREAS , the Members have caused a Certificate of Formation for the Company to be filed with the Delaware Secretary of State in order to form the Company.

W HEREAS , the parties hereto desire to set forth the terms and provisions governing the rights and obligations of the Members and the administration of the Company.

W HEREAS , the Members have agreed to contribute to the capital of the Company the money required to be contributed under Article IV and listed on Schedule A to this Agreement and the Members will be issued the Common Units in the Company described on Schedule A to this Agreement.

N OW , THEREFORE , for and in consideration of the mutual covenants and agreements hereafter set forth and for all good and valuable consideration the receipt and sufficiency of which is acknowledged, each Member agrees as follows:

ARTICLE I

D EFINITIONS

Section 1.1 Definitions.

In addition to other terms defined in this Agreement, the following terms shall have the following respective meanings for purposes of this Agreement:

“ Acceptable Credit Support ” has the meaning set forth in the Project Debt Financing Documents.

“ Adjusted Capital Account Deficit ” means with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Tax Year, after giving effect to the following adjustments:

(a) Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations; and

(b) Debit to such Capital Account the items described in Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1 (b)(ii)(d)(5) and 1.704-1 (b)(2)(ii)(d)(6) of the Treasury Regulations.

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1 (b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted consistently therewith.

“ Affiliate ” means, with respect to any Person, any other Person which controls, is controlled by or is under common control with such Person. For purposes of this definition, the terms “controls”, “is controlled by” or “is under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, or the power to elect more than fifty percent (50%) of the directors, managers, general partners or Persons exercising similar authority with respect to such Person.

“ Agreement ” means this Limited Liability Company Agreement.

“ Applicable Tax Rate ” has the meaning set forth in Section 7.3.

“ Bankruptcy Law ” means any Law concerning bankruptcy, insolvency, reorganization, liquidation, winding up or composition for adjustment of debts, or other similar relief of debtors, including Title 11 of the United States Code, as amended.

“ Board of Managers ” means the board of managers of the Company described in Section 8.1; provided , however , that the Board of Managers shall not include the Independent Manager.

“ Bridge Default Unit Transfer ” has the meaning set forth in Section 14.3.

“ Bridge Loan Administrative Agent ” means Caisse de dépôt et placement du Québec or such other Person as may be designated from time to time as administrative agent for the lenders under the Bridge Loan Documents.

“ Bridge Loan Documents ” means all loan or credit agreements, promissory notes, guaranties, security agreements, pledge agreements, and other documents and instruments executed in connection with the Bridge Loan Financing, as such may be amended, restated or otherwise modified from time to time in accordance with their terms.

“ Bridge Loan Financing ” means the credit facility provided to the Company by Caisse de depot et placement du Quebec or an affiliate thereof and Cascades USA Inc. or an affiliate thereof in an original principal amount not to exceed $61,000,000 plus capitalized interest, for purposes of funding a portion of the Project.

“ Capital Account ” means, with respect to any Member, the capital account maintained for such Member in accordance with this Agreement.

“ Capital Call ” has the meaning set forth in Section 4.2(b).

“ Capital Commitment ” means, with respect to any Member, the aggregate amount that such Member is obligated to contribute to the capital of the Company as specified on Schedule A .

“ Capital Commitment Default ” has the meaning set forth in Section 4.2(e).

“ Capital Contribution ” means any contribution by a Member to the capital of the Company in cash or other property or a promissory note or other obligation to contribute cash or other property, whether hereunder, under the Contribution Agreement or otherwise.

“ Cash Available for Distribution ” has the meaning set forth in Section 7.1.

“ Cause ” means, with respect to the Independent Manager, (i) acts or omissions by such Independent Manager constituting fraud, dishonesty, negligence, misconduct or other deliberate action which causes injury to the Company or an act by such Independent Manager involving moral turpitude or a serious crime or (ii) that the Independent Manager no longer meets the definition of “Independent Manager” set forth in this Agreement.

“ CDPQ ” means CDPQ Investment GML Inc., a Delaware corporation.

“ CDPQ Preferred Convertible Note ” has the meaning set forth in the Equityholders Agreement.

“ CDPQ Preferred Liquidation Amount ” means an amount equal to (i) the Unpaid CDPQ Put Price, as defined in the Equityholders Agreement, minus the full amount of any portion of the Unpaid CDPQ Put Price already paid by the Company pursuant to the provisions of this Agreement and the Equityholders Agreement, plus (ii) any accrued but unpaid CDPQ Preferred Return.

“ CDPQ Preferred Return ” means “CDPQ Preferred Return”, as defined in the Equityholders Agreement.

“ CDPQ Preferred Units ” means the class of Units with the rights and preferences specified by this Agreement for such class.

“ Certificate ” means the certificate of formation of the Company filed with the Secretary of State of the State of Delaware on November 15, 2010, as it may from time to time be amended.

“ Change in Ownership Event ” means with respect to the Company, (i) the consummation of a merger or consolidation of the Company with or into another entity or any other reorganization, if the Members immediately prior to such transaction cease to hold 50% or more of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization; (ii) the sale, lease, transfer or other disposition of all or substantially all of the Company’s assets; (iii) any transaction or series of related transactions as a result of which any Person becomes the beneficial owner, directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Company’s then outstanding voting securities.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Common Membership Interest ” means the ownership interest of a Member with respect to the Common Units of the Company expressed as a percentage equal to a Member’s Common Units divided by the total number of outstanding Common Units. For purposes of clarification, in determining the number of Common Units held by a Member, and its corresponding Common Membership Interest, Common Units shall include all Common Units (including all Common Units that have been issued upon conversion of any Convertible Contribution Note) held or outstanding, as applicable, but shall not include any Common Units that may be issuable under (but not yet issued upon conversion of) outstanding Convertible Contribution Notes.

“ Common Units ” means the class of Units with the rights and preferences specified by this Agreement for such class.

“ Company ” has the meaning set forth in the Preamble.

“ Company Minimum Gain ” has the meaning of “partnership minimum gain” set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.

“ Confidential Information ” has the meaning set forth in Section 3.2(a).

“ Contingent Credit Support Requirement ” has the meaning set forth in the Credit Agreement; provided, however, that the aggregate amount of the Contingent Credit Support Requirement shall not, at any time, exceed $20,000,000.

“ Contingency Funding Capital Call ” has the meaning set forth in Section 4.3(d).

“ Contingency Funding Contribution ” means any Excess Capital Contribution or Excess Funding Contribution that a Member makes pursuant to Section 4.3 (or is deemed to have made pursuant to Section 3.5), that is used to fund any portion of, or to otherwise reduce the required amount of, the Contingent Credit Support Requirement under the Project Debt Financing Documents.

“ Contract ” means any contract, subcontract, agreement, lease, option, note, bond, mortgage, indenture, deed of trust, guarantee, license, franchise, permit, purchase order, arrangement, transaction, commitment, undertaking and understanding of every kind, written or oral.

“ Contribution Agreement ” means the Contribution Agreement, dated as of June 24, 2011, among the Company and the Members, as amended, restated or otherwise modified from time to time in accordance with its terms.

“ Convertible Contribution Note ” means each “Contribution Note” (as defined in the Contribution Agreement) that may be issued from time to time by the Company to a Member pursuant to the Contribution Agreement, whether such Note is a Proportionate Note or an Additional Note (each as defined in the Contribution Agreement). The term “Convertible Contribution Note” does not include any “PIK Interest Note” (as defined in the Contribution Agreement) that may be issued from time to time by the Company under the Contribution Agreement.

“ Credit Agreement ” means the Credit Agreement, by and among Greenpac Mill, General Electric Capital Corporation, as Agent, KfW IPEX - Bank GmbH, as ECA Agent, the Lenders, ECA Lenders and the other parties thereto, as amended, modified, replaced, restated or amended and restated from time to time.

“ Defaulting Member ” has the meaning set forth in Section 4.2(e).

“ Depreciation ” means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to the Company’s assets for such year or other period for federal income tax purposes, except that if the Gross Asset Value of any asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation with respect to such asset will be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction with respect to such asset for such year or other period bears to such beginning adjusted tax basis; provided , however , that if the federal income tax depreciation, amortization or other cost recovery deduction with respect to such asset for such year is zero, Depreciation will be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board of Managers.

“ Designated Related Party Contracts ” means, collectively, the Management Agreement, the Paper Supply Agreements, the Bridge Loan Documents and the Contracts identified on Schedule D .

“ Distribution ” means any transfer of money or other property to a Member, in such Member’s capacity as a Member, from the Company, including without limitation, distributions in connection with a Change in Ownership Event. For purposes of this Agreement, property is to be valued at its fair market value on the date of transfer as determined by the Board of Managers in good faith.

“ Equityholders Agreement ” means that certain Equityholders Agreement dated the date hereof, by and among the Company and the Members, as amended, restated or otherwise modified from time to time in accordance with its terms.

“ Excess Capital Calls ” has the meaning set forth in Section 4.3(a).

“ Excess Capital Contributions ” has the meaning set forth in Section 4.3(a).

“ Excess Funding Adjustment Date ” has the meaning set forth in Section 4.5(a).

“ Excess Funding Amounts ” has the meaning set forth in Section 4.4.

“ Excess Funding Contributing Member ” has the meaning set forth in Section 4.4.

“ Excess Funding Contribution ” has the meaning set forth in Section 4.4.

“ Excess Funding Declination ” has the meaning set forth in Section 4.4.

“ Excess Funding Declining Member ” has the meaning set forth in Section 4.4.

“ Excess Funding Shortfall ” has the meaning set forth in Section 4.4.

“ Facility ” means the linerboard mill capable of manufacturing large volumes of recycled linerboard annually to be constructed, owned and operated by Greenpac Mill and located on Royal Avenue in Niagara Falls, New York.

“ Greenpac Member ” means Greenpac Member LLC, a Delaware limited liability company, which is a wholly-owned subsidiary of the Company.

“ Greenpac Member Cash Flow Distributions ” means “Greenpac Member Cash Flow Distributions” (as defined in the Greenpac Member LLC Agreement) that the Company receives from Greenpac Member pursuant to the provisions of the Greenpac Member LLC Agreement.

“ Greenpac Member LLC Agreement ” means the Limited Liability Agreement, dated as of June 24, 2011, of Greenpac Member, as amended, restated or otherwise modified from time to time in accordance with its terms.

“ Greenpac Mill ” means Greenpac Mill, LLC, a Delaware limited liability company, which is a wholly-owned subsidiary of Greenpac Member.

“ Greenpac Mill LLC Agreement ” means the First Amended and Restated Limited Liability Agreement, dated as of June 24, 2011, of Greenpac Mill, as amended, restated or otherwise modified from time to time in accordance with its terms.

“ Gross Asset Value ” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(a) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset (computed without taking Code Section 7701(g) into account) without reduction for liabilities, as reasonably determined in good faith by the Board of Managers;

(b) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values without reduction for liabilities, as reasonably determined in good faith by the Board of Managers taking Section 7701(g) of the Code into account, as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of assets as consideration for an interest in the Company; and (iii) the liquidation of the Company within the meaning of Regulations 1.704-1(b)(2)(ii)(g); provided , however , that the adjustments pursuant to clauses (i) and (ii) above shall be made only if the Board of Managers reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company;

(c) The Gross Asset Value of any Company asset distributed to any Member shall be the gross fair market value without reduction for liabilities of such asset on the date of distribution (computed without taking Code Section 7701(g) into account) as reasonably determined in good faith by the Board of Managers; and

(d) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation 1.704-1(b)(2)(iv)(m) and Section 6.2(g); provided , however , that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent the Board of Managers determines that an adjustment pursuant to subsection (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d).

(e) If the Gross Asset Value of an asset has been determined or adjusted pursuant to subsections (a), (b) or (d) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

“ Indemnified Party ” has the meaning set forth in Section 15.2.

“ Independent Manager ” means an individual who has prior experience as an independent director, independent manager or independent member with at least three years of employment experience and who is provided by any of CT Corporation, Corporation Service Company, National Registered Agents, Inc., Wilmington Trust Company, Stewart Management Company, Lord Securities Corporation or, if none of those companies is then providing professional independent manager services, another nationally recognized company, if required pursuant to the Project Debt Financing Documents, reasonably approved by the Senior Lender, in each case that is not an Affiliate of either the Company or the Management Company and that provides professional independent manager and other corporate services in the ordinary course of its business, and which individual is duly appointed as an Independent Manager and is not, and has never been, and will not while serving as Independent Manager be, any of the following:

(i) a member, partner, equityholder, manager, director, officer or employee of the Company, the Member, or any of their respective equityholders or Affiliates (other than as an Independent Manager of the Company or an Affiliate of the Company that is not in the direct chain of ownership of the Company and that is required by a creditor to be a single purpose bankruptcy remote entity, provided that such Independent Manager is employed by a company that routinely provides professional independent manager services in the ordinary course of its business);

(ii) a creditor, supplier or service provider (including the Management Company, its directors, officers and employees and any provider of professional services) to the Company, or any of its equityholders or Affiliates (other than a nationally recognized company that routinely provides professional independent manager and other corporate services to the Company or any of its equityholders or Affiliates in the ordinary course of its business);

(iii) a family member of any such member, partner, equityholder, manager, director, officer, employee, creditor, supplier or service provider; or

(iv) a Person that controls (whether directly, indirectly or otherwise) any of (i), (ii) or (iii) above.

A natural Person who otherwise satisfies the foregoing definition and satisfies subparagraph (i) by reason of being the Independent Manager of a Special Purpose Entity affiliated with the Company shall be qualified to serve as an Independent Manager of the Company, provided that the fees that such Person earns from serving as Independent Manager of Affiliates of the Company in any given year constitute in the aggregate less than five percent (5%) of such Person’s annual income for that year.

“ Insolvency Action ” means

(i) commencing any case, proceeding or other action on behalf of the Company, Greenpac Member or Greenpac Mill under any existing or future Law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors;

(ii) instituting proceedings to have the Company, Greenpac Member or Greenpac Mill adjudicated as bankrupt or insolvent;

(iii) consenting to the institution of bankruptcy or insolvency proceedings against the Company, Greenpac Member or Greenpac Mill;

(iv) filing a petition or consent to a petition seeking reorganization, arrangement, adjustment, winding-up, dissolution, composition, liquidation or other relief on behalf of any of the Company, Greenpac Member or Greenpac Mill of its debts under any federal or state Law relating to bankruptcy;

(v) seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for any of the Company, Greenpac Member or Greenpac Mill or a substantial portion of either such Person’s properties; or

(vi) making any assignment for the benefit of Greenpac Member’s or Greenpac Mill’s creditors or the Company’s creditors, except security interests granted pursuant to the Project Debt Financing Documents or the Bridge Loan Documents.

“[REDACTED]

“ Law ” means any federal, state, local, foreign or other constitution, statute, treaty, ordinance, rule, regulation, regulatory or administrative guidance, principle of common law or equity, order, or other law, requirement or standard promulgated by any governmental authority.

“ LLC Act ” means the Delaware Limited Liability Company Act.

“ Management Agreement ” means that certain Management Agreement by and among Greenpac Mill, Greenpac Member, the Company and the Management Company dated as of June 24, 2011, as amended, restated or otherwise modified from time to time in accordance with its terms.

“ Management Company ” means Norampac Industries, Inc. or such other manager as may be determined pursuant to the Management Agreement.

“ Manager ” means a member of the Board of Managers.

“ Manager Votes ” has the meaning set forth in Section 8.2(a).

“ Member ” has the meaning set forth in the Preamble.

“ Member Nonrecourse Debt ” has the meaning of “partner nonrecourse debt” set forth in Section 1.704-2(b)(4) of the Treasury Regulations.

“ Member Nonrecourse Debt Minimum Gain ” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a nonrecourse liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.

“ Membership Interest ” means the ownership interest of a Member in the Company (and specifically including the limited liability company interest (as defined in the LLC Act), economic rights, control rights and Member status associated with such ownership interest) expressed as a percentage equal to a Member’s Units divided by the total number of outstanding Units. For purposes of clarification, in determining the number of Units held by a Member, and its corresponding Membership Interest, Units shall include all Common Units (including all Common Units that have been issued upon conversion of any Convertible Contribution Note) and all CDPQ Preferred Units then held by such Member or then outstanding, as applicable, but shall not include any Common Units that may be issuable under (but not yet issued upon conversion of) outstanding Convertible Contribution Notes.

“ Nonrecourse Deductions ” has the meaning set forth in Section 1.704-2(b)(l) of the Treasury Regulations.

“ Norampac ” means 27102009 USA LLC, a Delaware limited liability company.

“ Officers ” has the meaning set forth in Section 10.1.

“ Paper Supply Agreements ” means, collectively, the respective Linerboard Supply Agreements between Greenpac Mill and each of the Paper Purchaser Affiliates (as defined in the Equityholders Agreement), dated as of the date hereof, as amended, restated or otherwise modified from time to time in accordance with their respective terms.

“ Person ” means any individual, corporation, association, partnership, limited liability company, joint venture, estate, trust or unincorporated organization or any government or any agency or political subdivision thereof, and shall include, any partner, officer, director, member or employee of such Person.

“ Profits and Losses ” means, for each fiscal year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss;

(b) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss;

(c) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subsections (b) or (d) of the definition of Gross Asset Value hereof, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;

(d) Gain or loss resulting from any disposition of Company assets with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

(e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period;

(f) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and

(g) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 6.2 hereof shall not be taken into account in computing Profits or Losses pursuant to this definition.

“ Project ” means the acquisition of real property in Niagara Falls, New York and the demolition of certain improvements and remediation of certain environmental site conditions and the construction, installation and equipping thereon of the Facility.

“ Project Debt Financing ” means an amount not to exceed $228,500,000 (plus capitalized interest) in debt financing provided to Greenpac Mill to fund the cost of the Project and to provide financing for the working capital and operational needs of Greenpac Mill through one or more senior secured credit facilities acceptable to Greenpac Mill, as the same may be refinanced or restructured from time to time.

“ Project Debt Financing Documents ” means the Credit Agreement and the other documents entered into in connection with the Credit Agreement evidencing the Project Debt Financing, as such documents may be amended, modified, replaced, restated or amended and restated from time to time.

“ Project Debt Obligations ” means the “Obligations” as defined in the Credit Agreement.

“ Project Parameters ” means the Project Schedule and the Project Budget attached hereto as Schedule B .

“ Pro Rata Credit Support Requirement ” means, with respect to each Member and at any applicable time, a pro rata share of the Contingent Credit Support Requirement, determined by multiplying the then applicable Contingent Credit Support Requirement by such Member’s Membership Interest at such time; provided, however, that at all times the aggregate of all Members’ Pro Rata Credit Support Requirements shall be equal to the Contingent Credit Support Requirement.

“ Ramp-Up Completion ” has the meaning set forth in the Credit Agreement.

“ Regulatory Allocation ” has the meaning set forth in Section 6.3.

“ Related Party Transaction ” has the meaning set forth in Section 8.4(b).

“ Restrictive Agreement ” has the meaning set forth in Section 14.1.

“ RTC Allocable Share Contribution ” has the meaning set forth in Section 4.6.

“ Senior Lender ” means, collectively, General Electric Capital Corporation, as Agent (the “ Agent ”), KfW IPEX - Bank GmbH, as ECA Agent, the Lenders and ECA Lenders, under (and as defined in) the Project Debt Financing Documents, or any other Persons acting on behalf of the Persons providing financing or refinancing pursuant to the Project Debt Financing Documents, together with their successors and assigns.

“ Special Purpose Entity ” means an entity, whose organizational documents contain restrictions on its purpose and activities and impose requirements intended to preserve its separateness that are substantially similar to the Special Purpose Provisions of this Agreement.

“ Special Purpose Provisions ” has the meaning set forth in Section 18.1.

“ Start-Up Date ” means the date on which the Facility commences operations, which shall be when the Facility completes production of five sets of sellable linerboard.

“ Subscription Agreements ” means, collectively, the respective Subscription Agreements between the Company and each Member, dated as of the date hereof, as amended, restated or otherwise modified from time to time in accordance with their respective terms.

“ Tax Distribution ” has the meaning set forth in Section 7.3.

“ Tax Year ” means the tax year of the Company, which shall be the calendar year.

“ Transfer ” means any direct or indirect transfer, donation, sale, assignment, pledge, hypothecation, grant of a security interest in or other disposal or attempted disposal of all or any portion of a Member’s Membership Interest or Units or of any rights associated with or in respect of a Member’s Membership Interest or Units. “ Transferred ” means the accomplishment of a Transfer, “ Transferee ” means the recipient of a Transfer and “ Transferor ” means the Person making the Transfer.

“ Treasury Regulations ” means all proposed, temporary and final regulations promulgated under the Code.

“ UCC ” shall mean the Uniform Commercial Code as in effect in the State of Delaware (6 Del C. § 8-101, et. seq.)

“ Unfunded Capital Commitment ” of any Member as of any date means the Capital Commitment of such Member, reduced by the aggregate amount of Capital Contributions (not including RTC Allocable Share Contributions) to the Company made by the Member through such date.

“ Unit ” means a measurement of the Membership Interest of each Member. The term “Units” shall refer to the Common Units (including, without limitation, Common Units that have been issued upon conversion of any Convertible Contribution Note) and the CDPQ Preferred Units (including, without limitation, CDPQ Preferred Units that have been issued upon conversion of any CDPQ Preferred Convertible Note), collectively.

“ Unit Certificate ” means the document, if any, issued by the Company that represents and evidences the number of Units owned by a Member.

ARTICLE II

T HE C OMPANY

Section 2.1 Formation.

The Company was organized as a Delaware limited liability company under the LLC Act by the filing of the Certificate with the office of the Secretary of State of the State of Delaware on November 15, 2010.

Section 2.2 Name of Company.

The name of the Company is Greenpac Holding LLC, and all Company business shall be conducted in that name or such other names as the Members may select from time to time and which are in compliance with all applicable laws.

Section 2.3 Business of the Company.

Subject to the provisions of Article XVIII, the sole purpose of the Company is to hold its membership interest in Greenpac Member (which shall be the sole member of Greenpac Mill), and to manage the operation of the business of Greenpac Mill; and (a) Greenpac Member’s sole purpose shall be to hold its membership interest in Greenpac Mill; and (b) Greenpac Mill’s sole purpose shall be to construct, own and operate the Facility, and all such purposes reasonably related thereto. The Company has the authority to do all things necessary or convenient to accomplish these purposes.

Section 2.4 Principal Place of Business.

The principal place of business of the Company is 4400 Royal Avenue, Niagara Falls, New York 14303, or at such other place as the Company may designate.

Section 2.5 Registered Office; Registered Agent.

The address of the registered office and the name and address of the registered agent of the Company in the State of Delaware is Paracorp Incorporated, 40 E. Division St. #A, Dover, Delaware 19901, Kent County.

Section 2.6 Term.

The Company began on the date of filing of the Certificate and shall continue until dissolved in accordance with the terms of this Agreement or by operation of law.

Section 2.7 Entity Declaration.

The Company is not a general partnership, a limited partnership, or a joint venture, and no Member shall be considered a partner or joint venturer of or with any other Member, for any purposes other than for federal, state, and local income tax purposes.

Section 2.8 Tax Classification of the Company.

The Members intend and agree that the Company will be classified as a partnership for federal, state, and local income tax purposes so that the Company shall not make an election to be taxed as a corporation without the approval of all of the Members. The Members further agree to assist the Company in filing any and all elections required to ensure that the Company is classified as a partnership for federal, state, and local income tax purposes and shall not take any position inconsistent therewith.

Section 2.9 Adoption of this Agreement.

The parties to this Agreement hereby agree to adopt this Agreement as the limited liability company agreement of the Company pursuant to the LLC Act. All Persons who acquire Membership Interests subsequent to the execution of this Agreement shall adopt this Agreement as a condition to becoming a Member.

Section 2.10 Title to Company Property.

All property of the Company, whether real or personal, tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, individually, shall have any direct ownership interest in such property. Each Member’s interest in the Company shall be personal property for all purposes.

ARTICLE III

R EPRESENTATIONS , W ARRANTIES AND C OVENANTS

Section 3.1 In General.

As of the date of this Agreement (or, with respect to a Person who becomes a Member after the date hereof, the date such Person signs a joinder hereto), each Member hereby severally, but not jointly, makes the following representations and warranties to the Company and to each other Member, and such warranties and representations shall survive the execution of this Agreement:

(a) The Member is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation.

(b) The Member has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and all necessary actions by the managers, board of directors, shareholders, members or other entity owners of such Member necessary for the due authorization, execution, delivery, and performance of its obligations under this Agreement have been duly taken.

(c) The Member has duly executed and delivered this Agreement, and this Agreement constitutes the legal, valid and binding obligations of the Member, enforceable against the Member in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to creditors’ rights generally, and the availability of injunctive relief and other equitable remedies.

(d) The Member’s authorization, execution, delivery, and performance of this Agreement does not conflict with (i) any Law, rule or court order applicable to that Member, (ii) that Member’s certificate of formation, certificate of limited partnership, operating agreement, certificate of incorporation, bylaws, or other applicable organizational documents, or (iii) any other material agreement or arrangement to which that Member is a party or by which that Member is bound.

Section 3.2 Confidentiality.

(a) Except as contemplated hereby or required by a court of competent authority, each Member shall keep confidential and shall not disclose to others and shall use its commercially reasonable efforts to prevent its Affiliates and any of its, or its Affiliates’, present or former employees, agents, and representatives from disclosing to others, without the prior written approval of the Board of Managers given in accordance with Section 9.3, any Confidential Information; provided that any Member may disclose to its ultimate parent and its ultimate parents’ respective partners, members, employees, agents, and representatives, or any other Member, any Confidential Information made available to such Member; and, provided further, that each such Person to whom disclosure is made shall be advised of the confidentiality of the disclosed Confidential Information and the obligations of confidentiality set forth herein. No Member shall use, and each Member shall use its commercially reasonable efforts to prevent its Affiliates or any of its, or its Affiliates’, present or former employees, agents, or representatives from using, any Confidential Information, except in connection with the transactions contemplated hereby. “ Confidential Information ” means information which is confidential, non- public, or proprietary in nature, was provided to such Member or its representatives by the Company, any other Member, or such Persons’ agents, representatives, and employees, and relates either directly or indirectly to (i) the Company, Greenpac Member or Greenpac Mill or the business of the Company, Greenpac Member or Greenpac Mill; or (ii) this Agreement, the Equityholders Agreement, the Contribution Agreement, the Management Agreement, the Paper Supply Agreements, the Bridge Loan Documents, the Project Debt Financing Documents, any negotiations pertaining thereto, or any of the transactions contemplated hereby and thereby. “Confidential Information” shall not include information which (i) is available, or becomes available, to the public through no breach of this Agreement or no fault or action by such Member, its agents, representatives, or employees, (ii) becomes available on a non-confidential basis from any source other than the Company, any other Member, or such Persons’ agents, representatives, or employees and such source is not prohibited from disclosing such information, (iii) was previously known by such Member, its agents, representatives, or employees on a non-confidential basis, which such Member can demonstrate by written evidence or (iv) was or is developed by such Member, its agents, representatives, or employees independently of and without any reference to any Confidential Information.

(b) If a Member receiving Confidential Information or any Person to whom a Member provides Confidential Information pursuant to this Agreement becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any such Confidential Information, such Member will provide the Company or cause such other Person to provide the Company with written notice by facsimile and overnight delivery as soon as practicable prior to the scheduled or intended time of disclosure of the Confidential Information, so that the Company may seek a protective order or other appropriate remedy to protect its rights or enforce this Agreement. The disclosing party or its representative will also cooperate with the Company in any attempt by the Company to obtain assurance that confidential treatment will be accorded the Confidential Information if its disclosure is required.

Section 3.3 Financial Information.

Each Member shall furnish or cause to be furnished to the Senior Lender, upon request, as promptly as is practicable, such information and records relating to such Member as the Senior Lender may from time to time reasonably request. The Company hereby confirms to CDPQ that the Senior Lender has acknowledged and accepted that the publicly available financial information and annual reports of Caisse de depot et placement du Quebec, the ultimate parent entity of CDPQ, represents adequate and sufficient information and records for the purposes of the Senior Lender.

Section 3.4 Taxes.

Each Member agrees to furnish or cause to be furnished to each other, upon request, as promptly as is practicable, such information and assistance relating to such Member as is reasonably necessary for the filing of all tax returns, the making of any election relating to taxes, the preparation for any audit by any taxing authority, and the prosecution or defense of any claim, suit or proceeding relating to any tax.

Section 3.5 Contingent Credit Support.

In addition to any initial or other Capital Contributions required under Section 4.2 and any Excess Capital Contributions which may be requested under Section 4.3, each Member agrees to procure and furnish or cause to be furnished to the Senior Lender, upon request by the Senior Lender and at the time required in the Project Debt Financing Documents, and to maintain at all times required pursuant to the Project Debt Financing Documents, Acceptable Credit Support in an amount equal to its Pro Rata Credit Support Requirement; which Acceptable Credit Support shall be in the form of (a) in the case of each Member other than CDPQ, an irrevocable standby letter of credit in a form acceptable to the Lender and meeting the requirements of the Project Debt Financing Documents, and (b) in the case of CDPQ, a third- party beneficiary letter, in a form acceptable to the Senior Lender, with respect to CDPQ’s commitment to fund Excess Capital Contributions in accordance with Section 4.3(d). Notwithstanding the foregoing, if any Member makes any Excess Capital Contribution or Excess Funding Contribution under Section 4.3 that is a Contingency Funding Contribution (made pursuant to a Contingency Funding Capital Call), then, subject to the terms of the Project Debt Financing Documents and subject to any adjustments to such Member’s Pro Rata Credit Support Requirement to reflect changes in such Member’s Membership Interest, the amount of Acceptable Credit Support required to be maintained by such Member shall be reduced on a dollar-for-dollar basis by the amount of the Contingency Funding Contribution actually made or paid by such Member. If at any time the Senior Lender draws upon any letter of credit that a Member provides as Acceptable Credit Support pursuant to this Section 3.5, the Member providing such letter of credit shall be deemed to have made an Excess Capital Contribution to the Company, pursuant to a Contingency Funding Capital Call pursuant to Section 4.3, in an amount equal to the amount of such draw, which Excess Capital Contribution shall be a Contingency Funding Contribution for purposes of this Agreement. The Company shall (i)

contribute (or be deemed to contribute) to the capital of Greenpac Member, and (ii) cause Greenpac Member to contribute (or be deemed to contribute) to the capital of Greenpac Mill, all Contingency Funding Contributions that the Company receives pursuant to Section 4.3 or that the Company is deemed to receive pursuant to this Section 3.5 as a result of the Senior Lender drawing upon a letter of credit that a Member provides as Acceptable Credit Support.

ARTICLE IV

C ONTRIBUTIONS

Section 4.1 Capital Commitments. The Capital Commitments of each Member shall be the amounts specified on Schedule A ; provided , however , that the amount of the Capital Commitments does not include the RTC Allocable Share Contributions required under the Contribution Agreement, as described in Section 4.6 of this Agreement. Each Member has executed and delivered to the Company a Subscription Agreement, whereby it has agreed to purchase from the Company the number of Common Units specified for such Member on Schedule A . in exchange for payment of its Capital Commitment. Subject to and in accordance with the terms of the applicable Subscription Agreement, the Company will issue and deliver to each Member, at the time its initial Capital Contribution is made pursuant to Section 4.2, such Common Units.

Section 4.2 Initial Capital Contributions, Capital Calls.

(a) Each Member shall pay, as its initial Capital Contribution to the Company, the portion of its Capital Commitment specified in a written notice delivered by the Management Company to such Member, such payment to be made within ten (10) days after the date of receipt of such written notice. Each Member, other than CDPQ, has caused one or more Affiliates of such Member to deliver to the Company a Cash Equity Guaranty, whereby such Affiliate or Affiliates have guaranteed such Member’s payment, when due, of its Capital Commitment.

(b) Each Member shall pay its Capital Commitment to the Company from time to time pursuant to Capital Contributions as calls are made therefor (“ Capital Calls ”) by the Management Company pursuant to this Section 4.2 and in accordance with the Project Parameters. In this regard, the Management Company shall have sole discretion to determine the amount of such Capital Calls, and the timing or frequency thereof, subject to the following provisions (and the other terms of this Agreement):

(i) except as required under Section 4.2(c) or Section 4.6, no Member shall be required to make any amount or portion of Capital Contributions at any time that exceed its Unfunded Capital Commitment at such time;

(ii) all Capital Calls shall be made among the Members in proportion to their respective Common Membership Interests; and

(iii) the Company shall use all funds received from Capital Contributions solely for paying Project-related costs and expenses in accordance with the

Project Parameters or to fund working capital requirements of the Company, Greenpac Member or Greenpac Mill, unless otherwise approved by the Members pursuant to Section 11.3.

(c) If the Company is required under applicable Law to withhold taxes on behalf of a Member in respect of any allocations of income and gain or Distributions to such Member then, notwithstanding any of the limitations or other provisions of this Agreement, such Member shall be obligated to contribute to the Company an amount equal to the portion of such required tax withholdings which the Company is unable to satisfy out of Distributions which would otherwise be made to such Member pursuant to Section 7.3. Any Capital Contributions made pursuant to this Section 4.2 shall be treated as having been immediately returned by the Company to such Member as a result of the Company’s payment of withholding taxes on behalf of such Member and, thus, will not reduce the Unfunded Capital Commitment of, or be treated as a Distribution or contribution for purposes of applying and computing Distributions with respect to, the contributing Member. Such Member shall contribute any such deficiency to the Company within ten (10) days of notice from the Company. If such deficiency is not contributed within such time, any non-contributed amounts shall be considered a demand loan from the Company to such Member, and shall bear interest at the rate of seven percent (7%) per annum, which interest shall be treated as an item of Company income, until discharged by such Member by full repayment. Such demand loan shall be repaid, without prejudice to other remedies at law or in equity that the Company may have, out of distributions to which the debtor Member would otherwise be subsequently entitled under this Agreement.

(d) The Management Company shall, with respect to each Capital Call required by this Section 4.2, cause a written notice to be sent to each Member specifying (i) the amount of the Capital Call required of each Member and (ii) the depositary institution to receive such Capital Call. Within ten (10) days of the date of receipt of such written notice, each Member shall be required to deposit the full amount of the Capital Call requested of it, in immediately available United States funds in the depositary institution specified in the written notice.

(e) In the event that any Member shall fail to pay or cause to be paid in full any portion of its Capital Commitment when due after a Capital Call (each such Member being referred to herein as a “ Defaulting Member ” and each such event described being referred to herein as a “ Capital Commitment Default ”), then, in addition to any other rights or remedies which the Company and the Members (other than the Defaulting Member), may have at law or in equity, the Company and the other Members shall have the following remedies:

(i) Each of the Company or the other Members acting together or alone, shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, against a Defaulting Member, as a result of any breach of this Agreement by the Defaulting Member. The existence of any claim or cause of action which any Defaulting Member may have

against the Company or any other Member will not constitute a defense or bar to the enforcement of this Agreement and the Members specifically waive the right to assert any offset or deduction of any kind whatsoever against any portion of such Member’s Capital Commitment.

(ii) The Company may, in its sole discretion, set off the amount of the unpaid Capital Commitment against, and in reduction of, any amounts owing to the Defaulting Member by the Company of whatever nature, including, without limitation, any Distributions to be paid to such Member pursuant to this Agreement.

(iii) In the event the Company or any other Member commences any action seeking to enforce the terms of this Agreement against any Defaulting Member, such Party shall be entitled, in addition to any other relief granted, to payment by the Defaulting Member of all actual out-of-pocket costs and expenses incurred by it in connection with such action, including, without limitation, all reasonable and documented attorneys’ fees and expenses.

(iv) The Company may exercise all rights available to it under any Cash Equity Guaranty delivered by the Affiliate or Affiliates of the Defaulting Member pursuant to Section 4.2(a), subject to and in accordance with the terms of each such Cash Equity Guaranty.

Section 4.3 Capital Calls in Excess of Capital Commitments.

(a) In the event that the sum of all Capital Contributions, Bridge Loan Financing and all Project Debt Financing is insufficient to fund the Ramp-Up Completion of the Project, each Member shall have the option, but not the obligation (except as otherwise provided in Section 4.3(d)), to contribute cash to the Company in an amount in excess of such Member’s Capital Commitment (“ Excess Capital Contributions ”) from time to time as calls are made therefor (“ Excess Capital Calls ”) pursuant to the provisions of this Section 4.3. The Board of Managers shall have sole discretion to determine the amount of such Excess Capital Calls, and the timing or frequency thereof, provided , however , that (i) the Management Company may make recommendations to the Board of Mangers with respect to the necessity, amount and timing of such Excess Capital Calls; and (ii) all Excess Capital Calls shall be made among the Members in proportion to their respective Common Membership Interests as of the date of any such Excess Capital Call.

(b) The Management Company shall, with respect to each Excess Capital Call approved by the Board of Managers under Section 4.3(a) above, cause a written notice to be sent to each Member specifying (i) the amount of the Excess Capital Call requested from each Member and (ii) the depositary institution to receive such Excess Capital Call. Within ten (10) days of the date of receipt of such written notice, each Member shall (i) deposit the full amount (or any portion) of the Excess Capital Call requested of it, in immediately available United States funds in the depositary institution specified in the written notice and, if only a portion of the amount requested is deposited, advise the Management Company, in writing, that it will contribute only such portion; or (ii) advise

the Management Company, in writing, that it will not contribute any of the amount of funds requested in such Excess Capital Call. If any Member (i) fails to timely respond to a written notice contemplated by this Section 4.3(b), or (ii) elects not to deposit, or otherwise fails to timely deposit, the full requested amount of any Excess Capital Call, such failure or election shall be treated as an Excess Funding Declination, which shall then become subject to the provisions of Section 4.4.

(c) Subject to adjustment pursuant to Section 4.5, within thirty (30) days after the expiration of the ten (10) day period described in Section 4.3(b), the Company will issue to the Members who make Excess Capital Contributions pursuant to Excess Capital Calls additional Common Units to reflect such Excess Capital Contributions, with the number of Common Units to be issued determined by dividing the amount of such Excess Capital Contribution by $100, the price per Common Unit used for purposes of issuing Common Units pursuant to Section 4.1, as set forth in the Subscription Agreements.

(d) [REDACTED]

Section 4.4 Alternative Funding in Event of an Excess Funding Default.

In the event that any Member shall elect, in its sole discretion (except as otherwise provided in Section 4.3(d)), not to fund in full the requested amount of any Excess Capital Call in the manner and within the time periods specified in Section 4.3(b), or this Section 4.4 (each such Member being referred to herein as an “ Excess Funding Declining Member ” and each such event described being referred to herein as an “ Excess Funding Declination ”), then the Management Company shall, on behalf of the Company and in order to fund the amount of the capital shortfall resulting from such Excess Funding Declination (the “ Excess Funding Shortfall ”), cause a subsequent written notice to be sent to the Members, specifying (a) the respective makeup amounts (as hereafter determined) requested to be contributed (the “ Excess Funding Amounts ”) by the Members other than the Excess Funding Declining Member(s) (the “ Excess Funding Contributing Members ”), and (b) the depositary institution to receive the Excess Funding Amounts. The Excess Funding Amounts shall be requested from the Excess Funding Contributing Members in proportion to their respective Common Membership Interests as of the date of the applicable Excess Capital Call. Subject to the limitations set forth in Section 4.3(a), each such Excess Funding Contributing Member shall have the option, but not the obligation, to contribute its Excess Funding Amount (or any portion thereof). Within ten (10) days of the date of receipt of such written notice, each Excess Funding Contributing Member shall (i) deposit the full amount (or any portion) of the Excess Funding Amount requested of it (each, as “ Excess Funding Contribution ”), in immediately available United States funds in the depositary institution specified in the written notice, and, if only a portion of the amount requested is deposited, advise the Company, in writing, that it will contribute only such portion; or (ii) advise the Company, in writing, that it will not contribute the full Excess Funding Amount. If any Excess Funding Contributing Member (A) fails to respond to a written notice contemplated by this Section 4.4, or (B) elects not to deposit, or otherwise fails to timely deposit, its full requested Excess Funding Amount, such failure or election shall be treated as an Excess Funding Declination, which shall then become subject to the provisions of this Section 4.4.

Section 4.5 Consequences of Excess Funding Declination.

Notwithstanding any other provision of this Agreement to the contrary and in addition to (but not in lieu of) any other rights and remedies of the Company and the Members under this Agreement, the following provisions shall apply on a cumulative basis in the case of any Excess Funding Declining Member who elects not to deposit in full its requested amount of an Excess Capital Call or Excess Funding Amount in the manner, to the extent and within the time periods specified in Section 4.3(b) or Section 4.4:

(a) within thirty (30) days after the Excess Funding Declination (the “ Excess Funding Adjustment Date ”), the Company shall issue such number of additional Common Units to the Excess Funding Contributing Members, without further notice or other action of any kind by any party, such that the adjusted Common Membership Interest of each Member shall be equal to the amount (expressed as a percentage rounded to the nearest one hundredth of one percent) that equals the quotient of (1) the sum of all Capital Contributions, including RTC Allocable Share Contributions effected pursuant to the Contribution Agreement (and as described in Section 4.6), Excess Capital

Contributions and Excess Funding Contributions of such Member made as of the Excess Funding Adjustment Date divided by (2) the aggregate amount of all Capital Contributions, including RTC Allocable Share Contributions effected pursuant to the Contribution Agreement (and as described in Section 4.6), Excess Capital Contributions and Excess Funding Contributions by all Members as of the Excess Funding Adjustment Date; and

(b) except as hereafter provided and except as otherwise provided in Section 4.3(d), dilution of the Common Membership Interest of an Excess Funding Declining Member shall be the sole consequence of an Excess Funding Declining Member electing not to deposit in full its requested amount of an Excess Capital Call or Excess Funding Amount, and the Excess Funding Declining Member shall have no liability to any of the Company, Greenpac Member or Greenpac Mill or to any other Member for electing not to make an Excess Capital Contribution or Excess Funding Contribution; provided, however, that nothing contained herein shall limit any liability or obligation of any Member under any Acceptable Credit Support provided by such Member, pursuant to Section 3.5, in connection with the Project Debt Financing.

Section 4.6 Contributions Pursuant to Contribution Agreement.

Each Member acknowledges and agrees that, in addition to its Capital Commitment, such Member is obligated to make additional Capital Contributions, in an aggregate dollar amount equal to its RTC Allocable Share (as defined in the Contribution Agreement), to the Company pursuant to and in accordance with the terms and conditions of the Contribution Agreement and the Convertible Contribution Notes issuable thereunder (collectively, “ RTC Allocable Share Contributions ”). Upon, but not before, conversion of the applicable Convertible Contribution Note that was issued in consideration for such RTC Allocable Share Contribution, the Company shall issue to the Member making such RTC Allocable Share Contribution additional Common Units (based on a conversion price of $100 per Common Unit, as set forth in the Convertible Contribution Notes), at the time and in the manner described in the Contribution Agreement and the applicable Convertible Contribution Note, which Common Units shall be held by such Member subject to and in accordance with the terms and conditions of this Agreement and the Equityholders Agreement. If any Member fails to pay in full when due any portion of its RTC Allocable Share Contribution, then the Company and the other Members shall be entitled to exercise any rights and remedies set forth in this Agreement and the Contribution Agreement and such other rights and remedies as they may have at law or in equity.

Section 4.7 Return of Capital.

No Member shall have the right to demand or receive the return of such Member’s Capital Contributions to the Company, even in the event of withdrawal of any Member, whether or not such withdrawal is permitted hereunder or in breach hereof, except as may be contemplated or permitted by this Agreement or the Equityholders Agreement.

Section 4.8 Interest on Capital Contributions

Except for interest accruing under and payable with respect to the Convertible Contribution Notes, no Member shall receive any interest on such Member’s Capital Contributions or such Member’s Capital Account, notwithstanding any disproportion therein as between the Members.

Section 4.9 Fractional Units.

In no event shall the Company be required to issue fractions of Units. If any fraction of a Unit would, but for this restriction, be issuable in accordance with this Article IV, in lieu of delivering such fractional Unit, the Company may pay to the Member entitled to receive such fractional Unit, in cash, an amount equal to the same fraction multiplied by the price at which such fractional Unit is valued on the date of its issuance.

ARTICLE V

C APITAL A CCOUNTS

Section 5.1 Maintenance of Capital Accounts.

The Company shall establish and maintain a Capital Account for each Member according to Section 704 of the Code and applicable Treasury Regulations. Each Member’s Capital Account shall be adjusted as set forth below:

(a) Increase in Capital Accounts . Each Member’s Capital Account shall be increased by (1) the amount of any cash actually contributed by the Member to the capital of the Company; (2) the Gross Asset Value of any property which a Member contributes to the capital of the Company (net of liabilities assumed by the Company or subject to which the Company takes such property within the meaning of Section 752 of the Code); (3) the Member’s share of Profits and of any separately allocated items of income or gain; and (4) the amount of any liabilities of the Company that are assumed by such Member, other than assumed liabilities described in Section 5.1(b)(2).

(b) Decrease in Capital Accounts . Each Member’s Capital Account shall be decreased by (1) the amount of any cash distributed to the Member by the Company; (2) the Gross Asset Value of any property distributed to the Member (net of liabilities of the Company assumed by the Member or subject to which the Member takes such property within the meaning of Section 752 of the Code) at the time of the distribution; (3) the Member’s share of Losses and of any separately allocated items of deduction or loss (including any loss or deduction allocated to the Member to reflect the difference between the book value and tax basis of assets contributed by the Member); and (4) the amount of any liabilities of such Member that are assumed by the Company, other than assumed liabilities described in Section 5.1(a)(2).

Section 5.2 Effect of Transfer on Capital Accounts.

Upon a permitted Transfer of Units of the Company under this Agreement (or the Equityholders Agreement), the Capital Account of the Transferring Member shall become the Capital Account of the Person to whom such Units are sold or Transferred, to the extent the Capital Account relates to the portion of the Units Transferred, in accordance with Section 1.704-1(b)(2)(iv)(1) of the Treasury Regulations.

Section 5.3 Compliance with Section 704(b) of the Code.

The provisions of this Article V as they relate to the maintenance of Capital Accounts are intended, and shall be construed, and, if necessary, modified to cause the allocations of profits, losses, income, gain, and credit pursuant to Article VI to have substantial economic effect under the Treasury Regulations promulgated under Section 704(b) of the Code, in light of the distributions made pursuant to Article VII and the Capital Contributions made pursuant to Article IV. The Board of Managers shall also (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company’s balance sheet, as computed for book purposes in accordance with Section 1.704-1(b)(2)(iv)(q) of the Treasury Regulations, and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Sections 1.704-1(b) and 1.704-2 of the Treasury Regulations.

Section 5.4 No Negative Capital Account Restoration.

Notwithstanding anything to the contrary in this Agreement, no Member shall be obligated to contribute cash or property to restore a negative Capital Account during the existence or at the dissolution and termination of the Company.

ARTICLE VI

A LLOCATIONS

Section 6.1 Allocations of Profit and Loss.

(a) General Rule . Except as otherwise required by this Article VI, for a given Tax Year, the Profits and Losses for such Tax Year shall be allocated among the Members in proportion to their respective Common Membership Interests.

(b) [REDACTED]

Section 6.2 Special Allocations.

The following special allocations shall be made in the following order:

(a) Minimum Gain Chargeback . Except as otherwise provided in Section 1.704- 2(f) of the Treasury Regulations, notwithstanding any other provision of this Article VI, if there is a net decrease in Company Minimum Gain during any Tax Year, each Member shall be specially allocated items of Company income and gain for such Tax Year (and, if necessary, subsequent Tax Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Section 1.704-2(g) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704- 2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. This paragraph (a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Treasury Regulations and shall be interpreted consistently therewith.

(b) Member Minimum Gain Chargeback . Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury Regulations, notwithstanding any other provision of this Article VI, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Tax Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated items of Company income and gain for such Tax Year (and, if necessary, subsequent Tax Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704- 2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This paragraph (b) is intended to comply with the minimum gain chargeback requirement in Section 1.704- 2(i)(4) of the Treasury Regulations and shall be interpreted consistently therewith.

(c) Qualified Income Offset . In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1 (b)(2)(ii)(d)(6) of the Treasury Regulations, items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this paragraph (c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in Article VI of this Agreement have been tentatively made as if this paragraph (c) were not in this Agreement.

(d) Gross Income Allocation . In the event any Member has a deficit Capital Account at the end of any Tax Year which is in excess of the sum of (i) the amount such

Member is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(l) and 1.704-2(i)(5) of the Treasury Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this paragraph (d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in Article VI of this Agreement have been made as if paragraphs (c) and (d) of this Section 6.2 were not in this Agreement.

(e) Nonrecourse Deductions . Nonrecourse Deductions for any Tax Year shall be specially allocated to the Members in proportion to their respective Membership Interests.

(f) Member Nonrecourse Deductions . Any Member Nonrecourse Deductions for any Tax Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(l) of the Treasury Regulations.

(g) Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any Company property pursuant to Section 1.704-l(b)(2)(iv)(m)(2) or Section 1.704- 1(b)(2)(iv)(m)(4) of the Treasury Regulations, is to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of his Membership Interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their respective Membership Interests in the event that Section 1.704-1(b)(2)(iv)(m)(2) of the Treasury Regulations applies, or to the Members to whom such distribution was made in the event that Section 1.704-1(b)(2)(iv)(m)(4) of the Treasury Regulations applies.

(h) Allocations Relating to Taxable Issuance of Membership Interests . Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of Membership Interests shall be allocated among the Members so that, to the extent possible, the net amount of such items, together with all other allocations under this Agreement to each Member, shall be equal to the net amount that would have been allocated to each such Member if the items had not been realized.

Section 6.3 Curative Allocations.

The allocations set forth in paragraphs (a) through (g) of Section 6.2 of this Agreement (the “ Regulatory Allocations ”) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 6.3. Therefore, notwithstanding any other provision of Article VI of this Agreement (other than the Regulatory

Allocations), the Company shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner the Board of Managers determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Members would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Section 6.1 of this Agreement and paragraph (h) of Section 6.2 of this Agreement.

Section 6.4 Loss Limitation.

Losses allocated pursuant to Section 6.1 hereof shall not exceed the maximum amount of losses that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any taxable year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of losses pursuant to Section 6.1 hereof, the limitation set forth in this Section 6.1 shall be applied on a Member by Member basis, and losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances of such Members’ Capital Accounts so as to allocate the maximum permissible losses to each Member under Section 1.704-1 (b)(2)(ii)(d) of the Treasury Regulations.

Section 6.5 Other Allocation Rules.

(a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined by the Board of Managers using any permissible method under Section 706 of the Code and the Treasury Regulations thereunder.

(b) Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Profits or Losses pursuant to Section 6.1 for that tax year.

(c) The Members are aware of the income tax consequences of the allocations made by this Article VI and hereby agree to be bound by the provisions of this Article VI in reporting their share of Company income and loss for income tax purposes.

(d) Solely for purposes of determining a Member’s proportionate share of the “excess nonrecourse liabilities” of the Company within the meaning of Section 1.752- 3(a)(3) of the Treasury Regulations, the Members’ interests in Company profits are in proportion to their respective Membership Interests.

Section 6.6 Tax Allocations: Code Section 704(c).

In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and the Gross Asset Value of such property. In the event the Gross Asset Value of any

Company property is adjusted pursuant to this Agreement, subsequent allocations of income, gain, loss, and deduction with respect to such property shall take into account any variation between the adjusted gross basis of such property for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Treasury Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Board of Managers in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section are solely for purposes of federal, state, and local income taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of profits, losses, other items, or distributions pursuant to any provision of this Agreement. Unless the Members decide otherwise, the “traditional method” as defined in Section 1.704-3 of the Treasury Regulations shall be used for any adjustments and calculations made under Section 704(c) of the Code.

ARTICLE VII

D ISTRIBUTIONS

Section 7.1 Distributions.

Subject to the limitations on Distributions imposed by the Project Debt Financing Documents, the Bridge Loan Documents, Section 7.2 and Section 7.5 of this Agreement and those set forth in the Equityholders Agreement, the Company will distribute to Members holding Common Units, on an annual basis, all Cash Available for Distribution. As used in this Agreement, “ Cash Available for Distribution ” means all Greenpac Member Cash Flow Distributions that the Company receives from Greenpac Member pursuant to the Greenpac Member LLC Agreement, except for any such amounts that the Company is required to use to repay any amounts owing with respect to the Bridge Loan Financing or to pay any other amounts required to be paid under or pursuant thereto. The amount and timing of such Distributions shall be determined by the Board of Managers, subject to the terms of this Section 7.1 and the limitations set forth in Section 7.2. Distributions under this Section 7.1 shall be made in the order of priority and be subject to the limitations and restrictions set forth in Section 7.5.

Section 7.2 Limitation on Distributions.

No Distribution shall be made if, after giving effect to such Distribution, the total liabilities of the Company, other than liabilities to Members on account of their Membership Interests and liabilities of the Company for which the recourse of creditors is limited to specific property, exceeds the fair market value of the assets of the Company as determined by the Board of Managers; the fair market value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the assets of the Company only to such extent that the fair market value of the property exceeds such liability. In addition, no Distribution shall be made if the Board of Managers shall determine in its sole discretion that, after giving effect to such Distribution, (i) the Company would not have available sufficient capital to continue operations of the Company, Greenpac Member or Greenpac Mill, (ii) the Company, Greenpac Member or Greenpac Mill would be in violation of, or could reasonably be expected to violate in the future, any financial or other covenants or agreements in any credit facility to which the Company, Greenpac Member or Greenpac Mill is a party, or (iii) the Board of Managers has determined that the payment of such Distributions would be imprudent.

Section 7.3 Tax Distribution.

Subject to the limitations on Distributions imposed by the Project Debt Financing Documents, the Bridge Loan Documents, Section 7.2 of this Agreement and those set forth in the Equityholders Agreement, including limitations in connection with mandatory repurchases of CDPQ Preferred Units, on a quarterly basis the Company shall make a Distribution in cash to each Member of an amount equal to all, or any portion, of the amount necessary for each Member to pay the income taxes on the Company’s net income (as determined in accordance with the methodology described on Schedule C ) allocated to such Member for such quarter (other than any allocation pursuant to Section 6.1(b)), based on the Applicable Tax Rate (each, a “ Tax Distribution ”). On or before January 31 of each Tax Year, the Board of Managers shall determine in good faith the tax rate that will be used for such Tax Year to calculate the quarterly Tax Distributions for such Tax Year (the “ Applicable Tax Rate ”), which Applicable Tax Rate shall apply to all Members and shall be determined based on the combined federal, state and local income and, as applicable, franchise, tax rate determined by the Board of Managers and shall be subject to adjustment upon the termination or expiration of any non-refundable tax credits pursuant to the New York State Department of Environmental Conservation’s Brownfield Cleanup Program and the New York Tax Law.

Section 7.4 Amounts Withheld.

The Company is authorized to withhold from payments and Distributions, or with respect to allocations to the Members, and to pay over to any federal, state, and local government or any foreign government, any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state, or local Law or any foreign Law, and shall allocate any such amounts to the Members with respect to which such amount was withheld. All amounts withheld pursuant to the Code or any provision of any state, local, or foreign tax Law with respect to any payment, Distribution, or allocation to the Company or the Members shall be treated as amounts paid or distributed, as the case may be, to the Members with respect to which such amount was withheld pursuant to this Section 7.4 for all purposes under this Agreement.

Section 7.5 Priority of, and Limitations on, Distributions.

Tax Distributions required to be made pursuant to Section 7.3 shall have priority over, and shall be paid before giving effect to, any other Distributions to be made pursuant to this Agreement including, without limitation, Distributions pursuant to Section 7.1. Except as otherwise provided herein, Distributions pursuant to Section 7.1 shall be made to the holders of Common Units pro rata in accordance with such holders’ ownership of such Common Units, as adjusted in accordance with Article IV. Notwithstanding the foregoing, if at any time CDPQ Preferred Units or the CDPQ Note (as defined in the Equityholders Agreement) are outstanding, (a) no amounts shall be Distributed to the holders of Common Units pursuant to Section 7.1 until the CDPQ Put Price (as defined in the Equityholders Agreement) and other amounts due to CDPQ pursuant to Section 5.1 of the Equityholders Agreement have been paid in full, (b) all Cash Available for Distribution that would otherwise be Distributed to the holders of Common Units pursuant to Section 7.1 shall instead be applied to the payment of the Annual Priority Payments (as defined in the Equityholders Agreement), that the Company is required to pay to the holders of CDPQ Preferred Units or the holder of the CDPQ Note, as applicable, pursuant to,

and subject to the terms and conditions of, the Equityholders Agreement, and (c) any Cash Available for Distribution that is not required to be applied to the payment of Annual Priority Payments, and is not otherwise paid to the holders of CDPQ Preferred Units or the holders of the CDPQ Note, as applicable, shall be retained by the Company.

Section 7.6 Offset.

The Company may offset all amounts owing to the Company by a Member against any Distribution to be made to such Member.

Section 7.7 Sale of the Company or its Assets.

Notwithstanding Section 7.1 of this Agreement, in connection with any Change in Ownership Event, the proceeds, if any, of such Change in Ownership Event received by the Company shall be distributed as follows:

(a) First, the Company shall (i) pay or discharge any indebtedness or other obligations and liabilities of the Company that are not assumed by the buyer (either directly or indirectly in the case of indebtedness or other obligations or liabilities of any subsidiary of the Company) in connection with such Change in Ownership Event and (ii) pay all fees, costs, and expenses incurred by the Company in connection with the consummation of such Change in Ownership Event.

(b) [REDACTED]

(c) Third, the remaining proceeds, if any, of the Change in Ownership Event shall be Distributed pro rata to the holders of Common Units in accordance with their respective Common Membership Interests, as adjusted in accordance with Article IV.

Section 7.8 Refinancing of Indebtedness.

Notwithstanding Section 7.1 of this Agreement, if the Company Distributes to its Members any funds or other property or assets obtained as a result of any refinancing or restructuring of the Project Debt Financing or the Bridge Loan Financing, such funds or other property or assets shall be Distributed as follows:

(a) [REDACTED]

(b) Second, the remaining funds, if any, to be Distributed as a result of such refinancing or restructuring shall be Distributed pro rata to the holders of Common Units in accordance with their respective Common Membership Interests, as adjusted in accordance with Article IV.

ARTICLE VIII

M ANAGEMENT OF THE C OMPANY ; R OLE OF M EMBERS

Section 8.1 Management.

Subject to the provisions of Article XVIII and except to the extent otherwise specified in this Agreement, including without limitation this Section 8.1, Section 8.2(b), Section 8.6 and Article XI, (i) the management of the Company shall be vested exclusively in its Board of Managers, and (ii) the Board of Managers shall have complete discretion, authority, power and control in the management of the business and affairs of the Company and shall make all decisions affecting the business of the Company and shall manage and control the affairs of the Company to carry out the business and purpose of the Company. The Board of Managers shall possess all rights and powers of a “manager” of a limited liability company as provided in the LLC Act and otherwise by Law.

(a) Subject to the general supervisory authority of the Board of Managers, during the period beginning on the effective date of this Agreement and ending on the Start-Up Date insofar as the Management Agreement is not terminated in accordance with the terms thereof, the Management Company will be responsible for general Project oversight, including site selection, selection of and negotiations with vendors and suppliers for the Project, including consultants, engineers, contractors, equipment manufacturers and suppliers, lenders and federal, state and local governmental agencies with respect to any federal, state and local tax and economic incentives, all subject to and

in accordance with the Management Agreement and the Project Parameters. Any reasonable and documented costs incurred by the Management Company (or its Affiliates) in connection with such oversight services will be Project costs to be repaid by Greenpac Mill out of Greenpac Mill’s available cash in accordance with the Management Agreement, subject to any restrictions pursuant to the Project Debt Financing Documents and/or the Bridge Loan Documents; provided , however , that all such costs and expenses incurred prior to the execution of the Management Agreement shall be identified in an exhibit to the Management Agreement.

(b) Notwithstanding anything to the contrary set forth in this Agreement, during the period beginning on and subsequent to the Start-Up Date, the Management Company will be responsible for managing the day-to-day affairs of Greenpac Mill under the general supervision of the Board of Managers, subject and pursuant to the Management Agreement. If the Management Agreement is terminated in accordance with its terms (and no other management company is retained to perform management services for or on behalf of Greenpac Mill), then the Board of Managers shall be responsible for managing the day-to-day affairs of Greenpac Mill, subject to and in accordance with the terms of this Agreement.

(c) Subject to, and in accordance with the terms of, this Agreement and the Greenpac Member LLC Agreement, the Company, as the sole member of Greenpac Member, shall have complete discretion, power and authority in the management and control of Greenpac Member, shall make any decisions affecting the management and business of Greenpac Member and shall manage and control the affairs of Greenpac Member to carry out the business and purposes of Greenpac Member. To the extent that any approval of the Company, as the sole member of Greeenpac Member, is required under the terms of the Greenpac Member LLC Agreement, the Company shall grant such approval only if such approval is authorized and granted in accordance with the terms and conditions of this Agreement, including, without limitation, any specific requirements for such approval by the Members set forth in Article XI and any other applicable provision of this Agreement.

(d) Subject to, and in accordance with the terms of, this Agreement and the Greenpac Member LLC Agreement and the Greenpac Mill LLC Agreement, as applicable, Greenpac Member, as the sole member of Greenpac Mill, shall have complete discretion, power and authority in the management and control of the Greenpac Mill, shall make any decisions affecting the management and business of Greenpac Mill and shall manage and control the affairs of Greenpac Mill to carry out the business and purposes of Greenpac Mill. To the extent that any approval of Greenpac Member, as the sole member of Greeenpac Mill, is required under the terms of the Greenpac Mill LLC Agreement, the Company shall cause Greenpac Member to grant such approval only if such approval is authorized and granted in accordance with the terms and conditions of this Agreement, including, without limitation, any specific requirements for such approval by the Members set forth in Article XI and any other applicable provision of this Agreement.

(e) The Members shall cause the Company, and the Company shall cause Greenpac Member and Greenpac Mill, as applicable, not to take any action that would violate this Agreement including, without limitation, taking any action described in Article XI without obtaining the approval of the Members required thereunder, to the extent so required; provided , however , that in no event shall the Company cause Greenpac Member or Greenpac Mill, as applicable, to take any action (including, without limitation, any action described in Article XI) that would violate the Project Debt Financing Documents.

Section 8.2 Board of Managers.

(a) Voting . Each Manager shall have one vote for each Unit held by the Member or Members appointing such Manager (collectively, “ Manager Votes ”).

(b) Compliance with Agreement and Laws . The Managers shall cause the Company to conduct its business and affairs in accordance with this Agreement and applicable laws.

(c) Number and Designation of Managers . The number of members of the Board of Managers shall be equal to the number of Members, unless multiple Members appoint the same individual as a Manager, in which case the number of Managers shall be equal to the number of individuals appointed as Managers. Each Member shall designate only one (1) Manager; provided , however , that the [REDACTED] collectively, shall have the right to appoint only one (1) Manager. In the event that a single person is appointed as Manager by two or more Members, such Manager shall have such number of Manager Votes equal to the number of Units held by all the Members that appointed him or her. For purposes of example only, the Manager appointed by the [REDACTED] shall have a number of Manager Votes equal to the number of Units held by both the [REDACTED].

(d) Term . Each Manager shall serve until his resignation, death, replacement, or removal.

(e) Resignation and Removal . Any Manager may resign at any time by giving written notice to the Board of Managers or to the Secretary. Such resignation shall take effect at the time specified therein or, if no time is specified, then on delivery and, unless otherwise specified therein, the acceptance of such resignation by the Board of Managers shall not be needed to make it effective. A Manager may be removed at any time, with or without cause, by the Member (or Members) that designated such Manager. Any vacancy created by the resignation, death, or removal of a Manager shall be filled by the Member that designated such Manager. A Manager is automatically removed as a Manager if the Member appointing such Manager no longer holds any Units.

Section 8.3 Powers of Individual Members and Managers.

No individual Member or Manager shall have any authority to act on behalf of or bind the Company except as he may be authorized by the Board of Managers. No Manager shall take any

action on behalf of or bind the Company in contravention of any decision of the Board of Managers. Unless otherwise approved by the Members, no Manager shall be entitled to receive any compensation for serving as a Manager.

Section 8.4 Conflicts of Interest.

(a) A Manager need not devote his full time to the Company’s business, but shall devote such time as is necessary to manage the Company’s affairs in an effective manner. Subject to the other express provisions of this Agreement including, without limitation, Section 8.5(c), each Manager, Member or their respective Affiliates, employees, agents or representatives, at any time and from time to time, may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ventures in competition with the Company, Greenpac Member or Greenpac Mill, with no obligation to offer to the Company, Greenpac Member, Greenpac Mill or any other Manager or Member, the right to participate therein.

(b) Except as otherwise provided in this Agreement and subject to the provisions of Section 8.5(c), the Company, Greenpac Member and Greenpac Mill may transact business or enter into any Contract with any Manager, Member or their respective Affiliates, employees, agents or representatives (each, a “ Related Party Transaction ”), provided the terms of such Related Party Transaction (i) are no less favorable than those that the Company, Greenpac Member or Greenpac Mill, as applicable, could ordinarily obtain from unrelated third parties, (ii) are no more favorable to the Manager, Member or their respective Affiliates, employees, agents or representatives than those that would be entered into between parties dealing at arms’ length, (iii) such Related Party Transaction has been disclosed to the full Board of Managers and all of the Members, and (iv) any Contract that the Company, Greenpac Member or Greenpac Mill enters into in connection with a Related Party Transaction (and any decision by the Company, Greenpac Member or Greenpac Mill to exercise rights to amend or renew such Contract under the terms thereof) is approved by the Board of Managers and, to the extent required under Article XI, by the Members; provided , however , that, except as hereafter provided, on any vote taken with respect to any such Related Party Transaction, any Member having an interest in such Related Party Transaction and any Manager who is appointed by a Member having an interest in such Related Party Transaction shall not be entitled to vote, and shall abstain from any such vote of the Members or Board of Managers, as applicable, in determining whether to approve such Contract and the voting rights that would otherwise attach thereto shall be subtracted and not taken into consideration in determining whether the requisite approvals have been attained. Notwithstanding the foregoing, except as provided in Section 8.5(c) or Section 11.7, no Manager or Member, even if deemed to have an interest in any Related Party Transaction, shall be required to abstain from any such vote (and each Manager’s and Member’s vote, as applicable, shall be counted in such vote), with respect to any vote taken on the proposed approval of any Designated Related Party Contract that the Company, Greenpac Member or Greenpac Mill proposes to enter into in connection with such Related Party Transaction (and any decision by the Company, Greenpac Member or Greenpac Mill to enter into, amend or terminate, or elect to (or exercise any right to) renew or not renew such Designated Related Party Contract under the terms thereof).

(c) All decisions relating to the exercise or enforcement of the Company’s, Greenpac Member’s or Greenpac Mill’s rights, or the Company’s direct or indirect right to cause, Greenpac Member or Greenpac Mill to exercise, enforce or waive any rights, upon a default or alleged default by another party under any Contract entered into in connection with a Related Party Transaction (including, without limitation, any Designated Related Party Contract) shall be within the discretion of the Board of Managers; provided , however , that any Manager who is appointed by the Member which is a party to (or whose Affiliate is a party to) such Contract shall not be entitled to vote and shall abstain from any such vote by the Board of Managers in determining whether to exercise, enforce or waive such rights and the voting rights that would otherwise attach thereto shall be subtracted and not taken into consideration in determining whether the requisite approval has been obtained.

Section 8.5 Duties and Obligations of the Managers.

(a) Subject to the provisions of this Agreement including, without limitation, Section 8.1, the Managers shall cause the Company to conduct its business and operations separate and apart from that of any Member or Manager or any of its Affiliates, including, without limitation, (i) segregating Company assets and not allowing funds or other assets of the Company to be commingled with the funds or other assets of, held by, or registered in the name of, any Member or Manager or any of its Affiliates, (ii) maintaining books and financial records of the Company separate from the books and financial records of any Member or Manager and its Affiliates, and observing all Company procedures and formalities, including, without limitation, maintaining minutes of Company meetings and acting on behalf of the Company only in accordance with the terms of this Agreement, (iii) causing the Company to pay its liabilities from assets of the Company, and (iv) causing the Company to conduct its dealings with third parties in its own name and as a separate and independent entity.

(b) The Managers shall take all actions which may be necessary or appropriate (i) for the continuation of the Company’s valid existence as a limited liability company under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Members or to enable the Company to conduct the business of the Company and (ii) for the accomplishment of the Company’s purposes in accordance with the provisions of this Agreement and applicable laws and regulations.

(c) The Managers shall conduct the business and affairs of the Company, Greenpac Member and Greenpac Mill, as applicable: (i) in accordance with this Agreement (including, without limitation, Section 8.1), and the Managers’ implied contractual obligation of good faith and fair dealing, and (ii) in a manner that does not constitute gross negligence or fraud. In performing the Manager’s duties hereunder, each Manager may rely in good faith on the records of the Company, Greenpac Member and Greenpac Mill and on opinions, reports, statements and other information presented to the

Company, Greenpac Member or Greenpac Mill by any Member, officer or employee of the Company, Greenpac Member or Greenpac Mill, or any other Person, as to matters the Manager reasonably believes are within that other Person’s competence, including opinions, reports, statements or other information pertaining to the value and amount of the assets, liabilities, profits or losses of the Company, Greenpac Member or Greenpac Mill or any other facts pertinent to the net worth of the Company, Greenpac Member or Greenpac Mill when deciding the amount and timing of Distributions that the Company, Greenpac Member or Greenpac Mill may properly make. Notwithstanding anything contained herein to the contrary, the Managers shall owe the same fiduciary duties to the Company and any Member or other Person who is a party to this Agreement (or by operation of law may have certain benefits of a member) that a director of a Delaware corporation owes to the stockholders of such corporation.

Section 8.6 Independent Manager.

(a) For so long as any Project Debt Obligations remain outstanding, the Board of Managers shall cause the Company at all times to have one Independent Manager who will be appointed by the Board of Managers. The Board of Managers has designated Jennifer A. Schwartz of CT Corporation Staffing, Inc. as the initial Independent Manager. The Board of Managers may remove the Independent Manager only for Cause. To the fullest extent permitted by Law, including Section 18-1101(c) of the LLC Act, and notwithstanding any duty otherwise existing at law or in equity, the Independent Manager shall consider only the interests of the Company, including its creditors, in acting or otherwise voting on Insolvency Actions in accordance with Section 8.6(b). Except for duties to the Company as set forth in the immediately preceding sentence (including duties to the Members and the Company’s creditors solely to the extent of their respective economic interests in the Company, including, any Project Debt Obligations, but excluding (i) all other interests of the Members, (ii) the interests of other Affiliates of the Company, and (iii) the interests of any group of Affiliates of which the Company is a part), the Independent Manager shall not have any fiduciary duties to the Members or any other Person bound by this Agreement; provided , however , the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing. To the fullest extent permitted by Law, including Section 18-1101(e) of the LLC Act, the Independent Manager shall not be liable to the Company, any Member or any other Person bound by this Agreement for breach of contract or breach of duties (including fiduciary duties), unless the Independent Manager acted in bad faith or engaged in willful misconduct. No resignation or removal of the Independent Manager, and no appointment of a successor Independent Manager, shall be effective until such successor shall have accepted his or her appointment as the Independent Manager by executing a counterpart to this Agreement. For so long as any Project Debt Obligations remain outstanding, in the event of a vacancy in the position of Independent Manager, the Board of Managers shall, as soon as practicable, appoint a successor Independent Manager. Notwithstanding anything to the contrary contained in this Agreement, no Independent Manager shall be removed or replaced unless the Company provides the Senior Lender with no less than five (5) business days’ prior written notice of (a) any proposed removal of such Independent Manager (including the finding of Cause), and (b) the identity of the

proposed replacement Independent Manager, together with a certification that such replacement satisfies the requirements for a Independent Manager set forth in this Agreement. All right, power and authority of the Independent Manager shall be limited to the extent necessary to exercise only those rights and perform only those duties specifically set forth in Section 8.6(b) of this Agreement and, at such time as there are no Project Debt Obligations outstanding, the Independent Manager shall forthwith cease to serve in such capacity and all right, power and authority of the Independent Manager pursuant to this Agreement shall forthwith cease. Except as provided in the fourth sentence of this Section 8.6(a), in exercising its rights and performing its duties under this Agreement, the Independent Manager shall have a fiduciary duty of loyalty and care similar to that of a director of a business corporation organized under the General Corporation Law of the State of Delaware. No Independent Manager shall at any time serve as trustee in bankruptcy for any Affiliate of the Company.

(b) Notwithstanding any other provision of this Agreement and any provision of Law that otherwise so empowers the Company, the Members, the Board of Managers, any Officer or any other Person, as long as any Project Debt Obligations (other than unasserted, contingent indemnification obligations) remain outstanding, neither the Members nor the Board of Managers nor any Officer nor any other Person shall be authorized or empowered, nor shall they permit the Company, Greenpac Member or Greenpac Mill, without the prior written consent of the Independent Manager, to take any Insolvency Action; provided , however , that any such Insolvency Action shall also require the unanimous approval of the Members in accordance with Section 11.4.

ARTICLE IX

M EETINGS OF M ANAGERS

Section 9.1 Meetings of the Board of Managers.

Meetings of the Board of Managers shall be held at least quarterly. Other regular meetings of the Board of Managers shall be held at such times as may from time to time be fixed by resolution of the Board of Managers. Special meetings of the Board of Managers may be held at any time upon the call of one or more of the Managers appointed by the Members holding at least twenty-five percent (25%) of the outstanding Units of the Company. Meetings of the Board of Managers shall be held at such place, as from time to time, may be fixed by resolution of the Board of Managers. If no place is so fixed, meetings of the Board of Managers shall be held at the principal office of the Company. The Managers shall cause minutes of all regular and special meetings to be maintained.

Section 9.2 Notice of Meetings.

Notice of regular meetings (except when notice of a regular meeting has been waived by the unanimous consent of the Board of Managers) and special meetings of the Board of Managers shall be mailed to each Manager, addressed to the address last given by each Manager to the Secretary or, if none has been given, to the Manager’s residence or usual place of business, at least ten (10) days before the day on which the meeting is to be held, or shall be sent to the Manager by electronic mail, facsimile or similar means so addressed or shall be delivered

personally or by telephone, at least five (5) days before the day on which the meeting is to be held. Each notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise expressly provided by applicable Law. Notices of any such meeting need not be given to any Manager who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice.

Section 9.3 Quorum and Manner of Acting.

At each meeting of the Board of Managers, the presence of a majority of the Board of Managers shall constitute a quorum for the transaction of business, and, except as otherwise provided in this Agreement or required by the LLC Act, eighty percent (80%) of all Manager Votes outstanding, calculated in accordance with Section 8.4, if applicable, shall be required to approve any action that may be taken by the Board of Managers. Except as specifically provided in Section 8.6, the vote or written consent of the Independent Manager shall not be required for any action by the Board of Managers or Members to be valid and effective; and, for the avoidance of doubt, the Independent Manager’s authority is limited to the right to approve Insolvency Actions, subject to and in accordance with the terms of Section 8.6.

Section 9.4 Action Without a Meeting.

Any action required or permitted to be taken by the Board of Managers may be taken without a meeting if all members of the Board of Managers consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board of Managers shall be filed with the minutes of the proceedings of the Board of Managers.

Section 9.5 Participation in Board of Managers Meetings by Conference Telephone; Proxies.

Any one or more members of the Board of Managers may participate in a meeting of such Board of Managers by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. At all meetings of the Board of Managers, a Manager may vote by proxy executed in writing by the Manager or by his duly authorized attorney-in-fact. In order to be effective, such proxy shall (i) be signed in the exact name of the Manager on record with the Company, and (ii) be presented at the meeting of the Board of Managers and delivered to the acting secretary of such meeting. No proxy shall be valid after three months from the date of its execution, notwithstanding anything to the contrary provided in the proxy.

Section 9.6 Authority of Managers.

No single Manager acting alone shall have any right or authority to act for or bind the Company without the prior written consent of the Board of Managers. Subject to the restrictions on the powers of Managers set forth in this Agreement, any two or more Managers acting together may shall have the right, power and authority to transact business on behalf of the Company, to sign for the Company or on behalf of the Company or otherwise to bind the Company.

ARTICLE X

O FFICERS OF THE C OMPANY

Section 10.1 Officers Enumerated.

The Board of Managers may elect officers of the Company, which officers may be a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, an Assistant Secretary, a Chief Financial Officer and Treasurer, and such other officers as determined in the discretion of the Board of Managers. Any two or more offices may be held by the same Person (the “ Officers ”).

Section 10.2 Election and Term of Office.

All officers, if any, shall be initially selected and recommended by the Management Company and shall be submitted for approval by the Board of Managers in accordance with Section 9.3 and Section 10.1, and each shall serve until his resignation, death, or removal.

Section 10.3 The Chief Executive Officer.

The Chief Executive Officer, if any, subject to the approval of the Board of Managers, shall be the chief executive officer of the Company and shall have general control and management of the business operations of the Company.

Section 10.4 The President.

If there is no Chief Executive Officer, the President, shall have all the powers, duties and responsibilities designated in Section 10.3 belonging to the Chief Executive Officer. If there is a Chief Executive Officer, the President shall be an executive officer of the Company, and subject to the approval of the Board of Managers and the Chief Executive Officer, shall have supervision of the business operations of the Company and its officers and agents.

Section 10.5 The Vice Presidents.

Each Vice President, if any, shall report to the Chief Executive Officer and the President and, in the absence or incapacity of the President and in order of seniority as fixed by the Board of Managers, have the authority and perform the duties of the President, and each shall have such other authority and perform such other duties as the Board of Managers may prescribe.

Section 10.6 The Secretary.

The Secretary shall (a) attend all meetings of the Board of Managers and all meetings of Members and record all votes and the minutes of all proceedings in a book to be kept for that purpose, (b) give, or cause to be given, notice of all meetings of the Members and special meetings of the Board of Managers, and (c) have such other authority and perform such other duties as usually pertain to the office or as may be prescribed by the Board of Managers, the Chief Executive Officer and the President.

Section 10.7 Chief Financial Officer and Treasurer.

The Chief Financial Officer and Treasurer shall (a) have the care and custody of all the moneys and securities of the Company, (b) keep or cause to be kept complete and accurate books of account of all moneys received and paid on account of the Company, (c) sign such instruments as require the Treasurer’s signature, and (d) have such other authority and perform such other duties as usually pertain to the office or as the Board of Managers, the Chief Executive Officer and the President may prescribe.

ARTICLE XI

M EMBERS

Section 11.1 Names and Addresses of Members.

The names and addresses of the initial Members are as set forth on Schedule A hereof.

Section 11.2 Actions Requiring Majority Approval of Members.

Notwithstanding anything to the contrary set forth in this Agreement, and subject to the provisions of Section 8.1(e) and Section 8.4, without the approval of the Members holding at least sixty percent (60%) of the outstanding Units, the Company shall not, and shall not cause or allow Greenpac Member or Greenpac Mill to, directly or indirectly:

(a) approve or amend any annual operating and capital expenditure budgets;

(b) undertake any projects or acquire any assets (i) for which any single capital expenditure will be in excess of $1,000,000, or for which aggregate capital expenditures in any calendar year will be in excess of $5,000,000, and (ii) which have not otherwise been provided for in a budget which has been approved by the Members;

(c) commence any transaction outside the normal course of business, including litigation settlements, where the Company will receive payment or acquire liabilities in excess of $1,000,000;

(d) make any loan or advances to any other Person other than advances to employees in the ordinary course of business which do not exceed $200,000 in the aggregate outstanding at any one time for all employees; or

(e) amend the general policies of the Company with respect to the hiring, evaluation and remuneration of employees.

Section 11.3 Actions Requiring Supermajority Approval of Members.

Notwithstanding anything to the contrary set forth in this Agreement, and subject to the provisions of Section 8.1(e) and Section 8.4, without the approval of the Members holding at least eighty percent (80%) of the outstanding Units, the Company shall not, and shall not cause or allow Greenpac Member or Greenpac Mill to, directly or indirectly:

(a) select or change a controller upon the recommendation of the Management Company;

(b) make any advances or loans to any Member or any Affiliate of a Member;

(c) dispose of assets of the Company other than in the ordinary course of business, unless such assets represent all or substantially all of the assets of the Company, in which case unanimous approval of the Members shall be required under Section 11.4;

(d) adopt, implement, amend or terminate any equity-based compensation arrangement or plan;

(e) approve or amend the Project Parameters;

(f) use any funds received from Capital Contributions for purposes other than (i) to pay Project-related costs and expenses in accordance with the Project Parameters, (ii) to fund working capital requirements of the Company, Greenpac Member or Greenpac Mill, or (iii) to pay or repay amounts due under the Bridge Loan Documents;

(g) make any Distribution of cash on account of any Units except as set forth in Article VII or, with respect to the CDPQ Preferred Units, as set forth in the Equityholders Agreement;

(h) cause or permit Greenpac Member or Greenpac Mill to make any distribution of cash of other property, except as set forth in and expressly permitted by the Greenpac Member LLC Agreement or Greenpac Mill Agreement, as applicable;

(i) make any Distribution of property (other than cash) to Members on account of any Units;

(j) issue, redeem or repurchase any Units or any options or securities exercisable for or convertible into Units, except as set forth in Article IV of this Agreement or as contemplated in the Equityholders Agreement (subject, however, to Section 11.6), the Subscription Agreement or the Contribution Agreement; provided , however , that such action does not constitute a breach or violation of any of Article IV of this Agreement, the Equityholders Agreement, the Contribution Agreement, or any of the Convertible Contribution Notes issued thereunder;

(k) directly or indirectly acquire any ownership interest, or make any investment, in any subsidiary or other business or entity (other than Greenpac Mill), or enter into any partnership or joint venture;

(1) authorize or permit any subsidiary to issue or sell any equity securities or securities convertible or exercisable or exchangeable for any equity securities;

(m) vote the shares of capital stock or other equity interests of any subsidiary of the Company with respect to any matter coming before the stockholders or equity holders of such subsidiary for a vote, it being understood that the governance provisions of this Agreement (and the voting of the shares of stock or other equity interest of any subsidiary) would apply to any subsidiary as if the actions of such subsidiary were actions of the Company;

(n) incur, assume or guarantee any indebtedness, provide financial assistance or otherwise become directly or indirectly obligated with respect to liabilities and obligations, for borrowed money or grant a security interest or mortgage with respect to any assets other than in connection with the Project Debt Financing, Bridge Loan Financing, trade debt or payment obligations under the Management Agreement, or enter into, amend or terminate any agreement in respect thereof;

(o) except as set forth in the Project Debt Financing Documents or the Bridge Loan Documents, grant or agree hereafter to any restriction or covenant in any loan, debt or credit agreement, instrument or document that could be reasonably viewed as affecting or imperiling the ability of the Company to redeem or make any required payment on or in respect of the exercise of CDPQ’s put right under Section 5.1 of the Equityholders Agreement or the payment of Distributions on Units, or providing for other similar restrictions;

(p) enter into, amend, terminate, or elect to (or exercise any right to) renew or not renew, any purchase agreement, lease or exchange of assets or any Contract with any Member or any Affiliate of a Member or any party which any Member does not deal with at arm’s length (other than any Designated Related Party Contract, which shall be subject to the terms of Section 11.4);

(q) select or change the Company’s (or Greenpac Mill’s) independent auditor;

(r) authorize or implement any significant change in accounting policies;

(s) approve or authorize any action or decision to be taken or made by the Company with respect to any Tax Credit Audit (as defined in the Contribution Agreement);

(t) authorize or permit any subsidiary (including, without limitation, Greenpac Mill) to take any action that has the same effect as any of the foregoing; or

(u) any other action that under the LLC Act would require the vote of any Member if this Agreement did not provide otherwise.

Section 11.4 Actions Requiring Unanimous Approval of Members.

Notwithstanding anything to the contrary set forth in this Agreement, and subject to the provisions of Section 8.1(e), Section 8.4 and Section 8.6, without the approval of all of the Members, the Company shall not, and shall not cause or allow Greenpac Member or Greenpac Mill to, directly or indirectly:

(a) take any action that constitutes or results in:

(i) the liquidation, dissolution or winding up of the Company, Greenpac Member or Greenpac Mill, whether voluntary or involuntary;

(ii) the sale, lease, license (on an exclusive basis) or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company (including the sale, lease, license (on an exclusive basis) or other disposition of assets of any direct or indirect subsidiary (including Greenpac Member and Greenpac Mill) that constitute all or substantially all of the assets of the Company and the sale or other disposition of ownership (by merger, consolidation, sale of securities or otherwise) of any direct or indirect subsidiary (including Greenpac Member and Greenpac Mill) the assets of which constitute all or substantially all of the assets of the Company); or

(iii) the consolidation or merger of the Company, Greenpac Member or Greenpac Mill with or into any other entity or entities, or that would permit any other entity or entities to consolidate with or merge into the Company, Greenpac Member or Greenpac Mill, or any other capital reorganization;

(b) permit or consent to the Transfer of any Units or of any Convertible Contribution Note either between Members or to any other Person, except as effected in compliance with the provisions of the Equityholders Agreement or the default and remedy provisions of this Agreement and the Contribution Agreement;

(c) increase or decrease the number of Managers of the Company, except as otherwise in accordance with the terms of this Agreement;

(d) commence or take any Insolvency Action (with the prior written consent of the Independent Manager, in accordance with Section 8.6, if such consent is required thereunder);

(e) change the nature of the Company’s, Greenpac Member’s or Greenpac Mill’s business to something other than as described in and as limited by Section 2.3;

(f) convert the Company into a different form of entity as contemplated by Section 18-216 of the LLC Act;

(g) approve any adjustments to the Price (as defined in the Paper Supply Agreement) payable under any Paper Supply Agreement; provided , however , that each of the Members shall be deemed to have approved each adjustment, if any, to the Price determined, pursuant to a Paper Supply Agreement, by an external auditor appointed in accordance with the terms of any Paper Supply Agreement and this Section 11.4;

(h) select an external auditor, pursuant to the terms of any Paper Supply Agreement, to audit the Price payable under such Paper Supply Agreement;

(i) authorize or agree to the amendment, renewal or termination of the Management Agreement (including the giving of any notice of amendment, renewal or termination), but not including the first renewal of the term of the Management Agreement in 2021, which first renewal shall be at the option of the Management Company and shall not require the approval of the Board of Managers or the Company;

(j) enter into, amend, terminate, or elect to (or exercise any right to) renew or not renew, any Designated Related Party Contract (other than a change in the Price payable under any Paper Supply Agreement, which shall be subject to the provisions of Section 11. 3); or

(k) amend, waive or repeal any provision of this Agreement, including without limitation any amendment that would alter the tax classification of the Company.

Section 11.5 Nature of Obligations Among Members.

Except as otherwise provided in this Agreement or by written agreement among the Members, no Member shall have any authority to act for or assume any obligation or responsibility on behalf of any other Member or the Company.

Section 11.6 Units.

The Membership Interests of the Company shall be represented by Units. The Units of the Company are divided into two classes, Common Units and CDPQ Preferred Units. Except as otherwise specifically provided in this Agreement and the Equityholders Agreement including, without limitation, with respect to the priority of Distributions, the Common Units and CDPQ Preferred Units are identical in all respects (with the holders thereof entitled to all of the same rights and preferences). Members holding Common Units shall be entitled to one (1) vote per Common Unit held on all matters for which Member approval is required. Members holding CDPQ Preferred Units shall be entitled to one vote for each CDPQ Preferred Unit held on all matters for which Member approval is required.

Section 11.7 Voting.

Except as otherwise set forth in this Agreement, including Sections 11.2 through 11.4, the affirmative vote of the Members holding a majority of the outstanding Units of the Company, subject to adjustment in accordance with Article IV, shall be required to approve any matter coming before the Members for a vote; provided , however , that in the event that the Company has the option of exercising any of its rights to acquire Units pursuant to the Equityholders Agreement, the exercise of such rights shall be approved by the affirmative vote of the Members holding a majority of the outstanding Units, other than the Member holding the Units subject to the Company’s option. Notwithstanding anything in this Agreement to the contrary, at all times that they hold Units hereunder, each of the [REDACTED] agrees to vote or cause to be voted (or to execute written consents in lieu of voting at a meeting with respect to) all Units

owned by such [REDACTED], or over which such [REDACTED] has voting control, from time to time and at all times, in whatever manner as shall be necessary for the [REDACTED] to vote together, in the same manner, on all matters coming before the Members for vote or written consent. The Company and the other Members shall be entitled to rely on any written notice or directive delivered by either [REDACTED] as being a written notice or directive of both [REDACTED], which shall be binding on both [REDACTED] for all purposes. The [REDACTED] agree to execute such voting agreements, voting trust agreements, proxies and other documents as may be necessary or appropriate to give effect to the provisions of this Section 11.7.

ARTICLE XII

M EETINGS OF M EMBERS

Section 12.1 Meetings.

Meetings of the Members shall be held at least annually and may be held more frequently upon the request of one or more Member(s) holding at least twenty-five percent (25%) of all outstanding Units of the Company. Meetings of the Members shall be held at the principal office of the Company or such other place designated by the Members in the notice of the meeting. The Members shall cause minutes of all regular and special meetings to be maintained.

Section 12.2 Notice.

Notice of any meeting of the Members shall be given no fewer than ten (10) days and no more than sixty (60) days prior to the date of the meeting. Notices shall be delivered in the manner set forth in Section 19.2 of this Agreement and shall specify the purpose or purposes for which the meeting is called. The attendance of a Member at any meeting shall constitute a waiver of notice of such meeting, except where a Member attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

Section 12.3 Quorum.

Members holding a majority of all outstanding Units present in person or represented by proxy shall constitute a quorum for transaction of business at any meeting of the Members, provided that if Members holding less than a majority of all outstanding Units are present at said meeting, such Members may adjourn the meeting at any time without further notice.

Section 12.4 Manner of Acting.

The act of the Members holding a majority of all outstanding Units present at a meeting at which a quorum is present shall be the act of the Members, unless the act of a greater number is required by the LLC Act, this Agreement or the Certificate.

Section 12.5 Action Without Meeting.

Any action required to be taken at a meeting of the Members or any other action which may be taken at a meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by Members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the Members were present and voting. If the Members anticipate taking any action without a meeting by less than unanimous consent, the Members taking or proposing to take such action shall provide all Members with written notice of such action prior to the taking thereof; provided , however , that without affecting any other rights and remedies of any Member who did not sign such consent, the failure to give such notice shall not affect the validity of the approval of any action taken by written consent in accordance with this Section 12.5.

Section 12.6 Telephonic Meetings.

The Members may participate in and act at any meeting of Members through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating.

Section 12.7 Proxies.

Each Member entitled to vote at a meeting of Members or to express consent or dissent to action in writing without a meeting may authorize another Person or Persons to act for him by proxy. Such proxy shall be delivered to the principal office of the Company or the meeting prior to the taking of any action based in whole or in part upon the authorization of such proxy, but no proxy shall be valid after three (3) months from the date of its execution, unless otherwise provided in the proxy.

ARTICLE XIII

U NIT C ERTIFICATES

Section 13.1 Unit Certificates.

Each Member’s Units shall be evidenced by Unit Certificates in such form as the Board of Managers may from time to time prescribe. The number and class of Units held by a Member shall be designated on that Member’s Unit Certificate. Unit Certificates shall be signed by an Officer of the Company and registered in such manner, if any, as the Board of Managers may prescribe. Each Membership Interest in the Company, and the Units representing the Membership Interests, shall constitute and shall remain a “security” within the meaning of Section 8-102(a)(15) of the UCC as in effect from time to time in the State of Delaware and of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995. Notwithstanding any provision of this Agreement to the contrary, to the extent that any provision of this Agreement is inconsistent with any non-waivable provision of Article 8 of the UCC, such provision of Article 8 of the UCC shall be controlling.

Section 13.2 Mutilated, Lost, Stolen or Destroyed Unit Certificates.

A Member shall notify the Company of the mutilation, loss, theft, or destruction of any such Member’s Unit Certificate. The Company shall cause one or more new Unit Certificates, for the same number and class of Units in the aggregate, to be issued to such holder upon surrender of the mutilated Unit Certificate or, in case of the loss, theft, or destruction of such Unit Certificate, upon satisfactory proof of such loss, theft, or destruction and the deposit of indemnity by way of bond or otherwise, in such form and amount and with such surety or security as the Board of Managers may require to indemnify the Company against loss or liability by reason of the issuance of such new Unit Certificate(s).

Section 13.3 Unit Certificate Ledger.

The Company shall maintain a Unit Certificate ledger, which shall contain the name, address, and the number and class of Units held by each Member, with the books and records of the Company.

Section 13.4 Legends.

All Unit Certificates and Convertible Contribution Notes now or hereafter issued by the Company shall be marked with the following legends, as applicable:

THE UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. SUCH UNITS MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED BY SAID ACT OR STATE LAWS.

THE UNITS REPRESENTED BY THIS CERTIFICATE ARE HELD SUBJECT TO THE TERMS OF THE LIMITED LIABILITY COMPANY AGREEMENT OF GREENPAC HOLDING LLC, AND AN EQUITYHOLDERS AGREEMENT, EACH DATED AS OF JUNE 24, 2011 (THE “ AGREEMENTS ”). AND ALL AMENDMENTS TO SUCH AGREEMENTS. SUCH UNITS MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF SUCH AGREEMENTS AND ALL AMENDMENTS TO SUCH AGREEMENTS.

THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND ANY UNITS INTO WHICH IT IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED UNLESS AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE.

THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND THE UNITS INTO WHICH IT IS CONVERTIBLE ARE HELD SUBJECT TO THE TERMS OF THE LIMITED LIABILITY COMPANY AGREEMENT OF GREENPAC HOLDING LLC, AND AN EQUITYHOLDERS AGREEMENT, EACH DATED AS OF JUNE 24, 2011 (THE “ AGREEMENTS ”). AND ALL AMENDMENTS TO SUCH AGREEMENTS. SUCH SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND THE UNITS INTO WHICH IT IS CONVERTIBLE MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF SUCH AGREEMENTS AND ALL AMENDMENTS TO SUCH AGREEMENTS.

ARTICLE XIV

T RANSFER OF U NITS

Section 14.1 Company’s Restriction on Transfer.

The Company shall neither cause nor permit the Transfer of any Units to be made on the Company’s books unless the Transfer is permitted by this Agreement, the Equityholders Agreement, the Bridge Loan Documents and the Contribution Agreement (collectively, the “ Restrictive Agreements ”) and has been made in accordance with the terms of the Restrictive Agreements.

Section 14.2 Members’ Restriction on Transfer.

The Members hereby acknowledge and agree that the Units held by the Members are subject to the terms, conditions, and restrictions contained in the Restrictive Agreements, the terms, conditions and restrictions of which are hereby incorporated by reference with the same force and effect as if set forth herein, as applicable. No Member shall be permitted to (i) grant a security interest in the Units held by such Member to any Person other than to the Bridge Loan Administrative Agent (for the benefit of the Bridge Loan Administrative Agent and the lenders under the Bridge Loan Documents) in accordance with the terms of the Bridge Loan Documents or (ii) otherwise cause or permit the Transfer of any of the Units held by such Member unless the Transfer is permitted by the Restrictive Agreements.

Section 14.3 Pledge of Units.

The Company and each of the Members acknowledge that each of the Members has granted to the Bridge Loan Administrative Agent (for the benefit of the Bridge Loan Administrative Agent and the lenders under the Bridge Loan Documents) a security interest in the Units held by such Member in accordance with the terms of the Bridge Loan Documents (and the Company and each Member hereby consents to same). Upon any foreclosure, sale or other Transfer of the Units pursuant to the Bridge Loan Documents (a “ Bridge Default Unit Transfer ”), the Person to which such Units have been Transferred shall, upon satisfaction of the conditions set forth in Section 14.4(c), automatically be admitted as a Member of the Company, with all of the rights and obligations of a Member hereunder, upon obtaining Units as a result of such Bridge Default Unit Transfer, without consent from the Company, any of the other Members or any other Person. Notwithstanding the foregoing or anything to the contrary

contained in the Restrictive Agreements, the Company and each of the Members agree that Bridge Default Unit Transfers shall be permitted by the Restrictive Agreements, provided that the Bridge Default Unit Transfers are made in accordance with the Bridge Loan Documents.

Section 14.4 Conditions for Transfer.

(a) If any Transfer is made or attempted contrary to the provisions of the Restrictive Agreements, as applicable, such purported Transfer shall be void ab initio. In connection with any such purported Transfer made or attempted contrary to the provisions of the Restrictive Agreements, the Company and the Members shall have, in addition to any other legal or equitable remedies which they may have, the right to enforce the provisions of this Agreement by actions for specific performance (to the extent permitted by Law); and the Company shall have the right to refuse to recognize any Transferee as a Member for any purpose.

(b) A Transferee (other than a Transferee with respect to a Bridge Default Unit Transfer, which shall be subject to the provisions of Section 14.4(c)) shall be admitted as a Member and have all of the rights of a Member, pursuant to this Agreement, only if:

(i) the Transfer of Units to the Transferee is made in accordance with all of the terms of the Restrictive Agreements, as applicable;

(ii) the Members of the Company approve the admission of the Transferee as a Member of the Company, in accordance with the terms of this Agreement; provided , however , that the Members may not withhold consent if the Transfer to the Transferee was made in accordance with all of the terms and conditions of the Restrictive Agreements;

(iii) the Transferee executes an instrument agreeing to be bound by the terms and conditions of this Agreement;

(iv) the Transferee executes an instrument agreeing to be bound by the terms and conditions of the Equityholders Agreement;

(v) the Transferee executes an instrument agreeing to be bound by the terms and conditions of the Contribution Agreement; and

(vi) the Company receives a copy of the instrument effecting the Transfer of the Units to the Transferee.

(c) A Transferee with respect to a Bridge Default Unit Transfer shall be admitted as a Member and have all of the rights of a Member, pursuant to this Agreement, only if the Transfer of Units to the Transferee is made in accordance with the terms of the Bridge Loan Documents.

ARTICLE XV

I NDEMNIFICATION

Section 15.1 Limitation of Liability.

To the fullest extent permitted by the LLC Act, no Member, Manager or Independent Manager of the Company (including a Person having more than one such capacity) or any of its Affiliates, shareholders, partners, members, employees, agents, heirs, beneficiaries, and legal representatives is liable for any debts, obligations, or liabilities of the Company or of each other, whether arising in tort, Contract, or otherwise, solely by reason of being such Member, Manager, Independent Manager or the Affiliate, shareholder, partner, member, employee, agent, heir, beneficiary, or legal representative of such Member, Manager or Independent Manager or acting (or omitting to act) in such capacities or participating) in the conduct of the business of the Company. No Member shall be liable, responsible, or accountable in any way for damages or otherwise to the Company or to any of the Members for any act or failure to act pursuant to this Agreement or otherwise unless (i) such Member acted in bad faith, (ii) the conduct of such Member constituted intentional misconduct, a knowing violation of Law or a breach of this Agreement, (iii) such Member gained a financial benefit to which such Member was not legally entitled, or (iv) such Member received any Distribution in violation of Section 18-607(a) of the LLC Act, and knew at the time of such Distribution that the Distribution violated Section 18- 607(a), in which case such Member shall be liable to the Company for the amount of such Distribution.

Section 15.2 Indemnification of the Members and Managers.

The Company shall indemnify, defend, and hold harmless each Member, Manager, Independent Manager and Officer, and the Affiliates, shareholders, partners, members, employees, agents, heirs, beneficiaries, and legal representatives of each Member, Manager, Independent Manager and Officer (each, an “ Indemnified Party ”) to the maximum extent permitted by applicable Law, as the same exists or may hereafter be amended (but in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said Law permitted the Company to provide prior to such amendment) from and against any and all actual or alleged losses, claims, damages, liabilities, costs and/or expenses of any nature whatsoever, including without limitation attorneys’ fees, arising out of or in connection with any action taken or omitted by an Indemnified Party pursuant to authority granted by or otherwise in connection with this Agreement. Notwithstanding the foregoing, the provisions of this Section 15.2 shall not apply to (i) an Indemnified Party’s (w) breach or violation of any provision of this Agreement, (x) gross negligence or fraud, (y) unlawful acts or omissions that the Indemnified Party knew or had reasonable cause to know at the time that they occurred were clearly unlawful, or (z) willful misconduct (meaning those acts or omissions that the Indemnified Party knew or had reasonable cause to know at the time they occurred were clearly in conflict with the interests of the Company and in violation of this Agreement); or (ii) transactions or other actions for which the Indemnified Party derived an improper personal benefit (which is not to include any benefit derived from any activity otherwise authorized under this Agreement) in breach of such Indemnified Party’s duty of loyalty to the Company. The indemnification under this Section 15.2 shall continue as to an

Indemnified Party who has ceased to serve in the capacity which initially entitled such Indemnified Party to indemnification hereunder. Any indemnity under this Section 15.2 shall be paid out of, and to the extent of, Company assets only, including insurance proceeds if available.

Section 15.3 Advancement of Expenses.

All expenses reasonably incurred by an Indemnified Party in connection with a threatened or actual action or proceeding with respect to which such Person is or may be entitled to indemnification under this Article XV shall be advanced or promptly reimbursed by the Company to such Indemnified Party in advance of the final disposition of such action or proceeding upon receipt of an undertaking by such Indemnified Party or on such Indemnified Party’s behalf to repay the amount of such advances, if any, as to which such Indemnified Party is ultimately found not to be entitled to indemnification or, where indemnification is granted, to the extent such advances exceed the indemnification to which such Indemnified Party is entitled.

Section 15.4 Contractual Article.

The rights conferred by this Article XV are contract rights that are expressly intended to create third-party beneficiary rights of each Indemnified Party and shall not be abrogated by any amendment or repeal of this Article XV with respect to events occurring prior to such amendment or repeal. No amendment of the LLC Act, insofar as it may reduce the permissible extent of the right of indemnification of any Person under this Article XV, shall be effective as to such Person with respect to any event, act or omission occurring or allegedly occurring prior to the effective date of such amendment, irrespective of the date of any claim or legal action in respect thereof. This Article XV shall be binding on any successor to the Company, including without limitation any Person which acquires all or substantially all of the Company’s assets.

Section 15.5 Non-Exclusivity.

The indemnification provided by this Article XV shall not be deemed exclusive of any other rights to which any Person covered hereby may be entitled other than pursuant to this Article XV. The Company is authorized to enter into agreements with any such Person providing rights to indemnification or advancement of expenses in addition to the provisions therefor in this Article XV to the fullest extent permitted by Law.

Section 15.6 Insurance.

The Company may, but need not, maintain insurance insuring the Company or Persons entitled to indemnification under this Article XV for liabilities against which they are entitled to indemnification under this Article XV or insuring such Persons for liabilities against which they are not entitled to indemnification under this Article XV. The Company shall acquire and maintain a directors and officers insurance policy on terms and conditions acceptable to the Managers.

Section 15.7 Indemnification of Employees or Agents.

The Company, by the written resolution of the Board of Managers, may indemnify and advance expenses to an employee or agent of the Company to the same extent and subject to the same conditions under which the Company may indemnify and advance expenses to a Member, Manager or Officer under this Article XV; and the Company may indemnify and advance expenses to Persons who are not or were not employees or agents of the Company, but who are or were serving at the request of the Company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic limited liability company, corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of such Person’s status as such a Person to the same extent that the Company may indemnify and advance expenses to a Member, Manager or Officer under this Article XV. Notwithstanding the foregoing, the Company shall not be obligated or permitted to indemnify the Management Company to the extent such indemnification would be contrary to the terms of, or would lessen or mitigate the Management Company’s liability under, the Management Agreement.

Section 15.8 Member Notification.

To the extent required by Law, any indemnification of or advance of expenses to an Indemnified Party in accordance with this Article XV shall be reported in writing to the Members with or before the notice or waiver of notice of the next Members’ meeting or with or before the next submission to Members of a consent to action without a meeting and, in any case, promptly following the date of the indemnification or advance; provided , however , that the failure to provide such notice shall not release the Company from any of its obligations under this Article XV except and only to the extent that the Company is materially and adversely prejudiced by such failure

ARTICLE XVI

D ISSOLUTION , W ITHDRAWAL AND W INDING U P

Section 16.1 Dissolution.

The Company shall be dissolved only upon the affirmative vote or written consent of the Members in accordance with Section 11.4, subject to, and in accordance with the terms of this Agreement and specifically Article XVIII hereof. Notwithstanding any other provision of this Agreement, the bankruptcy of a Member or any additional member shall not cause such Member or additional member to cease to be a member of the Company and, upon the occurrence of such an event, the Company shall continue in existence without dissolution. Notwithstanding any other provision of this Agreement, each of the Members and any additional member waives any right it might have to agree in writing to dissolve the Company upon the bankruptcy of a Member or additional member, or the occurrence of an event that causes a Member or additional member to cease to be a member of the Company.

Section 16.2 Winding up the Company.

Upon the dissolution of the Company pursuant to Section 16.1 hereof, the Company shall immediately commence to wind up the Company’s affairs and distribute the Company’s assets. The Members shall continue to share in Distributions, Profits or Losses during the period of liquidation in the same proportions as before the dissolution. The property and proceeds from liquidation of Company assets shall be applied as follows:

(a) first, to the payment of creditors of the Company, including Members who are creditors, to the extent permitted by Law;

(b) to pay the expenses of winding up the Company;

(c) to establish any reasonable reserves deemed necessary by the Board of Managers for the payment of any contingent or unforeseen liabilities or obligations of the Company and, at the expiration of such period as the Board of Managers reasonably deems advisable, the balance of such reserves will be applied and distributed pursuant to Section 16.2(d) and Section 16.2(e) hereof;

(d) to the holders of CDPQ Preferred Units pro rata in accordance with such holders’ ownership of CDPQ Preferred Units until the holders of CDPQ Preferred Units have received an aggregate amount pursuant to this Section 16.2(d) equal to the CDPQ Preferred Liquidation Amount, at which time the CDPQ Preferred Units shall no longer be deemed outstanding; and then,

(e) to the holders of Common Units pro rata in accordance with such holders’ ownership of Common Units, as adjusted in accordance with Article IV.

Section 16.3 Termination.

The dissolution of the Company under Section 16.1 of this Agreement shall be effective on the date that the event causing such dissolution occurs, but the Company shall not terminate until all of the Company’s assets have been distributed in accordance with Section 16.2 of this Agreement.

Section 16.4 Final Statement.

As soon as practicable after the dissolution of the Company under Section 16.1 of this Agreement, a final statement of the Company’s assets and liabilities shall be prepared and furnished to all Members.

Section 16.5 Articles of Dissolution.

On completion of the dissolution of the Company, the Board of Managers (or such other Person or Persons as the LLC Act may require or permit) shall file Articles of Dissolution with the Delaware Secretary of State and take such other actions as may be necessary to terminate the Company.

Section 16.6 Deficit Capital Accounts.

Notwithstanding anything to the contrary contained in this Agreement, and notwithstanding any custom or rule of Law to the contrary, the deficit, if any, in the Capital Account of any Member upon dissolution of the Company shall not be an asset of the Company and such Member shall not be obligated to contribute such amount to the Company to bring the balance of such Member’s Capital Account to zero.

ARTICLE XVII

A CCOUNTING , B OOKS , AND R EPORTS

Section 17.1 Accounting Method.

The accounting method for both book and tax purposes shall be the accrual method, unless another permissible method is selected by the Board of Managers.

Section 17.2 Books and Records; Financial Statements.

(a) Maintenance of Books . The Board of Managers shall keep or cause to be kept books of account in which shall be entered fully and accurately in all material respects the transactions of the Company. All books and records and this Agreement and all amendments thereto shall at all times be maintained at the principal office of the Company and in accordance with the LLC Act, and each Member and its duly authorized representatives shall have access to them at such office and the right to inspect and copy them at reasonable times.

(b) Annual Financial Statements . Within 120 days after the end of each Tax Year, the Board of Managers shall cause to be prepared in accordance with GAAP and delivered to each Member, for both the Company and Greenpac Mill: a balance sheet and statements of income, cash flows, and owner’s equity (including each Member’s Capital Account balance and changes therein) as of the close of the preceding Tax Year, (the “ Annual Financial Statements ”), all audited by the Company’s independent auditor and, if applicable, disclosing the effect on the financial position or results of operation of any change in the application of accounting principles and practices during the year. The Annual Financial Statements shall be accompanied by management’s descriptive narrative of the results, including a comparison between the actual, projected and comparable figures for the prior year.

(c) Monthly Financial Statements . By the thirtieth (30th) day after the end of each calendar month, the Board of Managers shall cause to be prepared and delivered to each Member a copy of the Company’s internally prepared financial statements of the type provided in Section 17.2(b) for that month.

(d) Quarterly Financial Statements . By the thirtieth (30th) day after the end of each fiscal quarter, the Board of Managers shall cause to be prepared and delivered to each Member a copy of the Company’s internally prepared financial statements of the type provided in Section 17.2(b) for that quarter, together with management’s descriptive narrative of the results, including a comparison between the actual, projected and comparable figures for the prior year.

(e) Additional Notices . The Board of Managers shall cause to be delivered to each Member, as soon as practicable after receipt or delivery thereof, a copy of (i) any written notice that the Company receives or sends with respect to any default or breach, or purported default or breach, by the Company, Greenpac Member or Greenpac Mill, or any other Person, of any covenant or obligation under any material Contract to which the Company, Greenpac Member or Greenpac Mill is a party including, without limitation, the Project Debt Financing Documents, the Bridge Loan Documents, the Contribution Agreement or any Paper Supply Agreement; (ii) any written notice that the Company receives or sends with respect to any violation or alleged violation of any Law by the Company, Greenpac Member or Greenpac Mill; and (iii) any Adjustment Notice (as defined in the Paper Supply Agreements) sent or received by any Person under any Paper Supply Agreement and any related correspondence.

Section 17.3 Tax Matters.

(a) Tax Elections . Subject to Section 2.8, the Board of Managers shall make any and all elections for federal, state, local, and foreign tax purposes including, without limitation, any election, if permitted by applicable Law: (i) to adjust the basis of property pursuant to Sections 754, 734(b) and 743(b) of the Code, or comparable provisions of state, local, or foreign Law, in connection with Transfers of Units and Distributions; (ii) with the consent of all of the Members, to extend the statute of limitations for assessment of tax deficiencies against the Members with respect to adjustments to the Company’s federal, state, local, or foreign tax returns; and (iii) to the extent provided in Sections 6221 through 6231 of the Code and similar provisions of federal, state, local, or foreign Law, to represent the Company and the Members before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Members in their capacities as Members, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Members with respect to such tax matters or otherwise affect the rights of the Company and the Members. Upon the request by any of the Members, the Board of Managers shall cause the Company to make an election pursuant to Section 754 of the Code.

(b) Tax Information . Necessary tax information shall be delivered to each Member as soon as practicable after the end of each Tax Year of the Company.

(c) Tax Returns . The Board of Managers shall prepare and file, or cause to be prepared and filed, all U.S. federal, state and local and foreign partnership information and other returns.

(d) Tax and Other Information . The Board of Managers shall prepare and send, and shall use its reasonable commercial efforts to do so within one hundred twenty (120) days after the end of each Tax Year, to each Member, a statement of such Member’s allocable share of income, gains, losses, deductions and expenses of the Company for

such Tax Year. The Company shall also cause to be delivered to each Member, such other information as such Member may reasonably request for the purpose of enabling it to comply with any tax reporting or tax filing requirements.

(e) Refundable Tax Credits . Notwithstanding anything else contained in this Agreement, the Board of Managers shall not and shall not cause the Company to file any tax returns, make any elections or otherwise take any actions that would adversely affect the ability of any Member (or their respective Affiliates, as applicable) to qualify for, or obtain the full benefit of the refundable tax credits pursuant to the New York State Department of Environmental Conservation’s Brownfield Cleanup Program and New York State Tax Law.

(f) Tax Matters Partner . The Board of Managers shall designate a Member to be the Company’s tax matters partner pursuant to Section 6231(a)(7) of the Code (the “ Tax Matters Member ”). The Tax Matters Member shall have all powers and responsibilities provided in Section 6221, et seq . of the Code. The Tax Matters Member shall keep all Members informed of all notices from government taxing authorities which may come to the attention of the Tax Matters Member. The Company shall pay and be responsible for all reasonable third-party costs and expenses incurred by the Tax Matters Member in performing those duties. The Tax Matters Member shall not compromise any dispute with the Internal Revenue Service without the approval of the Members.

ARTICLE XVIII

S PECIAL P URPOSE P ROVISIONS

Section 18.1 Special Purpose Provisions. Notwithstanding any other provision of this Agreement, the following provisions of this Section 18.1 (collectively, the “ Special Purpose Provisions ”) shall apply for so long as any Project Debt Obligations are outstanding:

(a) The Company shall:

(i) maintain its books and records separately from any other Person;

(ii) maintain its bank accounts separately from any other Person, except as required or permitted by the Project Debt Financing Documents;

(iii) not commingle its assets with those of any other Person and shall hold all of its assets in its own name;

(iv) conduct its business in its own name;

(v) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person and shall not have its assets listed on the financial statements of any other Person;

(vi) file its tax returns separately from those of any other Person, unless otherwise required by law;

(vii) pay its own liabilities and expenses only out of its own funds;

(viii) observe all limited liability company and other organizational formalities;

(ix) employ or deal with its Members or any Affiliate of any Member, to the extent it chooses to employ or deal with such Person at all, only on a fair and arms’-length basis and shall not enter into any transaction with its Members or any Affiliate of any of its Members other than on an arms’ length basis, reflecting terms and conditions no less favorable to the Members than those negotiated between unrelated parties, except those contemplated by this Agreement, the Equityholders Agreement and the Contribution Agreement;

(x) not enter into or be a party to any transaction with its Members or Affiliates thereof, or, where relevant, such Member’s or Affiliate’s members, officers, directors, shareholders, or Affiliates, as the case may be, except on terms and conditions which are fair and are no less favorable to it than would generally be obtained in a comparable arms’-length transaction with an unrelated third party;

(xi) pay the salaries of its own employees only from its own funds;

(xii) maintain a sufficient number of employees in light of its contemplated business operations;

(xiii) not assume, guarantee or become obligated for the debts of any other Person;

(xiv) not hold out its credit as being available to satisfy the obligations of any other Person;

(xv) not acquire the obligations of, or securities issued by, its Members or any Affiliate of its Members, except as specifically contemplated by this Agreement or the Equityholders Agreement;

(xvi) not make any gifts, loans, or fraudulent conveyances to any other Person or buy or hold evidence of indebtedness issued by any other Person (other than cash and investment-grade securities);

(xvii) allocate fairly any overhead expenses for office space or business facilities or equipment that are shared with its Members or an Affiliate of its Members, including paying for office space and services performed by any employee of its Members or an Affiliate of its Members;

(xviii) use separate stationery, invoices, and checks bearing its own name;

(xix) not pledge its assets for the benefit of any other Person, other than as required by the Project Debt Financing Documents or the Bridge Loan Documents;

(xx) hold itself out as a separate entity;

(xxi) correct any known misunderstanding regarding its separate identity;

(xxii) act solely in its own name, through its own officials, agents or representatives where relevant;

(xxiii) not hold itself out to the public, to any creditors, or to any governmental agency as a “division” or “part” of any entity or entities, or more generally as part of a single integrated enterprise with any other entity; and

(xxiv) use its commercially reasonable efforts to maintain adequate capital in light of its contemplated business operations.

ARTICLE XIX

M ISCELLANEOUS P ROVISIONS

Section 19.1 Amendment of this Agreement.

This Agreement may be amended, restated or otherwise modified only by the unanimous affirmative vote or unanimous written consent of the Members in accordance with Section 11.4 and otherwise in accordance with the Project Debt Financing Documents. Notwithstanding the foregoing, for so long as the Project Debt Obligations are outstanding, the provisions of Section 8.6 and Section 18.1 may not be amended at any time without the written consent of the Agent, on behalf of the Senior Lender.

Section 19.2 Notices.

Except as otherwise provided in this Agreement, any notices which may or are required to be given hereunder by any party to another shall be in writing, signed by an authorized Person, and sent by certified or registered mail, postage prepaid, by recognized overnight courier, by telecopier, by email or by hand delivery to the most recent addresses on file with the Company. Notices shall be deemed to have been given on the fifth business day after being so mailed, the next business day after delivery to such overnight courier, when sent by telecopier or email on the first business day after confirmed transmission or upon receipt when delivered by hand. Any Member may change such Member’s address by giving written notice to the Company in a manner conforming to the notice provisions hereof.

Section 19.3 Partition.

In consideration of the execution of this Agreement, each of the Members expressly waives its right to bring an action for the partition of the Company’s real property.

Section 19.4 Merger of Prior Agreements.

This Agreement and the Equityholders Agreement contain the sole and entire agreement and understanding of the parties with respect to its subject matter. Any and all prior or contemporaneous discussions, negotiations, commitments, and understandings relating thereto are hereby superseded by and merged into this Agreement.

Section 19.5 Governing Law.

This Agreement and the obligations of the Members hereunder shall be interpreted, construed, and enforced in accordance with the Laws of the Delaware, without reference to the principles of conflicts of Laws.

Section 19.6 Specific Performance.

Each Member agrees with the other Members that the other Members and the Company would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which the non-breaching Members or the Company may be entitled, at Law or in equity, the non-breaching Members and the Company shall be entitled to injunctive relief to prevent breaches of the provisions of this Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.

Section 19.7 No Waiver.

No consent or waiver, express or implied, by any Member to, or of any breach or default by, another or the performance by another of its obligations under this Agreement shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligation of such Member under this Agreement. No delay on the part of any Member in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any Member of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

Section 19.8 Severability.

If any provisions of this Agreement or the application of the provisions of this Agreement to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the extent permitted by Law.

Section 19.9 Captions.

The captions used in this Agreement are inserted for convenience only and are not part of this Agreement.

Section 19.10 Gender and Number; Days.

The masculine, feminine, or neuter pronouns used in this Agreement shall be deemed to include the masculine, feminine, or neuter genders, as appropriate, and the singular shall be deemed to include the plural, and vice versa. All references in the Agreement to “days” shall mean calendar days, unless “business days” are otherwise specified.

Section 19.11 Further Actions.

The Members shall execute and deliver all documents, provide all information and take or forebear from all such action as may be necessary or appropriate to achieve the purposes of the Company, to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.

Section 19.12 Binding Agreement.

This Agreement shall be binding upon and inure to the benefit of the Members and their permitted successors and permitted assigns.

Section 19.13 No Rights Created in Third Persons.

Subject to Section 4.3(d), Section 15.2, Section 15.4 and Section 15.7, this Agreement is intended solely for the benefit of the parties hereto and does not create any rights in persons not parties to this Agreement.

Section 19.14 Counterparts Execution.

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

Section 19.15 Delivery by Email or Facsimile.

This Agreement and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or email, shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No party hereto shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or email as a defense to the formation or enforceability of this Agreement and each such party forever waives any such defense.

[Signature page follows.]

I N W ITNESS W HEREOF , the Members have signed this Agreement as of the date first written above.


		27102009 USA, LLC

		By:		/s/ Marc-André Depin
		Name:		Marc-André Depin
		Title:		Authorized Person

		19J LLC

		By:		/s/ Bruce G. Janowsky
		Name:		Bruce G. Janowsky
		Title:		Sole Member & President

		56P LLC

		By:		/s/ Joseph R. Palmeri
		Name:		Joseph R. Palmeri
		Title:		Sole member & President

		CDPQ INVESTMENT GML INC.

		By:		/s/ Alain Tremblay
		Name:		Alain Tremblay
		Title:		Manager

		By:		/s/ Luc Houle
		Name:		Luc Houle
		Title:		Senior Vice-President
				[REDACTED]

Exhibit 13.1

LOGO

A NNUAL I NFORMATION F ORM

For the year ended December 31, 2011

March 29, 2012

Table of Contents

Annual Information Form for the year ended December 31, 2011


	Page
Documents incorporated by reference
Forward Looking Statements

Item 1—Date of the Annual Information Form		1

Item 2—Corporate Structure		1
2.1 Name, Address and Incorporation		1
2.2 Intercorporate Relationships		1

Item 3—General Development of the Business		1
3.1 Three Year History		1
3.2 Significant Acquisitions		4
3.3 Trends		4

Item 4—Description of the Business		4
4.1 General		4
4.2 Industry Sector Information		4
4.2.1 Packaging Products Sector		4
4.2.1.1 Boxboard Group		4
4.2.1.2 Containerboard Group		5
4.2.1.3 Specialty Products Group		7
4.2.2 Tissue Papers Sector		10
4.3 Research, Development and Innovation		12
4.4 Competitive Conditions		13
4.4.1 Our Markets		13
4.4.2 Our Competitive Strengths		13
4.5 Cycle Components		13
4.6 Environmental Protection		14
4.6.1 Regulations		14
4.6.2 Environmental Mission		14
4.7 Reorganizations		14
4.8 Social Policies		14
4.9 Risk Factors		14

Item 5 – Dividends and Distributions		14
Item 6—Capital Structure		14
6.1 General Description of Capital Structure		14
6.2 Ratings		15

Item 7—Market for Securities		16
7.1 Trading Price and Volume		16

Item 8—Directors and Officers		16
8.1 Name, Occupation and Security Holding		16
8.2 Cease Trade Orders, Bankruptcies, Penalties or Sanctions		19
8.3 Information concerning Executive Officers		20

Item 9—Legal Proceedings and Regulatory Actions		20

Item 10—Transfer Agents and Registrars		21

Item 11—Material Contracts		21

Item 12—Interests of Experts		21

Item 13—Audit Committee		21
13.1 Composition and Mandate		21
13.2 Relevant Education and Experience of the Members		21
13.3 Independent Auditor Services Fees		22
13.4 Policies and Procedures for the Engagement of Audit and Non-Audit Services		22

Item 14—Additional Information		22

Schedule A – Charter of the Audit Committee

In this Annual Information Form, the terms “We”, “Us”, “Our”, “Corporation” and “Cascades” refer to Cascades Inc., its subsidiaries, divisions and its interests in joint ventures. Except as otherwise indicated, all dollar amounts are expressed in Canadian dollars. The information in this Annual Information Form is stated as at December 31, 2011, except as otherwise indicated, and except for information in documents incorporated by reference that have a different date.

D OCUMENTS I NCORPORATED BY REFERENCE

The documents in the table below contain information that is incorporated by reference into this Annual Information Form.


Documents		Where they are incorporated in this Annual Information Form
Cascades Inc.’s 2011 Annual Report – Management’s discussion and analysis of the operating results and financial position , NEAR-TERM OUTLOOK, page 29, RISK FACTORS, page 35		Items 3.3, 4.6.1 and 4.9

F ORWARD -L OOKING S TATEMENTS

Certain statements in this Annual Information Form or in documents incorporated by reference, including statements regarding future results and performance, are forward-looking statements within the meaning of the “Safe Harbour” provision of the United States Private Securities Litigation Reform Act of 1995 based on current expectations. The accuracy of these statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation’s products, the prices and availability of raw materials, changes in the relative values of certain currencies, fluctuations in selling prices and adverse changes in general market and industry conditions (See heading Risk Factors).


		*Annual Information Form*

I TEM 1 – D ATE OF THE A NNUAL I NFORMATION F ORM

This Annual Information Form (“AIF”) is dated as at March 29, 2012. Except as otherwise indicated, the information contained in this AIF is stated as at December 31, 2011.

I TEM 2—C ORPORATE S TRUCTURE

2.1 N AME , A DDRESS AND I NCORPORATION

Cascades Inc. was incorporated under the name Papier Cascades Inc./Cascades Paper Inc. under the laws of the Province of Québec by letters patent issued on March 26, 1964. Supplementary letters patent were issued on March 11, 1968, July 4, 1979 and October 19, 1979 to amend the authorized capital stock and the restrictions and privileges attached to certain classes of shares of the Corporation.

Cascades was continued under the name Cascades Inc. under Part 1A of the Companies Act (Québec) by Certificate of Continuance dated October 26, 1982. Certificates of Amendment were issued on July 5, 1984, September 16, 1985 and May 13, 1986 to permit the subdivision of the Corporation’s Common Shares, as well as on July 15, 1992, July 24, 1992, December 17, 1992 and July 20, 1993 in order to modify the authorized share-capital and the restrictions and privileges of certain classes of shares of the Corporation.

On December 30, 2003, in accordance with Article 123.129 of the Companies Act (Québec), Cascades, by simplified amalgamation, merged with 9135-2591 Québec Inc., a wholly owned subsidiary of the Corporation. The articles of amalgamation and schedules as well as the composition of the Board of Directors of the new company following the amalgamation are exactly the same as those of Cascades Inc. prior to the amalgamation.

Since February 14, 2011, all Québec corporations currently governed by Part IA of the Companies Act (Québec) are automatically governed by the Business Corporations Act (Québec). Consequently, Cascades is now governed by the Business Corporations Act (Quebec).

On July 27, 2011, the Corporation amended its Articles which essentially provide that (i) the board of directors may, at its discretion, appoint one or more directors, who shall hold office for a term expiring no later that the close of the next annual meeting of shareholders following their appointment, but the total number of directors so appointed may not exceed one-third of the number of directors elected at the annual meeting of shareholders preceding their appointment; and (ii) the board of directors may, at its discretion and from time to time, determine the place, whether within or outside of the Province of Québec, where a meeting of shareholders may be held outside of the province of Québec.

The head office and corporate offices of Cascades are located at 404 Marie Victorin Blvd., Kingsey Falls (Québec) J0A 1B0. Cascades also has executive offices located at 772 Sherbrooke Street West, Suite 100, Montréal (Québec) H3A 1G1. We maintain a Website at www.cascades.com .

2.2 I NTERCORPORATE R ELATIONSHIPS

The following list sets out the principal wholly-owned subsidiaries of the Corporation and their respective jurisdiction as at December 31, 2011 :


Corporate Name		Jurisdiction
Cascades Canada ULC		Alberta, Canada
Cascades USA Inc		Delaware
Cascades Europe SAS		France

I TEM 3—G ENERAL D EVELOPMENT OF THE B USINESS

3.1 T HREE Y EAR H ISTORY

Financing activities

Bank Financing

On December 29, 2006, a bank syndicate provided the Corporation with new $850 million credit facilities consisting of : i) $650 million five-year renewable secured revolving credit facility maturing in December 2011; ii) a $100 million secured term facility maturing in October 2012; and iii) a six-month $100 million unsecured revolving credit facility, which was reimbursed prior to the due date (the “Credit Agreement”). The Corporation’s obligations under this revolving credit facility are secured by all inventory and receivables of the Corporation and its North American subsidiaries and by the property, plant, and equipment of five of its mills.

On June 27, 2007, the Corporation amended its Credit Agreement to add a new twelve month unsecured revolving credit facility in the amount of $100 million, said credit facility having been renewed on May 22, 2008 for another twelve month period.

On February 13, 2009, Cascades amended its existing bank Credit Agreement. Under the terms of the amendment, the financial covenants, namely the maximum funded debt-to-capitalization ratio of 65% and the minimum interest coverage ratio of 2.25x, remained unchanged until maturity in October 2012 and the variable interest rate applicable to borrowings outstanding was increased by 200 basis points. The amendment also cancelled the unsecured revolving credit facility in the amount of $100 million that was originally scheduled to terminate in June 2009. The amount of the Corporation’s secured revolving credit and term facilities ($750 million and $100 million respectively) and their maturity dates (December 2011 and October 2012 respectively) remained unchanged.


		*Annual Information Form*

On February 10, 2011, the Corporation entered into an agreement to amend and extend until February 10, 2015, its existing $750 million revolving credit facility. Under the terms of the amendment, the existing financial covenants, namely the maximum funded debt–to-capitalization ratio of 65% and the minimum interest coverage ratio of 2.25x, will remain unchanged. As a result of the amendment, the margin applicable to outstanding borrowings has been reduced from 2.750% to 2.125%.

High Yield Financing

On November 19, 2009, the Corporation issued US$500 million aggregate principal amount of 7.75% Senior Notes due 2017 and CAN$200 million aggregate principal amount of 7.75% Senior Notes due 2016. The US$ notes were issued at a price of 98.534% of their principal amount and the CAN$ notes were issued at a price of 98.670% of their principal amount, both resulting in an average interest rate yield of 8%. On December 9, 2009, the Corporation also completed a US$250 million aggregate principal amount of 7.875% Senior Notes due 2020. These notes were issued at a price of 98.293% of their principal amount to yield 8.125%.

The Corporation used the gross proceeds from these offering of notes to fund the purchase of the Corporation’s outstanding Senior Notes maturing in 2013. The Corporation used the remaining proceeds of the offering to pay fees and expenses in connection with the offering and the tender offer and to reduce indebtedness outstanding under the revolving portion of the Corporation’s credit facility.

In 2009, the Corporation purchased for a total consideration of US$732 million, including a premium of US$13million, a total of US$530 million aggregate principal amount of 7.25% notes and US$189 million aggregate principal amount of 6.75% notes due 2013, leaving outstanding approximately US$116 million aggregate principal amount of 7.25% notes and US$61 million aggregate principal amount of 6.75% notes as at December 31, 2009.

In 2010, the Corporation purchased for a total consideration of US$162 million ($168 million) including a premium of US$3 million, a total of US$107 million ($111 million) aggregate principal amount of 7.25% notes and US$52 million ($54 million) aggregate principal amount of 6.75% notes due 2013. Approximately US$9 million ($9 million) aggregate principal amount of 7.25% notes and US$9 million ($9 million) aggregate principal amount of 6.75% notes expiring in 2013 remain outstanding as at December 31, 2011.

Corporate Activities

Boxboard Group

On September 13, 2007, Cascades entered into a Combination Agreement with Reno de Medici S.p.A. (“RdM”), a publicly traded european company based in Milan (Italy), which produces recycled boxboard (the “Agreement”). As a result of this Agreement, the Corporation contributed its recycled boxboard manufacturing assets, located in Blendecques, France, and Arnsberg, Germany, as well as its sheeting centre in Wednesbury, U.K., in exchange for 115.6 million shares or 30.63% of the outstanding shares in RdM. The Agreement also provides, among other things, that RdM and Cascades are granted an irrevocable Call Option or Put Option, respectively, to purchase two European virgin boxboard mills of Cascades. In addition to this Agreement, in 2010, the Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby Cascades had the option to buy all of the shares held by Industria in the capital stock of RdM (which represented 9.07% of the outstanding shares of RdM). On April 7, 2011, the Corporation purchased 0.12% of the outstanding shares of RdM which resulted in the Corporation obtaining control on the basis that the Corporation owned 40.95% of the outstanding shares of RdM and an exercisable call option to purchase an additional 9.07%. As such, the Corporation fully consolidates RdM with a non-controlling interest of 55.69%. Subsequent to April 7, 2011, the Corporation acquired 3.36% of the outstanding shares of RdM on the open market for a consideration of €2 million ($3 million). The Corporation’s ownership stood at 44.31% at the end of December 2011.

On March 11, 2011, Cascades announced that it had entered into an agreement for the sale of Dopaco, Inc. and Dopaco Canada, Inc. (collectively “Dopaco”), its paper cup and carton converting business for the quick-service restaurant and food service industries, to Reynolds Group Holdings Limited. On May 2, 2011, the Corporation completed the transaction for a cash consideration of US$387 million ($367 million), net of transaction fees and working capital adjustments. Net proceeds from the transaction are to be mainly used to pay down Cascades’ debt. In connection with the transaction, Cascades continues to supply boxboard to Dopaco, through a five year non-exclusive supply agreement.

On June 23, 2011, Cascades sold two of its boxboard facilities namely the Versailles mill located in Connecticut and the Hebron converting plant located in Kentucky to OpenGate Capital, a private equity firm for a total consideration of US$16 million ($15 million), net of transaction fees including a selling price balance of US$11 million ($10 million) which will be received over a 4 year period. The Corporation realized a loss of US$8 million ($8 million) before income taxes. Net proceeds from the transaction were reinvested in other Cascades boxboard facilities to improve their operations, efficiency and competitiveness.

Containerboard Group (Norampac)

On April 2, 2009, Cascades announced the termination of the production activities at its Québec City based corrugated products plant, due to an important reduction of the business volume and to unfavourable economic factors. The closure was completed in November 2009 and nearly 145 employees were affected by the closure. Production activities were redirected to other Québec based corrugated products plants. In 2010, the building and land were sold and the Corporation recorded a gain of $3 million.

On March 3, 2010, Norampac – Saskatoon ceased its production activities at its corrugated products plant, due to unfavourable economic factors, a lack of demand and increased operating costs. The closure was completed April 30, 2010 and 20 employees were affected by the closure. Production activities were redirected to the Norampac – Winnipeg plant.

On March 1, 2011, the Corporation sold its European Containerboard Group white-top linerboard mill located in Avot-Vallée, France, for a total consideration of €10 million ($14 million), including the long-term debt assumed by the acquirer in the amount of €5 million ($7 million) and a balance of sale price of €5 million ($7 million) which will be received over a maximum of 3 years. The Corporation realized a loss of $2 million before income taxes. This mill produced more than 145,000 tons yearly and employed approximately 160 employees.


		*Annual Information Form*

On March 10, 2011, Cascades announced the definitive closure of the Norampac - Leominster, Massachusetts converting plant. The production of this plant specialized in the converting of corrugated products, was redirected to the Thompson Connecticut plant and other Norampac facilities in the Northeastern United States. Nearly 100 employees were affected by the closure of the plant.

On June 27, 2011, Cascades announced the investment of its Norampac division in Greenpac Mill LLC (“Greenpac”), a corporation created with the Caisse de dépôt et placement du Québec (the “Caisse”), Jamestown Container and one other industry partner, for the purpose of constructing and operating a state of the art containerboard mill to be located in New York State. Once completed as planned, it will increase the Corporation’s market share in the containerboard industry and will confirm its position as one of the industry leaders. Greenpac will manufacture a light weight linerboard made with 100% recycled fibers on a single machine having a width of 328 inches with an annual production capacity of 540,000 short tons. This machine will be one of the largest of its kind in North America and will include numerous technological advances. The Greenpac mill will be constructed for an estimated total cost of US$430 million financed by a US$140 million equity investment of which US$99 million (including a temporary bridge loan of $15 million) (59.7%) will be invested by Cascades, US$28.3 million (20.2%) will be invested by the Caisse, and US$28.1 million (20.1%) will be invested by Jamestown Container and the other industry partner. The first equity contribution was made in July 2011.The remainder of the financing is in the form of debt, including senior debt in the amount of US$228.9 million, which was led by GE Capital, and subordinated debt in the amount of US$61 million. Senior debt was provided by an international banking syndicate managed by GE Capital. The subordinated debt will be provided by the Caisse (US$45.75 million) and Cascades (US$15.25 million), and will serve to bridge expected refundable tax credits. Greenpac’s debt will be without recourse to Cascades and will have a 10-year maturity. Norampac will assume responsibility for managing the day-to-day operations of Greenpac.

On September 20, 2011, Cascades announced the closure of its Norampac containerboard mill located in Burnaby (British Columbia). At the same time, Cascades announced an agreement regarding the sale of the land and building of the facility. The sale was completed in October for a cash consideration of $20 million and the closure was effective on November 6, 2011. Nearly 100 employees were affected by the closure. The mill’s production was redirected towards other Norampac facilities.

On October 12, 2011, Cascades announced the closure of the Norampac plant located in Le Gardeur (Québec), specialized in the conversion of corrugated products. The plant’s operations were redirected towards other Norampac Québec based plants that already served the greater Montréal region. Nearly 50 employees were affected by this closure.

Specialty Products Group

On September 22, 2009, Cascades announced the acquisition of the Canadian assets of Sonoco Recycling, as well as the US recovery assets of Yorkshire Paper Corporation through its subsidiary Cascades Recovery Inc. (formerly known as Metro Waste Paper Recovery Inc.) for a total consideration of $1 million and $3 million respectively. Both companies provide the consumer products sector with on-site collection services of recyclable materials, such as corrugated containers, paper and plastic.

On April 6, 2011, the Corporation increased from 10% to 50% its investments in NorCan Flexible Packaging Inc. (Mississauga, Ontario), which designs, manufactures, distributes and sells flexible film for packaging products for a cash consideration of $2 million.

On May 31, 2011, the Corporation purchased through its subsidiary Cascades Recovery Inc. (formerly known as Metro Waste Paper Recovery Inc.) all of the outstanding shares of Genor Recycling Services Ltd. and 533784 Ontario Limited (“Genor”) for a total consideration of $9 million, consisting of a cash consideration of $4 million and a balance of purchase price of $5 million. Genor recycles corrugated cardboard and other paper grades in Ontario (Canada).

On September 15, 2011, the Corporation acquired the uncoated partition board manufacturing assets of Packaging Dimensions Inc., located in Illinois (United States) for a total consideration of US$6 million ($6 million), consisting of a cash consideration of US$3 million ($3 million) and a balance of purchase price of US$3 million ($3 million).

On February 22, 2012, Cascades announced the permanent closure of its Cascades Enviropac plant located in Toronto (Ontario), specialized in the manufacturing of honeycomb packaging. The production will progressively be redirected towards the Cascades Enviropac Berthierville, Québec and the Grand Rapids, Michigan plants. Approximately 36 employees were affected by this closure which will be effective on June 1, 2012.

Tissue Group

On August 31, 2009, Cascades announced the acquisition of the tissue business assets of Atlantic Packaging Products Ltd. based in Ontario. This acquisition for approximately $61 million was to enable Cascades to increase its annual production capacity by 55,000 short tons of recycled paper and its converting capacity by approximately 70,000 short tons.

On March 10, 2010, the Corporation acquired the converting tissue business assets of Atlas Paper Bag Company Ltd., based in Ontario, for a counterpart of $3 million.

On March 4, 2011, Cascades announced an investment of $22 million, net of government grants, for the installation and the start-up of a new technology at its Candiac tissue paper mill to produce a superior quality tissue paper with less recycled fibers. This new technological addition will allow Cascades to manufacture tissue products with fewer fibers, less energy, less water and fewer chemical products than in any other paper manufacturing process.

On November 1, 2011, Cascades finalized the acquisition of 50% of the shares that it did not already own in Papersource Converting Mill Corp., a tissue paper converting plant that manufactures products for the Away-from-Home market located in Granby (Québec). The cash consideration paid was $60 million. The acquisition constitutes an important step in the action plan to modernize operations, and will optimize production in the Northeastern United States, in Québec and in Ontario. It employs more than 160 employees.


		*Annual Information Form*

3.2 S IGNIFICANT A CQUISITIONS

No significant acquisition was completed by the Corporation during the financial year ended December 31, 2011 for which disclosure would have been required under Part 8 of National Instrument 51-102 of the Canadian Securities Administrators, namely the filing of a Business Acquisition Report.

3.3 T RENDS

Reference is made to Management’s Discussion and Analysis in the 2011 Annual Report, specifically on page 29 under the heading “NEAR-TERM OUTLOOK”, which is incorporated by reference.

I TEM 4—D ESCRIPTION OF THE B USINESS

4.1 G ENERAL

Established in 1964, Cascades is the parent company of a North American and European group of companies involved in the production, conversion and marketing of packaging products and tissue papers principally composed of recycled fiber. In 2011, including its equity investment in Reno De Medici S.p.A., Cascades consumed approximately 4,1 million short tons of fiber and pulp. Recycled fiber, wood fiber (chips and logs) and pulp respectively accounted for 76%, 14% and 9% of the total fiber and pulp consumption. Cascades sources most of its supply of recycled fiber through its own recovery network as well as through mid- to long-term agreements with independent suppliers. Cascades sources its supply of wood fiber and pulp through contractual agreements with independent sawmills, timberland owners and pulp producers.

Cascades conducts its business principally through two operating sectors, namely:

The Packaging Products sector which includes:

The Boxboard Group , a manufacturer of premium coated boxboard and folding cartons;

ii)

The Containerboard Group , a manufacturer of containerboard and leading converter of corrugated products; and

iii)

The Specialty Products Group , which manufactures specialty papers, industrial packaging and consumer product packaging and is also involved in recovery and recycling.

The Tissue Papers sector operates units that manufacture and convert tissue paper for the Away-from-Home and consumer products markets.

These two sectors include over 100 operating units located in Canada, the United States and Europe. As of December 2011, the Corporation employs approximately 12,150 employees, of whom 10,000 were employees of its Canadian and United States operations. Approximately 43% of the manpower is unionized under 43 separate collective bargaining agreements. Of the 43 collective bargaining agreements in North America, 15 will expire in 2012 and 7 in 2013.

This structure, which focuses on the groups autonomy, decentralizes authority while allowing continuous exchanges between sectors and a better coordination of all of the operations. Cascades sets strategic guidelines and ensures that corporate policies concerning acquisition and financing strategies, legal affairs, human resources management and environmental protection are applied by the subsidiaries, divisions and affiliated companies.

4.2 I NDUSTRY S ECTOR I NFORMATION

4.2.1 P ACKAGING P RODUCTS S ECTOR

The packaging products sector is divided into three groups of activities: the Boxboard Group, the Containerboard Group and the Specialty Products Group.

4.2.1.1 B OXBOARD G ROUP

In North America, the Boxboard Group operates two mills that produce premium coated boxboard for conversion into folding cartons and micro-flute packaging, with a total annual production capacity of 216,000 metric tonnes. These two mills are located in Québec, Canada. Recycled fiber accounts for approximately 60% of their total pulp and fiber consumption. The Boxboard Group purchases all of its needs in virgin fiber in Québec, and purchases 90% of its recycled fiber in Canada, the rest is purchased in the United States. Also vertically integrated downstream via its Folding Carton Division, the division’s four plants, one in Québec, two in Ontario and one in Manitoba annually convert approximately 62,000 metric tonnes a year supplied mainly by its Canadian boxboard mills. These plants design, develop and produce packaging solutions that meet the specific needs of companies focused principally on food and consumer products, including beverages, dry food, frozen and perishable food, and health and beauty care.

In 2011, Cascades ceased its activities in the boxboard sector in the United States with the sale of its two boxboard facilities, namely the Versailles mill located in Connecticut and the Hebron converting plant located in Kentucky, and by selling Dopaco, Inc., a leading producer of cups and folding cartons for quick service restaurants in North America. Refer to Corporate Activities on page 2 of this AIF.

In 2011 and 2010, the Boxboard Group’s sales in North America, excluding Dopaco, respectively amounted to $318 million and $376 million. In 2011, sales related to manufacturing activities amounted to $215 million, compared to $257 million in 2010, while sales related to converting activities, excluding Dopaco, amounted to $138 million compared to $158 million in 2010. The consolidated sales of the Boxboard Group were generated equally in the United States and in Canada. Sales in the amount of $9,1 million were made to Corpap Inc., a company held by Cascades at 33.33 %. Products are delivered to customers by truck, rail or a combination of both. As at December 31, 2011, the Boxboard Group employed more than 775 employees in 6 facilities in Canada.


		*Annual Information Form*

In Europe, the Boxboard Group operates two mills, one in France and one in Sweden that produce coated boxboard made of virgin fiber. With a total annual production capacity of 222,000 metric tonnes, these two plants employ close to 500 employees. The Corporation also holds a 44.31% investment in Reno de Medici S.p.A. (“RdM”), the second largest European producer of recycled coated boxboard with eight mills and an annual production capacity of 1,010 billion metric tonnes. Sales for the European operations stood at $745 million in 2011 compared to $208 million in 2010, as a result of the full consolidation of the results of RdM.

The following table lists the manufacturing and converting plants owned by the Boxboard Group, the approximate annual production capacity of the facilities or shipments and the products manufactured or the operations carried out therein, as the case may be, in 2011 :


Facilities	Products / Services	Annual capacity or Shipments
Manufacturing		Annual capacity in metric tonnes
Jonquière, Québec	From 100% virgin to 100% recycled coated boxboard	144,000
East Angus, Québec	100% recycled coated boxboard	72,000
Versailles, Connecticut	100% recycled coated boxboard	140,000 ⁽¹⁾
LaRochette, France	Coated boxboard	160,000
Cascades Djupafors A.B., Sweden	Coated boxboard	62,000

Converting		Shipments in metric tonnes
Mississauga, Ontario	Processing and printing of boxboard for folding cartons	20,000
Cobourg, Ontario	Processing and printing of boxboard for folding cartons	12,000
Winnipeg, Manitoba	Processing and printing of boxboard for folding cartons	18,000
Lachute, Québec	Processing and printing of boxboard for folding cartons	12,000
Hebron, Kentucky	Processing and printing of boxboard for folding cartons	16,000 ⁽¹⁾

⁽¹⁾	In June 2011, the Corporation sold these two facilities.

4.2.1.2 C ONTAINERBOARD G ROUP

The Containerboard Group, conducting business under the name Norampac, employs close to 3,600 employees in its 27 containerboard mills and corrugated products converting plants located in Canada and in the United States. This network produces a broad range of products for sale to both regional and national customers in a variety of industries, including the food, beverage and consumer products industries. Five linerboard and corrugated medium mills in Canada and in the United States have a combined annual production capacity of 987,000 short tons, dedicated to specialty papers such as white-top linerboard. The products manufactured by the five manufacturing mills consist of 28% linerboard and 72% corrugating medium. In 2011, approximately 62% of their North American output was converted by Norampac’s 22 corrugated products converting plants, strategically located across Canada and the Northeastern United States. The Containerboard Group purchases all of its needs in virgin fiber in Québec and Ontario, and purchases 68% of its recycled fiber in Canada and the rest in United States. Products are delivered mainly by truck, rail or a combination of both.

In 2013, the Containerboard Group will increase its production capacity through its 59.7% participation in Greenpac Mill LLC. The new mill will manufacture light weight linerboard made with 100% recycled fiber. The Greenpac mill will have an annual production capacity of 540,000 short tons. The construction of the mill began in September 2011 on a property adjacent to an existing Norampac facility in Niagara Falls (New York).

In 2011, consolidated sales of this group amounted to $979 million, compared to $1.086 billion in 2010, mainly allocated as follows : sales related to North American manufacturing activities amounted to $487 million, compared to $584 million in 2010, while the corrugated products sales amounted to $800 million, compared to $839 million in 2010. 70% of the consolidated sales were made in Canada, 28% in the United States and 3% outside of North America. Sales in the amount of $16.2 million were made to Niagara Sheets, LLC, held by the Corporation at 24.5 %, while $3.2 million of sales were made to New England Sheets, LLC, held by Cascades at 18.18 % and sales in the amount of $2 million were made to Abzac, held by Cascades at 40%. Its own sales force carries out the sales of this group together with sales agents for export purposes.

The corrugated products sector places significant effort in diversifying its product offering. In 2011, the group continued the development of the following products which will be commercialized in 2012: a garden waste bag stand; a plant protector made of corrugated board (patent pending); and a corrugated pallet intended as an alternative to the standard wooden pallet.

The following table lists the mills and converting plants of the Containerboard and Corrugated Products Group and the approximate annual production capacity or shipments of each facility as well as the products manufactured or, where applicable, their activities in 2011 :


		*Annual Information Form*


Facilities	Products / Services	Annual capacity or Shipments
Containerboard		Annual Capacity in short tons
Norampac Industries Inc., Niagara Falls Division, New York	100% recycled corrugating medium		275,000
Norampac Avot Vallée SAS, France	100% recycled corrugating medium and linerboard		155,000	⁽¹⁾
Kingsey Falls, Québec	100% recycled linerboard		103,000
Cabano, Québec	Corrugating medium in various basis weights		242,000
Trenton, Ontario	Corrugating medium in various basis weights		194,000
Mississauga, Ontario	100% recycled linerboard		173,000
Burnaby, British Columbia	100% recycled corrugating medium and gypsum paper		128,000	⁽²⁾

Corrugated Products		Shipments in square feet
Newfoundland, St. John’s	Corrugated packaging		153,000,000
Moncton, New Brunswick	Corrugated packaging		343,000,000
Drummondville, Québec	Corrugated packaging		889,000,000
Victoriaville, Québec	Corrugated packaging		273,000,000
Vaudreuil, Québec	Corrugated packaging		776,000,000
Viau, Montréal, Québec	Corrugated packaging		877,000,000
Le Gardeur, Québec	Corrugated packaging and pallets		50,000,000	⁽³⁾
Belleville, Ontario	Corrugated packaging		212,000,000
Etobicoke, Ontario	Corrugated packaging		412,000,000
Jellco, Barrie, Ontario	Corrugated packaging		96,000,000
Peterborough, Ontario	Corrugated packaging and pallets		70,000,000
St-Mary’s, Ontario	Corrugated packaging		811,000,000
OCD, Mississauga, Ontario	Corrugated packaging		756,000,000
Vaughan, Ontario	Corrugated packaging		1,901,000,000
North York, Ontario	Single face sheets, corrugated packaging and display operations		52,000,000
Lithotech, Scarborough, Ontario	Single face laminate		172,000,000
Winnipeg, Manitoba	Corrugated packaging		517,000,000
Calgary, Alberta	Corrugated packaging		552,000,000
Richmond, British Columbia	Corrugated packaging		436,000,000
Norampac New York City Inc., New York	Corrugated packaging		758,000,000
Norampac New England Inc., Leominster Division Massachusetts	Corrugated packaging		116,000,000	⁽⁴⁾
Norampac Schenectady Inc. New York	Corrugated packaging		595,000,000
Norampac Industries, Inc., Lancaster Division New York	Corrugated packaging		382,000,000
Norampac New England Inc., Thompson Division Connecticut	Corrugated packaging		273,000,000
Services
Art & Die, Etobicoke, Ontario	Graphic art and printing plates		N/A


		*Annual Information Form*

⁽¹⁾	In March 2011, Norampac Avot-Vallée SAS was sold.

⁽²⁾	In October 2011, the Burnaby mill ceased its activities.

⁽³⁾	In November 2011, the Le Gardeur plant ceased its activities.

⁽⁴⁾	In May 2011, the Leominster plant ceased its activities.

4.2.1.3 S PECIALTY P RODUCTS G ROUP

The Specialty Products Group operates in four main sectors of activity, namely: industrial packaging, consumer product packaging, specialty papers, and in recovery and recycling. This group operates 50 facilities located in North America and Europe, including 23 recovery centers in Canada and the United States. It employs more than 2,700 employees. In 2011, sales of this group amounted to $851 million compared to $786 million in 2010.

a) Industrial Packaging

The Industrial Packaging segment is active in four commercial sectors. The products include Technicomb™ and Flexicomb ^® protective packaging, multiboard specialty containers, structural components and paperboard and fiber composites. This sector offers innovative product protection solutions using recyclable systems made from recycled material.

Cascades Conversion Inc., Converdis Inc. and Cascades Sonoco Inc., joint venture companies, convert uncoated board, obtained in part within the Cascades network, into industrial packaging materials. The core product line is used by the pulp and paper industry, such as roll headers and paperboard packaging for rolls of newspaper. Cascades Conversion Inc. also manufactures roll edges that are sealed with heat plate equipment. The sales for these mills are driven by their own sales force. In 2011, one customer accounted for 20% of sales and the principal geographic market is the United States with 70%, followed by the Province of Québec (Canada) at 18% and by other Canadian provinces at 12%.

Cascades Rollpack S.A.S operates two plants in France at Saulcy-sur-Meurthe and Châtenois, which manufacture roll headers made of linerboard and uncoated paperboard supplied by the European paper mills. The sales of these mills are made through their own sales forces. In 2011, the largest customer accounted for 9% of products sold and the principal geographic market is Europe, with Germany at 41%, France at 40% and Scandinavia at 10%.

Cascades Multi-Pro, located in Drummondville (Québec) manufactures laminated paperboards (multiboard) used in many industrial sectors such as furniture backing and specialty containers. Cascades Enviropac in Berthierville (Québec) and Toronto (Ontario) as well as Cascades Enviropac HPM LLC in Grand Rapids (Michigan) manufacture honeycomb paperboard used as industrial packaging in general. Cascades Enviropac in St. Césaire (Québec) and Aurora (Illinois) manufacture uncoated paperboard partitions for beer, wine and glass container producers. The sales of these mills are handled by their own sales representatives and by sales agents. In 2011, their most important customer accounted for 7% of sales. The principal geographic market is the United States at 50% followed by the Province of Ontario with 26%, Québec at 19%, and by other Canadian provinces at 5%. The supply of uncoated board is principally obtained within the Cascades network.

Cascades Papier Kingsey Falls (Québec) produces uncoated recycled paperboard (URB) using 100% recycled fiber. This board is mainly used by packaging converters and industrial users of headers and wrappers for the paper industry, as well as partitions used as protective packaging. This division produces approximately 90,000 metric tonnes of which 47% are sold to affiliated companies while the balance is sold to third parties of whom three represent respectively 6%, 6% and 4% of sales. 53% of total sales are made to customers located in Québec, followed by the United-States with sales at 29%. Raw material is sourced principally in Québec (90%), as well as in Ontario (4%). Products are principally delivered by truck, rail, and ships.

The following table lists the main mills of the industrial packaging business sector and the approximate annual production capacity of each facility as well as the products manufactured or, where applicable, their activities in 2011 :


		*Annual Information Form*


Facilities	Products	Annual capacity in metric tonnes
Cascades Conversion Inc. Kingsey Falls, Québec	Roll headers and wrappers		65,000
Converdis inc. Berthierville, Québec	Roll headers and wrappers		50,000
Cascades Sonoco Inc., Birmingham Alabama	Roll headers and wrappers		50,000
Cascades Sonoco Inc., Tacoma Washington	Roll headers and wrappers		30,000
Cascades Rollpack S.A.S., Saucy-sur- Meurthe and Châtenois, France	Roll headers and packaging reams		30,000
Cascades Multi-Pro Drummondville, Québec	Specialty containers and laminated board for furniture backing/draws		15,000
Cascades Enviropac, Berthierville, Québec	Honeycomb packaging products		3,000
Cascades Enviropac St-Césaire, Québec	Uncoated paperboard partitions		5,000
Cascades Enviropac – Toronto Ontario	Honeycomb packaging products		3,000	⁽¹⁾
Cascades Enviropac HPM LLC Grand Rapids, Michigan	Honeycomb packaging products and other packaging products		10,000
Cascades Enviropac Aurora Aurora, Illinois	Uncoated paperboard partitions		8,000
Cascades Papier Kingsey Falls Québec	Uncoated board		93,000

⁽¹⁾	Cascades announced the closure of this plant in February 2012 .

b) Consumer Product Packaging

Two mills manufacture moulded pulp products, Cascades Forma-Pak in Kingsey Falls (Québec) and Cascades Moulded Pulp, Inc., in North Carolina (United States). The manufactured moulded pulp products sector is primarily destined for poultry farms and the quick-service restaurant business in Canada (17%) and the United States (83%). This sector of the Specialty Products Group produces mainly filler flats designed for egg processors, namely, UltraCelle30™and beverage carry trays marketed as UltraFit™, designed for the quick service restaurant industry . Sales representatives and a network of sales agents serve customers. Raw material for these moulded pulp products is composed of 100% recycled material.

Plastiques Cascades, located in Kingsey Falls (Québec), and Cascades Plastics Inc., located in Warrenton (Missouri), specialize in the food industry, notably, plastic packaging for the meat processing and the grocery industry. They also produce a complete line of plates and bowls made of foamed polystyrene, marketed under the Gusto™ and Much Gusto™ brands, destined to the food service industry. The principal raw material used is foam polystyrene. Sales representatives and a network of sales agents serve customers in Canada and the United States.

Plastiques Cascades - Re-Plast, located in Notre-Dame-Du-Bon-Conseil (Québec), recycles waste plastic generated by curb-side recovery programs and industrial waste. They offer two product lines : the first one is comprised of decking boards made with either 100% recycled plastic or wood-plastic composite commercialized under the name Perma-Deck ^® , manufactured from post-consumer and post-industrial recycled plastic and wood residue. The second line consists in furnishings for outdoor use, commercialized under the name Urbain Design ^® . Products are sold through sales representatives, manufacturing agents and distributors.

Cascades Inopak located in Drummondville (Québec), specializes in the extrusion and thermo moulding of rigid sheets of plastic and moulding by injection. Its principle products are wrappers for packaging coins sold under the trade name Plastichange ^® and a complete line of multi-use containers commercialized under a variety of brands, such as Benpac™, Deli-Tray™, Eko-sens™, Versatile™ and Versatub™ for food packaging catering to food processors, grocers and co-packers. Frig-O-Seal ^® is a reusable food container line sold through retailers. Products are sold through distributors and agents. Mainly, the raw materials which are used are a blend of polyethylene terephtalate (PET), and recycled PET, polypropylene (PP), oriented polystyrene (OPS) and PVC.

Norcan Flexible Packaging Inc., owned by Cascades at 50%, is located in Mississauga (Ontario) and is specialized in the manufacturing of flexible film for packaging. This company offers a wide variety of resin and additives to meet customers’ needs mainly in the frozen foods, bakery and ice industries.

Sales of these consumer product packaging units are allocated as follows :


Territory	2010			2011
Québec		46	%		29	%
Ontario		15	%		9	%
The rest of Canada		4	%		6	%
United States		35	%		56	%

The following table lists the mills in the consumer product packaging sector and the approximate annual production capacity of each facility as well as the products manufactured or, where applicable, their activities in 2011 :


		*Annual Information Form*


Facilities	Products	Annual capacity in kilograms
Plastiques Cascades Kingsey Falls, Québec	Polystyrene foam food packaging, plate and bowls		9,500,000
Cascades Plastics Inc. Warrenton, Missouri	Polystyrene foam food packaging		5,000,000
Plastiques Cascades – Re-Plast Notre-Dame-du-Bon-Conseil, Québec	Out-door furniture, plastic lumber for decking		6,000,000
Cascades Inopak Drummondville, Québec	Plastic coin wrappers, food packaging		5,000,000
Norcan Flexible Packaging Inc. Mississasuga, Ontario	Film packaging		9,500,000
Cascades Forma-Pak Kingsey Falls, Québec	Egg filler flats and beverage carry trays		14,500,000
Cascades Moulded Pulp, Inc., Rockingham, North Carolina	Egg filler flats and beverage trays		6,000,000

c) Specialty Papers

Cascades Lupel, located in Trois-Rivières (Québec) manufactures backing for vinyl flooring sold under the trademarks Endorex™ and Absorbak™. Sales are made primarily in the United States (76%), Canada (19%) and in Mexico and Europe (5 %). The products are delivered principally by truck. The mill’s annual production capacity is 55,000 metric tonnes. The raw materials are easily available and the mill sources 69% of its needs from the United States, the remainder is sourced in Canada. Three customers accounted for respectively 48%, 32% and 16% of sales.

The Cascades East Angus (Québec) mill manufactures several types of specialized kraft paper such as butcher paper, paper for envelopes, paper for asphalt coating and paper which withstands grease or moisture. They are marketed under the trademarks Cascades EnviroKraft™ and Cascades RobustKraft™. These types of specialty paper allow the facility to maintain a competitive share within the kraft paper market. The annual capacity of this mill is 100,000 metric tonnes. The majority of its sales are in the United States (72% in 2011). Products are delivered principally by truck. Its most important customer accounts for 14% of sales. Its products may contain 0% to 100% of recycled fibers depending on customer requirements. By increasing its bark steam production (53%), this mill substantially reduces its costs, compared to natural gas and oil production users.

Cascades Auburn Fiber (Maine), with an annual capacity of 75,000 metric tonnes, manufactures from waste paper material a de-inked pulp used for the production of tissue and fine paper. 39% of sales are made in the United States and 61% are made in Canada. In 2011, 36% of the output of this facility was used by the operating units within the Cascades Group, of which 15% was used by Cascades Tissue Group. Of the remaining 64% of sales, one customer accounted for 26%.

Cascades Fine Papers Group Inc., Rolland Division operates a plant in Saint-Jérôme (Québec) and manufactures over 100 types of uncoated fine paper. Aside from paper destined for copying, business forms and envelopes, this division is increasingly involved in the niche markets for high-end recycled paper and specialty paper for commercial and security printing. The Rolland Division paper products are made from virgin fiber (43 %) and recycled fiber (57 %). The products are sold under such names as Rolland Enviro100™, Rolland Opaque50™, Rolland Hitech50™, ReproPlus ^® 50, Superfine Linen Record™, Colonial Bond™ and Security Papers™. Through its sales representatives, the Rolland Division sells 58% of its products in Canada, 37% in the United States and exports 5%. Two customers respectively accounted for 26% and 17% of sales.

The Breakey Fibers Division, located in Sainte-Hélène-de-Breakey (Québec) operates a mill specializing in the production of high-end de-inked kraft pulp, a product that meets an increasing demand for uncoated fine papers containing recycled fiber. The Breakey Fibers Division is supplied with waste paper coming from Eastern Canada and from the United States. In 2011, almost 80% of the output of this facility was used at the Rolland Division and 19% by operating units within the Cascades Group. The remaining production is sold on the open market.

The Converting Centre Division, located in Saint-Jérôme (Québec), owns and operates a sheeting centre with an annual capacity of 115,000 short tons. The Centre offers warehousing services with a capacity of 7,000 short tons. It offers sheeting, warehousing and distribution services to the other divisions of the specialized papers sector as well as to outside customers.

The following table lists the mills of the specialized papers sector and the approximate annual production capacity of each facility as well as the products manufactured or, where applicable, their activities in 2011 :


		*Annual Information Form*


Facilities	Products / Services	Annual capacity (MT : metric tonnes ST : short tons)
Cascades Lupel Trois-Rivières, Québec	Manufacture of backing for vinyl flooring		55,000 MT
Cascades East Angus, Québec	Manufacture of kraft paper		100,000 MT
Cascades Auburn Fiber, Maine	Manufacture of de-inking kraft pulp		75,000 MT
Cascades Fine Papers Group Inc., Rolland Division Saint-Jérôme, Québec	Manufacture of uncoated fine paper		155,000 ST
Cascades Fine Papers Group Inc., Breakey Fibers Division Sainte-Hélène-de-Breakey, Québec	Manufacture of de-inked kraft pulp		75,000 MT
Cascades Fine Papers Group Inc., Converting Center Division Saint-Jérôme, Québec	Converting of fine papers, kraft and chipboard		115,000 ST

d) Recovery and Recycling

In 2011, Cascades Recovery, through its recovery centers located in Lachine and Drummondville (Québec) and its brokerage activities handled more than 58,000 metric tonnes of recyclable materials, of which 56,800 metric tonnes were fibers. In this same period, 98% of its sales were in Canada, and 2% in the United States. Most of its business is done within the Cascades Group or its partners. Waste paper supply is mainly obtained from industrial, commercial and institutional users.

Cascades Recovery Inc. (formerly known as Metro Waste Paper Recovery Inc.), owned by Cascades at 73%, provides services to recover and process discarded materials for municipal, graphic, industrial, commercial, consumer products and institutional sectors. Services are offered across Canada and the Northeastern United States with 21 recovery facilities. Marketing and brokerage offices are located in Boston (Massachusetts), Charlotte (North Carolina), Chicago (Illinois) and Montréal, Toronto, and Vancouver (Canada). In 2011, the group shipped over 1.56 million metric tonnes through its recovery facilities and brokerage business with 53% of sales in Canada, 40% in the United States and 7% at export.

4.2.2 T ISSUE P APERS S ECTOR

The Tissue Papers Group is a manufacturer, converter and marketer of a wide variety of products mainly made from recycled fibers and intended for the Away-from-Home and consumer products markets. Its lines of bathroom tissue, facial tissue, paper towels, paper hand towels, paper napkins and other related products are sold under the labels Decor ^® , North River ^® , Cascades ^® , Wiping Solutions ^® and Nature’s Choice ^TM in the Away-from-Home Canadian and American markets. In the consumer products market, products are principally marketed under private labels and under the label Cascades ^® in Canada and Nature’s Choice ^® and under some secondary marks in the United States. In 2011, one client accounted for 21 % of sales in the consumer products market. In addition, the Tissue Group also sells parent rolls of bathroom tissue, paper towels, paper hand towels and specialty papers to a large number of converters. One client accounted for 60% of parent roll sales. In 2011, one client accounted for 13% of overall sales in the consumer products, Away-from-Home markets, and parent rolls. Products are sold principally through sales representatives, and are delivered by truck.

In 2011, Cascades Tissue Group launched an ultra quality bath tissue paper and a premium quality hardwound roll towel made from recycled fibre, for the Retail and the Away-from-Home markets respectively. These products are made with Atmos, an innovative manufacturing technology used exclusively by Cascades in North America. Originally developed by Voith in Brazil, this “TAD equivalent” process produces high end products similar to the fluffy and absorbent paper offerings produced with the traditional Through-Air-Drying (TAD) technology but using recycled fibre. The acquisition and start-up of Atmos at the Candiac tissue paper mill required a 30 million dollar investment. These new products are sold under the Cascades ^® and Cascades Elite™ brands.

In 2011, this Division also launched a new dispensing and paper napkin system that better controls the quantity of napkins used by customers. This dispenser, known under the label ServOne ^® , releases only one napkin at a time. Finally, a new bathroom tissue, made with 100% unbleached recycled fibres, was also launched in the Away-from-Home market under the trademark Cascades Moka™.

The Tissue Group’s sales for 2011 amounted to $871 million compared to $853 million in 2010. In 2011, Tissue Group’s production was sold as follows: 66% in the United States, and 34% in Canada. The Canadian mills generated 63% of total revenues in Canada and 37% in the United States. The American mills generated 98% of total revenues in the United States. 18 manufacturing and converting plants employ more than 2,200 employees.

The Candiac plant in Québec manufactures tissue paper made from recycled fiber and converts it into bathroom tissue and paper towels. These products are mainly sold in the consumer products market in Canada and in the United States. The production not converted at the Candiac mill is transferred to the Laval, Lachute and Papersource (Québec) and Waterford (New York) plants or is sold in parent rolls to other converters.


		*Annual Information Form*

The Lachute plant in Québec specializes in the manufacturing and converting of industrial use paper hand towels and converting of industrial use bathroom tissue. These products are mainly destined to the Canadian and American Away-from-Home markets. The production not converted is transferred to the Rockingham (North Carolina) plant.

The Laval plant in Québec specializes in the converting of tissue paper into paper napkins for the Canadian and American food and fast food industries.

The Kingsey Falls plant in Québec manufactures tissue paper made from recycled fiber and converts it into bathroom tissue, paper towels, and facial tissue. These products are mainly sold in the consumer products market as well as the Away-from-Home markets, both in Canada and the United States. The production not converted is transferred to the Laval, Lachute and Papersource (Québec) and Waterford (New York) plants or is sold in parent rolls to other converters.

The Toronto plant in Ontario converts tissue paper made of recycled fiber into bathroom tissue, paper towels, paper napkins and facial tissue. These products are mainly sold in the Canadian and American consumer products market.

The two Toronto PM mills in Ontario produce parent rolls made of recycled fiber and virgin fiber. The production is transferred to the Toronto (Ontario), Papersource (Québec) and Waterford (New York) plants or sold to other converters.

Papersource Converting Mill Corp. in Granby (Québec) (“Papersource”) converts tissue paper into bathroom tissue, paper hand towels and facial tissue. These products are mainly sold in the Canadian and American Away-from-Home markets. Papersource, formerly owned at 50% by Cascades, became a wholly-owned subsidiary on November 1, 2011, as described under heading 3.1 “Three Year History”.

Cascades Tissue Group - North Carolina, with its Rockingham plant, manufactures tissue paper made from recycled fiber and converts it into bathroom tissue, paper towels, paper hand towels, paper napkins and facial tissue. These products are mainly sold in the American Away-from-Home markets. The production not converted is transferred to the Laval (Québec), Waterford (New York) and Best Diamond (North Carolina) plants or sold to other converters.

Cascades Tissue Group - IFC Disposables Inc.’s plant is located in Brownsville (Tennessee) and specializes in the converting of tissue papers into industrial wipes sold in the Away-from-Home markets in the United States.

Cascades Tissue Group - Wisconsin’s plant, in Eau-Claire, manufactures tissue paper made from recycled fiber and converts it into bathroom tissue, paper towels, facial tissue and paper napkins. These products are mainly sold in the consumer products market in the United States. The non-converted production is sold in parent rolls to other converters.

Cascades Tissue Group - Pennsylvania, with plants in Ransom and Pittston, manufactures tissue paper made from recycled fiber and converts it into bathroom tissue, paper towels, facial tissue and paper napkins. These products are mainly sold in the consumer products market in the United States. The non-converted production is transferred to the Waterford (New York), Kingsey Falls (Québec) and IFC plants or is sold in parent rolls to other converters.

Cascades Tissue Group - Oregon, in St-Helens, produces parent rolls made of 100% virgin fiber. The production is transferred to the Kingman (Arizona) plant or is sold to other converters.

The Waterford Division of Cascades Tissue Group - New York Inc. specializes in the conversion of tissue paper into bathroom tissue, paper towels, paper napkins and industrial use paper hand towels. These products are mainly sold in the consumer products market as well as the Away-from-Home markets in the United States. The Mechanicville (New York) Division produces parent rolls made from recycled fiber. The production is transferred to the Waterford Division (New York) and Papersource (Québec) or is sold to other converters.

Cascades Tissue Group - Arizona Inc. operates a plant in Kingman, and specializes in the conversion of tissue paper into bathroom tissue, paper towels, paper hand towels and paper napkins. These products are mainly sold in the consumer products market in the United States.

The Memphis plant of Cascades Tissue Group - Tennessee Inc. produces parent rolls of tissue paper made from recycled fiber. The production is transferred to the Kingman (Arizona) plant or sold to other converters.

Best Diamond Packaging, LLC, a joint venture, operates a plant in Kinston, North Carolina, and specializes in the conversion of tissue paper into paper napkins for the American food and quick-service restaurant markets.

The following table lists the plants and mills of the Tissue Group and the approximate annual production capacity of each facility as well as the products manufactured or, where applicable, their activities in 2011:


		*Annual Information Form*


Facilities	Products / Services	Annual capacity in short tons
Manufacturing / Converting
Candiac, Québec	Paper towels, bathroom tissue		77,000
Lachute, Québec	Paper hand towels, bathroom tissue		43,000
Kingsey Falls, Québec	Paper towels, facial tissue, bathroom tissue		113,000
Cascades Tissue Group – North Carolina, Rockingham	Paper towels, facial tissue, bathroom tissue, paper napkins, paper hand towels		63,000
Cascades Tissue Group – Wisconsin, Eau Claire	Paper towels, bathroom tissue, facial tissue and paper napkins		62,000
Cascades Tissue Group – Pennsylvania, Ransom and Pittston	Paper towels, bathroom tissue, facial tissue and paper napkins		63,000
Manufacturing
Toronto PM , Ontario	Parent rolls		64,000
Cascades Tissue Group – Oregon, St-Helens	Parent rolls		77,000
Cascades Tissue Group – Tennessee Inc., Memphis	Parent rolls		46,000
Cascades Tissue Group – New York Inc., Mechanicville	Parent rolls		58,000
Converting
Toronto, Ontario	Paper towels, bathroom tissue, facial tissue, paper napkins		N/A
Laval, Québec	Paper napkins		N/A
Papersource Converting Mill Corp., Granby, Québec	Bathroom tissue, facial tissue and paper hand towels		N/A
Cascades Tissue Group – Arizona Inc., Kingman	Paper towels, bathroom tissue, paper hand towels, paper napkins		N/A
Cascades Tissue Group – New York Inc., Waterford	Paper towels, bathroom tissue, paper hand towels, paper napkins		N/A
Best Diamond Packaging, LLC Kinston, North Carolina	Paper napkins		N/A
Cascades Tissue Group – IFC Disposables Inc., Brownsville, Tennessee	Industrial wipes		N/A

4.3	R ESEARCH , D EVELOPMENT AND I NNOVATION

Cascades has its own research and development centre («the Centre») located in Kingsey Falls (Québec), composed of a staff of 37 employees. The Centre provides Cascades’ business units with product design and development of products and processes in addition to providing technical support for solving production problems and improving quality. Moreover, the Centre is strongly involved in innovation and sustainable development through its scientific support to the Corporation’s marketing teams. Cascades also put in place an innovation strategy, namely the “Innovation Management System” (IMS). In 2011, the innovation process expanded to all Cascades activities, namely finance, production, human resources, services and logistics, sales and marketing in order to enhance efficiency and performance at all levels.

The Information Technology Centre develops software in many spheres of activity for Cascades such as accounting, finance, human resources, warehousing logistic, transport management and production management. It has a team of 255 employees. In 2011, the Corporation made investments of $19 million for the modernization of its financial information system to an Enterprise Resource Planning (ERP) information technology system.


		*Annual Information Form*

4.4 C OMPETITIVE C ONDITIONS

4.4.1

O UR M ARKETS

Cascades operates in large, highly competitive markets. Our products and services compete with similar products manufactured and distributed by others both domestically and globally. The success in our markets is influenced by many factors, including price, customer service, geographic location, the quality, breadth and performance characteristics of our products. Given our products, integration level, markets and geographic diversification, we believe that we are well-positioned to compete in our packaging and tissue sectors.

According to RISI, the total U.S. coated recycled boxboard production for folding carton was approximately 2.06 million tons in 2011, stable compared to the previous year. Total coated recycled boxboard production for folding carton capacity in North America totalled approximately 2.1 million tons in 2011. The five largest manufacturers, Graphic Packaging International, RockTenn Company, Paperworks Industries Inc., Cascades Inc., and Fusion Paperboard, accounted for around 90% of total production capacity. In fact, according to the Paper Packaging Council, more than 60% of the U.S. end demand for folding cartons comes from the food and beverage industries.

The total containerboard production in North America was approximately 34 million tons of demand in 2011. Total containerboard production capacity in North America totalled approximately 35.6 million tons in 2011 and the five largest manufacturers, International Paper Company, RockTenn Company, Georgia-Pacific LLC, Packaging Corporation of America and Pratt Industries accounted for approximately 75% of total production capacity. Total U.S. containerboard production increased by 1% in 2011. With respect to demand, while the containerboard market is cyclical and impacted by economic conditions, it tends to be more resilient given that more than 80% of the end demand for corrugated boxes comes from the non durable goods industries according to the Fiber Box Association.

Demand in the U.S. tissue paper market reached approximately 8.3 million tons in 2011. Total tissue production capacity in North America totalled approximately 8.6 million tons during the same period, and the five largest manufacturers, Georgia-Pacific LLC, Kimberly-Clark Corporation, Procter & Gamble Company, Cascades Inc. and Svenska Cellulosa Aktiebolaget (SCA), accounted for approximately 75% of total production capacity. The tissue paper market consists of both the consumer products and Away-from-Home markets. Shipments of consumer products and Away-from-Home tissue products totalled approximately 69% and 31%, respectively, of total U.S. tissue paper shipments in 2011. The tissue market is considered to be the most stable paper sector with demand in North America growing at a 2% compound annual growth rate since 1995.

4.4.2

O UR C OMPETITIVE S TRENGTHS

Leading Market Positions with Environmentally Sustainable Product Focus . We are one of the leaders in Canada and hold one of the leading market positions in the packaging industry in North America. We also are a leading producer of coated boxboard in Europe. We are the sole Canadian public corporation in Canada active in the tissue sector. We believe our leading market positions and our environmental focus gives us an advantage over many of our competitors. We believe the demand for green products is growing and we are well-positioned to take advantage of the growing environmental trend due to our strengths and diversity of product offerings.

Fully Integrated Recycling Solutions Provider . We are an integrated manufacturer with both downstream recycled paper collection and processing capabilities and upstream manufacturing and converting operations. We have created the closed-loop system ^TM that enables us to manufacture our products efficiently for our customers. In North America, 32% of the recycled fibers that we use in our products come from our own recovery, converting and other collection facilities. We continually look for opportunities to increase our integration to further ensure the supply of raw materials to our mills and grow the development of our environmentally sustainable products.

Diversified Portfolio of Products, Markets and Geographic Locations . We manufacture and sell a diversified portfolio of packaging, tissue and specialty paper products for commercial, industrial and consumer products end markets in Canada, the United States, Europe and other regions. Our customers include Fortune 500, medium and small-sized companies across a broad range of industries. We believe that our product, geographic and customer diversification help us maintain our operating performance through economic downturns and changing market conditions. The size and diversity of our operations also allow us to cost-effectively serve customers on a regional and multinational basis, reducing delivery times and enhancing customer service.

Strong Presence in Consumer-Oriented End Markets . Our paper packaging, tissue and specialty paper products are sold primarily to consumer-oriented end markets, which tend to be less sensitive to economic cycles. As a result, products sold to these markets tend to exhibit a greater degree of stability and predictability in demand and product prices than products sold to commercial or industrial-oriented end markets. Our participation in consumer-oriented end markets has increased with our focus on selling tissue products.

4.5	C YCLE C OMPONENTS

Cascades is a diversified producer of packaging products and tissue paper with operations in Canada, the United States and Europe. The Corporation has leading market positions for many of its products in North America and is one of the foremost producers of coated boxboard in Europe.

Although the Corporation believes that its products, integration level, market, and geographical diversification help to mitigate the adverse effects of industry conditions, the markets, for some of its products, notably containerboard and boxboard, remain cyclical. These markets are influenced by changes in the North American and global economies, industry capacity and inventory levels maintained by customers, all of which affect selling prices and profitability. The Corporation is also affected by the variation of the Canadian dollar against the U.S. dollar and the Euro, and the effect of the volatility of the costs of the raw materials, particularly recycled fibers.


		*Annual Information Form*

4.6 E NVIRONMENTAL P ROTECTION

4.6.1 R EGULATIONS

The Corporation’s activities are subject to environmental laws and regulations imposed by various governmental and regulatory authorities in all the countries where it operates. The Corporation is in compliance, in all material respects, with all applicable environmental legislation and regulations. However, ongoing capital and operating expenses are expected to be incurred to achieve and maintain compliance with applicable environmental requirements. For more information, reference is made to the item “RISK FACTORS”, on page 35 of Management’s discussion and analysis of operating results and financial position in the 2011 Annual Report, which item is incorporated by reference.

In 2011, environmental protection requirements and the application of Cascades’ environmental mission required capital expenditures and led to operating costs as follows :


Country	Capital Expenses		Operating Costs
Canada	$	4,783,547	$	43,816,613
United States	$	517,011	$	20,276,519
Europe	$	1,717,136	$	3,159,090
Total	$	7,017,694	$	67,252,222

4.6.2 E NVIRONMENTAL M ISSION

Since one of the deeply ingrained values of the Corporation is protecting the environment, Cascades has adopted an Environmental Mission, which is available on the Corporation’s Website at www.cascades.com .

4.7	R EORGANIZATIONS

In 2011, no major legal reorganizations were undertaken by Cascades. In the normal course of business, some minor reorganizations of the subsidiaries of the Corporation could occasionally occur in order to improve the organizational structure, none of them having a material impact on the activities, operations or financial results of the Corporation.

4.8 S OCIAL P OLICIES

The Corporation has adopted a Code of Ethics (the “Code”), which is meant to provide directors, officers, and employees with general guidelines for acceptable behaviour in all relationships with each other, customers, suppliers, partners, and the communities where the Corporation operates. Given important legislative changes and the need to update certain chapters, the Code was revised in 2009. A copy of the Code is available upon written request to the Corporate Secretary at the following address:

Cascades inc.

Corporate Secretariat

404, Marie-Victorin Blvd., P.O. Box 30

Kingsey Falls (Québec) J0A 1B0

The Code and the corporate policies referred to in the document are also available on the Corporation’s Website at www.cascades.com .

4.9 R ISK F ACTORS

We refer the reader to Management’s discussion and analysis of operating results and financial position in the 2011 Annual Report, specifically on page 35, under the heading “RISK FACTORS”, incorporated by reference herein.

I TEM 5—D IVIDENDS AND D ISTRIBUTIONS

In 2009, 2010 and 2011, Cascades paid dividends on its Common Shares at the current rate of $0.04 per Common Share per quarter. Other than pursuant to the Indentures, which govern its 6.75%, 7.25%, 7.75% and 7.875% Senior Notes, and the Credit Facilities, there are no material contractual restrictions on Cascades’ ability to declare and pay dividends on its Common Shares.

The dividend amount is reviewed annually by the Board of Directors and is determined taking into account Cascades’ financial situation, its results from operations, its capital requirements and any other factor deemed pertinent by the Board.

I TEM 6—C APITAL S TRUCTURE

6.1 G ENERAL DESCRIPTION OF CAPITAL STRUCTURE

The share capital of the Corporation is composed of an unlimited number of Common Shares without par value, an unlimited number of Class “A” Preferred Shares without par value which may be issued in series and an unlimited number of Class “B” Preferred Shares without par value which may be issued in series.

The holders of common shares are entitled to the right to vote on the basis of one vote per share at any meetings of shareholders and the right to receive dividends and to share in the remaining assets in the event of a liquidation of the Corporation. As at March 15, 2012, there were 94,341,165 Common Shares issued and outstanding.

The Class “A” and “B” Preferred Shares are issuable in series and rank equally within their respective classes as to dividends and capital. Registered holders of any series of Class “A” or Class “B” are entitled to receive, in each fiscal year of the Corporation or on any other basis, cumulative or non-cumulative preferred dividends payable at the time, at the rates and for such amounts and at the place or places


		*Annual Information Form*

determined by the directors with respect to each series prior to the issuance of any Class “A” or Class “B” Preferred Shares. In the event of the liquidation, winding-up or dissolution of the Corporation or any other distribution of its assets to its shareholders, the holders of Class “A” and “B” Preferred Shares are entitled to receive, out of the assets of the Corporation , the amount paid in consideration of each share held by them. The holders of Class “A” and “B” Preferred Shares are not entitled as such to receive notice of or to attend or to vote at any meetings of shareholders. None of the Class “A” or “B” Preferred Shares of the capital stock of the Corporation are, as of the date hereof, issued and outstanding.

6.2 R ATINGS

Credit ratings are intended to provide investors with an independent measure of credit quality of an issue of securities. Rating for debt instruments are presented in ranges by each of the rating agencies. The highest qualities of securities are rated AAA in the case of Standard & Poor’s (“S&P”) and Dominion Bond Rating Services (“DBRS”), or Aaa in the case of Moody’s Investors Service (“Moody’s”). The lowest quality of securities are rated D in the case of S&P and DBRS, or C in the case of Moody’s.

According to the S&P rating system, notes rated BB, B, CCC, CC, and C are regarded as having from low to significant speculative characteristics. A BB rating indicates the least degree of speculation and C the highest. While such notes will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. Notes rated BBB are less vulnerable for non-payment than other speculative economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation. The ratings from AAA to B may be modified by the addition of a plus (+) or minus (-) to show relative standing within the major rating categories.

According to the Moody’s rating system, notes, which are rated Ba, are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Moody’s applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates a ranking in the lower end of that generic rating category.

According to the DBRS rating system, long-term debt rated BB is defined to be speculative and non-investment grade, where the degree of protection afforded interest and principal is uncertain, particularly during periods of economic recession. Entities in the BB range typically have limited access to capital markets and additional liquidity support. In many cases, deficiencies in critical mass, diversification, and competitive strength are additional negative considerations. The absence of either a high or low designation indicates the rating is in the middle of the category.

Credit Risk

Moody’s

S & P

DBRS

Highest quality

Aaa

AAA

High quality (very strong)

Upper medium grade (strong)

Medium grade

Baa

BBB

Lower medium grade (somewhat speculative)

Low grade (speculative)

Poor quality (may default)

Caa

CCC

Most speculative

No interest being paid or bankruptcy petition filed

In default

Source:

Securities Industry and Financial Markets Association and “Dominion Bond Rating Services”

Cascades’ outstanding senior notes received the following ratings by S&P, Moody’s and DBRS respectively:


Rating agency	Rating	Qualitative	Most recent update

S&P	B+	Positive outlook	May 2011

Moody’s	Ba3	Stable outlook	December 2011

DBRS	BB high	Stable outlook	October 2011

It is to be noted that the credit ratings given to the notes by the rating agencies are not recommendations to purchase, hold or sell the notes as such, given these ratings do not comment as to market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn by a rating agency in the future if in its judgement circumstances so warrant. The Corporation is not responsible for credit ratings given by the rating agencies.


		*Annual Information Form*

Item 7—M ARKET FOR S ECURITIES

7.1 T RADING P RICE AND V OLUME

Cascades’ Common Shares are traded on the Toronto Stock Exchange under the ticker symbol “CAS”. The following table sets forth the market price range, in Canadian dollars, and trading volumes of the Corporation’s Common Shares on the Toronto Stock Exchange for each month of the most recently completed financial year:

Toronto Stock Exchange – Market price range – Year 2011


Month	High		Low		Market Price Range		Trading Volume
January		7.36		6.27		7.26		4,761,973
February		7.45		6.50		6.78		2,926,340
March		7.75		6.53		7.55		4,660,524
April		7.75		6.82		6.90		2,953,017
May		7.04		5.90		6.22		2,819,168
June		6.54		6.02		6.38		1,725,351
July		6.44		6.06		6.18		975,169
August		6.20		4.96		5.06		3,131,529
September		5.11		3.77		3.90		2,658,447
October		4.65		3.51		4.55		3,062,967
November		4.99		4.25		4.30		1,917,632
December		4.46		3.80		4.43		2,249,489

In 2010, in the normal course of business, the Corporation renewed its redemption program. Purchases began on March 15, 2010 and continued until March 14, 2011. The notice enabled Cascades to acquire up to 4,848,540 Common Shares, representing approximately 5% of the issued and outstanding Common Shares as at March 5, 2010. At the end of this normal course issuer bid, the Corporation had redeemed 638,191 Common Shares at an average weighted cost of $7.18.

In 2011, in the normal course of business, the Corporation renewed its redemption program. Purchases began on March 15, 2011 and continued until March 14, 2012. The notice enabled Cascades to acquire up to 4,830,321 Common Shares, representing approximately 5% of the issued and outstanding Common Shares as at March 15, 2011. As of March 1, 2012, the Corporation had redeemed 2,363,563 Common Shares at an average weighted cost of $5.12.

On March 13, 2012, Cascades announced that the Toronto Stock Exchange accepted its notice of intention to begin a normal course issuer bid in respect of its Common Shares. Purchases pursuant to the normal course issuer bid commenced on March 15, 2012 and will cease on March 14, 2013. The Common Shares purchased shall be cancelled. The notice will enable Cascades to acquire up to 4,725,273 Common Shares, which represents approximately 5% of the 94,505,465 issued and outstanding Common Shares as at March 1, 2012.

Item 8 – D IRECTORS AND O FFICERS

The Directors of the Corporation are elected annually to hold office until the next annual general meeting or until a successor is elected or appointed.

8.1 N AME , O CCUPATION AND S ECURITY H OLDING

The following table sets out the name and place of residence of each Director, its principal occupation, the year in which he first became a director of the Corporation, the number of common shares of the Corporation beneficially owned directly or indirectly by him, the number of deferred share units he holds, if the Director sits on boards of directors and committees of other public companies and membership on the committees of the Board of Directors of the Corporation.

Mr. Bernard Lemaire

Kingsey Falls, Québec (Canada)

Director since 1964

Non-Independent

Common Shares : 13,214,159

One of the founders of Cascades, Mr. Lemaire has been a Director of the Corporation since 1964. He was President of the Corporation from its creation to 1992 and Chairman of the Board from 1992 to 2008. Mr. Lemaire is also Executive Chairman of the Board of Directors of Boralex Inc., a power producer dedicated to the development and operation of energy power stations. He serves as a member of the Administrative Committee of both companies. Mr. Lemaire holds an Honorary Doctorate from the École des Hautes Études Commerciales – Montréal and an Honorary Doctorate in Business Administration from the University of Sherbrooke. He is an Officer of the Order of Canada and an Officer of the Ordre national of Québec as well as a Chevalier of the Ordre national of the Légion d’honneur of the French Republic.

Mr. Laurent Lemaire

Warwick, Québec (Canada)

Director since 1964

Non-Independent

Common Shares : 12,184,013


		*Annual Information Form*

One of the founders of Cascades, Mr. Lemaire is Executive Vice-Chairman of the Board of Directors of the Corporation and a member of the Administrative Committee. He held the position of Chairman of the Board of Directors from May 2008 to May 2011 and was President and Chief Executive Officer of the Corporation from 1992 to 2004. He holds a Masters degree in Commerce and an Honorary Doctorate in Business Administration from the University of Sherbrooke. He is a member of the Board of Directors and of the Audit Committee of Junex Inc., a junior oil and gas exploration company. He also sits on the Board of Directors of Reno de Medici S.p.A., an Italian—based public company, manufacturer of coated and recycled boxboard.

Mr. Alain Lemaire

Kingsey Falls, Québec (Canada)

Director since 1967

Non-Independent

Common Shares : 4,919,607

One of the founders of Cascades, Mr. Lemaire is Chairman of the Board of Directors and President and Chief Executive Officer of the Corporation and a member of the Administrative Committee. He held the position of Executive Vice-President of the Corporation from 1992 to 2004 and was President and Chief Executive Officer of Norampac Inc. from 1998 to 2004. A former student of the Institut des pâtes et papiers of Trois-Rivières (Québec), he holds an Honorary Doctorate in Business Administration from the University of Sherbrooke.

Mr. Martin P. Pelletier, Eng., Ph. D

Sillery, Québec (Canada)

Director since 1982

Non-Indedendent

Common Shares : 68,054

Differed Share Units: 26,056

Mr. Pelletier, a chemical engineer, is a pulp and paper consultant. He held the position of Vice-President and Chief Operating Officer, Containerboard, Norampac Inc., from 1997 to 2000 and was President and Chief Executive Officer of Rolland Inc. (now known as Cascades Fine Papers Group Inc.) from 2000 to 2002. He is the Chairman of the Environmental, Health and Safety Committee. He sits on the Board of Directors of CO ₂ Solutions, an innovator in the field of enzyme enabled carbon capture.

Mr. Paul R. Bannerman

Montréal, Québec (Canada)

Director since 1982

Non-Independent

Common Shares : 661,884

Deferred Share Units: 26,056

Mr. Bannerman is the founder and the Chairman of the Board of Directors of Etcan International Inc., a pulp and paper sales agency founded in 1978 which is active in the American, European and South American markets. Mr. Bannerman sits on the Board of Directors of a number of private companies and contributes personally and through his private foundation to the advancement of education, health, the arts and community development. He is a graduate of McGill University in political science and economics and holds an M.B.A. from Harvard University.

Mr. Louis Garneau

St. Augustin-de-Desmaures, Québec (Canada)

Director since 1996

Independent

Common Shares : 5,018

Deferred Share Units: 26,056

Mr. Garneau is President of Louis Garneau Sports Inc., a manufacturer and distributor of sports clothing and accessories throughout the world. He is a member of the Human Resources Committee. A former international cycle racer, Mr. Garneau participated in the 1984 Olympic Games in Los Angeles. He is a Chevalier de l’Ordre National of Québec and an Officer of the Order of Canada. In June 2007, he was awarded an honorary doctorate by the Faculty of Administration of the University of Ottawa. In 2008, he received the “Gloire de l’Escolle” medal as a former graduate having honored Université Laval due to the extent of his professional activities and his contribution to society.

Mrs. Sylvie Lemaire

Otterburn Park, Québec (Canada)

Director since 1999

Non-Independent

Common Shares : 532,287

Deferred Share Units: 26,056

Mrs. Lemaire is a director of companies. She has held production, research and development and general management positions. She was co-owner of Dismed Inc., a distributor of medical products, and of Fempro Inc., where she held the position of President until 2007. She serves as a member of the Environmental, Health and Safety Committee and a member of the Corporate Governance and Nominating Committee. Mrs. Lemaire holds the degree of Bachelor in Industrial Engineering from the Montreal École polytechnique.


		*Annual Information Form*

Mr. Laurent Verreault

Verdun, Québec (Canada)

Director since 2001

Independent

Common Shares : 98,570

Deferred Share Units: 26,056

Mr. Verreault is Chairman of the Board of Directors and Chief Executive Officer of GLV Inc., a manufacturer of engineered equipment. He has been a Director of Cascades since 2001 and serves as a member of the Audit and of the Human Resources Committees. Mr. Verreault intends to retire from the Corporation’s Board of Directors and is not standing for re-election at the next Annual General Meeting of Shareholders.

Mr. Robert Chevrier

Montréal, Québec (Canada)

Director since 2003

Independent

Common Shares : 5,000

Differed Share Units: 26,056

Mr. Chevrier is President of Société de Gestion Roche Inc., a holding and investment company. He is the Chairman of the Audit Committee and acts as lead Director. He is a director and member of the Audit Committee of Bank of Montreal and Chair of the Pension Fund Society of Bank of Montreal; director and Chair of the Human Resources Committee of CGI Group Inc., an IT and business process services provider; Chairman of the Board of Quincailleries Richelieu Ltée, a distributor, importer and manufacturer of specialty hardware. He has held the position of Chairman of the Board of Directors and President and Chief Executive Officer of Rexel Canada Inc. He is a graduate of the University of Concordia and a Fellow of the Canadian Institute of Chartered Accountants.

Mr. David McAusland

Beaconsfield, Québec (Canada)

Director since 2003

Independent

Common Shares : 4,000

Differed Share Units: 26,056

Mr. McAusland is a partner in the law firm of McCarthy Tétrault S.E.N.C.R.L.,s.r.l. From 1999 to February 2008, he held among others, the position of Executive Vice-President, Corporate Development and Chief Legal Officer of Alcan Inc., a large multinational industrial company. He is a member of the Corporate Governance and Nominating Committee and Chair of the Human Resources Committee. Mr. McAusland sits on the Boards of Directors of Cogeco Inc., and Cogeco Cable Inc., two companies involved in the communications sector where he is a member and Chair of the Corporate Governance Committee and a member of the Strategic Opportunities Committee of both these issuers. He sits on the Board of Directors of Khan Resources Inc., a uranium exploration and development company, where he is a member of the Compensation Committee. He is the Chairman of the Board of Directors of ATS Automation Tooling Systems, a leader in automation manufacturing solutions. In addition, he is a director of not-for-profit organizations such as the Montreal General Hospital Foundation and Chairman of the Board of the Fondation de l’École nationale du cirque .

Mr. James B.C. Doak

Toronto, Ontario (Canada)

Director since 2003

Independent

Common Shares : 10,000

Differed Share Units: 26,056

An economist and chartered financial analyst, Mr. Doak is President and Managing Director of Megantic Asset Management Inc., a Toronto-based investment company, since 2002. Prior thereto, from 1997 to 2002, he held the position of President of Enterprise Capital Management Inc. He is a member of the Audit Committee and Chair of the Corporate Governance and Nominating Committee. Mr. Doak is Chairman of the Board of Directors and a member of the Corporate Governance and Nominating Committee, the Compensation and the Audit and Finance Committees of Khan Resources Inc. a uranium exploration and development company. He is also a director and member of the Audit Committee of Purepoint Uranium Group Inc., an uranium exploration company. He is also a director and Chair of the Audit and Finance Committee of Eurocopter Canada Limited, a subsidiary of Eurocopter, a designer and manufacturer of civil helicopters. He holds a Diplôme d’études collégiales from McGill University and a B.A. in Economics from the University of Toronto.

Mr. Georges Kobrynsky

Outremont, Québec (Canada)

Director since 2010

Independent

Common Shares : 0

Differed Share Units: 4,682

Mr.Kobrynsky is a Director of companies. He is member of the Audit and Environment, Health and Safety Committees. He held the position of Senior Vice-President, Investments, Forest Products of the Société générale de financement du Québec from 2005 to 2010. Mr. Kobrynsky has also held for more than 30 years, various senior positions at Domtar Inc., including Senior Vice-President, Pulp and Paper Sales, Marketing and Customer Relations Group from 2001 to 2005 and Senior Vice-President, Communication Papers Division from 1995 to 2001. He sat on the Board of Directors of Norampac Inc., from 1998 to 2006. He holds a Master of Business Administration from McGill


		*Annual Information Form*

University, a Bachelor’s degree in Forest Engineering from Université Laval and a Bachelor of Arts from the Université de Montréal. He is a member of the Board of Directors of Supremex Inc., a Canadian manufacturer of stock and custom envelopes of which he is a member of the Audit Committee and Chair of the Compensation, Corporate Governance and Nominating Committee.

8.2 C EASE T RADE O RDERS , B ANKRUPTCIES , P ENALTIES OR S ANCTIONS

To the Corporation’s knowledge, no director or executive officer of the Corporation and no shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation:

a) is or has been in the past ten years before the date of this Annual Information Form a director or executive officer of any other company that, while that person was acting in that capacity,

i) was the subject of a cease trade or similar order, or an order that denied the other issuer access to any exemption under securities legislation for a period or more than 30 consecutive days;

ii) was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the Corporation being the subject of a cease trade or similar order or an order that denied the other issuer access to any exemption under securities legislation for a period of more than 30 consecutive days; or

iii) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or was subject to or instituted any proceedings, arrangements or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets;

b) was subject to court-imposed penalties or sanctions relating to securities legislation or by a securities regulatory authority, or entered into a settlement agreement with such authority; or

c) was subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

To the Corporation’s knowledge, no director or officer of the Corporation and no shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation, or a personal holding company of any such persons, has within the 10 years before the date of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold his or its assets.

Furthermore, to the knowledge of the Corporation, no proposed director of the Corporation has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable shareholder in deciding whether to vote for a proposed director.


		*Annual Information Form*

8.3 I NFORMATION CONCERNING E XECUTIVE O FFICERS


Executive Officers		Occupation in the Corporation

Laurent Lemaire Warwick (Québec)		Executive Vice-Chairman of the Board of Directors

Alain Lemaire Kingsey Falls (Québec)		Chairman of the Board of Directors and President and Chief Executive Officer

Mario Plourde Kingsey Falls (Québec)		Chief Operating Officer

Allan Hogg Kingsey Falls (Québec)		Vice-President and Chief Financial Officer

Christian Dubé Sutton (Québec)		Vice-President, Business Development

Maryse Fernet Kingsey Falls (Québec)		Vice-President, Human Resources

Dominic Doré Mont-Saint-Hilaire (Québec)		Vice-President, Information Technology

Hubert Bolduc Montreal (Québec)		Vice-President, Communications and Public Affairs

Léon Marineau Kingsey Falls (Québec)		Vice-President, Environment

Robert F. Hall Sherbrooke (Québec)		Vice-President, Legal Affairs and Corporate Secretary

Suzanne Blanchet Candiac (Québec)		President and Chief Executive Officer, Tissue Group

Marc-André Dépin Boucherville (Québec)		President and Chief Executive Officer, Containerboard and Boxboard Group (Norampac)

Luc Langevin Notre-Dame-des-Prairies (Québec)		President and Chief Operating Officer, Cascades Specialty Products Group

During the past five years, each of the Executive Officers of the Corporation have been engaged in their present principal occupations or in other executive capacities for the Corporation or with related or affiliated companies indicated opposite their name.

Mr. Mario Plourde was appointed Chief Operating Officer on February 23, 2011. Prior thereto, he was President and Chief Operating Officer of Cascades Specialty Products Group, a position he held for 11 years.

Mr. Luc Langevin was appointed President and Chief Operating Officer, Cascades Specialty Products Group on May 2, 2011. Since 1995, he has held various management positions within the Cascades Specialty Products Group.

As at December 31, 2011, the Directors and Executive Officers of the Corporation listed herein beneficially owned as a group, or exercised control or direction over, directly or indirectly, 32,117,716 Common Shares representing 34% of the Common Shares issued and outstanding.

Item 9 – L EGAL P ROCEEDINGS

In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contracts disputes, environmental, product claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending as at December 31, 2011 cannot be predicted with certainty, it is management’s opinion that the outcome will not have a material adverse effect on the Corporation’s consolidated financial position, results of its operations or its cash flows.

On May 2, 2011, the Corporation sold all of its interest in its subsidiaries Dopaco, Inc and Dopaco Canada, Inc. (collectively “Dopaco”). In accordance with the terms of the sale agreement, the Corporation retained liability for certain pending litigation, namely, a claim for damages in relation to the contamination of a site previously used by Dopaco. The claim for damages amounting to approximately US$11 million ($11 million) includes amounts for the de-contamination of the site, a decrease in property value and legal expenses. The Corporation expects to go to trial in April of 2012. While the Corporation believes the claim is without merit, it is impossible to predict the final outcome of this claim with any certainty at this time. No provision is recorded for this potential claim as at December 31, 2011.


		*Annual Information Form*

Item 10 – T RANSFER A GENTS AND R EGISTRARS

Cascades’ transfer agent and registrar is Computershare Investor Services Inc. (“Computershare”), having its place of business in Montréal, Québec, Canada at 1500 University Street, 7 ^th Floor. The register of transfers of the Common Shares of the Corporation maintained by Computershare is located in the same office in Montreal.

Item 11 – M ATERIAL C ONTRACTS

The only material contracts entered into during the year ended December 31, 2011 or in prior years that are still in effect and filed on SEDAR and EDGAR are :

Credit agreement, dated December 29, 2006, amongst Cascades Inc., Cascades USA Inc., Cascades Europe SAS, Cascades Arnsberg GmbH, The Bank of Nova Scotia, National Bank of Canada, Canadian Imperial Bank of Commerce, and a syndicate of lenders named therein, as lenders, as amended as of June 27, 2007, March 27, 2008, May 22, 2008 and February 13, 2009 (the “Credit Agreement”). The Credit Agreement has been amended and restated on February 10, 2011. Upon the terms of the amended and restated Credit Agreement, the revolving and term credit facilities were consolidated into a new $750 million revolving credit facility maturing in February 2015.

Indenture dated February 5, 2003, amongst Cascades, the Subsidiary Guarantors party thereto and The Bank of New York Mellon (f/k/a The Bank of New York), as trustee, pursuant to which Cascades issued 7 ¹ / 4 % Senior Notes due 2013.

Indenture dated May 28, 2003, amongst Norampac Inc. (“Norampac”), the Subsidiary Guarantors party thereto and the Bank of Nova Scotia Trust Company of New York, as trustee, pursuant to which Norampac issued 6 ³ / 4 % Senior Notes due 2013. On December 28, 2006, Norampac assigned and transferred all of its assets to Cascades and Cascades assumed all of Norampac’s liabilities, including the 6 ³ / 4 % Notes issued pursuant to the Indenture.

Indenture dated December 3, 2009, amongst Cascades, the Subsidiary Guarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee, pursuant to which Cascades issued 7 ³ / 4 % Senior Notes due 2017.

Indenture dated December 3, 2009, amongst Cascades, the Subsidiary Guarantors party thereto and Computershare Trust Company of Canada, as trustee, pursuant to which Cascades issued 7 ³ / 4 % Senior Notes due 2016.

Indenture dated December 23, 2009, amongst Cascades, the Subsidiary Guarantors party thereto and The Bank of Nova Scotia Trust Company of New York, as trustee, pursuant to which Cascades issued 7 ⁷ / 8 % Senior Notes due 2020.

Purchase and Sale Agreement by and amongst Cascades USA Inc., a wholly owned subsidiary of the Corporation, as Seller, Reynolds Group Holdings Limited, as Purchaser, Cascades Inc., as Guarantor, with respect to the sale of all of the issued and outstanding capital stock of Dopaco, Inc. and Dopaco Canada, Inc., dated as of March 3, 2011.

Limited Liability Company Agreement of Greenpac Holding LLC, by and amongst 27102009 USA LLC, a wholly owned subsidiary of the Corporation, 19J LLC, 56P LLC, CDPQ Investment GML Inc. and Containerboard Partners Inc. dated as of June 27, 2011.

Item 12 – I NTERESTS OF E XPERTS

PricewaterhouseCoopers LLP, Chartered Accountants (“PwC”), are the Independent Auditor of the Corporation who have prepared the Independent Auditor’s report dated March 19, 2012 in respect of the Corporation’s consolidated financial statements with accompanying notes as at and for the years ended December 31, 2011 and 2010 and January 1, 2010. PwC has advised that they are independent with respect to the Corporation within the meaning of the Code of Ethics of the Ordre des comptables agréés du Québec.

I TEM 13 – A UDIT C OMMITTEE

13.1 C OMPOSITION AND MANDATE

The Audit Committee (the “Committee”) is composed of Messrs Robert Chevrier, (Chair) , Laurent Verreault, James B.C. Doak and Georges Kobrynsky. The Committee is governed by a charter which is attached to this AIF as Schedule A. The Corporation has adopted a Code of Ethics (the “Code”) which was revised in 2009 that applies to all directors, officers and employees. The Code is posted on Cascades’ Website at www.cascades.com . All the members of the Committee are independent in accordance with the definition provided in section 1.4 of Multilateral Instrument 52-110 of the Canadian Securities Administrators and are financially literate.

13.2 R ELEVANT E DUCATION AND E XPERIENCE OF THE M EMBERS

The following describes the relevant education and experience of each member of the Committee that provides him with (a) an understanding of the accounting principles used by the Corporation to prepare its financial statements, (b) the ability to assess the general application of such accounting principles, (c) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to those that can reasonably be expected to be raised by the Corporation’s financial statements or experience actively supervising one or more persons engaged in such activities and (d) an understanding of internal controls and procedures for financial reporting.


		*Annual Information Form*


Name of Committee Member		Relevant Education and Experience

Robert Chevrier		Mr. Chevrier is a Fellow of the Institute of Chartered Accountants. He sits on the Boards of other Canadian listed companies and on other Audit Committees. His education and experience allows him to have a good understanding of the accounting principles used by the Corporation and he has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to those issues that can reasonably be expected to be raised by the Corporation’s financial statements.

Laurent Verreault		As Chairman of the Board of Directors and Chief Executive Officer of GLV Inc., a manufacturer of engineered equipment, primarily focused on the production of equipment for the pulp and paper industry, Mr.Verreault is both financially and operationally literate and understands the breadth and complexity of accounting issues that can reasonably be expected to be raised in the course of reviewing the Corporation’s financial statements.

James B.C. Doak		An economist, Mr. Doak has more than 20 years of experience as a chartered financial analyst and is a past President and Director of the Toronto CFA Society. He has been a Board member of several public companies, namely, PetroKazahstan Inc., Superior Propane Inc., and Spar Aerospace Inc. He has held senior positions with ScotiaMcLeod Inc., First Marathon Securities Ltd. and McLeod Young Weir Ltd., and was the founder of Enterprise Capital Management Inc., where he served as President until 2002. He is President and Managing Director of Megantic Asset Management Inc., an investment company.

Georges Kobrynsky		Mr.Kobrynsky is a Director of companies and held the position of Senior Vice-President, Investments, Forest Products of the Société générale de financement du Québec from 2005 to 2010. He has also held for more than 30 years, various senior positions at Domtar Inc. Mr. Kobrynsky is both financially and operationally literate and understands the breadth and complexity of accounting issues that can reasonably be expected to be raised in the course of reviewing the Corporation’s financial statements. He is a member of the Board of Directors and of the Audit Committee of Supremex Inc.

13.3 I NDEPENDENT A UDITOR ’ S S ERVICES F EES

The following table sets out the fees incurred and paid to the Independent Auditor PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., chartered accountants, in Canadian dollars in the past two fiscal years for various services provided to the Corporation and its subsidiaries :


Fees	Fees
	December 31, 2010		December 31, 2011
Audit Fees ⁽¹⁾	$	2,010,910	$	1,768,065
Audit-Related Fees ⁽²⁾	$	899,084	$	573,981
Tax Fees ⁽³⁾	$	278,969	$	461,911
Other Fees ⁽⁴⁾		N/A		N/A

Total	$	3,188,963	$	2,803,957

⁽¹⁾	Professional services provided in connection with statutory and regulatory filings and audit of the annual financial statements of the Corporation.

⁽²⁾	Professional services related to auditing as well as consultations on accounting and regulatory matters.

⁽³⁾	Professional services regarding compliance with income tax laws.

⁽⁴⁾	Various other services.

13.4 P OLICIES AND P ROCEDURES FOR THE E NGAGEMENT OF A UDIT AND N ON -A UDIT S ERVICES

The Corporation’s Audit Committee has adopted a Pre-approval Policy and Procedures, as amended, for services provided by the Independent Auditor (the “Policy”) which sets forth the procedures and the conditions pursuant to which permissible services proposed to be performed by the Independent Auditor are pre-approved. Under the terms of the Policy, services that involve annual fees of less than $25,000 up to an annual limit of $50,000 are pre-approved. The Committee has delegated to the Chairman of the Committee pre-approval authority for any services not previously approved by the Committee that involve the payment of unbudgeted fees up to a maximum of $100,000 per mandate. Services that involve fees of more than $100,000 require pre-approval of all the members of the Committee.

Item 14—A DDITIONAL I NFORMATION

Additional information, including Directors’ and Senior Officers’ remuneration and indebtedness, principal holders of the securities of Cascades and options to purchase securities, and interests of insiders in material transactions, if any, is contained in the Management Proxy Circular dated March 15, 2011 for the annual general meeting of shareholders.

Also, additional financial information pertaining to the fiscal year ended December 31, 2011 including Management’s Discussion and Analysis is presented in the Corporation’s 2011 Annual Report.

In addition, the following documents may be obtained, upon written request, from the Corporation’s Corporate Secretary:

(a) When Cascades is in the course of a distribution of its securities pursuant to a short form prospectus or has filed a preliminary short form prospectus in respect of a proposed distribution of its securities:


		*Annual Information Form*

i) one copy of the latest Annual Information Form of the Corporation, together with one copy of any document, or the pertinent pages of any document, incorporated by reference in the Annual Information Form;

ii) one copy of the latest Annual Report of the Corporation, a copy of the comparative financial statements of the Corporation for its most recently completed financial year for which financial statements have been filed together with the accompanying Independent Auditor’s report, and the Management’s Discussion and Analysis of Operating Results and Financial Position and one copy of any interim financial statements of the Corporation that have been filed, if any, for any period after the end of its most recently completed financial year;

iii) one copy of the Corporation’s Management Proxy Circular in respect of its most recent Annual General Meeting of Shareholders that involved the election of Directors ; and

iv) one copy of any other documents which are incorporated by reference into the preliminary short form prospectus or the short form prospectus; or

(b) at any other time, a copy of the documents referred to in a) i) to iii) above, may be obtained from the Corporate Secretary of the Corporation, at the address indicated below, provided that the Corporation may require the payment of a reasonable fee if the request is made by a person or company who is not a security holder of Cascades.

Most of the above-mentioned information relating to the Corporation may be found on SEDAR at www.sedar.com and on the Corporation’s Website at www.cascades.com .

Cascades Inc.

Corporate Secretary

404 Marie-Victorin Blvd., P.O. Box 30

Kingsey Falls, Québec J0A 1B0

Telephone: (819) 363-5100

Telecopier: (819) 363-5127

Schedule A

CHARTER

OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS OF CASCADES INC. ( the “Corporation”)

1. P URPOSE

The purpose of this charter is to describe the role of the Audit Committee (the “Committee”) as well as its duties and responsibilities delegated by the Board of Directors (“the Board”). The main duty of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to the following issues:

•

The quality and integrity of the Corporation’s financial statements;

•

The enterprise risk management process;

•

Accounting and financial reporting process;

•

Systems of internal accounting and financial controls;

•

Independent auditor’s qualifications, independence and performance;

•

Internal audit function and process;

•

The Corporation’s compliance with legal and regulatory requirements relating to the Corporation’s financial statements;

•

Fulfill any other responsibilities assigned to it from time to time by the Board.

2. D IVISION OF RESPONSIBILITIES

In carrying out the duties of the Committee described in this charter, the members of the Committee recognize that its function is to oversee the Corporation’s financial reporting process on behalf of the Board as well as to report its activities regularly to the Board. Management of the Corporation is responsible for the preparation, the presentation and the integrity of the Corporation’s financial statements and for the effectiveness of internal control over financial reporting.

Management and the internal audit service are responsible for maintaining appropriate accounting and financial reporting principles and policies as well as internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The independent auditor is responsible for planning and carrying out audits of the Corporation’s annual and interim financial statements and annually auditing management’s assessment of the effectiveness of internal control over financial reporting and other auditing procedures.

In performing their duties, the members of the Committee must have open and free discussions with the Board, the independent auditor, the internal auditor and management of the Corporation.

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CHARTER

OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS OF CASCADES INC. ( the “Corporation”)

3. C OMPOSITION AND ORGANIZATION

The Committee shall be composed of a minimum of three independent directors, as appointed by the Board at its first meeting following the annual shareholders meeting. Each member of the Committee shall satisfy the applicable independence and experience requirements of the laws governing the Corporation, the applicable stock exchanges on which the Company’s securities are listed and applicable securities regulatory authorities.

Each Committee member must be financially literate in accordance with applicable laws and at least one member must have accounting or related financial management expertise, as determined by the Board.

The Committee will appoint one of its members as Chairman and the Secretary or Assistant-Secretary of the Corporation or the person designated as Secretary will be secretary for all meetings of the Committee and will keep minutes of the Committee’s deliberations.

4. M EETINGS AND RESOURCES

The Committee shall meet at least four times a year, or more frequently if circumstances so dictate. By virtue of its mandate to foster open relations, the Committee shall also meet separately and in camera for discussions with the internal auditor, management and with the independent auditor, as required.

The Committee shall establish its own rules and procedures (subject to any specific guidelines from the Board) and shall meet at the place and in accordance with the terms prescribed by its rules. A quorum shall not be less than a majority of the members of the Committee.

The Chairperson of the Committee determines the agenda for each meeting in consultation with the Vice-President and Chief Financial Officer, the Secretary and the internal auditor. The agenda and supporting documentation are distributed to the members of the Committee within a reasonable timeframe prior to the meetings.

The Chairman of the Committee shall report quarterly and when required to the Board on the Committee’s activities and will make recommendations concerning all matters it deems necessary or appropriate.

The Committee shall at all times have free and open access to management, to the internal auditor and to the independent external auditor in order to seek explanations or information on specific questions.

The Committee shall have, the resources and the authority appropriate to carry out its duties, including the authority to retain, as it deems necessary, counsel and other external consultants and to set and pay their remuneration, without further Board approval.

In carrying out its duties and to meet its responsibilities, the Committee shall examine the books and relevant accounts of the Corporation, its divisions and its subsidiaries.

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CHARTER

OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS OF CASCADES INC. ( the “Corporation”)

5. DUTIES AND RESPONSIBILITIES

In addition to the above-mentioned responsibilities, the Committee shall address the following questions:

5.1 Financial reporting

•

Reviews the quality and integrity of the Corporation’s accounting and financial reporting system through discussions with management, the independent auditor and the internal auditor;

•

Reviews with management and the independent auditor the annual audited financial statements of the Corporation, including the information contained in management’s discussion and analysis, related press releases and the independent auditor’s report on the annual audited financial statements prior to public disclosure and filing with the Securities Regulatory Authorities;

•

Reviews the unaudited interim financial statements, including management’s discussion and analysis for each interim period of the fiscal year and related press releases prior to public disclosure and filing with the Securities Regulatory Authorities;

•

Reviews the financial information contained in prospectuses, offering memoranda, the annual information form and other reports that include audited or unaudited financial information submitted for approval by the Board;

•

Reviews with the independent auditor and management, the quality, appropriateness and disclosure of the Corporation’s accounting principles and policies, the underlying assumptions and reporting practices, and any proposed changes thereto;

•

Reviews financial analyses and other written communications prepared by management, the internal auditor or the independent auditor, setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative methods in conformity with International Financial Reporting Standards (“IFRS”) on the financial statements;

•

Verifies the compliance of management certification of financial reports with applicable legislation;

•

Reviews important litigation and any regulatory or accounting initiatives that could have a material effect on the Corporation’s financial situation or operating results and the appropriateness of the disclosure thereof in the documents reviewed by the Committee;

•

Reviews the results of the external audit, and any significant problems encountered in the performance the audit, and management’s response or action plan related to any Management Letter issued by the independent auditor.

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CHARTER

OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS OF CASCADES INC. ( the “Corporation”)

5.2 Risk management and internal control

•

Periodically receives management’s report assessing the adequacy and effectiveness of the Corporation’s disclosure controls and procedures and systems of internal control;

•

Reviews insurance coverage for the Corporation annually and as may otherwise be appropriate;

•

Reviews the Corporation’s risk assessment and risk management policies, including the Corporation’s policies regarding hedging, investment and credit;

•

Reviews significant capital costs and other major expenditures, related party transactions and any other transactions which could alter the Corporation’s financial or organizational structure, including off-balance sheet items;

•

Periodically enquires as to the funding of the retirement plans as well as the investment management, the structure and performance of the retirement plans;

•

Assists the Board in carrying out its responsibility for ensuring that the Corporation is compliant with applicable legal and regulatory requirements relating to the financial statements;

•

While ensuring confidentiality and anonymity, establishes procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, including employee concerns regarding accounting or auditing matters.

•

Periodically reviews with the Board, the internal auditors and the independent auditor of the Corporation and senior management, the Corporation’s anti-fraud program and practices.

5.3 Internal Audit Function

•

Reviews with management, the internal audit staff qualifications and experience and, if required, recommends the appointment or replacement of the internal auditor;

•

Regularly assesses the internal audit function’s performance, its responsibilities, its staffing, budget and the compensation of its members;

•

Annually reviews the internal audit plan;

•

Undertakes private discussions with the internal auditor to establish internal audit independence, the level of co-operation received from management,, the degree of interaction with the independent auditor, and any unresolved differences of opinion or disputes.

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CHARTER

OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS OF CASCADES INC. ( the “Corporation”)

5.4 Independent Auditor

•

Recommends to the Board, the appointment of the independent auditor and, if appropriate, their removal (in both cases, subject to shareholder approval), evaluates and compensates them and assesses their qualifications, performance and independence;

•

Ensures that as representatives of the shareholders, the independent auditor reports to the Committee and to the Board;

•

Approves all audit services provided by the independent auditor and determines and approves in advance, non audit services provided, in compliance with applicable legal and regulatory requirements;

•

Discusses with the independent auditor the quality and not just the acceptability of the Corporation’s accounting principles, including: i) all critical accounting policies and practices used; ii) any alternative treatments of financial information that have been discussed with management, the ramification of their use as well as iii) any other material written communications between the Corporation and the independent auditor, including any disagreement or unresolved differences of opinion between management and the independent auditor that could have an impact on the financial statements;

•

Reviews at least once a year the independent auditor’s report stating all relationships the independent auditor has with the Corporation and confirming their independence, and holding discussions with the independent auditor as to any relationship or services that may impact the quality of the audit services, or their objectivity and independence;

•

Reviews and approves policies for the Corporation’s hiring of partners and employees or former partners and employees of the independent auditor;

5.5 Performance Evaluation of the Committee

•

Prepares and reviews with the Board, an annual performance evaluation of the Committee and its members and assesses once a year, the adequacy of its mandate and, if required, makes recommendations to the Board.

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Exhibit 13.2

Management’s Report to the Shareholders of Cascades Inc.

March 19, 2012

The accompanying consolidated financial statements are the responsibility of the management of Cascades Inc., and have been reviewed by the Audit Committee and approved by the Board of Directors.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and include certain estimates that reflect management’s best judgment.

Management is also responsible for all other information included in this Annual Report and for ensuring that this information is consistent with the Corporation’s consolidated financial statements and business activities.

The Management of the Corporation is responsible for the design, establishment and maintenance of appropriate internal controls and procedures for financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS. Such internal control systems are designed to provide reasonable assurance on the reliability of the financial information and the safeguarding of assets.

External and internal auditors have free and independent access to the Audit Committee, which comprises outside independent directors. The Audit Committee, which meets regularly throughout the year with members of management and the external and internal auditors, reviews the consolidated financial statements and recommends their approval to the Board of Directors.

The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below.

Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the United States Securities Exchange Act of 1934. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief Executive Officer (CEO) and the Vice - President and Chief Financial Officer (CFO) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.


/s/ Alain Lemaire ALAIN LEMAIRE		/s/ Allan Hogg ALLAN HOGG

PRESIDENT AND CHIEF EXECUTIVE OFFICER KINGSEY FALLS, CANADA		VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER KINGSEY FALLS, CANADA


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			1

Independent Auditor’s Report To the Shareholders of Cascades Inc.

March 19, 2012

We have audited the accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2011 and 2010 and January 1, 2010 and the consolidated statements of earnings, comprehensive income (loss), equity and cash flows for the years ended December 31, 2011 and 2010, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cascades Inc. and its subsidiaries as at December 31, 2011 and 2010 and January 1, 2010 and their financial performance and their cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ PricewaterhouseCoopers LLP ¹

MONTRÉAL, CANADA

1	Chartered Accountant Auditor Permit No. 12300


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			2

CONSOLIDATED BALANCE SHEETS


(in millions of Canadian dollars)	Note		December 31, 2011			December 31, 2010			January 1, 2010
Assets
Current assets
Cash and cash equivalents				12			6			8
Accounts receivable		7 and 15		556			490			456
Current income tax assets		18		24			21			13
Inventories		8 and 15		516			476			467
Financial assets		27		6			12			14
Assets held for sale				12			—			—

				1,126			1,005			958

Long-term assets
Investments in associates and joint ventures		9		219			262			260
Property, plant and equipment		10 and 15		1,703			1,553			1,637
Intangible assets		11		185			126			137
Financial assets		27		25			4			7
Other assets		12		44			58			44
Deferred income tax assets		18		101			116			103
Goodwill and others		11		328			313			315

				3,731			3,437			3,461

Liabilities and Equity
Current liabilities
Bank loans and advances				90			42			50
Trade and other payables		13		539			440			395
Current income tax liabilities				2			2			1
Current portion of provisions for contingencies and charges		14		26			23			24
Current portion of financial liabilities and other liabilities		16 and 27		20			14			7
Current portion of long-term debt		15		49			7			6
Revolving credit facility, renewed in 2011		15		—			394			—

				726			922			483

Long-term liabilities
Long-term debt		15		1,358			960			1,423
Provisions for contingencies and charges		14		33			37			31
Financial liabilities		27		111			83			54
Other liabilities		16		249			196			166
Deferred income tax liabilities		18		89			167			192

				2,566			2,365			2,349

Equity attributable to Shareholders
Capital stock		19		486			496			499
Contributed surplus		20		14			14			14
Retained earnings				615			576			575
Accumulated other comprehensive income (loss)		21		(86	)		(37	)		3

				1,029			1,049			1,091
Non-controlling interest				136			23			21

Total equity				1,165			1,072			1,112

				3,731			3,437			3,461

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

Approved by the Board of Directors


/s/ Alain Lemaire ALAIN LEMAIRE		/s/ Robert Chevrier ROBERT CHEVRIER

DIRECTOR		DIRECTOR


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			3

CONSOLIDATED STATEMENTS OF EARNINGS

		00000000		00000000			00000000
For the years ended December 31, (in millions of Canadian dollars, except per share amounts and number of shares)	Note		2011			2010
Sales				3,625			3,182

Cost of sales and expenses		22
Cost of sales (including depreciation and amortization of $180 million; 2010–$155 million)				3,247			2,702
Selling and administrative expenses				362			326
Loss (gain) on acqusitions, disposals and others		24		(48	)		15
Impairment charges and restructuring costs		25		67			30
Foreign exchange loss (gain)				(19	)		7
Loss (gain) on derivative financial instruments		27		8			(1	)

				3,617			3,079

Operating income				8			103
Financing expense		26		100			107
Loss on refinancing of long-term debt				—			3
Foreign exchange loss (gain) on long-term debt and financial instruments				(4	)		4

Loss before income taxes				(88	)		(11	)
Recovery of income taxes		18		(56	)		(6	)
Share of results of associates and joint ventures		9		(14	)		(27	)

Net earnings (loss) from continuing operations including non-controlling interest for the year				(18	)		22
Net earnings from discontinued operations for the year		5		114			21

Net earnings including non-controlling interest for the year				96			43
Net earnings (loss) attributable to non-controlling interest				(3	)		2

Net earnings attributable to Shareholders for the year				99			41

Net earnings (loss) from continuing operations per common share
Basic			$	(0.16	)	$	0.21
Diluted			$	(0.16	)	$	0.21
Net earnings per common share
Basic			$	1.03		$	0.43
Diluted			$	1.02		$	0.42

Weighted average basic number of common shares outstanding				96,013,220			96,807,032

Net earnings attributable to Shareholders:
Continuing operations				(15	)		20
Discontinued operations		5		114			21

Net earnings				99			41

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


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

		000000		000000			000000
For the years ended December 31, (in millions of Canadian dollars)	Note		2011			2010
Net earnings including non-controlling interest for the year				96			43

Other comprehensive income (loss)
Translation adjustments		20
Change in foreign currency translation of foreign subsidiaries				(28	)		(49	)
Change in foreign currency translation related to net investment hedging activities				6			28
Income taxes				(1	)		(4	)
Cash flow hedges		20
Change in fair value of foreign exchange forward contracts				(11	)		1
Change in fair value of interest rate swaps				(23	)		—
Change in fair value of commodity derivative financial instruments				(11	)		(23	)
Income taxes				14			8
Actuarial loss on post-employment benefit obligations		17 and 20		(66	)		(33	)
Income taxes				17			9
Available-for-sale financial assets		20 and 27		—			(1	)

Other comprehensive loss				(103	)		(64	)

Comprehensive loss including non-controlling interest for the year				(7	)		(21	)
Comprehensive income (loss) attributable to non-controlling interest for the year				(8	)		2

Comprehensive income (loss) attributable to Shareholders for the year				1			(23	)

Comprehensive income (loss) attributable to Shareholders:
Continuing operations				(113	)		(44	)
Discontinued operations		5		114			21

Comprehensive income (loss)				1			(23	)

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


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			5

CONSOLIDATED STATEMENTS OF EQUITY


			For the year ended December 31, 2011
(in millions of Canadian dollars)	Note		Capital stock			Contributed surplus		Retained earnings			Accumulated other com- prehensive income (loss)			Total equity attributable to Shareholders			Non- controlling interest			Total equity
Balance—Beginning of year				496			14		576			(37	)		1,049			23			1,072
Comprehensive income (loss)
Net earnings				—			—		99			—			99			(3	)		96
Other comprehensive income (loss)				—			—		(49	)		(49	)		(98	)		(5	)		(103	)

				—			—		50			(49	)		1			(8	)		(7	)
Business acquisitions		5		—			—		—			—			—			129			129
Dividends				—			—		(15	)		—			(15	)		—			(15	)
Stock options				1			—		—			—			1			—			1
Redemption of common shares				(11	)		—		—			—			(11	)		—			(11	)
Acquisition of non-controlling interest		5		—			—		4			—			4			(7	)		(3	)
Dividend paid to non-controlling interest				—			—		—			—			—			(1	)		(1	)

Balance—End of year				486			14		615			(86	)		1,029			136			1,165


	For the year ended December 31, 2011
(in millions of Canadian dollars)	Capital stock			Contributed surplus			Retained earnings			Accumulated other com- prehensive income (loss)			Total equity attributable to Shareholders			Non- controlling interest		Total equity
Balance—Beginning of year		499			14			575			3			1,091			21		1,112
Comprehensive income (loss)
Net earnings		—			—			41			—			41			2		43
Other comprehensive income (loss)		—			—			(24	)		(40	)		(64	)		—		(64	)

		—			—			17			(40	)		(23	)		2		(21	)
Dividends		—			—			(16	)		—			(16	)		—		(16	)
Stock options		—			1			—			—			1			—		1
Redemption of common shares		(3	)		(1	)		—			—			(4	)		—		(4	)

Balance—End of year		496			14			576			(37	)		1,049			23		1,072

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


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			6

CONSOLIDATED STATEMENTS OF CASH FLOWS

		000000		000000			000000
For the years ended December 31, (in millions of Canadian dollars)	Note		2011			2010
Operating activities from continuing operations
Net earnings attributable to Shareholders for the year				99			41
Net earnings from discontinued operations for the year				(114	)		(21	)

Net earnings (loss) from continuing operations				(15	)		20
Adjustments for
Financing expense		26		100			107
Depreciation and amortization				180			155
Loss (gain) on acquisitions, disposals and others		24		(48	)		15
Impairment charges and restructuring costs		25		60			29
Loss on derivative financial instruments				12			7
Foreign exchange loss (gain) on long-term debt and derivative financial instruments				(4	)		4
Recovery of income taxes		18		(56	)		(6	)
Share of results of associates and joint ventures		9		(14	)		(27	)
Non-controlling interest				(3	)		2
Net financing expense paid				(97	)		(94	)
Income taxes paid				(2	)		(16	)
Dividend received				16			16
Others				(3	)		(19	)

				126			193
Changes in non-cash working capital components		26		(22	)		(23	)

				104			170

Investing activities from continuing operations
Purchase of investments in associates and joint ventures				(65	)		(8	)
Purchase of property, plant and equipment				(141	)		(118	)
Proceeds on disposal of property, plant and equipment				32			7
Change in other assets				1			(29	)
Business acquisitions, net of cash acquired		6		(60	)		(3	)
Proceeds on disposals of business, net of cash disposed				4			—

				(229	)		(151	)

Financing activities from continuing operations
Bank loans and advances				4			(7	)
Change in revolving credit facilities				(120	)		243
Purchase of senior notes				—			(165	)
Increase in other long-term debt				3			1
Payments of other long-term debt				(26	)		(107	)
Redemption of common shares				(11	)		(4	)
Acquisition of non-controlling interest including dividend paid				(4	)		—
Dividends paid to Corporation’s Shareholders				(15	)		(16	)

				(169	)		(55	)

Change in cash and cash equivalents during the year from continuing operations				(294	)		(36	)
Change in cash and cash equivalents from discontinued operations, including proceeds on disposal during the year		5		298			35

Net change in cash and cash equivalents during the year				4			(1	)
Currency translation on cash and cash equivalents				2			(1	)
Cash and cash equivalents—Beginning of year				6			8

Cash and cash equivalents—End of year				12			6

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


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			7

SEGMENTED INFORMATION

The Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization, which is not a measure of performance under International Financial Reporting Standards “IFRS”; however, the chief operating decision-maker (“CODM”) uses this performance measure for assessing the operating performance of each reportable segment. Earnings for each segment are prepared on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as sales to third parties, which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation’s accounting policies described in note 2.

The Corporation’s operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief Executive Officer has authority for resource allocation and assessment of the Corporation’s performance and is therefore the CODM.

In 2011, the Corporation changed the structure of its internal organization in a manner that caused the composition of its reportable segment to change. As a result, the Corporation modified its segmented information disclosure for the current and prior years. Containerboard manufacturing and converting activities are now presented on a consolidated basis. As well, North American manufacturing and converting Boxboard activities are also presented on a consolidated basis while European activities are still reported as a separate sub-segment. The Corporation also changed the presentation for its Specialty Products, in order to reflect how management analyzes its financial information.

The Corporation’s operations are managed in four segments: North American and European boxboard, North American Containerboard, Specialty Products (which consists of the packaging products of the Corporation) and Tissue Papers.


	SALES
For the years ended December 31, (in millions of Canadian dollars)	Note		2011			2010
Packaging products
Boxboard
North America				466			846
Europe				745			208
Discontinued operations of North America		5		(148	)		(470	)

				1,063			584
Containerboard				979			1,086
Specialty Products				851			786
Intersegment sales				(109	)		(106	)

				2,784			2,350
Tissue Papers				871			853

Intersegment sales and others				(30	)		(21	)

Total				3,625			3,182


	OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION
For the years ended December 31, (in millions of Canadian dollars)	Note		2011			2010
Packaging products
Boxboard
North America				(8	)		56
Europe				46			8
Discontinued operations of North America		5		(12	)		(52	)

				26			12
Containerboard				61			144
Specialty Products				16			63

				103			219
Tissue Papers				93			84
Corporate				(8	)		(45	)

Operating income before depreciation and amortization				188			258
Depreciation and amortization				(180	)		(155	)
Financing expense				(100	)		(107	)
Loss on refinancing of long-term debt				—			(3	)
Foreign exchange (loss) gain on long-term debt and financial instruments				4			(4	)

Loss before income taxes				(88	)		(11	)


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			8


	PURCHASES OF PROPERTY, PLANT AND EQUIPMENT
For the years ended December 31, (in millions of Canadian dollars)	Note		2011			2010
Packaging products
Boxboard
North America				13			21
Europe				30			5
Discontinued operations of North America		5		(1	)		(13	)

				42			13
Containerboard				42			31
Specialty Products				26			30

				110			74
Tissue Papers				31			36
Corporate				14			17

Total purchases				155			127
Proceeds on disposal of property, plant and equipment				(32	)		(7	)
Acquisition under capital-lease agreement				(7	)		(4	)

				116			116
Purchases of property, plant and equipment included in trade and other payables
Beginning of year				18			13
End of year				(25	)		(18	)

Purchases of property, plant and equipment				109			111


	TOTAL ASSETS
(in millions of Canadian dollars)	December 31, 2011			December 31, 2010			January 1, 2010
Packaging products
Boxboard		854			642			675
Containerboard		1,125			1,228			1,267
Specialty Products		540			523			494

		2,519			2,393			2,436

Tissue Papers		759			576			592
Corporate		280			221			202
Intersegment eliminations		(55	)		(46	)		(41	)

		3,503			3,144			3,189
Investments in associates and joint ventures		219			262			260
Other investments		9			31			12

Total assets		3,731			3,437			3,461


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			9

Information by geographic segment is as follows:


For the years ended December 31,	2011		2010
(in millions of Canadian dollars)
Sales
Operations located in Canada
Within Canada		1,402		1,413
To the United States		590		551
Offshore		54		44

		2,046		2,008

Operations located in the United States
Within the United States		731		796
To Canada		53		55
Offshore		2		1

		786		852

Operations located in Italy
Within Italy		177		—
Other countries		113		—

		290		—

Operations located in other countries
Within Europe		396		293
Other countries		107		29

		503		322

Total		3,625		3,182


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Property, plant and equipment
Canada		1,092		1,111		1,127
United States		249		391		441
Italy		315		—		—
Other countries		47		51		69

Total		1,703		1,553		1,637


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Goodwill, customer relationships and client lists and other finite and indefinite useful life intangible assets
Canada		457		357		361
United States		48		82		91
Italy		8		—		—

Total		513		439		452


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For each of the years in the two-year period ended December 31, 2011 (tabular amounts in millions of Canadian dollars, except per share and option amounts and number of shares and options)

NOTE 1

GENERAL INFORMATION

Cascades Inc. and its subsidiaries (together “Cascades” or the “Corporation”) produce, convert and market packaging and tissue products composed mainly of recycled fibres. Cascades Inc. is incorporated and domiciled in Québec, Canada. The address of its registered office is 404 Marie-Victorin Boulevard, Kingsey Falls. Its shares are listed on the Toronto Stock Exchange.

The Board of Directors approved the consolidated financial statements on March 19, 2012.

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND ADOPTION OF IFRS

Prior to January 1, 2011, the Corporation prepared its financial statements in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) as set out in Part V of the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In these consolidated financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the adoption of International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). In 2010, the CICA Handbook was revised to incorporate IFRS, and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Corporation commenced reporting on this basis in its 2011 consolidated financial statements.

These consolidated financial statements and the notes thereto represent the first annual consolidated financial statements of the Corporation prepared in compliance with IFRS as issued by IASB. The Corporation has also complied with the requirements of IFRS 1, First-time Adoption of IFRS. Subject to certain transition elections and exceptions disclosed in note 30, the Corporation consistently applied the accounting policies used in its opening IFRS consolidated balance sheet as at January 1, 2010 throughout all periods presented as if these policies had always been in effect. Note 30 discloses the impact of the transition to IFRS on the Corporation’s reported consolidated balance sheet as at December 31, 2010 and January 1, 2010 and consolidated statements of earnings, comprehensive loss and cash flows for the year ended December 31, 2010, including the nature and effect of significant changes in accounting policies from those used in the Corporation’s consolidated financial statements for the year ended December 31, 2010 prepared under Canadian GAAP.

BASIS OF MEASUREMENT

The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and liabilities, including derivative instruments which are measured at fair value.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			11

BASIS OF CONSOLIDATION

These consolidated financial statements include the accounts of the Corporation, which include:

(a)	Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Corporation has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Corporation controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Corporation. They are deconsolidated from the date that control ceases. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Corporation. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Corporation. Results of operation are consolidated since the date of acquisition. The purchase consideration is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The transaction costs directly attributable to the acquisition are expensed. Identifiable assets acquired as well as liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the purchase consideration over the fair value of the Corporation’s share of the identifiable net assets acquired is recorded as goodwill. If the purchase consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of earnings. Intercompany transactions, balances and unrealized gains on transactions between subsidiaries are eliminated.

The Corporation owns 44.31% of outstanding shares of Reno de Medici S.p.A. (“RdM”) and has an exercisable call option to purchase an additional 9.07% of the shares of RdM as at December 31, 2011. As such, the Corporation fully consolidates, since April 7, 2011, RdM with a non-controlling interest of 55.69%.

(b)	Transactions and change in ownership

Acquisitions or disposals of equity interests that do not result in the Corporation obtaining or losing control are treated as equity transactions. When the Corporation obtains or loses control, the revaluation of non-controlling interests that results in gains or losses for the Corporation are recognized in the consolidated statement of earnings.

(c)	Associates

Associates are all entities over which the Corporation has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized at cost. The Corporation’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.

Unrealized gains on transactions between the Corporation and its associates are eliminated to the extent of the Corporation’s interest in the associates. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Corporation. Dilution gains and losses arising in investments in associates are recognized in the consolidated statement of earnings.

The Corporation assesses at each year-end whether there is any objective evidence that its interest in associates is impaired. If impaired, the carrying value of the Corporation’s share of the underlying assets of associates is written down to its estimated recoverable amount (being the higher of fair value less cost to sell and value in use) and charged to the consolidated statement of earnings.

The Corporation has a 59.7% interest in an associate (“Greenpac”). Because the Corporation does not have the power to govern or jointly govern the financial and operating policies of Greenpac, it is a accounted for as an associate.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			12

(d)	Joint ventures

A joint venture is an entity in which the Corporation holds a long-term interest and shares joint control over the strategic, financial and operating decisions with one or more other venturers under a contractual arrangement. The Corporation reports its interests in joint ventures using the equity method. Accounting policies of joint ventures have been adjusted where necessary to ensure consistency with the policies adopted by the Corporation.

REVENUE RECOGNITION

The Corporation recognizes its sales, which consist of product sales, when it is probable that the economic benefits will flow to the Corporation, the goods are shipped and the significant risks and benefits of ownership are transferred, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured.

Revenue is measured based on the price specified in the sales contract, net of discounts and estimated returns at the time of sale. Historical experience is used to estimate and provide for discounts and returns. Volume discounts are assessed based on anticipated annual sales.

FINANCIAL INSTRUMENTS AND HEDGING RELATIONSHIPS

Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Corporation has transferred substantially all risks and rewards of ownership.

Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

CLASSIFICATION

The Corporation classifies its financial instruments in the following categories: at fair value through profit or loss, held to maturity (“HTM”), loans and receivables, available for sale (“AFS”) and other liabilities. The classification depends on the purpose for which the financial instruments were acquired or issued. Management determines the classification of its financial assets and financial liabilities at initial recognition. Settlement date accounting is used by the Corporation for all financial assets.

(a)	Financial assets at fair value through profit or loss

A financial asset or financial liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the consolidated statement of earnings. Gains and losses arising from changes in fair value are presented in the consolidated statement of earnings in loss (gain) on disposal and others in the period in which they arise. Financial assets and financial liabilities at fair value through profit or loss are classified as current except for the portion expected to be realized or paid beyond 12 months of the consolidated balance sheet date, which is classified as long-term.

(b)	Held to maturity

HTM financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities, other than loans and receivables, AFS or fair value through profit or loss that the entity has the positive intention and ability to hold to maturity. These financial assets are measured at amortized cost. The Corporation has no HTM financial assets as at December 31, 2011.

(c)	Available-for-sale financial assets

AFS investments are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. AFS investments are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive income (loss). AFS investments are classified as long-term, unless the investment matures within 12 months, or management expects to dispose of them within 12 months.


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Interest on AFS investments, calculated using the effective interest method, is recognized in the consolidated statement of earnings as part of interest income. Dividends on AFS equity instruments are recognized in the consolidated statement of earnings as part of loss (gain) on disposal and others when the Corporation’s right to receive payment is established. When an AFS investment is sold or impaired, the accumulated gains or losses are moved from accumulated other comprehensive income (loss) to the consolidated statement of earnings and included in Loss (gain) on derivative financial instruments.

(d)	Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Corporation’s loans and receivables comprise accounts receivables, notes receivable and cash and cash equivalents. Loans and receivables are initially recognized at fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less a provision for impairment.

(e)	Financial liabilities at amortized cost

Financial liabilities at amortized cost include bank loans and advances, trade and other payables, provisions for contingencies and charges, and long-term debt. Financial liabilities at amortized cost are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently, they are measured at amortized cost using the effective interest method. They are classified as current liabilities if payment is due within 12 months. Otherwise, they are presented as long-term liabilities.

IMPAIRMENT OF FINANCIAL ASSETS

At each report date, the Corporation assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Corporation recognizes an impairment loss, as follows:

Financial assets carried at amortized cost: The impairment loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.

ii)

AFS financial assets: The impairment loss is the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the consolidated statement of earnings. This amount represents the cumulative loss in accumulated other comprehensive income (loss) that is reclassified to net earnings (loss).

Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on AFS equity instruments are not reversed.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and, if so, the nature of the item being hedged. The Corporation designates certain derivatives as either:

i)	hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);

ii)	hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or

iii)	hedges of a net investment in a foreign operation (net investment hedge).


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The Corporation formally documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The full fair value of a hedging derivative is classified as a long-term asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.

(a)	Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the consolidated statement of earnings, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Corporation only applies fair value hedge accounting for hedging fixed interest risk on borrowings. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognized in the consolidated statement of earnings in Financing expense. The gain or loss relating to the ineffective portion is recognized in the consolidated statement of earnings. Changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk (Basis Adjustment) are recognized in the consolidated statement of earnings in Financing expense.

If the hedge no longer meets the criteria for hedge accounting, the Basis Adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity.

(b)	Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of earnings.

Amounts accumulated in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the consolidated statement of earnings in Financing expense. The gain or loss relating to the ineffective portion is recognized in the consolidated statement of earnings. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or property, plant and equipment), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of property, plant and equipment.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated statement of earnings. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of earnings.

(c)	Net investment hedge

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.

Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of earnings.

Gains and losses accumulated in equity are included in the consolidated statement of earnings when the foreign operation is partially disposed of or sold.


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CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand, bank balances and short-term liquid investments with original maturities of three months or less.

ACCOUNTS RECEIVABLE

Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less a provision for doubtful accounts that is based on expected collectibility.

INVENTORIES

Inventories of finished goods are valued at the lower of average production cost and net realizable value. Inventories of raw materials and supplies are valued at the lower of cost and replacement value, which is the best available measure of their net realizable value. Cost of raw materials and supplies is determined using the average cost and the first-in, first-out methods respectively. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

Property, plant and equipment are recorded at cost less accumulated depreciation and net impairment losses, including interest incurred during the construction period of certain property, plant and equipment. Depreciation is calculated on a straight-line basis at annual rates varying from 3% to 5% for buildings, 5% to 10% for machinery and equipment, and 15% to 20% for automotive equipment, determined according to the estimated useful life of each class of property, plant and equipment. Repairs and maintenance costs are charged to the consolidated statement of earnings during the period in which they are incurred.

Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.

GRANTS AND INVESTMENT TAX CREDITS

Grants and investment tax credits are accounted for using the cost reduction method and are amortized to earnings as a reduction of depreciation, using the same rates as those used to depreciate the related property, plant and equipment.

BORROWING COSTS

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until all the activities necessary to prepare the asset for its intended use are complete.

All other borrowing costs are recognized in the consolidated statement of earnings in the period in which they are incurred.

INTANGIBLE ASSETS

Intangible assets consist primarily of customer relationships and client lists, application software and favourable leases. They are recorded at cost less accumulated amortization and impairment losses and amortized on a straight-line basis, over the estimated useful lives as follows:


Customer relationships and client lists		Between 2 and 30 years
Other finite-life intangible assets		Between 2 and 20 years
Application software		Between 3 and 10 years
Favourable leases		Term of the lease
Other		Between 2 and 20 years

Expenditure on research activities is recognized as an expense in the period in which it is incurred.


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LONG-TERM DEBT

Long-term debt is recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of earnings over the period of the term of the debt using the effective interest method.

Financing costs paid on establishment of the revolving credit facility are recognized as deferred financing costs and amortized on a straight-line basis over the anticipated period of the credit facility.

IMPAIRMENT

a)	Property, plant and equipment and intangible assets with finite useful life

At the end of each reporting period, the Corporation assesses whether there is an indicator that the carrying amount of an asset or group of assets may be lower than its recoverable amount. For that purpose, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units (CGUs)).

When the recoverable amount is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. Impairment losses are recorded immediately in the consolidated statement of earnings on the line item Impairment charges and restructuring costs.

Impairment losses are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The revalued carrying value is the greater of the estimated recoverable amount or the carrying amount that would have been determined had no impairment loss been recognized and depreciation had been taken previously on the asset or CGU. A reversal of impairment loss is recorded directly in the consolidated statement of earnings in the line item Impairment charges and restructuring costs.

b)	Goodwill and other intangible assets with indefinite useful life

Goodwill and other intangible assets with indefinite useful life are recognized at cost less any accumulated impairment losses. They are reviewed for impairment annually on December 31 or when an event or circumstance occurs and indicates that the value could be permanently impaired. Goodwill and other intangible assets with indefinite useful life are allocated to CGUs for the purpose of impairment testing based on the level at which management monitors it, which is not higher than an operating segment. The allocation is made to those CGUs that are expected to benefit from the business combination in which the goodwill and other intangible assets with indefinite useful life arose. Impairment loss on goodwill and other intangible assets with indefinite useful life is not reversed.

c)	Recoverable amounts

A recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessment of the time value of money and the risks specific to the asset or CGU. When determining fair value less cost to sell, the Corporation considers if there is a market price for the asset being evaluated. Otherwise, the Corporation uses the income approach.

LEASES

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the consolidated statement of earnings on a straight-line basis over the term of the lease.

The Corporation leases certain property, plant and equipment. Leases of property, plant and equipment for which the Corporation has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Property, plant and equipment acquired under a finance lease are depreciated over the shorter of the estimated useful life of the asset


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and the lease term using the straight-line method. Each lease payment is allocated between the liability and financing expense so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of financing expense, are included in long-term debt.

PROVISIONS FOR CONTINGENCIES AND CHARGES

Provisions for contingencies include mainly legal claims, volume rebates and other. A provision is recognized when the Corporation has a legal or constructive obligation as a result of a past event and it is probable that settlement of the obligation will require a financial payment or cause a financial loss, and a reliable estimate can be made of the amount of the obligation.

If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recorded in the consolidated balance sheet as a separate asset, but only if it is virtually certain that the reimbursement will be received.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as financing expense.

ENVIRONMENTAL RESTORATION AND ENVIRONMENTAL COSTS

An obligation to incur restoration and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a plant or landfill site. Such costs arising from the installation of plant and other site preparation work are provided for and capitalized at the start of each project, or as soon as the obligation to incur such costs arises. Decommissioning costs are recorded at the estimated amount at which the obligation could be settled at the consolidated balance sheet date, and are charged against profit over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. The discount rate is the pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Costs for restoring subsequent site damage which is created on an ongoing basis during production are provided for at their present values and charged against profit as the obligation arises.

Changes in the measurement of a liability relating to the decommissioning of a plant or other site preparation work that result from changes in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy for impairment testing.

EMPLOYEE BENEFITS

The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement savings plans (RRSP) that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually contributory and are based on the number of years of service and, in most cases the average salaries or compensation at the end of a career. Retirement benefits are, in some cases, partially adjusted based on inflation. The Corporation also offers to its employees some post-employment benefit plans, such as retirement allowance, group life insurance and medical and dental plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer offered to the majority of the new retirees, and the retirement allowance is not offered for those who do not meet certain criteria.

The liability recognized in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated at least every three years by independent actuaries using the projected unit credit method, and updated regularly by management for any material transactions and changes in circumstances, including changes in market prices and interest rates up to the end of the reporting period.


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Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recorded in other comprehensive income (loss) and recognized immediately in retained earnings without recycling to the consolidated statement of earnings. Past service costs are recognized immediately in the consolidated statement of earnings.

When restructuring a plan results in a curtailment and settlement occurring at the same time, the curtailment is accounted for before the settlement.

Interest costs on pension and other post-employment benefits are recognized in the consolidated statement of earnings as Financing expense.

The measurement date of the employee future benefit plans is December 31 of each year. An actuarial evaluation is performed at least every three years. Based on the pension plan liability balance as at December 31, 2011, 85% of the plans have been evaluated on December 31, 2010 and 3% on December 31, 2009. The remaining 12% have been evaluated on December 31, 2011.

INCOME TAXES

The Corporation uses the liability method to recognize deferred income taxes. According to this method, deferred income taxes are determined using the difference between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates at the consolidated balance sheet date and that are expected to apply when the deferred income taxes are expected to be recovered or settled. Deferred income tax assets are recognized when it is probable that the asset will be realized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

FOREIGN CURRENCY TRANSLATION

Items included in the financial statements of each of the Corporation’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Canadian dollars, which is Cascades’ functional currency.

a)	Foreign currency transactions

Transactions denominated in currencies other than the business unit’s functional currency are recorded at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the consolidated balance sheet date. Unrealized gains and losses on translation of monetary assets and liabilities are reflected in the consolidated statement of earnings for the year.

b)	Foreign operations

The assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the consolidated balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation gains or losses are deferred and included in accumulated other comprehensive income (loss).

SHARE-BASED PAYMENTS

The Corporation uses the fair value method of accounting for stock-based compensation awards granted to officers and key employees. This method consists in recording expenses to earnings based on the vesting period of each tranche of options granted. The fair value of each tranche is calculated based on the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. When stock options are exercised, any considerations paid by employees, as well as the related stock-based compensation, are credited to capital stock.


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DIVIDEND DISTRIBUTION

Dividend distribution to the Corporation’s shareholders is recognized as a liability in the consolidated financial statements in the period in which the dividends are approved by the Corporation’s Board of Directors.

EARNINGS PER COMMON SHARE

Basic earnings per common share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per common share is determined by adjusting the weighted average number of common shares outstanding for dilutive instruments, which are primarily stock options, using the treasury stock method to evaluate the dilutive effect of stock options. Under this method, instruments with a dilutive effect, which is when the average market price of a share for the period exceeds the exercise price, are considered to have been exercised at the beginning of the period and the proceeds received are considered to have been used to redeem common shares of the Corporation at the average market price for the period.

NOTE 3

RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED

IFRS 9—Financial Instruments

IFRS 9 was issued in November 2009 and contain requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models for debt instruments in IAS 39, Financial Instruments: Recognition and Measurement, with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.

Requirements for financial liabilities were added in October 2010, and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income.

In December 2011, the effective date of IFRS 9 was deferred to years beginning on or after January 1, 2015. The Corporation has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

In May 2011, the IASB issued the following standards which have not yet been adopted by the Corporation: IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities, IAS 27, Separate Financial Statements, IFRS 13, Fair Value Measurement and amended IAS 28, Investments in Associates and Joint Ventures. Each of the new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Corporation has not yet begun the process of assessing the impact that the new and amended standards will have on its consolidated financial statements or whether to early adopt any of the new requirements.


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IFRS 10—Consolidation

IFRS 10 requires an entity to consolidate an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12, Consolidation—Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements.

IFRS 11—Joint Arrangements

IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities—Non-monetary Contributions by Venturers.

IFRS 12—Disclosure of Interests in Other Entities

IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.

IFRS 13—Fair Value Measurement

IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.

IAS 19—Employee Benefits

IAS 19 has been amended to make significant changes to the recognition and measurement of defined benefit pension expense and termination benefits and to enhance the disclosure of all employee benefits. The amended standard requires immediate recognition of actuarial gains and losses in other comprehensive income as they arise, without subsequent recycling to net income. This is consistent with the Corporation’s current accounting policy. Past service costs (which will now include curtailment gains and losses) will no longer be recognized over a service period but instead will be recognized immediately in the period of a plan amendment. Pension benefit costs will be split between (i) the cost of benefits accrued in the current period (service costs) and benefit changes (past service costs, settlements and curtailments); and (ii) finance expense or income. The finance expense or income component will be calculated based on the net defined benefit asset or liability. A number of other amendments have been made to recognition, measurement and classification including redefining short-term and other long-term benefits, guidance on the treatment taxes related to benefit plans, guidance on risk/cost sharing feature, and expanded disclosures.

IAS 1—Presentation of Financial Statements

IAS 1 has been amended to require entities to separate items presented in other comprehensive income into two groups based on whether or not items may be recycled in the future. Entities that choose to present other comprehensive income items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012 with earlier application permitted.


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Amendments to Other Standards

In addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements, and IAS 28, Investments in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to 13.

IFRS 7—Financial Instruments disclosures

IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial instruments subject to masternetting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to IAS 32 are effective as of January 1, 2014.

NOTE 4

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

USE OF ESTIMATES

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, management reviews its estimates, including those related to environmental costs, employee future benefits, collectibility of accounts receivable, financial instruments, contingencies, income taxes and related valuation allowance, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings in the period in which they occur.

(a)	Impairment of long lived assets, intangible assets and goodwill

In determining the recoverable amount of an asset or a CGU, the Corporation uses several key assumptions, based on external information on the industry when available, and including production levels, selling prices, volume, raw material costs, foreign exchange rates, growth rates, discounting rates and capital spending.

The Corporation believes such assumptions to be reasonable. These assumptions involve a high degree of judgment and complexity and reflect management’s best estimates based on available information at the assessment date. In addition, products are commodity products; therefore, pricing is inherently volatile and often follows a cyclical pattern.

DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS

Growth rates

The assumptions used were based on the Corporation’s internal budget. Revenues, operating margins and cash flows were projected for a period of five years, and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considered past experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.

Discount rates

The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a weighted average cost of capital (“WACC”) for comparable companies operating in similar industries of the applicable CGU, group of CGUs or reportable segment, based on publicly available information.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			22

Foreign exchange rates

Foreign exchange rates are determined using the banks’ average forecast for the first two years of forecasting. For the three following years, the Corporation uses the last five years’ historical average of the foreign exchange rate.

Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination of the Corporation’s key assumptions could cause a significant change in the carrying amounts of these assets.

(b)	Income taxes

The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing net operating losses based on the Corporation’s assessment of its ability to use them against future taxable income before they expire. If the Corporation’s assessment of its ability to use the net operating losses proves inaccurate in the future, more or less of the net operating losses might be recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporation’s results in the relevant year.

(c)	Employee benefits

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-rated on years of service and management’s best estimate of expected plan investment performance, salary escalations, retirement ages of employees and expected health-care costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually.

(d)	Subsidiaries and equity accounted investments

Significant judgment is applied in assessing whether certain investment structures result in control, joint control or significant influence over the operations of the investment. Management’s assessement of control, joint control or significant influence over an investment well determine the accounting treatment for the investment.

NOTE 5

DISCONTINUED OPERATIONS, DISPOSALS AND CLOSURES

DISCONTINUED OPERATIONS

On March 11, 2011, the Corporation announced that it had entered into an agreement for the sale of Dopaco Inc. and Dopaco Canada Inc. (collectively Dopaco), its converting business for the quick-service restaurant industry which was part of the Boxboard Group, to Reynolds Group Holdings Limited. On May 2, 2011, the Corporation completed the transaction for a cash consideration of US$310 million ($288 million), net of transaction fees and current income taxes. The Corporation realized a gain of US$116 million ($110 million) net of income taxes of US$87 million ($82 million).


For the years ended December 31,	2011		2010
(in millions of Canadian dollars)
Results of the discontinued operations of Dopaco
Sales		148		470
Cost of sales and expenses (excluding depreciation and amortization)		124		377
Depreciation and amortization		6		24
Other expenses and specific items		12		41

Net earnings before income taxes of discontinued operations		6		28
Income taxes		2		7
Share of results of associates and joint ventures		—		(1	)

Net earnings from operations		4		22
Gain on disposal, net of income taxes		110		—

Net earnings from discontinued operations		114		22

Net earnings from discontinued operations per common share
Basic	$	1.19	$	0.22

Diluted	$	1.18	$	0.21


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			23


For the years ended December 31,	2011			2010
(in millions of Canadian dollars)
Net cash flows of discontinued operations of Dopaco
Cash flows from (used for):
Operating activities		14			51
Investing activities		(1	)		(13	)
Consideration received on disposal, net of transaction fees, and income tax paid		288			—

Total		301			38

b)	In 2010, the Corporation recorded a $1 million charge related to its Thunder Bay, Ontario, coated fine paper mill sold in 2007.

In 2011, the Corporation paid $3 million (2010–$2 million) in relation to a 2006 legal settlement in the fine paper distribution activities that were disposed of in 2006.

DISPOSALS

On March 1, 2011, the Corporation sold its European Containerboard Group white-top linerboard mill located in Avot-Vallée, France for a total consideration of €10 million ($14 million), including the long-term debt assumed by the acquirer in the amount of €5 million ($7 million) and a balance of sale price of €5 million ($7 million) which is receivable over a maximum of three years. The Corporation realized a loss of $2 million before income taxes and incurred transaction fees of $1 million.

On June 23, 2011, the Corporation sold two of its boxboard facilities, namely the Versailles mill located in Connecticut and the Hebron converting plant located in Kentucky for a total consideration of US$20 million ($20 million), US$5 million ($5 million) of which has been received net of transaction fees paid of $1 million. The consideration also includes a balance of sale price of US$10 million ($10 million) and the fair value of US$4 million ($4 million) of natural gas contracts agreements concluded with the acquirer as part of the transaction. The balance of sale price of $10 million is receivable over four years. The Corporation realized a loss of $8 million before income taxes.

Assets and liabilities at the time of disposal were as follows:


	2011
	Business segment	Containerboard			Boxboard						Total
(in millions of Canadian dollars)		Avot-Vallée			Dopaco ¹			Versailles and Hebron			Total
Accounts receivable			17			36			14			67
Inventories			10			51			10			71
Investments in associates and joint ventures			—			2			—			2
Property, plant and equipment			12			144			13			169
Intangible assets			—			15			—			15
Other assets			—			2			—			2
Goodwill			—			19			—			19

			39			269			37			345

Trade and other payables			20			51			10			81
Provisions for contingencies and charges			—			—			4			4
Long-term debt			7			—			—			7
Other liabilities			3			10			—			13
Deferred income tax liabilities			—			35			—			35
Accumulated other comprehensive loss			1			—			(2	)		(1	)

			31			96			12			139

			8			173			25			206
Gain (loss) on disposal before tax and transaction fees			(1	)		200			(7	)		192
Transactions fees			(1	)		(8	)		(1	)		(10	)
Balance of sale price—Included in other assets			(7	)		—			(10	)		(17	)
Fair value of gas contracts sold to acquirer—Included in financial assets			—			—			(4	)		(4	)
Final working capital adjustment			—			2			2			4
Income tax paid			—			(79	)		—			(79	)

Total consideration received (paid), net of cash disposed			(1	)		288			5			292

¹	Presented as discontinued operations.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			24

NOTE 6

BUSINESS ACQUISITIONS

2011 ACQUISITIONS

On April 7, 2011, the Corporation purchased 0.12% of the outstanding shares of RdM, which resulted in the Corporation obtaining control on the basis that the Corporation owned 40.95% of the outstanding shares of RdM and an exercisable call option to purchase an additional 9.07% of the shares of RdM. The transaction was accounted for as a business combination, and the acquisition-date fair value of the consideration transferred is €90 million ($124 million).

The Corporation remeasured its previously held interest in RdM at the acquisition-date fair value, resulting in a loss of €17 million ($23 million).

ii)

The excess of the net fair value of the assets acquired and the liabilities assumed as well as non-controlling interest over the fair value of the consideration paid amounted to €26 million ($35 million) and was recorded as bargain purchase. The gain recorded is mainly attributable to the fact that the consideration paid is based on the closing price of the shares of RdM at the acquisition-date as listed on the Star segment of Borsa Italiana S.p.A, and the fair value of assets acquired and liabilities assumed are based on discounted future cash flows.

iii)

The net gain of €9 million ($12 million) is presented in line item Loss (gain) on acquisitions, disposals and others in the consolidated statement of earnings.

In the fourth quarter the Corporation finalized its purchase price allocation which changed the preliminary determination by €4 million ($5 million) and was retrospectively recorded as at April 7, 2011. The changes in the purchase price determination are mainly attributable to the finalization of the fair value calculation of property, plant & equipment as well as long-term debt.

Subsequent to April 7, 2011, the Corporation acquired 3.36% of the outstanding shares of RdM on the open market for a consideration of €2 million ($3 million). The excess of the purchase price of the shares of RdM over the carrying amount of the non-controlling interest was €3 million ($4 million) and was recognized in retained earnings.

On April 6, 2011, the Corporation increased its investments in NorCan Flexible Packaging Inc. “NorCan” (Mississauga, Ontario), which designs, manufactures, distributes and sells flexible film for packaging products, from 10% to 50% for cash consideration of $2 million. The acquisition-date fair value of the total consideration paid was $5 million. In addition to the 50% interest in NorCan, the Corporation also has a voting right over all of NorCan’s Board of Director’s decisions.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			25

The Corporation remeasured its previously held interest in NorCan at the acquisition-date fair value, resulting in a loss of $1 million, which is presented in line item Loss (gain) on acquisitions, disposals and others in the consolidated statement of earnings.

On May 31, 2011, the Corporation purchased all of the outstanding shares of Genor Recycling Services Ltd. and 533784 Ontario Limited (Genor) for a total consideration of $9 million, consisting of a cash consideration of $4 million and a balance of purchase price of $5 million. Genor recycles corrugated cardboard and other paper grades in Ontario (Canada).

On September 15, 2011, the Corporation acquired partition board manufacturing assets of Packaging Dimension Inc. based in Illinois, U.S., for a total consideration of US$6 million ($6 million), consisting of a cash consideration of US$3 million ($3 million) and a balance of purchase price of US$3 million ($3 million).

e)	On November 1, 2011, the Corporation acquired the remaining 50% of shares of Papersource Converting Mill Corp. “Papersource”, located in Granby, Québec. Papersource is a tissue converting plant in the away-from-home market. The cash consideration paid is $60 million.

The Corporation remeasured its previously held interest in Papersource at the acquisition-date fair value resulting in a gain of $37 million which is presented in line item Loss (gain) on acquisitions, disposals and others in the consolidated statement of earnings. As well, the excess of the consideration paid over the net fair value of the assets acquired and the liabilities assumed resulted in non-deductible goodwill of $26 million and has been allocated to all CGUs of the Tissue Papers segment.

All the purchase price determinations were finalized as at December 31, 2011.

2010 ACQUISITION

f)	On March 10, 2010, the Corporation acquired converting tissue business assets of Atlas Paper Bag Corporation Ltd., based in Ontario, for a total cash consideration of $3 million.

The net fair value of the assets acquired and liabilities assumed attributable to non-controlling interest is accounted for using the proportionate method.

Assets acquired and liabilities assumed were as follows:


	2011
	Business segment	Boxboard			Speciality Products								Tissue Papers
(in millions of Canadian dollars)	Acquired company	RdM			NorCan			Genor			Packaging Dimension Inc.		Papersource			Total
Fair values of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents			4			—			1			—		4			9
Accounts receivable			165			3			1			1		14			184
Inventories			128			1			—			—		23			152
Investments in associates and joint ventures			10			—			—			—		—			10
Property, plant and equipment			334			17			4			1		54			410
Intangible assets with finite useful life			4			1			2			2		71			80
Intangible assets with indefinite useful life			5			—			—			—		2			7
Goodwill			—			—			3			2		26			31
Bank loans and advances			(47	)		(1	)		—			—		(8	)		(56	)
Trade and other payables			(216	)		(4	)		(1	)		—		(16	)		(237	)
Current portion of long-term debt			(14	)		(2	)		—			—		—			(16	)
Long-term debt			(88	)		(7	)		—			—		(24	)		(119	)
Financial liabilities			(2	)		—			—			—		—			(2	)
Other liabilities			(40	)		—			—			—		—			(40	)
Deferred income tax liabilities			(32	)		(2	)		(1	)		—		(26	)		(61	)

			211			6			9			6		120			352
Non-controlling interest			(126	)		(3	)		—			—		—			(129	)
Bargain purchase			(35	)		—			—			—		—			(35	)

			50			3			9			6		120			188

Total consideration transferred
Previously held interest			73			2			—			—		23			98
Gain (loss) on previously held interest			(23	)		(1	)		—			—		37			13
Cash paid			—			2			4			3		60			69
Balance of purchase price			—			—			5			3		—			8

			50			3			9			6		120			188


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			26


	2010
	Business segment	Tissue Papers
(in millions of Canadian dollars)	Acquired company	Atlas Paper Bag Corporation Ltd.

Property, plant and equipment			3

Total consideration paid			3

On a stand-alone basis, the acquisition of RdM represents sales amounting to €380 million ($526 million) and net loss attributable to shareholders of €2 million ($3 million) since the date of acquisition. Had the acquisition occurred on January 1, 2011, RdM would have contributed to consolidated sales and net loss attributable to shareholders of $717 million and $1 million, respectively, for the year ended December 31, 2011. These estimates are based on the assumption that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisition occurred on January 1, 2011.

On a stand-alone basis, the acquisition of Papersource represents sales amounting to $20 million and net loss attributable to shareholders of $1 million since the date of acquisition. Had the acquisition occurred on January 1, 2011, Papersouce would have contributed to consolidated sales and net earnings attributable to shareholders of $64 million and $4 million, respectively, for the year ended December 31, 2011. These estimates are based on the assumption that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisition occurred on January 1, 2011.

NOTE 7

ACCOUNTS RECEIVABLE


(in millions of Canadian dollars)	Note		December 31, 2011			December 31, 2010			January 1, 2010
Accounts receivable—Trade				469			398			391
Receivables from related parties		29		24			23			22
Less: Provision for doubtful accounts				(13	)		(10	)		(13	)

Trade receivables—net				480			411			400
Other				76			79			56

				556			490			456


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			27

As of December 31, 2011, trade receivables of $147 million (December 31, 2010—$141 million; January 1, 2010—$152 million) were past due but not impaired. The aging of these trade receivables at each reporting date is as follows:


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Past due 1-30 days		109		109		93
Past due 31-60 days		25		24		40
Past due 61-90 days		9		5		10
Past due 91 days and over		4		3		9

		147		141		152

Movements in the Corporation’s allowance for doubtful accounts are as follows:


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010
Balance at beginning of year		10			13
Provision for doubtful accounts		3			3
Receivables written off during the year as uncollectible		(5	)		(3	)
Unused amounts reversed		(2	)		(3	)
Business acquisitions and disposals		7			—

Balance at end of year		13			10

The increase and decrease of provision for doubtful accounts have been included in selling and administrative expenses in the consolidated statement of earnings.

The maximum exposure to credit risk at the reporting date approximates the carrying value of each class of receivable mentioned above.

NOTE 8

INVENTORIES


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Finished goods		226		206		216
Raw materials		129		118		106
Supplies		161		152		145

		516		476		467

As at December 31, 2011, finished goods, raw materials and supplies are adjusted for net realizable value (“NRV”) for $4 million, nil and $2 million respectively (December 31, 2010—$4 million, nil, $2 million; January 1, 2010—$4 million, nil, $4 million). As at December 31, 2011, the carrying amount of inventory carried at net realizable value consisted of $12 million of finished goods inventory, nil of raw materials inventory and $4 million of supplies (December 31, 2010—$13 million, $1 million and $2 million; January 1, 2010—$15 million, $1 million, $2 million).

The Corporation has sold all the goods that were written down. No reversal of previously written-down inventory occurred in 2011 and 2010. The cost of raw materials and supplies included in Cost of sales amounted to $1,579 million (2010—$1,237 million).


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			28

NOTE 9

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

a)	Investments in associates and joint ventures are detailed as follows:


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Investments in associates		181		156		145
Investments in joint ventures		38		106		115

		219		262		260

Investments in associates and joint ventures as at December 31, 2011, include goodwill of $16 million (December 31, 2010–$16 million; January 1, 2010–$3 million).

b)	Investments in associates


(in millions of Canadian dollars)	Note		2011			2010
As at January 1				156			145
Share of results				5			18
Share of other comprehensive income				(14	)		(7	)
Dividends				(6	)		(4	)
Gain of control of associates		6		(25	)		—
Additions				65			4

As at December 31				181			156

The Corporation’s share of the results of its principal associates, all of which are unlisted but Boralex, and its aggregated assets (including goodwill) and liabilities are as follows:


(in millions of Canadian dollars, unless otherwise noted)	Percentage interest held (%)		Assets		Liabilities		Revenues		Results
December 31, 2011
Boralex		34.85		410		296		68		1
Papersource Conversion Mill Corp		50		—		—		54		3
Greenpac Holding LLC		59.7		74		13		—		—
Pac Service S.p.A.		33.33		17		9		18		1

December 31, 2010
Boralex		34.85		434		306		38		12
Papersource Conversion Mill Corp		50		40		20		65		7

January 1, 2010
Boralex		34.05		222		107		—		—
Papersource Conversion Mill Corp		50		34		17		—		—

Investment in Boralex Inc. (“Boralex”) has a fair value of $94 million as at December 31, 2011 (December 31, 2010–$107 million; January 1, 2010–$125 million). In 2010, the Corporation’s share of results of Boralex includes an amount of $10 million relating to a gain realized by Boralex following its acquisition of Boralex Power Income Fund.

c)	Investments in joint ventures ¹

The following are the principal joint ventures of the Corporation and the Corporation’s percentage of equity owned:


	Percentage equity owned (%)
Cascades Sonoco Inc.		50
Cascades Conversion Inc.		50
Converdis Inc.		50
Manucor Spa		22.75
Best Diamond Packaging LLC		49
Norpap Inc.		50

1	Until the first quarter of 2011, it also includes the Corporation’s interest in RdM, ranging from 39.66% to 40.95% between January 1, 2011 and April 7, 2011. The Corporation started the full consolidation of RdM during the second quarter of 2011. See note 6 for more details.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			29

The Corporation’s share of the assets and liabilities as at December 31, 2011 and 2010 and January 1, 2010, and income and expenses of the jointly controlled entities for the years ended December 31, 2011 and 2010 are as follows.


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010			January 1, 2010
Consolidated balance sheets
Current assets		42			135			139
Non-current assets		48			152			162
Current liabilities		19			111			114
Non-current liabilities		31			58			64
Consolidated statements of earnings
Sales		191			350			—
Depreciation and amortization		7			15			—
Operating income		13			16			—
Financial expenses		1			3			—
Net earnings		9			9			—
Consolidated statements of cash flows
Operating activities		19			31			—
Investing activities		(4	)		(10	)		—
Financing activities		(3	)		(15	)		—

Proportionate interest in joint venture commitments		—			2			—

There are no contingent liabilities relating to the Corporation’s interest in the joint ventures, and no contingent liabilities of the ventures themselves.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			30

NOTE 10

PROPERTY, PLANT AND EQUIPMENT


(in millions of Canadian dollars)	Note		Land			Buildings			Machinery and equipment			Automotive equipment			Other			Total
As at January 1, 2010
Cost				81			531			2,648			64			284			3,608
Accumulated depreciation and impairment				—			178			1,574			47			172			1,971

Net book amount				81			353			1,074			17			112			1,637

Year ended December 31, 2010
Opening net book amount				81			353			1,074			17			112			1,637
Additions				1			10			58			7			64			140
Disposals				—			—			(2	)		—			(2	)		(4	)
Depreciation				—			(22	)		(129	)		(6	)		(5	)		(162	)
Business acquisition		6		—			—			3			—			—			3
Impairment charge				—			—			(26	)		—			(3	)		(29	)
Other				(5	)		4			44			1			(48	)		(4	)
Exchange differences				—			(5	)		(21	)		—			(2	)		(28	)

Closing net book amount				77			340			1,001			19			116			1,553

As at December 31, 2010
Cost				77			541			2,636			69			310			3,633
Accumulated depreciation and impairment				—			201			1,635			50			194			2,080

Net book amount				77			340			1,001			19			116			1,553

Period ended December 31, 2011
Opening net book amount				77			340			1,001			19			116			1,553
Additions				1			29			77			9			44			160
Disposals				(6	)		(3	)		(5	)		—			(11	)		(25	)
Depreciation				—			(25	)		(130	)		(6	)		(6	)		(167	)
Business disposals		5		(1	)		(12	)		(11	)		—			(1	)		(25	)
Discontinued operations		5		—			(4	)		(135	)		—			(5	)		(144	)
Business acquisitions		6		43			88			257			1			21			410
Impairment charge				—			—			(35	)		—			(3	)		(38	)
Assets held for sale				—			—			—			—			(12	)		(12	)
Other				(7	)		—			40			(1	)		(26	)		6
Exchange differences				(1	)		(1	)		(13	)		—			—			(15	)

Closing net book amount				106			412			1,046			22			117			1,703

As at December 31, 2011
Cost				106			664			2,691			76			333			3,870
Accumulated depreciation and impairment				—			252			1,645			54			216			2,167

Net book amount				106			412			1,046			22			117			1,703

Other property, plant and equipment include buildings and machinery and equipment in the process of construction or installation with a book value of $48 million (December 31, 2010—$52 million; January 1, 2010—$39 million), deposits on purchases of equipment amounting to $9 million (December 31, 2010—$7 million; January 1, 2010—$6 million).

Included in the cost above is $2 million (December 31, 2010—$2 million; January 1, 2010—$2 million) of interest incurred on qualifying assets which have been capitalized during the year. The weighted average capitalization rate on funds borrowed in 2011 was 6.67% (2010—6.52%).


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			31

NOTE 11

GOODWILL AND OTHER INTANGIBLE ASSETS WITH FINITE AND INDEFINITE USEFUL LIFE


(in millions of Canadian dollars)	Application software			Customer relationships and client lists			Other Intangible assets with finite useful life			Total intangible assets with finite useful life			Goodwill			Other intangible assets with indefinite useful life			Total intangible assets with indefinite useful life
As at January 1, 2010
Cost		14			132			38			184			315			—			315
Accumulated amortization and impairment		3			38			6			47			—			—			—

Net book amount		11			94			32			137			315			—			315

Year ended December 31, 2010
Opening net book amount		11			94			32			137			315			—			315
Additions		7			—			—			7			—			—			—
Amortization		(4	)		(9	)		(4	)		(17	)		—			—			—
Reclassification		(1	)		—			2			1			—			—			—
Exchange differences		—			(2	)		—			(2	)		(2	)		—			(2	)
Closing net book amount		13			83			30			126			313			—			313

As at December 31, 2010
Cost		23			129			41			193			313			—			313
Accumulated amortization and impairment		10			46			11			67			—			—			—

Net book amount		13			83			30			126			313			—			313

Year ended December 31, 2011
Opening net book amount		13			83			30			126			313			—			313
Additions		24			—			—			24			—			—			—
Business acquisitions		4			75			1			80			31			7			38
Discontinued operations		—			(15	)		—			(15	)		(19	)		—			(19	)
Impairment charge		—			(2	)		(9	)		(11	)		—			(1	)		(1	)
Amortization		(5	)		(9	)		(5	)		(19	)		—			—			—
Exchange differences		(1	)		1			—			—			(3	)		—			(3	)

Closing net book amount		35			133			17			185			322			6			328

As at December 31, 2011
Cost		50			175			41			266			322			7			329
Accumulated amortization and impairment		15			42			24			81			—			1			1

Net book amount		35			133			17			185			322			6			328

NOTE 12

OTHER ASSETS


(in millions of Canadian dollars)	Note		December 31, 2011			December 31, 2010		January 1, 2010
Notes receivable from business disposals		6		17			—		—
Other investments				9			31		12
Other assets				11			9		8
Deferred financing costs				8			4		7
Employee future benefits		17		1			14		17

				46			58		44
Less: Current portion, included in accounts receivables				(2	)		—		—

Total other assets				44			58		44


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			32

NOTE 13

TRADE AND OTHER PAYABLES


(in millions of Canadian dollars)	Note		December 31, 2011		December 31, 2010		January 1, 2010
Trade payables				472		357		308
Payables to related parties		29		21		12		11
Accrued expenses				46		71		76

Trade and other payables				539		440		395

NOTE 14

PROVISIONS FOR CONTINGENCIES AND CHARGES


(in millions of Canadian dollars)	Environmental restoration obligations			Environmental costs			Legal claims			Volume rebates			Severances			Other		Total provisions
As at January 1, 2010		10			17			3			23			1			1		55

Additional provision		(3	)		1			8			40			1			—		47
Other increase		1			—			—			—			—			—		1
Payments		—			—			(1	)		(40	)		(2	)		—		(43	)

As at December 31, 2010		8			18			10			23			—			1		60

Additional provision		—			—			1			34			8			1		44
Payments		—			—			(8	)		(35	)		(4	)		—		(47	)
Business disposals		(2	)		(4	)		—			(1	)		—			—		(7	)
Business acquisitions		—			—			8			—			—			—		8
Others		—			—			—			—			—			1		1

As at December 31, 2011		6			14			11			21			4			3		59

Analysis of total provisions:


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Non-current		33		37		31
Current		26		23		24

		59		60		55

ENVIRONMENTAL RESTORATION

The Corporation uses some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of those sites.

ENVIRONMENTAL COSTS

An environmental provision is recorded when the Corporation has an obligation caused from its ongoing and abandoned obligations.

LEGAL CLAIMS

In the normal course of operations, the Corporation is party to various legal actions and contingencies related to contract disputes and labour issues.

VOLUME REBATES

In the normal course of business, a provision is recognized for expected rebates to be paid to customers based on their annual purchase volume. These rebates are generally paid within one year.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			33

NOTE 15

LONG-TERM DEBT


(in millions of Canadian dollars)	Maturity		December 31, 2011		December 31, 2010		January 1, 2010
Revolving credit facility, weighted average interest rate of 3.36% as at December 31, 2011, consists of $196 million; US$42 million and €33 million (December 31, 2010—$345 million; nil in US$ and €37 million; January 1, 2010—$59 million; US$53 million and €30 million)		2015		282		394		159
Term credit facility, repaid in 2010				—		—		100
7.25% Unsecured senior notes of US$9 million (US$9 million at December 31, 2010; US$116 million at January 1, 2010)		2013		9		9		122
6.75% Unsecured senior notes of US$9 million (US$9 million at December 31, 2010; US$61 million at January 1, 2010)		2013		9		9		63
7.75% Unsecured senior notes of $200 million		2016		198		198		197
7.75% Unsecured senior notes of US$500 million		2017		503		491		516
7.875% Unsecured senior notes of US$250 million		2020		251		245		257
Other debts of subsidiaries				61		16		12
Other debts without recourse to the Corporation				112		19		23

				1,425		1,381		1,449
Less: Unamortized financing costs				18		20		20

Total long-term debt				1,407		1,361		1,429

Less:
Current portion of debts of subsidiaries				12		2		2
Current portion of debts without recourse to the Corporation				37		5		4
Revolving credit facility, renewed in 2011				—		394		—

				49		401		6

				1,358		960		1,423

On February 10, 2011, the Corporation entered into an agreement to amend and extend, until February 10, 2015, its existing $750 million revolving credit facility. Under the terms of the amendment, the existing financial covenants, namely the maximum funded debt to capitalization ratio of 65% and the minimum interest coverage ratio of 2.25x, will remain unchanged. As a result of the amendment, the margin applicable to outstanding borrowings has been reduced from 2.750% to 2.125%.

As at December 31, 2011, accounts receivable and inventories totalling approximately $630 million (December 31, 2010–$736 million; January 1, 2010–$729 million) as well as property, plant and equipment totalling approximately $269 million (December 31, 2010–$250 million; January 1, 2010–$197 million) were pledged as collateral for the Corporation’s revolving credit facility.

In 2010, the Corporation purchased, for a total consideration of US$162 million ($168 million) including a premium of US$3 million ($3 million), a total of US$107 million ($111 million) aggregate principal amount of 7.25% unsecured senior notes and US$52 million ($54 million) aggregate principal amount of 6.75% unsecured senior notes due in 2013. Approximately US$9 million ($9 million) aggregate principal amount of 7.25% unsecured senior notes and approximately US$9 million ($9 million) aggregate principal amount of 6.75% unsecured senior notes remained outstanding as at December 31, 2011.

The Corporation has finance leases for various items of property, plant and equipment. Renewals and purchase options are specific to the entity that holds the lease. Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:


	2011				2010
(in millions of Canadian dollars)	Minimum payments		Present value of payments		Minimum payments		Present value of payments
Within one year		4		3		2		2
Later than 1 year but no later than 5 years		5		5		4		3

Total minimum lease payments		9		8		6		5
Less amounts representing finance charges		1		—		1		—

Present value of minimum lease payments		8		8		5		5


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			34

NOTE 16

OTHER LIABILITIES


(in millions of Canadian dollars)	Note		December 31, 2011			December 31, 2010			January 1, 2010
Employee future benefits		17		241			189			154
Other				10			9			14

				251			198			168
Less: Current portion, included in Trade and other payables				(2	)		(2	)		(2	)

Total other liabilities				249			196			166

NOTE 17

EMPLOYEE FUTURE BENEFITS

a)	The expense for employee future benefits as at December 31 is as follows:


	2011						2010
(in millions of Canadian dollars)	Pension plans			Other plans			Pension plans			Other plans
Current service costs		12			3			11			3
Interest costs		32			6			33			5
Expected return on assets		(38	)		—			(36	)		—
Past service costs ¹		—			1			19			—
Curtailment and settlement		—			(4	)		—			(3	)

Recognized costs for defined benefit pension plans		6			6			27			5
Recognized costs for defined contribution pension plans		18			—			21			—

Total expense for employee future benefits		24			6			48			5

¹	In 2010, the Corporation established a supplemental executive retirement plan (“SERP”) in favour of its founding shareholders, Bernard, Laurent and Alain Lemaire. The actuarial deficit of the plan was valuated at $18 million as at December 31, 2010, and an equivalent charge was recorded in 2010.

Total cash payments for employee future benefits for 2011, consisting of cash contributed by the Corporation to its funded pension plans, including its defined contribution plans, and cash payments made directly to beneficiaries for its unfunded other benefit plans, including its collective RRSPs, amounted to $53 million (2010–$46 million). Total estimated cash payments for employee future benefits are expected to be $52 million for 2012.

The amount recognized in the consolidated statement of comprehensive income (loss) for the year ended December 31, 2011 and 2010, is detailed as follows:


	2011						2010
(in millions of Canadian dollars)	Pension plans			Other plans			Pension plans			Other plans
Actuarial losses		(59	)		(3	)		(30	)		(4	)
Adjustment in respect of minimum funding requirements		(4	)		—			1			—

Total recognized in other comprehensive income before tax		(63	)		(3	)		(29	)		(4	)

The cumulative amount recognized in retained earnings as at December 31, 2011 is $223 million; $157 million as at December 31, 2010 and $124 million as at January 1, 2010.

b)	The funded status of the defined benefit plans and the other complementary retirement benefit plans and post-employment benefit plans as at December 31 are as follows:


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			35


	2011						2010
(in millions of Canadian dollars)	Pension plans			Other plans			Pension plans			Other plans
Accrued benefit obligation
Beginning of year		638			97			564			94
Current service costs		12			3			11			3
Interest costs		32			6			33			5
Employees’ contributions		3			—			4			—
Exchange differences		—			(1	)		(2	)		(1	)
Actuarial losses		40			3			58			5
Benefits paid		(36	)		(8	)		(49	)		(6	)
Business acquisitions, disposals and closures		(17	)		18			—			—
Past service costs		—			1			19			—
Curtailment		—			(4	)		—			(3	)

End of year		672			115			638			97

Plan assets
Beginning of year		568			—			531			—
Expected return on plan assets		38			—			36			—
Actuarial (gains) losses		(18	)		—			28			—
Employer’s contributions		27			8			19			6
Employees’ contributions		3			—			4			—
Benefits paid		(36	)		(8	)		(49	)		(6	)
Exchange differences		—			—			(1	)		—
Business acquisitions, disposals and closures		(22	)		—			—			—

End of year		560			—			568			—

Reconciliation of funded status
Fair value of plan assets		560			—			568			—
Accrued benefit obligation		(672	)		(115	)		(638	)		(97	)

Funded status of plan—End of year		(112	)		(115	)		(70	)		(97	)
Fair value of reimbursement rights recognized as an asset		(13	)		—			(8	)		—

Accrued benefit asset (liability)—End of year		(125	)		(115	)		(78	)		(97	)

The net amount recognized on the consolidated balance sheet is detailed as follows:


	December 31, 2011						December 31, 2010						January 1, 2010
(in millions of Canadian dollars)	Pension plans			Other plans			Pension plans			Other plans			Pension plans			Other plans
Employee future benefit asset, included in Other assets		1			—			14			—			17			—
Employee future benefit liability, included in Other liabilities		(126	)		(115	)		(92	)		(97	)		(60	)		(94	)

		(125	)		(115	)		(78	)		(97	)		(43	)		(94	)

c)	The following amounts relate to plans that are wholly unfunded and those wholly or partially funded as of:


	December 31, 2011						December 31, 2010						January 1, 2010
(in millions of Canadian dollars)	Pension plans			Other plans			Pension plans			Other plans			Pension plans			Other plans
Wholly or partially funded
Fair value of plan assets		560			—			568			—			531			—
Accrued benefit obligation		(633	)		—			(614	)		—			(548	)		—

Funded deficit		(73	)		—			(46	)		—			(17	)		—

Wholly unfunded
Accrued benefit obligation		(39	)		(115	)		(24	)		(97	)		(16	)		(94	)


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			36

d)	The main actuarial assumptions adopted in measuring the accrued benefit obligation and expenses as at December 31 are as follows:

2011

2010

Pension plans

Other plans

Pension plans

Other plans

Accrued benefit obligation as at December 31

Discount rate

4.75%

5.25%

Rate of compensation increase

2% to 3.5%

2% to 4%

2.25% to 3.5%

Benefit costs for years ended December 31

Discount rate

5.25%

Expected long-term return on assets

—

Rate of compensation increase

2.25% to 3.5%

3% to 3.75%

2.25% to 3.5%

Assumed health-care cost trend rates at December 31

Rate increase in health-care costs

—

8% to 9%

—

9.5% to 10%

Cost trend rates decline to

—

Year the rate should stabilize

—

2029

—

2020

e)	Assumed rate increases in health-care costs have a significant effect on the amounts reported for the health-care plans. A 1% change in assumed health-care cost trend rates would have the following effects for 2011:


(in millions of Canadian dollars)	Increase of 1%		Decrease of 1%
Current service costs and interest cost		—		—
Accrued benefit obligation—End of year		4		(4	)

f)	The plan assets allocation and investment target allocation as at December 31, 2011 and 2010, are detailed as follows:


	Actual allocation				Target allocation
(in percentage)	2011		2010		2011		2010
Plan assets allocation
Money market		2		2		—		—
Debt securities		43		35		43		40
Equity securities		55		63		57		60

Total		100		100		100		100

The plan assets do not include shares or debt securities of the Corporation. Annual benefit annuities of an approximate value of $11 million are pledged by insurance contracts established by the Corporation.

Target allocation is established so as to maximize return while considering an acceptable level of risk in order to meet the plan obligations on a long-term basis.

Investment objectives for the plan assets are the following: optimizing return while considering an acceptable level of risk, maintaining an adequate diversification, controlling the risk according to different asset categories, and maintaining a long-term objective of return on investments. Investment guidance is established for each investment manager. It includes parameters that must be followed by managers and presents criteria for diversification, non-eligible assets and minimum quality of investments as well as for return objectives. Unless indicated otherwise, the managers cannot use any derivative product or invest more than 10% of their assets in one particular security.

The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets held. The management assessment of the expected returns is based on historical return trends and analysts’ predictions of the market for the asset over the life of the related obligation.

The actual return on plan assets was 3.7% in 2011 (12.1% in 2010).


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			37

NOTE 18

INCOME TAXES

a)	The recovery of income taxes is as follows:


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010
Current tax		4			11
Deferred tax		(60	)		(17	)

		(56	)		(6	)

b)	The provision for income taxes based on the effective income tax rate differs from the provision for income taxes based on the combined basic rate for the following reasons:


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010
Recovery of income taxes based on the combined basic Canadian and provincial income tax rate		(25	)		(4	)

Adjustment of recovery of income taxes arising from the following:
Difference in statutory income tax rate of foreign operations		(3	)		(3	)
Non-taxable portion of capital gain		(3	)		(2	)
Gain on remeasurement of previously held interest and bargain purchase		(13	)		—
Non-taxable dividends		—			5
Recognized tax benefit arising from capital losses		(15	)		—
Change in unrecognized temporary differences		4			(4	)
Others		(1	)		2

		(31	)		(2	)

Recovery of income taxes		(56	)		(6	)

Average income tax rate for the period ended December 31, 2011, was 33% (2010—29%)

c)	The recovery of income taxes relating to components of other comprehensive income is as follows:


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010
Foreign currency translation related to hedging activities		1			4
Cash flow hedge		(9	)		(8	)
Included in other comprehensive income of associates		(5	)		—
Actuarial loss on post employment benefit obligations		(17	)		(9	)

		(30	)		(13	)

The analysis of deferred tax assets and deferred tax liabilities is as follows:


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010			January 1, 2010
Deferred income tax assets:
Deferred income tax assets to be recovered after more than 12 months		323		271			221
Deferred income tax assets to be recovered within 12 months		9		2			2

		332		273			223
Deferred income tax liabilities:
Deferred income tax liabilities to be recovered after more than 12 months		319		316			310
Deferred income tax liabilities to be recovered within 12 months		1		8			2

		320		324			312

		12		(51	)		(89	)


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			38

The movement of the deferred income tax account is as follows:


(in millions of Canadian dollars)	2011			2010
At January 1st		(51	)		(89	)
Through statement of earnings		60			17
Variance of income tax credit, net of related income tax		10			4
Through statement of other comprehensive income		30			13
Through business acquisitions and disposals		(26	)		—
Included in discontinued operations		(11	)		4

At December 31		12			(51	)

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax asset


(in millions of Canadian dollars)	Recognized tax benefit arising from income tax losses			Employee future benefits			Expense on research		Unused tax credits		Financial instruments			Others			Total
At January 1, 2010		100			36			36		32		3			16			223
Through statement of earnings		19			(3	)		8		—		4			1			29
Variance of income tax credit		—			—			—		4		—			—			4
Through other comprehensive income		—			9			—		—		8			—			17

At December 31, 2010		119			42			44		36		15			17			273

Through statement of earnings		36			3			8		—		(6	)		(4	)		37
Variance of income tax credit		—			—			—		15		—			—			15
Through other comprehensive income		—			17			—		—		7			—			24
Through business acquisitions and disposals		—			(6	)		—		—		—			—			(6	)
Included in discontinued operations		(11	)		—			—		—		—						(11	)

At December 31, 2011		144			56			52		51		16			13			332

Deferred tax liabilities


(in millions of Canadian dollars)	Property, plant and equipment			Capital gain			Intangible assets		Investments			Others			Total
At January 1, 2010		209			53			14		14			22			312
Through statement of earnings		12			6			4		5			(15	)		12
Through other comprehensive income		—			4			—		—			—			4
Included in discontinued operations		(4	)		—			—		—			—			(4	)

At December 31, 2010		217			63			18		19			7			324

Through statement of earnings		(25	)		(8	)		6		—			4			(23	)
Variance of income tax credit		—			—			—		—			5			5
Through other comprehensive income		—			1			—		(2	)		—			(1	)
Included in other comprehensive income of associates		—			—			—		(5	)		—			(5	)
Through business acquisitions and disposals		10			—			10		—			—			20

At December 31, 2011		202			56			34		12			16			320

The Corporation has accumulated losses for income tax purposes amounting to approximately $712 million which may be carried forward to reduce taxable income in future years. The future tax benefit resulting from the deferral of $562 million of these losses has been recognized in the accounts as a future income tax asset. Deferred income tax assets are recognized for tax loss carry-forward to the extent that the realization of the related tax benefits through future taxable profits is probable. Income tax losses as at December 31, 2011 are detailed as follows:


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			39


(in millions of Canadian dollars)	Unrecognized tax losses		Recognized tax losses		Total tax losses		Maturity
Canada		—		10		10		2014
		—		42		42		2015
		—		18		18		2026
		—		32		32		2027
		—		9		9		2028
		—		9		9		2029
		—		69		69		2030
		—		153		153		2031
Capital losses		—		117		117		Indefinitely
United States		—		5		5		2018
		—		10		10		2019
		—		5		5		2020
Europe		150		83		233		Indefinitely

		150		562		712

NOTE 19

CAPITAL STOCK

a)	Capital risk management

Capital is defined as long-term debt, bank loans and advances net of cash and cash equivalents and shareholders’ equity which includes capital stock.


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010			January 1, 2010
Cash and cash equivalents		(12	)		(6	)		(8	)
Bank loans and advances		90			42			50
Long-term debt, including current portion		1,407			1,361			1,429

		1,485			1,397			1,471
Shareholders’ equity		1,029			1,049			1,091

Total capital		2,514			2,446			2,562

The Corporation’s objectives when managing capital are:

•

to safeguard the Corporation’s ability to continue as a going concern in order to provide returns to shareholders;

•

to maintain an optimal capital structure and reduce the cost of capital;

•

to make proper capital investments that are significant to ensure the Corporation remains competitive;

•

to redeem common shares based on an annual redemption program.

The Corporation sets the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares and acquire or sell assets to improve its financial performance and flexibility.

The Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance indicators. Also, the Corporation must conform to certain financial ratios under its various credit agreements. These are a maximum ratio of funded debt to capitalization of 65% and a minimum interest coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio to incur additional debt. Funded debt is defined as liabilities as per the consolidated balance sheet, including guarantees and liens granted in respect of funded debt of another person but excluding other long-term liabilities, trade accounts payable, obligations under operating leases and other


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			40

accrued obligations (2011—$1,383 million; 2010—$1,483 million). The capitalization ratio is calculated as “shareholders’ equity” as shown in the consolidated balance sheet plus the funded debt. Shareholders’ equity is adjusted to add back the effect of IFRS adjustments as at December 31, 2010 in the amount of $208 million. The interest coverage ratio is defined as EBITDA to interest expense. The EBITDA is defined as net earnings of the last four quarters plus interest expense, income taxes, amortization and depreciation, expense for stock options and dividends received from a person who is not a credit party (2011—$211 million; 2010—$364 million). Excluded from net earnings are share of results of equity investments and gains or losses from non-recurring items. Interest expense is calculated as interest and financial charges determined in accordance with IFRS plus any capitalized interest but excluding the amortization of deferred financing costs, up-front and financing costs and also unrealized gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of any long-term debt denominated in a foreign currency. The consolidated interest coverage ratio to incur additional debt is calculated as defined in the senior notes indenture dated December 3, 2009.

As at December 31, 2011, the funded debt to capitalization ratio stood at 52.77% and the interest coverage ratio was at 2.39x. The Corporation is in compliance with the ratio requirements of its lenders. If cash is available, the Corporation will use it to reduce its revolving facility utilization.

The Corporation’s credit facility is subject to customary terms and conditions for loans of this nature, including limits on incurring additional indebtedness and granting liens or selling assets without the consent of the lenders.

The unsecured senior notes are subject to customary covenants restricting the Corporation’s ability to, among other things, incur additional debt, pay dividends and make other restricted payments as defined in the Indenture dated December 3, 2009.

On a regular basis, the Corporation meets with the rating agencies. In 2011, Standard & Poor’s revised the outlook of the Corporation from stable to positive following the disposal of the Dopaco assets.

The Corporation normally invests between $100 million and $200 million yearly in purchases of property, plant and equipment. These amounts are carefully reviewed during the course of the year in relation to operating results and strategic actions approved by the Board. These investments, combined with annual maintenance, enhance the stability of the Corporation’s business units and improve cost competitiveness through new technology and improved process procedures.

The Corporation has an annual share redemption program in place to redeem its outstanding common shares when the market price is judged appropriate by management. In addition to limitations to the normal course issuer bid, the Corporation’s ability to redeem common shares is limited by its senior notes indenture.

b)	Issued and outstanding

The authorized capital stock of the Corporation consists of an unlimited number of common shares, without nominal value, and an unlimited number of Class A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated as follows:


				December 31, 2011						December 31, 2010						January 1, 2010
	Note			Number of shares			In millions of Canadian dollars			Number of shares			In millions of Canadian dollars			Number of shares			In millions of Canadian dollars
Balance—Beginning of year					96,606,421			496			97,208,533			499			98,548,851			506
Shares issued on exercise of stock options					98,307			1			36,069			—			—			—
Redemption of common shares		19 c	)		(2,057,563	)		(11	)		(638,181	)		(3	)		(1,340,318	)		(7	)

Balance—End of year					94,647,165			486			96,606,421			496			97,208,533			499

c)	Redemption of common shares

In 2011, in the normal course of business, the Corporation renewed its redemption program of a maximum of 4,830,321 common shares with the Toronto Stock Exchange, which shares represent


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			41

approximately 5% of issued and outstanding common shares. The redemption authorization is valid from March 15, 2011 to March 14, 2012. In 2011, the Corporation redeemed 2,057,563 common shares under this program for a consideration of approximately $11 million (2010–$4 million).

d)	Earnings per share

The basic and diluted net earnings per common share are calculated as follows:


	2011		2010
Net earnings available to common shareholders (in millions of Canadian dollars)		99		41
Weighted average number of common shares (in millions)		96.0		96.8
Dilution effect of stock options (in Canadian dollars)		0.8		1.5
Adjusted weighted average number of common shares (in millions)		96.8		98.3
Basic net earnings per common share (in Canadian dollars)		1.03		0.43
Diluted net earnings per common share (in Canadian dollars)		1.02		0.42

In calculating diluted earnings per share for 2011 and 2010, stock options of 3,737,097 and 2,278,534 respectively were excluded due to their antidilutive effect. As of March 19, 2012, the Corporation redeemed 427,900 shares since the beginning of the financial year.

e)	The details of dividends declared per share are as follows:


	2011		2010
Dividends declared per share	$	0.16	$	0.16

NOTE 20

STOCK-BASED COMPENSATION

Under the terms of a share option plan adopted on December 15, 1998 for officers and key employees of the Corporation, 6,165,699 common shares have been specifically reserved for issuance. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise price of an option shall not be lower than the market value of the share at the date of grant, determined as the average of the closing price of the share on the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising the options granted before December 31, 2003 are 25% of the number of shares under option within 12 months after the date of grant, and up to an additional 25% every 12 months after the first, second and third anniversary dates of grant. The terms for exercising the options granted in 2004 and thereafter are 25% of the number of shares under option within 12 months after the first anniversary date of grant, and up to an additional 25% every 12 months after the second, third and fourth anniversary dates of grant. Options cannot be exercised if the market value of the share is lower than its book value at the date of grant. The stock-based compensation cost related to these options amounted to $1 million (2010–$1 million).

Changes in the number of options outstanding as at December 31, 2011 and 2010, are as follow:


	2011					2010
	Number of options			Weighted average exercise price $		Number of options			Weighted average exercise price $
Beginning of year		5,287,178			7.33		4,603,595			7.46
Granted		757,170			6.26		738,682			6.43
Exercised		(98,307	)		5.17		(36,069	)		7.03
Expired		(227,593	)		7.27		—			—
Forfeited		(25,019	)		4.15		(19,030	)		2.28

End of year		5,693,429			7.25		5,287,178			7.33

Options exercisable—End of year		3,270,935			8.72		2,686,828			9.54


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			42

The following options were outstanding as at December 31, 2011:


	Options outstanding				Options exercisable
Year granted	Number of options		Weighted average exercise price $		Number of options		Weighted average exercise price $		Expiration date
2002		158,944		13.24		158,944		13.24		2012
2003		178,658		13.04		178,658		13.04		2013
2004		286,201		13.00		286,201		13.00		2014
2005		278,120		12.73		278,120		12.73		2015
2006		332,921		11.49		332,921		11.49		2016
2007		357,304		11.83		357,304		11.83		2017
2008		524,190		7.81		393,131		7.81		2018
2009		477,867		2.28		228,304		2.28		2019
2009		1,478,465		3.92		739,230		3.92		2019
2009		136,310		8.14		136,310		8.14		2012
2010		727,279		6.43		181,812		6.43		2020
2011		757,170		6.26		—		—		2021

		5,693,429		7.25		3,270,935		8.72

FAIR VALUE OF THE SHARE OPTIONS GRANTED

Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over the past five years. The following assumptions were used to estimate the fair value, at the date of grant, of each option issued to employees:


	2011			2010
Grant date share price	$	6.03		$	6.66
Exercise price	$	6.26		$	6.43
Risk-free interest rate		2.70	%		2.80	%
Expected dividend yield		2.65	%		2.40	%
Expected life of options		6 years			7 years
Expected volatility		45	%		44	%
Weighted average fair value of issued options	$	2.11		$	2.49

b)	The Corporation offers to its Canadian employees a share purchase plan of its common shares. Employees can contribute voluntarily up to a maximum of 5% of their salary and, if certain conditions are met, the Corporation will contribute to the plan 25% of the employee’s contribution.

The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2011, the Corporation’s contribution to the plan amounted to $1 million (2010–$1 million).

The Corporation has a Deferred Share Unit Plan for the benefit of its external directors, allowing them to receive all or a portion of their annual compensation in the form of Deferred Share Units (DSUs). A DSU is a notional unit equivalent in value to the Corporation’s common share. Upon resignation from the Board of Directors, participants are entitled to receive the payment of their cumulated DSUs in the form of cash based on the average price of the Corporation’s common shares as traded on the open market during the five days before the date of the participant’s resignation.

The DSU expense and the related liability are recorded at the grant date. The liability is adjusted periodically to reflect any variation in the market value of the common shares. As at December 31, 2011, the Corporation had a total of 213,130 DSUs outstanding (2010–186,480), representing a long-term liability of $1 million (2010–$1 million).


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			43

NOTE 21

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010			January 1, 2010
Foreign currency translation, net of hedging activities and related income tax of $(5) million (December 31, 2010—$(4) million; January 1, 2010—nil)		(43	)		(25	)		—
Unrealized gain (loss) arising from foreign exchange forward contracts designated as cash flow hedges, net of related income taxes of $ nil (December 31, 2010—$(2) million; January 1, 2010—$(2) million)		(4	)		5			4
Unrealized loss arising from interest rate swap agreements designated as cash flow hedges, net of related income taxes of $10 million (December 31, 2010—$1 million; January 1, 2010—$1 million)		(17	)		(3	)		(3	)
Unrealized gain (loss) arising from commodity derivative financial instruments designated as cash flow hedges, net of related income taxes of $10 million (December 31, 2010—$7 million; January 1, 2010—$(1) million)		(21	)		(13	)		2
Unrealized loss on available for sale financial assets, net of related income taxes of $ nil (December 31, 2010—$ nil; January 1, 2010—$ nil)		(1	)		(1	)		—

		(86	)		(37	)		3

NOTE 22

COST OF SALES BY NATURE


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010
Change in inventories of finished goods and work in progress		1		4
Raw materials		1,578		1,233
Wages and employee benefits expense		571		526
Energy		332		289
Delivery		251		211
Depreciation and amortization		180		155
Others		334		284

Total cost of sales		3,247		2,702

NOTE 23

EMPLOYEE BENEFIT EXPENSES


(in millions of Canadian dollars)	Note		December 31, 2011		December 31, 2010
Wages and salaries		22		571		526
Share options granted to directors and employees		20		1		1
Pension costs - defined contribution plans		17		18		21
Pension costs - defined benefit plans		17		6		27
Other post-employment benefits		17		6		5

				602		580

KEY MANAGEMENT COMPENSATION

Key management includes members of the Board of Directors, Presidents and Vice Presidents of the Corporation. The compensation paid or payable to key management for their services is shown below:


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			44


(in millions of Canadian dollars)	2011		2010
Salaries and other short-term benefits		7		7
Post-employment benefits		1		4
Share-based payments		1		1

		9		12

NOTE 24

LOSS (GAIN) ON ACQUISITIONS, DISPOSALS AND OTHER


(in millions of Canadian dollars)	December 31, 2011			December 31, 2010
Net gain related to business acquisitions		(48	)		—
Loss on business disposals		7			—
Gain on disposal of property, plant and equipment		(7	)		(3	)
Supplemental executive retirement plan		—			18

		(48	)		15

2011

On March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France, for a total consideration of €10 million ($14 million) including the debt assumed by the acquirer in the amount of €5 million ($7 million) and the selling price balance of €5 million ($7 million) which is receivable over a maximum of three years. The Corporation recorded a loss of $2 million on the disposal.

On April 7, 2011, the Corporation purchased outstanding shares of RdM on the open market which triggered a business acquisition. A net gain of €9 million ($12 million) resulted from this transaction.

Also during the second quarter, our Specialty Product Segment recorded a loss of $1 million resulting from the business acquisition of NorCan Flexible Packaging Inc., of which the Corporation holds 50% of the outstanding shares.

On June 23, 2011, the Corporation sold two of its boxboard facilities, namely the Versailles mill located in Connecticut and the Hebron converting plant located in Kentucky for a total consideration of US$20 million ($20 million) of which US$5 million ($5 million) has been received net of transaction fees paid of $1 million. The consideration also includes a balance of sale price of US$10 million ($10 million) and the fair value of US$4 million ($4 million) of natural gas contracts agreements concluded with the acquirer as part of the transaction. The balance of sale price of $10 million is receivable over four years. The Corporation realized a loss of $8 million before income taxes.

In June 2011, the Corporation completed the sale of a land in Montréal, Québec, pertaining to a corrugated converting plant closed in 2005, for a cash consideration of $9 million. A gain of $7 million was recorded on the disposal.

On September 20, 2011, the Corporation announced the closure and sale of the land and building of its containerboard mill located in Burnaby, British Columbia. The closure resulted in a $3 million gain on the reversal of an environmental provision.

On November 1, 2011, the Corporation announced that it had finalized the acquisition of 50% of the shares that it does not hold in its affiliated company Papersource Converting Mill Corp (Papersource), located in Granby, Québec. Cash consideration of the transaction is $60 million. A gain of $37 million resulted from this transaction.

2010

In 2010, the Corporation sold its building and land of the Québec City–based corrugated products plat closed in 2009 and recorded a gain of $3 million.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			45

In 2010, the Corporation established a supplemental executive retirement plan (“SERP”) in favour of its founding shareholders, Bernard, Laurent and Alain Lemaire. The actuarial deficit of the plan was valuated at $18 million as at December 31, 2010, and an equivalent charge was recorded in 2010.

NOTE 25

IMPAIRMENT CHARGES AND RESTRUCTURING COSTS

a)	Impairment charges on property, plant and equipment, intangible assets with finite useful life and other assets

For the year ended December 31, 2011 and 2010, the Corporation recorded impairment charges totalling $59 million and $29 million, respectively. The recoverable amount of CGUs was determined using a fair value less cost to sell model based in the income approach, unless otherwise indicated. Impairments are detailed as follow:


	2011
	Packaging Products
(in millions of Canadian dollars)	Boxboard		Containerboard		Specialty Products		Sub-total		Tissue Papers		Total
Machinery and equipment		4		17		15		36		2		38
Spare parts		3		5		—		8		—		8
Intangible and other assets		3		1		—		4		9		13

Total		10		23		15		48		11		59


	2010
	Packaging Products
(in millions of Canadian dollars)	Boxboard		Containerboard		Specialty Products		Sub-total		Tissue Papers		Total
Machinery and equipment		3		20		—		23		6		29

2011

In the Boxboard Group, the Corporation recorded an impairment charge of $8 million for its closed boxboard mill located in Toronto, Ontario and for its converting plant in Lachute, Québec, due to difficult market conditions. For the same reason, the Group recorded an impairment charge of $2 million on customer relationships.

In the Containerboard Group, the Corporation announced on September 20, 2011, the closure of its Burnaby mill located in British Columbia and that it had reached an agreement to sell the land and the building. An impairment charge of $8 million was recorded. Fair value less cost to sell was determined based on selling price of assets. The Corporation also reviewed the recoverable amount of its Trenton manufacturing mill due to difficult market conditions, and an impairment charge of $15 million was recorded.

In the Specialty Product segment, the Corporation closed its old East Angus pulping equipment in Québec and recorded an impairment charge of $3 million to record the equipment to salvage value. The Corporation reviewed the recoverable amount of its St-Jérôme fine paper mill, due to difficult market conditions and an impairment charge of $11 million was recorded. The Corporation recorded an additional $1 million impairment charge on fixed assets for the same reason.

The Tissue Group reviewed the recoverable amount of its Toronto manufacturing mill, and an impairment charge of $9 million was recorded due to difficult market conditions. In addition, impairment charges of $2 million was recorded on fixed assets for the same reason.

2010

Following low profitability at its US-based Leominster corrugated plant and its Avot-Vallée, France, containerboard mill, the Containerboard Group recorded total impairment charges of $18 million. This Group also recorded additional impairment charges totalling $2 million on some assets of its converting activities due to difficult market conditions.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			46

The Corporation reviewed the status of some equipment of its Toronto mill in the Boxboard Group and in the Tissue Group that were not in service and concluded that the reopening was unlikely to occur and recorded impairment charges of $3 million and $6 million respectively on these units. Fair value less cost to sell was based on expected market selling price of assets.

b)	Goodwill

Allocation of goodwill is as follows:

•

Containerboard’s goodwill of $266 million is allocated to all Containerboard’s CGUs.

•

Specialty products’ goodwill is allocated to Cascades Recovery CGU, $14 million, and Industrial Packaging CGUs, $6 million.

•

Tissue Papers’ goodwill of $36 million is allocated to all Tissue Papers’ CGUs.

With the exception of its Containerboard goodwill, there were no events noted in 2011 that would trigger an impairment loss given the significant excess of recoverable amount compared to the carrying amount of the respective goodwill. However, in 2011, the Corporation tested its Containerboard goodwill for impairment due to difficult market conditions. As a result of this impairment test, the Corporation concluded that the recoverable amount of the CGUs was in excess of $162 million over their carrying amount, thus no impairment charge was necessary. A fall in terminal growth rate of 2.45%, a rise of discounting rate of 1.46% or a decrease of terminal exchange rate of $0.03 would remove the remaining headroom. The Corporation applied the income approach in determining fair value less cost to sell and used the following key assumptions:


	2011			2010
	Containerboard			Containerboard
Terminal growth rate		2	%		2	%
Discounting rate		9.5	%		9.75	%
Terminal exchange rate (CA$/US$)	$	1.10		$	1.21

c)	Restructuring Costs

The closure and restructuring costs are detailed as follows:


(in millions of Canadian dollars)	2011		2010
Boxboard		1		1
Containerboard		5		—
Specialty Products		2		—
Tissue Papers		—		—

		8		1

2011

In the Boxboard Group, the Corporation recorded closure and restructuring costs of $1 million, following the closing of one production line in RdM.

In the Containerboard segment, the closure of its Leominster converting plants in the New England region of the US and of Le Gardeur in Québec resulted in closure and restructuring costs totalling $3 million. On September 20, 2011, the Corporation announced the closure of its Burnaby mill located in British Columbia. Closure and restructuring costs of $2 million were recorded.

In the Specialty Products segment, the Corporation closed its old East Angus pulping equipment in Québec and recorded closure and restructuring costs totalling $2 million.

2010

Restructuring charges of $1 million were recorded at the Boxboard mill in LaRochette, France.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			47

NOTE 26

ADDITIONAL INFORMATION

a)	Changes in non-cash working capital components are detailed as follows:


(in millions of Canadian dollars)	2011			2010
Accounts receivable		57			(32	)
Current income tax assets		(16	)		(8	)
Inventories		9			(19	)
Trade and other payables		(74	)		41
Current income tax liabilities		2			(5	)

		(22	)		(23	)

b)	Financing expense


(in millions of Canadian dollars)	2011			2010
Interest on long-term debt		92			97
Interest income		(1	)		(1	)
Amortization of financing costs		4			5
Other interest and banking fees		5			4
Interest on employee future benefits		—			2

Net financing expense		100			107

NOTE 27

FINANCIAL INSTRUMENTS

27.1 FAIR VALUE OF FINANCIAL INSTRUMENTS

The classification of financial instruments as at December 31, 2011 and 2010, along with the respective carrying amounts and fair values, is as follows:


			2011				2010
(in millions of Canadian dollars)	Note		Carrying amount		Fair value		Carrying amount		Fair value
Financial assets held for trading
Derivatives		27.4		21		21		4		4
Financial assets available for sale
Other investments				5		5		5		5
Investment in shares held for trading				2		2		2		2
Financial liabilities held for trading
Derivatives		27.4		92		92		71		71
Other financial liabilities
Long-term debt				1,407		1,402		1,361		1,395
Derivatives designated as hedge
Asset derivatives				8		8		10		10
Liability derivatives				37		37		24		24

27.2 DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s-length transaction between knowledgeable, willing parties who are under no compulsion to act.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			48

(i)	The fair values of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other payables and provisions approximate their carrying amounts due to their relative short maturities.

(ii)	The fair value of other investments is based on observable market data and mainly represents the Corporation’s investment in Junex Inc. which is quoted on the Toronto Stock Exchange.

(iii)

The fair value of long-term debt is based on observable market data and on the calculation of discounted cash flows. Discount rates were determined based on local government bond yields adjusted for the risks specific to each of the borrowings and for the credit market liquidity conditions.

27.3 HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

The following table presents information about the Corporation’s financial assets and financial liabilities measured at fair value on a recurring basis as at December 31, 2011 and 2010 and indicates the fair value hierarchy of the Corporation’s valuation techniques to determine such fair value. Three levels of inputs that may be used to measure fair value:

•

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.


	For the year ended December 31, 2011
(in millions of Canadian dollars)			Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial assets
Other investments		5		—		5		—
Investments in shares held for trading		2		2		—		—
Derivative financial assets		29		—		29		—

Total		36		2		34		—

Financial liabilities
Derivative financial liabilities		129		—		129		—

Total		129		—		129		—


	For the year ended December 31, 2010
(in millions of Canadian dollars)			Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial assets
Other investments		5		—		5		—
Investments in shares held for trading		2		2		—		—
Derivative financial assets		14		—		14		—

Total		21		2		19		—

Financial liabilities
Derivative financial liabilities		95		—		95		—

Total		95		—		95		—

27.4 FINANCIAL RISK MANAGEMENT

The Corporation’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			49

Corporation’s overall risk management program focuses on the unpredictability of the financial market and seeks to minimize potential adverse effects on the Corporation’s financial performance. The Corporation uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department and management committee acting under policies approved by the Board of Directors. They identify, evaluate and hedge financial risks in close cooperation with the business units. The Board provides guidance for overall risk management, covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

SUMMARY


	2011
(in millions of Canadian dollars)	Assets									Liabilities
RISK	Note			Short term		Long term		Total		Short term			Long term			Total
Currency risk		27.4 a	) (I)		1		21		22		(1	)		(74	)		(75	)
Price risk		27.4 a	) (II)		5		2		7		(16	)		(24	)		(40	)
Interest risk		27.4 a	) (III)		—		—		—		(1	)		(1	)		(2	)
Other risk		27.4 d	)		—		—		—		—			(12	)		(12	)

Total					6		23		29		(18	)		(111	)		(129	)


	2010
(in millions of Canadian dollars)				Assets						Liabilities
RISK	Note			Short term		Long term		Total		Short term			Long term			Total
Currency risk		27.4 a	) (I)		9		—		9		(1	)		(62	)		(63	)
Price risk		27.4 a	) (II)		2		2		4		(11	)		(14	)		(25	)
Other risk		27.4 d	)		1		—		1		—			(7	)		(7	)

Total					12		2		14		(12	)		(83	)		(95	)

a) Market risk

(i)

Currency risk

The Corporation operates internationally and is exposed to foreign exchange risks arising from various currencies as a result of its export of goods produced in Canada, the United States, France, Sweden, Italy and Germany. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities, and net investments in foreign operations. These risks are partially covered by purchases, debt and foreign exchange forward contracts.

Management has implemented a policy to manage foreign exchange risk against its functional currency. The Corporation’s risk management policy is to hedge 25% to 90% of anticipated cash flows in each major foreign currency for the next 12 months and to hedge 0% to 75% for the subsequent 24 months.

In 2011, approximately 29% of sales from the Canadian operations were made to the United States and 17% of sales from French and Italian operations were made in countries whose currencies were other than the euro. The Corporation’s operation in Sweden is also exposed to currency risk, mainly the euro and the British pound (GBP). Total sales for 2011 from the Corporation’s Swedish operations impacted by the euro or the GBP were approximately CA $38 million.

The Corporation manages the foreign exchange exposure by entering into various foreign exchange forward contracts and currency option instruments related to anticipated sales, purchases, interest expense and repayment of long-term debt. The Corporation may designate these foreign exchange forward contracts as a cash flow hedge of future anticipated sales, purchases, interest expense and repayment of long-term debt denominated in foreign currencies. Gains or losses from these derivative financial instruments designated as hedges are recorded in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to sales, cost of sales, interest expense or foreign exchange loss (gain) on long-term debt in the same period as the respective hedged item affects earnings.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			50

The following table summarizes the Corporation’s commitments to buy and sell foreign currencies as at December 31, 2011 and 2010:

2011

Exchange rate

Maturity

Notional amount
(in millions)

Fair value
(in millions of
Canadian dollars)

Repayment of long-term debt

Derivatives designated as cash flow hedges and reclassified in Foreign exchange loss (gain) on long-term debt (effective portion):

Foreign exchange forward contracts (US$ for CA$)

0.9987

December 2017

US$

200

Subtotal

Derivatives designated as held for trading and reclassified in Foreign exchange loss (gain) on long-term debt (effective portion):

Foreign exchange forward contracts (US$ for CA$)

1.1928

February 2013

US$

310

(49

)

Foreign exchange forward contracts (US$ for CA$)

1.1945

May 2013

US$

)

Currency option bought to buy US$ (US$ for CA$)

1.1930

January 2012 to
February 2013

US$

100

Currency option sold to buy US$ (US$ for CA$)

1.0113

February 2013

US$

37.5

)

Currency option sold to buy US$ (US$ for CA$)

1.0350

February 2013 to
December 2017

US$

200

(14

)

Subtotal

(59

)

Forecasted sales

Derivatives designated as cash flow hedges and reclassified in Sales (effective portion):

Foreign exchange forward contracts (US$ for CA$)

1.0252

0 to 12 months

US$

64.5

—

Foreign exchange forward contracts (€ for US$)

1.4116

0 to 12 months

US$

1.2

—

Foreign exchange forward contracts (GBP for SEK)

10.5873

0 to 12 months

GBP3.6

—

Foreign exchange forward contracts (€ for SEK)

9.2497

0 to 12 months

€

9.2

—

Foreign exchange forward contracts (GBP for €)

1.1622

0 to 12 months

GBP4.8

)

Subtotal

)

Derivatives designated as held for trading and reclassified in Loss (gain) on derivative financial instruments:

Currency option instruments (US$ for CA$)

1.0314

0 to 12 months

US$

32.5

—

Currency option instruments (US$ for CA$)

1.0390

13 to 23 months

US$

—

Subtotal

—

Forecasted purchases

Hedge of forecasted purchases designated as cash flow hedges and reclassified in Cost of sales (effective portion):

Foreign exchange forward contracts (US$ for CA$)

1.0457

0 to 11 months

US$

1.8

—

Subtotal

—

Total

(53

)


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			51


	2010
	Exchange rate		Maturity		Notional amount (in millions)		Fair value (in millions of Canadian dollars)
Repayment of long-term debt
Derivatives designated as held for trading and reclassified in Foreign exchange loss (gain) on long-term debt (effective portion):
Foreign exchange forward contracts (US$ for CA$)		1.1928		February 2013	US$	310		(52	)
Foreign exchange forward contracts (US$ for CA$)		1.1945		May 2013	US$	50		(8	)
Currency option sold to buy US$ (US$ for CA$)		1.0113		February 2013	US$	37.5		(2	)

Subtotal								(62	)

Forecasted sales
Derivatives designated as cash flow hedges and reclassified in Sales (effective portion):
Foreign exchange forward contracts (US$ for CA$)		0.9946		January 2011	US$	11		—
Foreign exchange forward contracts (US$ for CA$)		1.1307		0 to 12 months	US$	57		7
Foreign exchange forward contracts (US$ for CA$)		1.0727		February 2012	US$	0.5		—
Foreign exchange forward contracts (€ for US$)		1.3802		0 to 12 months	US$	3.6		—
Foreign exchange forward contracts (GBP for SEK)		10.92		0 to 12 months		GBP3.4		—
Foreign exchange forward contracts (€ for SEK)		9.2933		0 to 12 months	€	3.6		—
Foreign exchange forward contracts (GBP for €)		1.1592		0 to 12 months		GBP2.8		—
Currency option instruments (GBP for €)		1.1261		0 to 12 months		GBP0.4		—

Subtotal								7

Derivatives designated as held for trading and reclassified in Loss (gain) on derivative financial instruments (effective portion):
Currency option instruments (US$ for CA$)		1.0803		0 to 12 months	US$	7.5		2

Subtotal								2

Forecasted purchases
Hedge of forecasted purchases designated as cash flow hedges and reclassified in Cost of sales (effective portion):
Foreign exchange forward contracts (US$ for CA$)		1.1333		0 to 12 months	US$	5.2		(1	)
Foreign exchange forward contracts (US$ for CA$)		1.0457		13 to 23 months	US$	2.2		—

Subtotal								(1	)

Total								(54	)

The fair values of foreign exchange forward contracts and currency options are determined using the discounted value of the difference between the value of the contract at expiry calculated using the contracted exchange rate and the exchange rate the financial institution would use if it renegotiated the same contract under the same conditions as at the consolidated balance sheet date. The discount rates are adjusted for the credit risk of the Corporation or of the counterparty, as applicable. When determining credit risk adjustments, the Corporation considers master netting agreements, if applicable.

In 2011, if the Canadian dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held constant, operating income before depreciation for the year would have been approximately $6 million lower, based on the net exposure of total US sales less US purchases of the Corporation’s Canadian operations and operating income before depreciation of the Corporation’s US operations but excluding the effect of this change on the denominated working capital components. The interest expense would have been approximately $1 million lower arising mainly from the Corporation’s US dollar-denominated unsecured senior notes.

In 2011, if the Canadian dollar had strengthened by $0.01 against the euro with all other variables held constant, operating income before depreciation for the year would have been approximately $1 million lower following the translation of operating income of the Corporation’s European operations.

Currency risk on translation of self-sustaining foreign subsidiaries

The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies and designated as net investment hedges are recorded in Accumulated other comprehensive income (loss) net of related income taxes.

The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the euro as at December 31, 2011 and 2010. The calculation includes the effect of currency hedges of net investment in US foreign entities and assumes that no changes occurred other than a single currency exchange rate movement.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			52

The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2011 and 2010, with the hedging instruments being the long-term debt denominated in US dollars.

Consolidated shareholders’ equity: Currency effect before tax of a 10% change


	2011						2010
(in millions of Canadian dollars)	Before hedges		Hedges		Net impact		Before hedges		Hedges		Net impact
10% change in the CA$/US$ rate		78		56		22		75		53		22
10% change in the CA$/euro rate		6		—		6		4		—		4

(ii)

Price risk

The Corporation is exposed to commodity price risk on old corrugated containers, electricity and natural gas. The Corporation uses derivative commodity contracts to help manage its production costs. The Corporation may designate these derivatives as cash flow hedges of anticipated purchases of raw materials, natural gas and electricity. Gains or losses from these derivative financial instruments designated as hedges are recorded in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to Cost of sales in the same period as the respective hedged item affects earnings.

The fair value of these contracts is as follows:

2011

Quantity

Maturity

Fair value
(in millions
of Canadian
dollars)

Forecasted purchases

Derivatives designated as held for trading and reclassified in Cost of sales

Old corrugated containers

160,000 s.t.

2012 to 2016

)

Sorted office papers

14,500 s.t.

2012

—

Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)

Electricity

315,024 MWh

2012 to 2014

)

Oil Gulf cost

72,875 barrels

2012

Natural gas:

Canadian portfolio

12,967,050 GJ

2012 to 2017

(20

)

US portfolio

7,943,100 mmBtu

2012 to 2017

(17

)

Total

(39

)

In 2011, as part of the sale of its Versailles boxboard mill, the Corporation also entered into an agreement to sell natural gas to the acquirer. Maturity of the contracts is 2012 to 2016 with a notional amount of 2,994,444 mmBtu. The fair value of this agreement is $6 million as at December 31, 2011.

2010

Quantity

Maturity

Fair value
(in millions
of Canadian
dollars)

Forecasted purchases

Derivatives designated as held for trading and reclassified in Cost of sales

Old corrugated containers

137,000 s.t.

2011 to 2013

Sorted office papers

44,500 s.t.

2012

—

Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)

Electricity

412,320 MWh

2011 to 2013

)

Oil Gulf cost

125,025 barrels

2011 to 2012

Natural gas:

Canadian portfolio

8,118,400 GJ

2011 to 2015

(11

)

US portfolio

8,253,350 mmBtu

2011 to 2015

(13

)

Total

(21

)


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			53

The fair value of derivative financial instruments other than options is established utilizing a discounted future expected cash flows method. Future expected cash flows are determined by reference to the forward price or rate prevailing on the assessment date of the underlying financial index (exchange or interest rate or commodity price) according to the contractual terms of the instrument. Future expected cash flows are discounted at an interest rate reflecting both the maturity of each flow and the credit risk of the party to the contract for which it represents a liability (subject to the application of relevant credit support enhancements). The fair value of derivative financial instruments that represent options is established utilizing similar methods that reflect the impact of the potential volatility of the financial index underlying the option on future expected cash flows.

The table below shows the effect of changes in the price of old corrugated containers, natural gas and electricity as at December 31, 2011 and 2010. The calculation includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single change in price.

The exposures used in the calculations are the commodity consumption and the hedging level as at December 31, 2011 and 2010, with the hedging instruments being derivative commodity contracts. It excludes commodity consumption of RdM.

Consolidated commodity consumption: Price change effect before tax


	2011						2010
(in millions of Canadian dollars ¹ )	Before hedges		Hedges		Net impact		Before hedges		Hedges		Net impact
US$15/s.t. change in recycled paper price		29		1		28		33		2		31
US$30/s.t. change in commercial pulp price		5		—		5		5		—		5
US$1/mmBTU. change in natural gas price		7		5		2		9		6		3
US$1/MWh change in electricity		2		—		2		2		—		2

1	Sensitivity calculated with an exchange rate of CA$/US$1.00 for 2011 and 2010.

(iii)

Interest rate risk

The Corporation has no significant interest-bearing assets.

The Corporation’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash flow interest rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk.

When appropriate, the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the impact on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions. As at December 31, 2011, approximately 22% (2010–28%) of the Corporation’s long-term debt was at variable rates.

Based on the outstanding long-term debt as at December 31, 2011 the impact on interest expense of a 1% change in rate would be approximately $3 million (impact on net earnings is approximately $2 million).

In addition, the Corporation holds interest rate swaps agreement not designated as a hedge. The Corporation has swaps maturing in 2012 and 2013 to fix the interest rate on a notional amount of US$5 million. As at December 31, 2011, these agreements is recorded as a liability at its fair value of nil


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			54

(December 31, 2010–nil). Another agreement is a swap maturing in 2014 on a notional amount of $25 million. This agreement fair value is nil as at December 31, 2011 (2010–nil). The Corporation also holds interest rate swaps through RdM. These swaps are contracted to fix interest rate on a notional amount of €32 million and are maturing in 2016. Fair value of these agreements is a liability of $2 million as at December 31, 2011.

(iv)

Loss (gain) on derivative financial instruments is as follows:


(in millions of Canadian dollars)	2011			2010
Unrealized loss on derivative financial instruments		12			6
Realized gain on derivative financial instruments		(4	)		(7	)

		8			(1	)

b)	Credit risk

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The Corporation reduces this risk by dealing with creditworthy financial institutions.

The Corporation is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation’s credit policies include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the Corporation believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures for the management of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty be unable to meet its obligations.

Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest method, less provision for doubtful accounts. An allowance for doubtful accounts of trade receivables is established when there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. Each trade receivable balance is evaluated separately to identify impairment. The amount of the allowance for doubtful accounts is the difference between the asset’s carrying amount and the present value of estimated cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recorded in the consolidated statement of earnings in Selling and administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance for doubtful accounts. Subsequent recoveries of amounts previously written off are credited against Selling and administrative expenses in the consolidated statement of earnings.

c)	Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual maturities of financial liabilities as at December 31, 2011 and 2010:


	2011
(in millions of Canadian dollars)	Carrying amount		Contractual cash flows		Less than one year		Between one and two years		Between two and five years		More than five years
Non-derivative financial liabilities:
Bank loans and advances		90		90		90		—		—		—
Trade and other payables and current income tax liabilities		541		541		541		—		—		—
Revolving credit facility		282		312		10		10		292		—
Unsecured senior notes		970		1,455		76		93		424		862
Other debts of subsidiaries		61		61		16		17		16		12
Other debts without recourse to the Corporation		112		114		38		22		50		4
Derivative financial liabilities		129		129		18		85		12		14

		2,185		2,702		789		227		794		892


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			55


	2010
(in millions of Canadian dollars)	Carrying amount		Contractual cash flows		Less than one year		Between one and two years		Between two and five years		More than five years
Non-derivative financial liabilities:
Bank loans and advances		42		42		42		—		—		—
Trade and other payables and current income tax liabilities		442		442		442		—		—		—
Revolving credit facility		394		459		16		16		427		—
Unsecured senior notes		952		1,492		75		75		239		1,103
Other debts of subsidiaries		16		16		3		3		7		3
Other debts without recourse to the Corporation		19		19		5		13		1		—
Derivative financial liabilities		95		95		11		5		79		—

		1,960		2,565		594		112		753		1,106

As at December 31, 2011, the Corporation had unused credit facilities of $540 million (December 31, 2010–$355 million, January 1, 2010—$531 million), net of outstanding letters of credit of $10 million (December 31, 2010–$17 million, January 1, 2010–$27 million).

The payments between two and five years include the maturity of the Corporation’s revolving credit and facility of February 2015 and of its unsecured senior notes of December 2016.

d)	Other risk

In 2010, the Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby Cascades has the option to buy 9.07% of the shares of RdM (100% of the shares held by Industria) for €0.43 per share between March 1, 2011 and December 31, 2012. Industria also has the option to require the Corporation to purchase its shares for €0.41 per share between January 1, 2013 and March 31, 2014. The Corporation evaluated these options using the binomial model and recorded a net liability of $12 million (December 31, 2010–$6 million)

NOTE 28

COMMITMENTS AND CONTINGENCIES

a)	The Corporation leases various properties, vehicles and equipment under non-cancellable operating lease agreements. Renewals and purchase options are specific to the entity that holds the lease. Future minimum payments under operating leases are as follows:


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
No later than one year		27		37		38
Later than one year but no later than five years		56		85		82
More than five years		17		31		38

b)	Capital Commitments

Capital expenditures contracted at the end of the reporting date but not yet incurred are as follows:


	December 31, 2011				December 31, 2010				January 1, 2010
(in millions of Canadian dollars)	Property, plant and equipment		Intangible assets		Property, plant and equipment		Intangible assets		Property, plant and equipment		Intangible assets
No later than one year		8		—		16		4		9		—
Later than one year but no later than five years		2		—		3		—		—		—

		10		—		19		4		9		—


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			56

The Corporation has entered into agreements to guarantee certain obligations in relation to the construction of a new linerboard mill (“Greenpac”) near its Niagra Falls, New York site, in which the Corporation has an interest of 59.7%. The Corporation has guaranteed cost overruns relating to (i) remedial work at its Niagara Falls site, necessary to prepare the construction site to the extent such costs exceed the budgeted costs and funded contingency reserve of $10 million; and (ii) construction costs in excess of the budgeted construction costs. Construction began in June of 2011 and is expected to be completed in 2013. To date, the Corporation has no reason to believe it will be required to disburse any funds in relation to the aforementioned guarantees.

In addition, the Corporation has commitments to invest in Greenpac for $US33 million ($33 million). Disbursement of these commitments will be made in 2012.

In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes, environmental and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending as at December 31, 2011 cannot be predicted with certainty, it is management’s opinion that the outcome will not have a material adverse effect on the Corporation’s consolidated financial position, results of operations or its cash flows.

The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE)—Northern Region, regarding its potential responsibility for an environmental impact identified at its former Thunder Bay facility (“Thunder Bay”). The MOE has requested that the Corporation look into a management site plan relating to the sediment quality adjacent to Thunder Bay’s lagoon. Several meetings have been held during the year with the MOE and Resolute Forest Products (“Resolute”), formerly known as AbitibiBowater Inc., a former owner of the facility, that completed, in 2010, a reorganization under court protection in Canada and the United States. A study on the sediment quality and potential remediation options has commenced. Although a loss is probable, it is not possible at this time to estimate the Corporation’s obligation because of the uncertainty surrounding the extent of the environmental impact, the potential remediation alternatives, the concurrence of the MOE, and Resolute’s capacity to assume its proportionate share of responsibility. The Corporation has recorded an environmental reserve to address its estimated exposure for this matter.

On May 2, 2011 the Corporation sold all of its interest in its subsidiaries Dopaco Inc. and Dopaco Canada Inc. (together, “Dopaco”). Under the terms of the sale agreement, the Corporation retained liability for certain pending litigation, namely a claim of damages in relation to contamination of a site previously used by Dopaco. The claim for damages amounting to approximately US$11 million ($11 million) includes amounts for the decontamination of the site, decrease in property value and legal expenses. The Corporation expects to go to trial in April, 2012. While the Corporation believes the claim is without merit, it is impossible to predict the final outcome of this claim with any certainty at this time. No provision is recorded for this potential claim.

NOTE 29

RELATED PARTY TRANSACTIONS

The Corporation entered into the following transactions with related parties:


(in millions of Canadian dollars)	Joint ventures		Associates
2011
Sales to related parties		63		111
Purchases from related parties		33		42
2010
Sales to related parties		72		98
Purchases from related parties		36		50


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			57

These transactions occurred in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

The following balances were outstanding at the end of the reporting period:


(in millions of Canadian dollars)	December 31, 2011		December 31, 2010		January 1, 2010
Receivables from related parties
Joint ventures		16		13		14
Associates		8		10		8
Payables to related parties
Joint ventures		17		7		6
Associates		4		5		5

The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties. The payables to related parties arise mainly from purchase transactions. The payables bear no interest.

NOTE 30

TRANSITION TO IFRS

These consolidated financial statements have been prepared in accordance with the accounting policies described in note 2. The effect of the Corporation’s transition to IFRS is summarized in this note.

The Corporation has adopted the provisions of IFRS 1, First-time Adoption of International Financial Reporting Standards, and has identified January 1, 2010 as the date of transition (“Transition Date”).

The effect of applying these new standards reduced the equity attributable to Shareholders by $213 million. The main elements that represent this reduction are as follows:


(in millions of Canadian dollars)	Gross amount			Net of tax amount
Impairment charges		(158	)		(120	)
Employee benefits		(124	)		(90	)
Share of results of associates and joint ventures		(3	)		(3	)

		(285	)		(213	)

Set forth below are the IFRS 1 applicable exemptions and exceptions applied on transition from Canadian GAAP to IFRS.

IFRS EXEMPTION OPTIONS

1. Business combinations —IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or prospectively from the Transition Date. The retrospective basis would require restatement of all business combinations that occurred prior to the Transition Date. The Corporation elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to its Transition Date and therefore business combinations have not been restated. As such, the Canadian GAAP carrying values relating to business combinations before that date, including any goodwill arising on such business combinations, have not been adjusted from the carrying value previously determined under Canadian GAAP as a result of applying this exemption.

2. Employee benefits —IFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee Benefits, for the recognition of actuarial gains and losses, or recognize all cumulative gains and losses deferred under Canadian GAAP in opening retained earnings at the Transition Date. The Corporation elected to recognize all cumulative actuarial gains and losses that existed at its Transition Date in opening retained earnings for all of its employee benefit plans.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			58

3. Currency translation differences “CTA” —Retrospective application of IFRS would require the Corporation to determine cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation gains and losses to be reset to zero at the Transition Date. The Corporation elected to reset all cumulative translation gains and losses to zero in opening retained earnings at its Transition Date.

4. Fair value as deemed cost —IFRS 1 allows an entity to adopt a revaluation method for any elements of property, plant and equipment at the Corporation’s discretion and designate fair value as deemed cost as at the Transition Date under IFRS 1. An entity may also elect to recalculate original cost and amortization terms previously determined under Canadian GAAP retrospectively in accordance with IAS 16, Property, Plant and Equipment. The Corporation elected to record property, plant and equipment at cost at the Transition Date.

5. Asset retirement obligations —IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar Liabilities, requires an entity to determine the obligation to dismantle, remove and restore items of property, plant and equipment in accordance with IFRS from the acquisition date of the asset. IFRS 1 allows an entity to apply prospectively the requirement of IFRIC 1. In accounting for changes in asset retirement obligations, the guidance in IFRS 1 requires changes in such obligations to be added to or deducted from the cost of the asset to which it relates. The adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life. The Corporation elected to measure the liability and the related depreciation effects at the Transition Date.

6. Designation of previously recognized financial instruments —IFRS 1 allows an entity to designate, at the Transition Date, a financial asset as AFS. After the Transition Date, any gain or loss arising from a change in fair value of a financial asset classified as AFS is recognized in Other comprehensive income (“OCI”), except for impairment losses and foreign exchange gains and losses. The cumulative gain and loss recognized in OCI is recycled through the statement of earnings when the financial asset is derecognized. The Corporation elected to apply this exemption to a financial asset previously designed as HFT.

7. Borrowing costs —IFRS 1 provides the option to apply IAS 23, Borrowing Costs, retrospectively or prospectively from the Transition Date. IAS 23 requires an entity to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A “qualifying asset” is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Corporation elected to apply this exemption prospectively in respect of qualifying assets for which the commencement date for capitalization was on or after the Transition Date.

IFRS MANDATORY EXCEPTIONS

The applicable mandatory exceptions in IFRS 1 applied by the Corporation on transition from Canadian GAAP to IFRS are described below:

1. Hedge accounting —Hedge accounting can only be applied prospectively from the Transition Date to transactions that satisfy the hedge accounting criteria in IAS 39, Financial Instruments: Recognition and Measurement, at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of the Transition Date are recorded as hedges in the Corporation’s results under IFRS. All derivatives, whether they meet IAS 39 criteria for hedge accounting or not, were fair valued and recorded in the consolidated balance sheet.

2. Estimates —Hindsight is not used to create or revise estimates. The estimates previously made by the Corporation under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies.

3. Derecognition of financial assets and financial liabilities —Financial assets and financial liabilities derecognized before January 1, 2004 are not re-recognized under IFRS. The application of the exemption from restating comparative figures for IAS 32 and IAS 39 means that the Corporation recognized from January 1, 2010 any financial assets and financial liabilities derecognized since January 1, 2004 that do not meet the IAS 39 derecognition criteria. Management did not chose to apply the IAS 39 derecognition criteria to an earlier date.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			59

RECONCILIATIONS OF CANADIAN GAAP TO IFRS

This note provides a summary of the impacts resulting from the transition to IFRS. IFRS 1 requires the Corporation to reconcile equity, earnings, comprehensive income and cash flows for prior periods. The following represents the reconciliations from Canadian GAAP to IFRS for the respective periods noted for equity, earnings, comprehensive income and cash flows.

Changes in accounting policies

In addition to the optional exemptions and mandatory exceptions from retrospective application discussed above, the following narrative explains the significant transition adjustments impacting the Corporation’s financial position, financial performance and cash flows. The descriptive caption next to each numbered item below corresponds to the same numbered and descriptive caption in the reconciliations that follow, which reflect the quantitative impacts from each change. Unless a quantitative impact was noted below, the impact from the change was not material to the Corporation.

I. EMPLOYEE FUTURE BENEFITS

As stated in the section entitled “IFRS Exemption Options,” the Corporation elected to recognize all cumulative actuarial gains and losses that existed at the Transition Date in opening retained earnings for all of its employee benefit plans. As a result, the Corporation recognized all its cumulative actuarial losses of $99 million.

a. Actuarial gains and losses

Canadian GAAP —Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognized on a systematic and consistent basis, subject to a minimum required amortization based on a corridor approach. The corridor was 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair value of plan assets at the beginning of the year. This excess of 10% is amortized as a component of pension expense on a straight-line basis over the expected average service life of active participants. Actuarial gains and losses below the 10% corridor are deferred.

IFRS —The Corporation elected to record all actuarial gains and losses in Other comprehensive income (loss) and recognize them immediately in retained earnings, without recycling to the consolidated statement of earnings. As a result, the carrying value of the net liability for employee future benefit obligations has been increased by $101 million to recognize cumulative net actuarial gains and losses as at January 1, 2010, and has a balance of $126 million as at December 31, 2010, including the actuarial gains and losses totalling $25 million for the year (net of income tax of $9 million). The Corporation has also adjusted pension expense to eliminate the amortization of actuarial gains and losses.

b. Past service costs

Canadian GAAP —Past service costs arising from plan amendments are amortized on a straight-line basis over the average remaining service period of active employees expected to benefit from the amendment.

IFRS —These costs are amortized on a straight-line basis over the average period until the benefits become vested. To the extent that the amended benefits are already vested, past service costs are recognized immediately. As a result, the Corporation adjusted its comparative pension expense to remove the amortization of the vested past service costs. As a result, the Corporation recognized $15 million of vested past service costs in its opening consolidated balance sheet.

c. Accrued benefit asset

Canadian GAAP —When a defined benefit plan gives rise to an accrued benefit asset, a valuation allowance is recognized for any excess of the accrued benefit asset over the expected future benefit. The accrued benefit asset is presented in the balance sheet net of the valuation allowance. A change in the valuation allowance is recognized in earnings for the period in which the change occurs.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			60

IFRS —Similar to Canadian GAAP, IFRS limits the recognition of the net benefit asset under certain circumstances to the amount that is recoverable. Since the Corporation has elected to record all actuarial gains and losses in Other comprehensive income (loss) with immediate recognition to retained earnings, any changes in valuation allowance are also recorded in Other comprehensive income (loss) in the period in which the changes occurred. As a result, the Corporation recorded an additional liability of $10 million as at the Transition Date. This amount represents the adjustment related to the accrued benefit asset and the minimum funding requirements.

d. Minimum funding requirements

Canadian GAAP —There is no requirement to recognize a liability for minimum funding requirements if the contribution payable is not expected to be available as a refund or a future contribution reduction after it is paid into a plan.

IFRS —A liability is recognized for minimum funding requirement contributions if the contribution payable is not expected to be available as a refund or a future contribution reduction after it is paid into the plan. As a result, the Corporation recorded an additional liability of $10 million at the Transition Date. This amount represents the adjustment related to the accrued benefit asset and the minimum funding requirements.

As a result of these adjustments, opening retained earnings decreased by $90 million. The Corporation decreased its other assets by $80 million, increased its other liabilities by $44 million and recorded a deferred income tax liability of $34 million as at the Transition Date.

II. IMPAIRMENTS

a. Grouping of assets

Canadian GAAP —When a long-lived asset does not have identifiable cash flows that are largely independent of those from other assets, that asset must be grouped with other related assets for impairment. This is referred to as the grouping of assets.

IFRS —An asset should be grouped with other related assets when the asset does not have identifiable cash inflows, as opposed to net cash flows, that are independent of those from other assets. This is referred to as a CGU.

b. Recoverable amount

Canadian GAAP —A recoverability test is performed by first comparing the undiscounted expected future cash flows to be derived from the use and eventual disposition of the asset to its carrying amount. If the asset does not recover its carrying value, an impairment loss is calculated as the excess of the asset’s carrying amount over its fair value.

IFRS —An impairment loss is recorded when the recoverable amount is less than the carrying amount. The recoverable amount is defined as the higher of the asset’s fair value less cost to sell and its value in use. Under the value-in-use calculation, the expected future cash flows from the asset are discounted to their net present value. As a result of the change in measurement methodology, the Corporation recognized impairments of $158 million and recorded a deferred income tax of $38 million at the Transition Date. Consequently, the amortization expense was adjusted by $18 million for 2010.

c. Reversal of impairment

Canadian GAAP —Reversal of impairment losses is not permitted.

IFRS —Reversal of impairment losses is required for assets other than goodwill if certain criteria are met.

The Corporation recorded the following impairment loss as at the Transition Date as a result of the change in measurement methodology.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			61

Impairment loss on property, plant and equipment and intangible assets with finite useful life


	January 1, 2010
(in millions of Canadian dollars)	Packaging Products
	Boxboard		Container- board		Specialty Products		Subtotal		Tissue Papers		Total
Machinery and equipment		52		31		45		128		22		150
Intangible assets		8		—		—		8		—		8

Total		60		31		45		136		22		158

The Corporation applied the income approach in determining fair value less cost to sell and used the following assumptions:


	January 1, 2010
	Boxboard			Containerboard			Specialty Products			Tissue Papers
Growth rate		2.00	%		2.00	%		2.00	%		2.00	%
Discounting rate		11.75	%		11.75	%		11.75	%		11.75	%

Property, plant and equipment and intangible assets (referred to as “long-lived assets”) are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that at the lowest level of determinable cash flows, the carrying value of the long-lived assets may not be recoverable. This is accomplished by determining whether projected undiscounted future cash flows from operations exceed the carrying amount of the assets as of the assessment date. Estimates of future cash flows and fair values require judgment and may change.

For the purpose of this test, estimates of undiscounted future cash flows from operations are developed and several key assumptions are used, including production levels, selling prices and volume, raw material costs and foreign exchange rate. The forecasts used were derived from our internal budget and forecast and supported or derived from external information on the industry, such as Resource Information Systems Inc. (“RISI”) and Bloomberg.

The Corporation believes such assumptions to be reasonable. These assumptions involve a high degree of judgment and complexity and reflect management’s best estimates given the information available at the assessment date. In addition, the Corporation’s products are commodity products; therefore, pricing is inherently volatile and often follows a cyclical pattern.

Considering the above, there is a measurement uncertainty since adverse changes in one or in a combination of management’s key assumptions or change in use of such operations could require a significant change in the carrying amount of the assets tested for impairment.

III. FOREIGN CURRENCY TRANSLATION ADJUSTMENT

As noted in the section entitled “IFRS Exemption Options,” the Corporation has applied the one-time exemption to set the CTA to zero as at January 1, 2010. An amount of $88 million was recognized in retained earnings. The application of the exemption had no impact on net equity.

IV. FACTORING

Canadian GAAP —The derecognition model for a financial asset is based on control or, more specifically, on the surrender of control.

IFRS —According to the provisions of IAS 39, a set of criteria based mainly on the transfer of risks and rewards, as well as on the control of the financial asset, must be evaluated. The Corporation has accounts receivable sold into factoring arrangements which are disclosed off-balance sheet under Canadian GAAP and do not satisfy the derecognition criteria as at the Transition Date under IFRS and must be accounted for in the opening consolidated balance sheet. The Corporation increased its accounts receivable and liabilities by $15 million as at the Transition Date.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			62

V. JOINT VENTURES

Accounting method

Canadian GAAP —The interests in joint ventures must be accounted for using the proportionate consolidation method.

IFRS —The interests in joint ventures may be accounted for using the proportionate consolidation method or the equity method. The equity method is a method whereby an interest in a jointly controlled entity is initially recorded at cost and adjusted thereafter for post-acquisition changes in the venturer’s share of net assets. The Corporation elected to report its interests in joint ventures using the equity method. As a result of the application of the equity method, the Corporation’s net assets decreased by $171 million as at the Transition Date.

VI. PRESENTATION AND OTHER

Financial statement presentation in accordance with IFRS differs from the presentation in accordance with Canadian GAAP. The Corporation reclassified certain items in compliance with IFRS requirements. The reclassifications concern mainly deferred taxes and long-term provisions disclosure.

VII. INCOME TAXES

a. Accounting for uncertainty in income tax positions

Canadian GAAP —Benefits for uncertain tax positions are determined by reference to a two-step process. First, the Corporation determines whether it is more likely than not that an uncertain tax position will be sustained upon examination. Where the position meets that criterion of likelihood, the amount of benefit is measured as the amount that is more than 50% likely to be realized. Where the criterion of likelihood is not met, no benefit is recognized for the uncertain tax position. Additionally, under Canadian GAAP, uncertain tax positions are evaluated based solely on the technical merits of the positions. Liabilities are recorded where the technical merits are uncertain and the tax examination is not finalized.

IFRS —The provision for uncertain tax positions is the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors, including the status of the tax authority examination. Uncertain tax positions are not evaluated solely on the technical merits of the position. No adjustment has been recorded to reflect this requirement.

b. Deferred tax

Canadian GAAP —Deferred taxes are split between current and long-term components on the basis of either (1) the underlying asset or liability, or (2) the expected reversal of items not related to an asset or liability.

IFRS —All deferred tax assets and liabilities are classified as long-term. The comparative figures have been reclassified to comply with this requirement.

c. Income tax effect of other reconciling differences between Canadian GAAP and IFRS

Differences for income taxes include the effect of recording and, where applicable, the deferred tax effect of other differences between Canadian GAAP and IFRS. All quantitative impacts shown in the table above are disclosed net of tax.

VIII. PROVISIONS AND CONTINGENT LIABILITIES

Canadian GAAP —A provision must be discounted using the entity’s credit-adjusted risk-free rate.

IFRS —A provision must be discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. Risk adjustments should be made to the discount rate if such risks are not inherent in the estimated cash outflows. The quantitative impact of this change is not significant.


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			63

IX. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Corporation has prospectively applied hedge accounting to those hedging relationships that satisfied the hedge accounting criteria of IAS 39 at the Corporation’s Transition Date in accordance with the transition requirements of IFRS.

Hedge accounting

Canadian GAAP —If certain conditions are met, the short cut method and the critical terms match method can be used for the assessment and measurement of ineffectiveness and, for certain hedges, an assumption of no ineffectiveness can be made.

IFRS —IFRS does not permit the use of the short cut method or the critical terms match method for the assessment and measurement of effectiveness in a hedging relationship. Ineffectiveness must be measured at each reporting period throughout the life of the hedging relationship. Under IAS 39, the Corporation uses the hypothetical derivative method to assess the effectiveness of its hedging relationships. As a result, the Corporation measured ineffectiveness at each reporting period and recognized related amounts in earnings. The quantitative impact of this change is not significant.

RECONCILIATION TO IFRS

The following schedules are reconciliations of balance sheet, net earnings and comprehensive loss as previously reported under Canadian GAAP to IFRS. No reconciliation of cash flow is provided as the only impact is caused by the exclusion of joint ventures. See section “V. Joint ventures” on page 63 for more details.


					Effect of transition to IFRS
Reconciliation of consolidated balance sheet as at January 1, 2010 (in millions of Canadian dollars)	Note		CA GAAP		Adjustments		Effect of joint ventures		Reclassification		IFRS
Assets
Current assets
Cash and cash equivalents		V		19		—		(11)		—		8
Accounts receivable		IV; V		510		—		(69)		15		456
Current income tax assets				13		—		—		—		13
Inventories		V		520		—		(53)		—		467
Financial assets		VI		14		—		—		—		14
Deferred income tax assets		VII (b)		6		—		—		(6)		—

				1,082		—		(133)		9		958
Long-term assets
Investments in associates and joint ventures		V; VI		148		(4)		116		—		260
Property, plant and equipment		II (b); V		1,912		(150)		(125)		—		1,637
Intangible assets		II (b); V; VI		165		(8)		(22)		2		137
Financial assets				7		—		—		—		7
Other assets		I; V; VI		162		(80)		(6)		(3)		73
Deferred income tax assets		VII (b)		—		—		—		74		74
Goodwill		V		316		—		(1)		—		315

				3,792		(242)		(171)		82		3,461

Liabilities and Shareholders’ Equity
Current liabilities
Bank loans and advances		V		83		—		(33)		—		50
Trade and other payables		IV; V; VIII		491		—		(71)		(25)		395
Current income tax liabilities				1		—		—		—		1
Provisions for contingencies and charges		VIII		—		—		—		24		24
Deferred income tax liabilities		VII		6		—		—		(6)		—
Current portion of financial liabilities and other liabilities		VI		7		—		—		—		7


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			64


					Effect of transition to IFRS
Reconciliation of consolidated balance sheet as at January 1, 2010 (in millions of Canadian dollars)	Note		CA GAAP		Adjustments		Effect of joint ventures		Reclassification		IFRS
Current portion of long-term debt		V		10		—		(4)		—		6
				598		—		(108)		(7)		483
Long-term liabilities
Long-term debt		V		1,459		—		(36)		—		1,423
Provision for contingencies and charges		VIII		—		—		—		31		31
Financial liabilities		V		55		—		(1)		—		54
Other liabilities		I; II (b); V; VIII		152		44		(14)		(16)		166
Deferred income tax liabilities		I; II (b); V; VII		203		(73)		(12)		74		192

				2,467		(29)		(171)		82		2,349

Equity attributable to Shareholders
Capital stock				499		—		—		—		499
Contributed surplus				14		—		—		—		14
Retained earnings		I; II; III		700		(213)		—		88		575
Accumulated other comprehensive income		III		91		—		—		(88)		3

				1,304		(213)		—		—		1,091
Non-controlling interest				21		—		—		—		21

Total equity				1,325		(213)		—		—		1,112

				3,792		(242)		(171)		82		3,461


Reconciliation of consolidated balance sheet as at December 31, 2010 (in millions of Canadian dollars)	Note		CA GAAP		Adjustments		Effect of joint ventures		Reclassification		IFRS
Assets
Current assets
Cash and cash equivalents		V		10		—		(4)		—		6
Accounts receivable		IV; V		549		—		(73)		14		490
Current income tax assets				21		—		—		—		21
Inventories		V		534		—		(58)		—		476
Financial assets		VI		12		—		—		—		12
Deferred income tax assets		VII (b)		7		—		—		(7)		—

				1,133		—		(135)		7		1,005
Long-term assets
Investments in associates and joint ventures		V; VI		156		(1)		107		—		262
Property, plant and equipment		II (b); V		1,777		(109)		(116)		1		1,553
Intangible assets		II (b); V; VI		150		(6)		(20)		2		126
Financial assets				4		—		—		—		4
Other assets		I; V; VI		190		(90)		(5)		(3)		92
Deferred income tax assets		VII (b)		—		—		—		82		82
Goodwill		V		314		—		(1)		—		313

				3,724		(206)		(170)		89		3,437

Liabilities and Shareholders’ Equity
Current liabilities
Bank loans and advances		V		64		—		(22)		—		42
Trade and other payables		IV; V; VIII		555		—		(81)		(34)		440
Income tax liabilities				4		—		(2)		—		2


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			65


					Effect of transition to IFRS
Reconciliation of consolidated balance sheet as at December 31, 2010 (in millions of Canadian dollars)	Note		CA GAAP		Adjustments		Effect of joint ventures		Reclassification		IFRS
Provisions for contingencies and charges		VIII		—		—		—		23		23
Deferred income tax liabilities		VII		5		—		—		(5)		—
Current portion of financial liabilities and other liabilities		VI		14		—		—		—		14
Current portion of long-term debt		V		12		—		(5)		—		7
Revolving credit facility, renewed in 2011		VI		—		—		—		394		394

				654		—		(110)		378		922
Long-term liabilities
Long-term debt		V		1,383		—		(31)		(392)		960
Provisions for contingencies and charges		VIII		—		—		—		37		37
Financial liabilities		V		84		—		(1)		—		83
Other liabilities		I; II (b)		150		76		(16)		(14)		196
Deferred income tax liabilities		I; II (b); V; VII		172		(74)		(11)		80		167

				2,443		2		(169)		89		2,365

Equity attributable to Shareholders
Capital stock				496		—		—		—		496
Contributed surplus				14		—		—		—		14
Retained earnings		I; II; III		701		(213)		—		88		576
Accumulated other comprehensive income (loss)		III		46		5		—		(88)		(37)

				1,257		(208)		—		—		1,049
Non-controlling interest				24		—		(1)		—		23

Total equity				1,281		(208)		(1)		—		1,072

				3,724		(206)		(170)		89		3,437


Reconciliation of consolidated net earnings for the year ended December 31, 2010 (in millions of Canadian dollars)	Note		CA GAAP		Effect of joint ventures		Adjustments		Discontinued operations ¹ (note 5)		IFRS
Sales		V		3,959		(350)		—		(427)		3,182

Cost of sales and expenses
Cost of sales		I; II; V		3,385		(294)		(30)		(359)		2,702
Selling and administrative expenses		I, V		395		(35)		(1)		(33)		326
Loss on disposal and other		I		8		—		14		(7)		15
Impairment and restructuring costs		II; V		50		(1)		(19)		—		30
Foreign exchange loss		VI		—		—		7		—		7
Gain on derivative financial instruments				(1)		—		—		—		(1)

				3,837		(330)		(29)		(399)		3,079
Operating income				122		(20)		29		(28)		103
Financing expense		I, V		109		(4)		2		—		107
Loss on refinancing of long-term debt				3		—		—		—		3
Foreign exchange loss on long-term debt and financial instruments				4		—		—		—		4

				6		(16)		27		(28)		(11)
Recovery of income taxes		I; II; V; VII		—		(5)		6		(7)		(6)
Share of results of associates and joint ventures		V; VI		(15)		(11)		(2)		1		(27)

Net earnings from continuing operations including non-controlling interest for the year				21		—		23		(22)		22


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			66


Reconciliation of consolidated net earnings for the year ended December 31, 2010 (in millions of Canadian dollars)	Note	CA GAAP		Effect of joint ventures		Adjustments		Discontinued operations ¹ (note 5)		IFRS
Net earnings (loss) from discontinued operations for the year			(1)		—		—		22		21
Net earnings including non-controlling interest for the year			20		—		23		—		43
Net earnings attributable to non-controlling interest			3		—		(1)		—		2

Net earnings attributable to Shareholders for the year			17		—		24		—		41
Net earnings from continuing operations per common share
Basic		$	0.18							$	0.21
Diluted		$	0.18							$	0.21
Net earnings per common share
Basic		$	0.18							$	0.43
Diluted		$	0.18							$	0.42

Weighted average basic number of common shares outstanding			96,807,032								96,807,032

1	Discontinued operations are net of intercompany transactions.


Reconciliation of consolidated statement of comprehensive loss for the year ended December 31, 2010 (in millions of Canadian dollars)	Note		CA GAAP			Effect of transition to IFRS			IFRS
Net earnings including non-controlling interest for the year				20			23			43

Other comprehensive loss
Translation adjustments
Change in foreign currency translation of net investment in foreign subsidiaries				(53	)		4			(49	)
Change in foreign currency translation related to hedging activities		IX		28			—			28
Income taxes				(4	)		—			(4	)
Cash flow hedges
Change in fair value of foreign exchange forward contracts				—			1			1
Change in fair value of interest rate swap agreements				(1	)		1			—
Change in fair value of commodity derivative financial instruments		IX		(23	)		—			(23	)
Income taxes				8			—			8
Actuarial loss on post-employment benefit obligations		I		—			(33	)		(33	)
Income taxes				—			9			9
Available for sale financial assets				—			(1	)		(1	)

Other comprehensive loss				(45	)		(19	)		(64	)

Comprehensive loss including non-controlling interest for the year				(25	)		4			(21	)
Comprehensive income attributable to non-controlling interest for the year				3			(1	)		2

Comprehensive loss attributable to Shareholders for the year				(28	)		5			(23	)


CASCADES 2011 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS			67

Exhibit 13.3

Management’s Discussion & Analysis

Transition to International Financial Reporting Standards (IFRS)

All financial information, including comparative figures pertaining to Cascades’ 2010 results, has been prepared in accordance with International Financial Reporting Standards (IFRS). In the previous year, the Corporation prepared its consolidated financial statements and interim consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP), in effect prior to January 1, 2011 (previous GAAP). A reconciliation of certain comparative figures from previous GAAP to IFRS is provided in the table below. The impacts of transition to IFRS at January 1, 2010 and December 31, 2010 were disclosed in our first 2011 quarterly Management Discussion and Analysis (MD&A). For more details on IFRS adjustments at the transition date, please refer to note 30 of the consolidated financial statements on page 58.

The table below provides the reconciliation of 2010 sales, operating income and operating income before depreciation and amortization, excluding specific items, reported under previous GAAP and IFRS and including the effect of discontinued operations for the year ended December 31, 2011.


	Sales			Operating income ¹			Operating income before depreciation and amortization ¹
(in millions of Canadian dollars)	2010			2010			2010
As reported in 2010 (previous GAAP)		3,959			186			398
Less: IFRS adjustments:
Joint ventures		(350	)		(20	)		(35	)
Depreciation and amortization		—			18			—
Others		—			6			6

Including IFRS adjustments		3,609			190			369
Less: discontinued operations ²		(427	)		(35	)		(59	)

As reported (IFRS)		3,182			155			310

1	Excluding specific items.

2	Discontinued operations are presented net of intercompany transactions.

Year ended December 31, 2010: The transition to IFRS and the impact of discontinued operations ¹


				Effect of transition to IFRS
(in millions of Canadian dollars)	Previous GAAP			Impairment (Note 1)			Employee benefits (Note 2)			Joint ventures (Note 3)			Others			IFRS			Discontinued operations ²			As reported
Sales		3,959			—			—			(350	)		—			3,609			(427	)		3,182
Depreciation and amortization		212			(18	)		—			(14	)		—			180			(25	)		155
Other operating expense		3,625			(18	)		7			(316	)		—			3,298			(374	)		2,924
Operating income (loss)		122			36			(7	)		(20	)		—			131			(28	)		103
Financing expense		109			—			2			(4	)		—			107			—			107
Recovery of income taxes		—			8			(2	)		(5	)		—			1			(7	)		(6	)

Share of results of associates and joint ventures		(15	)		—			—			(11	)		(2	)		(28	)		1			(27	)
Net earnings from discontinued operations		(1	)		—			—			—			—			(1	)		22			21
Net earnings (loss) attributable to non-controlling interest		—			—			—			—			(1	)		(1	)		—			(1	)
Net earnings attributable to Shareholders		17			28			(7	)		—			3			41			—			41

1	Includes only line items impacted by IFRS adjustments and discontinued operations.

2	Discontinued operations are presented net of intercompany transactions.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			1

The Corporation made some modifications to its financial information system in order to accommodate the required changes. In addition, the Corporation’s internal and disclosure control processes did not need significant modifications as a result of the conversion to IFRS. The changes required by IFRS have been communicated to the relevant personnel in the organization, including plant controllers as well as the members of the Audit Committee. It is also important to note that our bank covenants are not impacted by these transitional adjustments. The most significant impacts are summarized below.

NOTE 1

On the transition date, the Corporation recorded impairment totalling $150 million on machinery and equipment and $8 million on intangible assets. These adjustments are due to a difference in the methodology used in evaluating the recoverable amount of assets. The net impact on the consolidated statement of earnings for the year ended December 31, 2010 is an $18 million reduction of the Depreciation and amortization expense.

NOTE 2

On the transition date, the Corporation recorded an adjustment of $90 million relating to employee benefits, thereby decreasing retained earnings. The adjustment decreased pension assets by $80 million while increasing pension obligations by $44 million and deferred income tax liabilities by $34 million. The net impact on the year ended December 31, 2010 consolidated statement of earnings, including the recognition of a charge of $18 million relating to a supplemental executive retirement plan put in place for the founding shareholders of the Corporation during the third quarter of 2010, is an increase of $7 million in Cost of sales.

NOTE 3

On the transition date, the Corporation elected to account for its joint ventures using the equity method as opposed to proportionate consolidation under previous GAAP. Although all line items have been reduced, except for Share of results of associates and joint ventures, the net impact on Net earnings attributable to shareholders for the year is nil.

On March 11, 2011, the Corporation announced the sale of Dopaco Inc. and Dopaco Canada Inc. (collectively Dopaco). As such, the results of Dopaco have been classified as discontinued operations, net of intercompany transactions, for both the current and comparative year. The transaction was closed on May 2, 2011, and the Corporation has consolidated the results of Dopaco up to that date. For more details on discontinued operations, please refer to note 5 on page 23 of the consolidated financial statements.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			2

FINANCIAL OVERVIEW–2011

After posting OIBD excluding specific items of $310 million in 2010, the Corporation encountered many challenges in 2011 over which it did not have control. We continued to face challenging business conditions as rapid inflation of our production costs was not offset by selling price increases. However, during the second half of the year, selling price increases were implemented in all of our segments except for Containerboard. The appreciation of the Canadian dollar against the U.S. dollar was 4% stronger on average in 2011 compared to 2010. This increase had a significant impact on the Corporation’s sales when converted into Canadian dollars as a significant portion of our selling prices is derived from U.S. dollar-based price indexes. In addition, recycled fibre costs continued to impact our operating margins and they reached historic highs during the third quarter as our cost price index increased by 12% in 2011 compared to last year versus an increase of 6% of our selling price index. On the other hand, the Corporation benefited, in 2011, from the full consolidation of Reno de Medici S.p.A. (RdM) starting from the second quarter. Finally, action taken during the year in accordance with our strategic plan should increase our profitability in the near term (see “Significant facts and developments” for more details).

In 2011, the Corporation posted net earnings of $99 million, or $1.03 per share, compared to net earnings of $41 million, or $0.43 per share in 2010. Excluding specific items, which are discussed in detail on pages 10 to 14, we posted a net loss of $14 million or ($0.14) per share, compared to net earnings of $80 million or $0.83 per share in 2010. Sales in 2011 increased by $443 million, or 14%, to reach $3.625 billion, compared to $3.182 billion in 2010. The full consolidation of RdM and the net effect of business acquisitions and disposals increased sales by $404 million. The Corporation recorded operating income of $8 million compared to $103 million in 2010. Excluding specific items, operating income decreased by $106 million to $49 million, compared to $155 million in 2010 (see “Supplemental information on non-IFRS measures” for reconciliation of these amounts).

SIGNIFICANT FACTS AND DEVELOPMENTS

On March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France, for a total consideration of €10 million ($14 million), including the long-term debt assumed by the acquirer in the amount of €5 million ($7 million), and a selling price balance of €5 million ($7 million) which is receivable over a maximum of three years.

ii.

On March 10, 2011, the Corporation announced the consolidation of its Containerboard corrugated products operations in the New England (U.S.) region. The restructuring resulted in the permanent closure of the Leominster plant in May 2011.

iii.

On May 2, 2011, the Corporation sold Dopaco, its converting business for the quick-service restaurant industry, for a cash consideration of US$387 million ($367 million) net of transaction fees and working capital adjustment. Current income taxes resulting from this sale amounted to $79 million. Operating results and cash flows of Dopaco are presented as discontinued operations.

iv.

In 2011, the Corporation invested $44 million ($21 million in 2010) in Greenpac Mill LLC (Greenpac) in relation to the construction of its containerboard manufacturing segment in New York State, (U.S.), in partnership with third parties. Once completed as planned, it will increase the Corporation’s market share in the containerboard industry and will confirm its position as one of the industry leaders. The Greenpac mill will be built for an estimated cost of US$430 million on property located adjacent to an existing Containerboard Group facility in Niagara Falls, NY. Greenpac will manufacture a light-weight linerboard made with 100% recycled fibres on a single machine measuring 328 inches wide with an annual production capacity of 540,000 short tons. This machine will be one of the largest in North America and will include numerous technological advances, making it a unique project of its kind. Financing for the project was finalized at the end of June 2011 and the interest of the Corporation in the project stands at 59.7%. The first equity contribution was made in July. Total estimated contribution by the Corporation will be US$99 million (including a temporary bridge loan of $15 million), which is expected to be paid by the end of the second quarter of 2012. This investment is accounted for using the equity method.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			3

In 2010 and 2011, the Corporation invested $22 million, net of government grants, for the installation and start-up of a new technology at the Candiac tissue paper mill. In fact, Cascades is the first manufacturer in North America to use this technology to produce a superior quality of tissue paper and will be more efficient with the use of its recycled fibre.

vi.

In 2007, the Corporation entered into a combination agreement with RdM, a publicly traded Italian corporation that is the second largest recycled boxboard producer in Europe. The combination agreement was amended in 2009 and provides, among other things, that RdM and Cascades are granted an irrevocable call option or put option, respectively, to purchase two European virgin boxboard mills belonging to Cascades (the “Virgin Assets”). RdM may exercise its call option 120 days after delivery of Virgin Assets financial statements for the year ended December 31, 2011, by Cascades to RdM. Cascades may exercise its put option 120 days after delivery of Virgin Assets financials statements for the year ended December 31, 2012, by Cascades to RdM. The Corporation is also granted the right to require that all of the call option price or put option price, as the case may be, be paid in newly issued common shares of RdM.

vii.

In addition to this agreement, the Corporation entered, in 2010, into a put and call agreement with Industria E Innovazione (“Industria”) whereby Cascades has the option to buy 9.07% of the shares of RdM (100% of the shares held by Industria) for €0.43 per share between March 1, 2011 and December 31, 2012. Industria also has the option to require the Corporation to purchase its shares for €0.41 per share between January 1, 2013 and March 31, 2014. On April 7, 2011, the acquisition of RdM shares on the open market for a total interest of 40.95% combined with the enforceable call option triggered the business combination of RdM into Cascades. As a result, the Corporation started to fully consolidate the results and financial position of RdM on that date with a non-controlling interest of 59%. Prior to the second quarter, our share of the results of RdM was accounted for using the equity method. Our share in the equity of RdM now stood at 44.31% as at December 31, 2011. For more details on this business acquisition, please refer to note 6 on page 25 of the consolidated financial statements.

viii.

On June 23, 2011, the Corporation sold its boxboard mill in Versailles as well as its Hebron boxboard converting plant both in the U.S. for a total consideration of US$20 million ($20 million), net of transaction fees, including a selling price balance of US$10 million ($10 million), which will be received over a four-year period.

ix.

On September 20, 2011, the Corporation announced the closure of its containerboard mill located in Burnaby, British Columbia. At the same time, we announced an agreement regarding the sale of the land and building of the facility. The sale was completed in October for a cash consideration of $20 millions and the closure was effective on November 6, 2011.

On November 1, 2011, the Corporation announced that it had finalized the acquisition of the remaining 50% of shares it did not already own in Papersource Converting Mill Corp. for a cash consideration of $60 million and the assumption of net debt in the amount of $28 million. The acquisition will strengthen the Corporation’s position as a seller of converted tissue paper products in the Away-from-Home market and is an important step in the action plan to modernize our operations.

xi.

The Corporation is also in the process of modernizing its financial information systems. In the context of the proposed implementation of an Enterprise Resource Planning (ERP) system, the Corporation has dedicated a project team with the appropriate skills and knowledge and retained the services of consultants to provide expertise and training. Supported by senior management and key personnel, the Corporation undertook a detailed analysis of its requirements during 2010 and successfully launched a pilot project in one of its plants in November 2010. Following these initiatives, management has decided to proceed with the project. The project team finalized a detailed blueprint for its manufacturing operations and implemented the solution in one of its Tissue Group units at the beginning of November 2011. The project team is continuing to evaluate its deployment strategy for the coming years, including the human and capital resources required for the project.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			4

KEY PERFORMANCE INDICATORS

In order to achieve our long-term objectives while also monitoring our action plan, we use several key performance indicators, including the following:


According to previous GAAP				According to IFRS
	2009			2010															2011
	Total			Q1			Q2			Q3			Q4			Total			Q1			Q2			Q3			Q4			Total
OPERATIONAL
Total shipments (in ‘000 of s.t.) ¹¹
Packaging
Boxboard ¹		1,024			188			198			186			177			749			189			430			331			315			1,265
Containerboard		1,141			309			300			315			301			1,225			290			259			267			247			1,063
Specialty Products ²		458			102			101			98			92			393			97			98			95			87			377

		2,623			599			599			599			570			2,367			576			787			693			649			2,705
Tissue Papers ³		459			121			132			134			131			518			124			134			130			125			513
Discontinued operations, net of intercompany shipments		(133	)		(34	)		(37	)		(37	)		(37	)		(145	)		(37	)		(19	)		—			—			(56	)

Total		2,949			686			694			696			664			2,740			663			902			823			774			3,162

Integration rate
Packaging
Boxboard (North America)		30	%		28	%		31	%		29	%		32	%		30	%		32	%		25	%		16	%		13	%		23	%
Containerboard (North America)		66	%		60	%		69	%		64	%		61	%		63	%		61	%		63	%		62	%		61	%		62	%
Tissue Papers ⁴		57	%		56	%		56	%		55	%		55	%		56	%		58	%		57	%		58	%		69	%		60	%

		48	%		45	%		50	%		47	%		47	%		47	%		47	%		46	%		47	%		49	%		47	%

Capacity utilization rate ⁴
Packaging
Boxboard		88	%		92	%		97	%		88	%		85	%		91	%		93	%		94	%		86	%		85	%		89	%
Containerboard		84	%		94	%		95	%		95	%		90	%		93	%		92	%		87	%		88	%		93	%		90	%
Specialty Products (paper only)		82	%		85	%		85	%		81	%		77	%		82	%		80	%		79	%		78	%		69	%		77	%
Tissue Papers ⁵		91	%		93	%		95	%		93	%		93	%		93	%		91	%		93	%		90	%		87	%		90	%

Total		86	%		92	%		94	%		91	%		87	%		91	%		90	%		90	%		87	%		86	%		88	%

Energy cons. ⁶ —GJ/ton		10.36			11.97			10.50			10.60			11.39			11.11			12.64			10.65			10.50			12.90			11.38
Work accidents—OSHA frequency rate		5.41			5.00			5.00			4.90			4.80			4.93			4.50			4.70			4.50			4.30			4.50

FINANCIAL
Return on assets ⁷
Packaging
Boxboard		11	%		12	%		13	%		14	%		14	%		14	%		13	%		10	%		7	%		6	%		9	%
Containerboard		10	%		10	%		10	%		11	%		12	%		12	%		12	%		10	%		9	%		7	%		7	%
Specialty Products		13	%		14	%		14	%		14	%		13	%		13	%		11	%		10	%		8	%		7	%		7	%
Tissue Papers		27	%		23	%		20	%		17	%		15	%		15	%		14	%		13	%		12	%		11	%		11	%

Consolidated return on assets		11.9	%		11.5	%		11.2	%		11.0	%		10.6	%		10.6	%		9.9	%		8.7	%		7.4	%		6.5	%		6.5	%

Return on capital employed ⁸		5.1	%		4.6	%		4.4	%		4.1	%		3.8	%		3.8	%		3.4	%		2.6	%		2.1	%		1.3	%		1.3	%
Working capital ⁹ in millions of $, at end of period		552			516			575			574			526			526			542			581			583			530			530
% of sales ¹⁰		14.2	%		14.7	%		16.3	%		16.1	%		14.6	%		14.6	%		15.0	%		14.8	%		15.0	%		13.7	%		13.7	%


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			5

1	Starting in Q2 2011, shipments take into account the full consolidation of RdM.

2	Industrial packaging and specialty papers shipments.

3	Starting in Q4 2011, shipments take into account the acquisition of Papersource.

4	Defined as: Shipments/Practical capacity. Paper manufacturing only.

5	Defined as: Manufacturing internal and external shipments/Practical capacity.

6	Average energy consumption for manufacturing mills only. Starting in Q1-2011, the calculation method has been modified. 2010 comparative figures have been restated to conform to the 2011 calculation method.

Return on assets is a non-IFRS measure defined as the last twelve months (“LTM”) OIBD excluding specific items/LTM Average of total assets. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM. LTM numbers for the 2010 calculation have not been restated for IFRS adjustments.

Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM operating income excluding specific items/average LTM Capital employed. Capital employed is defined as the total assets less accounts payable and accrued liabilities. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM.

Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less accounts payable and accrued liabilities. For the first quarter of 2011, it is not restated for discontinued operations that have a working capital of $60 million. Starting in Q2 2011, it excludes Dopaco and includes RdM. LTM numbers for the 2010 calculation have not been restated for IFRS adjustments.

10	% of sales = Working capital end of period/LTM sales. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM.

11	Shipments do not take into account the elimination of business sector intercompany shipments.

HISTORICAL FINANCIAL INFORMATION


According to previous GAAP				According to IFRS
(in millions of Canadian dollars, unless otherwised noted)	2009			2010															2011
	Total			Q1			Q2			Q3			Q4			Total			Q1			Q2			Q3			Q4			Total
Sales
Packaging
Boxboard		1,313			247			259			254			251			1,011			248			388			289			273			1,198
Containerboard		1,062			255			271			292			268			1,086			254			243			249			233			979
Specialty Products		769			192			198			195			201			786			202			219			224			206			851
Inter-segment sales		(67	)		(26	)		(25	)		(26	)		(28	)		(105	)		(28	)		(30	)		(27	)		(24	)		(109	)

		3,077			668			703			715			692			2,778			676			820			735			688			2,919
Tissue Papers		840			197			218			226			212			853			199			218			221			233			871
Inter-segment sales and Corporate activities		(40	)		(5	)		(3	)		(2	)		(12	)		(22	)		(6	)		(7	)		(9	)		(8	)		(30	)
Discontinued operations, net of intercompany sales		(467	)		(101	)		(110	)		(107	)		(109	)		(427	)		(95	)		(40	)		—			—			(135	)

		3,410			759			808			832			783			3,182			774			991			947			913			3,625

Operating income (loss)
Packaging
Boxboard		(8	)		11			17			3			(3	)		28			5			5			(6	)		(13	)		(9	)
Containerboard		82			13			21			36			5			75			(2	)		14			3			(15	)		—
Specialty Products		40			10			9			12			5			36			1			2			2			(17	)		(12	)

		114			34			47			51			7			139			4			21			(1	)		(45	)		(21	)
Tissue Papers		116			8			14			15			8			45			—			7			8			37			52
Corporate activities		(16	)		(16	)		(7	)		(25	)		(5	)		(53	)		(6	)		(5	)		—			(6	)		(17	)
Discontinued operations		(31	)		(7	)		(9	)		(9	)		(3	)		(28	)		(4	)		(2	)		—			—			(6	)

		183			19			45			32			7			103			(6	)		21			7			(14	)		8


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			6


According to previous GAAP				According to IFRS
(in millions of Canadian dollars, unless otherwised noted)	2009			2010															2011
	Total			Q1			Q2			Q3			Q4			Total			Q1			Q2			Q3			Q4			Total
OIBD excluding specific items ¹
Packaging
Boxboard		115			20			26			19			17			82			16			20			13			10			59
Containerboard		145			29			37			50			40			156			19			21			24			19			83
Specialty Products		74			16			17			18			12			63			7			12			13			2			34

		334			65			80			87			69			301			42			53			50			31			176
Tissue Papers		154			19			24			24			23			90			10			16			18			28			72
Corporate activities		(23	)		(12	)		(4	)		(2	)		(4	)		(22	)		(4	)		(3	)		11			(8	)		(4	)
Discontinued operations		(57	)		(13	)		(15	)		(15	)		(16	)		(59	)		(11	)		(4	)		—			—			(15	)

		408			59			85			94			72			310			37			62			79			51			229

Net earnings (loss)		60			1			28			24			(12	)		41			(8	)		122			(20	)		5			99
Excluding specific items ¹		110			4			26			33			17			80			1			(9	)		(2	)		(4	)		(14	)
Net earnings (loss) per share (in dollars)
Basic	$	0.61		$	0.01		$	0.29		$	0.25		$	(0.12	)	$	0.43		$	(0.08	)	$	1.27		$	(0.21	)	$	0.05		$	1.03
Basic, excluding specific items ¹	$	1.13		$	0.04		$	0.27		$	0.35		$	0.17		$	0.83		$	0.01		$	(0.09	)	$	(0.02	)	$	(0.04	)	$	(0.14	)
Cash flow from operations (adjusted) ¹ including discontinued operations		305			51			54			84			54			243			22			14			60			35			131
Cash flow from discontinued operations (adjusted) ¹		(46	)		(11	)		(13	)		(13	)		(13	)		(50	)		(7	)		2			—			—			(5	)

Cash flow from continuing operations (adjusted) ¹		259			40			41			71			41			193			15			16			60			35			126
Excluding specific items		281			43			41			72			41			197			15			17			61			40			133
Net Debt ²		1,533			1,454			1,508			1,462			1,397			1,397			1,445			1,298			1,370			1,485			1,485

Cascades North American US$ selling price index (2005 index = 1,000) ³		1,109			1,106			1,180			1,223			1,234			1,186			1,238			1,250			1,267			1,267			1,256
Cascades North American US$ raw materials index (2005 index = 300) ³		258			426			409			397			451			421			470			492			512			409			471
US$/CAN$	$	0.88		$	0.96		$	0.97		$	0.96		$	0.99		$	0.97		$	1.01		$	1.03		$	1.02		$	0.98		$	1.01
Natural Gas Henry Hub—US$/mmBtu	$	3.99		$	5.30		$	4.09		$	4.38		$	3.80		$	4.39		$	4.10		$	4.31		$	4.19		$	3.55		$	4.04

Sources: Bloomberg and Cascades.

1	See “Supplemental information on non-IFRS measures.”

2	Defined as total debt less cash and cash equivalents.

3	See note 1 page 68.

SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES

Net earnings, a performance measure defined by IFRS, is reconciled below with operating income, operating income excluding specific items and operating income before depreciation and amortization excluding specific items:


(in millions of Canadian dollars)	2011			2010
Net earnings attributable to shareholders		99			41
Earnings from discontinued operations		(114	)		(21	)
Non-controlling interest		(3	)		2
Share of results of associates and joint ventures		(14	)		(27	)
Recovery of income taxes		(56	)		(6	)
Foreign exchange loss (gain) on long-term debt and financial instruments		(4	)		4
Loss on refinancing of long-term debt		—			3
Financing expense		100			107


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			7


(in millions of Canadian dollars)	2011			2010
Operating income		8			103
Specific items:
Loss (gain) on disposal and others		(48	)		15
Inventory adjustment resulting from business acquisition		10			—
Impairment change		59			29
Closure and restructuring costs		8			1
Unrealized loss on financial instruments		12			7

		41			52

Operating income–excluding specific items		49			155
Depreciation and amortization		180			155

Operating income before depreciation and amortization–excluding specific items		229			310

The following table reconciles net earnings and net earnings per share with net earnings excluding specific items and net earnings per share excluding specific items:


(in millions of Canadian dollars, except amounts per share)	Net earnings (loss)						Net earnings (loss) per share ¹
	2011			2010			2011			2010
As per IFRS		99			41			1.03			0.43
Specific items:
Loss (gain) on disposal and others		(48	)		15			(0.55	)		0.12
Inventory adjustment resulting from business acquisition		10			—			0.08			—
Impairment change		59			29			0.45			0.20
Closure and restructuring costs		8			1			0.06			0.01
Unrealized loss on financial instruments		12			7			0.11			0.07
Loss on refinancing of long-term debt		—			3			—			0.02
Foreign exchange loss (gain) on long-term debt and financial instruments		(4	)		4			(0.04	)		0.03
Share of results of associates, joint ventures and non-controlling interest		(3	)		(10	)		(0.03	)		(0.11	)
Included in discontinued operations, net of tax		(108	)		8			(1.13	)		0.06
Tax effect on specific items and other tax adjustments ¹		(39	)		(18	)		(0.12	)		—

		(113	)		39			(1.17	)		0.40

Excluding specific items		(14	)		80			(0.14	)		0.83

1	Specific amounts per share are calculated on an after-tax basis. Per share amounts of line item “Tax effect on specific items and other tax adjustments” only include the effect of tax adjustments.

The following table reconciles cash flow from operations (adjusted) with cash flow from operations (adjusted) excluding specific items:


(in millions of Canadian dollars)	2011		2010
Cash flow provided by operating activities		104		170
Changes in non-cash working capital components		22		23

Cash flow (adjusted) from operations		126		193
Specific items, net of current income tax:
Loss on refinancing of long-term debt		—		3
Closure and restructuring costs		7		1

Excluding specific items		133		197

The following table reconciles cash flow provided by operating activities with operating income and operating income before depreciation and amortization:


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			8


(in millions of Canadian dollars)	2011			2010
Cash flow provided by operating activities		104			170
Changes in non-cash working capital components		22			23
Depreciation and amortization		(180	)		(155	)
Income taxes paid		2			16
Financing expense paid		97			94
Loss on refinancing of long-term debt		—			3
Gain (loss) on disposal and others		48			(15	)
Net impairment loss and other restructuring costs		(60	)		(29	)
Unrealized loss on financial instruments		(12	)		(7	)
Other non-cash adjustments and dividends received		(13	)		3

Operating income from continuing operations		8			103
Depreciation and amortization		180			155

Operating income before depreciation and amortization		188			258

FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2011, COMPARED TO THE YEAR ENDED DECEMBER 31, 2010

Sales

Sales rose by $443 million to $3.625 billion versus $3.182 billion in 2010. Net average selling prices in U.S. dollars increased in all of our segments but were partly offset by the 4% appreciation of the Canadian dollar over the U.S. dollar. Business acquisitions including the effect of RdM’s full consolidation starting from the second quarter of 2011, net of disposal, accounted for $404 million of the increase. Excluding the effect of RdM’s full consolidation and the effect of sold and temporarily closed operations, total shipments decreased by 4.6% due in part to the disposal of the Avot-Vallée containerboard mill, Versailles boxboard mill and its Hebron converting activities.

Operating income from continuing operations

The Corporation generated an operating income of $8 million in 2011 compared to an operating income of $103 million in 2010, resulting mainly from higher raw material costs and other production costs, namely labour, freight and chemicals. These negative impacts were partly offset by higher selling prices and business acquisitions. The operating income margin for the year of 2011 stood at 0.4%, compared to 3.2% in 2010. Excluding specific items, the operating income stood at $49 million in 2011, compared to $155 million in 2010, a decrease of $106 million.

LOGO

The impacts of these estimated costs are based on production costs per unit, which are affected by yield, product mix changes and purchase and transfer prices. In addition to market pulp and recycled fibre, they include purchases of external boards and parent rolls for the converting sector, and other raw materials such as plastics and woodchips.

2	The estimated impact of the exchange rate is based only on the Corporation’s export sales less purchases that are impacted by the exchange rate fluctuations, mainly the CAN$/US$ variation. It also includes the impact of the exchange rate on the Corporation’s working capital items and cash position.

Cost improvements and other items includes the impact of variable costs based on production costs per unit, which are affected by downtimes, efficiencies and product mix changes. It also includes all other costs, such as repair and maintenance, selling and administration, profit-sharing and change in operating income for operating units that are not in the manufacturing and converting sectors. Operating income of businesses acquired or disposed of are also included.

4	Excluding specific items.

The operating income variance analysis by segment is shown in each business segment review (refer to pages 14 to 21).


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			9

SPECIFIC ITEMS INCLUDED IN OPERATING INCOME AND DISCONTINUED OPERATIONS

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. We believe that it is useful for readers to be aware of these items, as they provide a measure of performance with which to compare the Corporation’s results between periods, notwithstanding these specific items.

The reconciliation of the specific items by business group is as follows:


	2011
(in millions of Canadian dollars)	Boxboard			Container- board			Specialty Products			Tissue Papers			Corporate Activities			Discontinued Operations			Consolidated
Operating income (loss)		(9	)		—			(12	)		52			(17	)		(6	)		8
Depreciation and amortization		47			61			28			41			9			(6	)		180

Operating income (loss) before depreciation and amortization		38			61			16			93			(8	)		(12	)		188
Specific items:
Losses (gains) on disposal and others		(1	)		(7	)		1			(37	)		(1	)		(3	)		(48	)
Inventory adjustment resulting from business acquisition		6			—			—			4			—			—			10
Net impairment loss		10			23			15			11			—			—			59
Closure and restructuring costs		1			5			2			—			—			—			8
Unrealized loss on financial instruments		5			1			—			1			5			—			12

		21			22			18			(21	)		4			(3	)		41

Operating income (loss) before depreciation and amortization–excluding specific items		59			83			34			72			(4	)		(15	)		229

Operating income (loss)–excluding specific items		12			22			6			31			(13	)		(9	)		49


	2010
(in millions of Canadian dollars)	Boxboard		Container- board			Specialty Products		Tissue Papers		Corporate Activities			Discontinued Operations			Consolidated
Operating income (loss)		28		75			36		45		(53	)		(28	)		103
Depreciation and amortization		36		69			27		39		8			(24	)		155

Operating income (loss) before depreciation and amortization		64		144			63		84		(45	)		(52	)		258
Specific items:
Losses (gains) on disposal and others		7		(3	)		—		—		18			(7	)		15
Net impairment loss		3		20			—		6		—			—			29
Closure and restructuring costs		1		—			—		—		—			—			1
Unrealized loss (gain) on financial instruments		7		(5	)		—		—		5			—			7

		18		12			—		6		23			(7	)		52

Operating income (loss) before depreciation and amortization–excluding specific items		82		156			63		90		(22	)		(59	)		310

Operating income (loss)–excluding specific items		46		87			36		51		(30	)		(35	)		155


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			10

LOSS (GAIN) ON DISPOSALS AND OTHERS

In 2011 and 2010, the Corporation recorded the following loss or gain:


(in millions of Canadian dollars)	2011			2010
Net gain related to business acquisitions		(48	)		—
Gain on disposal of property, plant and equipment		(7	)		(3	)
Loss on disposal of businesses		7			—
Supplemental executive retirement plan		—			18

		(48	)		15

2011

On March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France, for a total consideration of €10 million ($14 million), including the debt assumed by the acquirer in the amount of €5 million ($7 million) and the selling price balance of €5 million ($7 million), which will be received over a maximum of three years. The Corporation recorded a loss of $2 million on the disposal.

On April 7, 2011, the Corporation purchased outstanding shares of RdM on the open market, which triggered a business acquisition. A net gain of €9 million ($12 million) resulted from this transaction.

Also during the second quarter, our Specialty Products Group recorded a loss of $1 million resulting from the business acquisition of NorCan Flexible Packaging Inc. of which we hold 50% of the outstanding shares.

On June 23, 2011, the Corporation sold its Versailles boxboard mill and its Hebron boxboard conversion unit, both located in the U.S., for a total consideration of US$20 million ($20 million), including a selling price balance of US$10 million ($10 million) which will be received over a period of four years. The Corporation recorded a loss of $8 million on the disposal.

In June 2011, the Corporation completed the sale of a piece of land in Montréal, Québec, pertaining to a corrugated converting plant closed in 2005 for a cash consideration of $9 million. A gain of $7 million was recorded on the disposal.

On September 20, 2011, the Corporation announced the closure and the sale of the land and building of its containerboard mill located in Burnaby, British Columbia. The closure resulted in a $3 million gain upon the reversal of an environmental provision.

On November 1, 2011, the Corporation announced that it had finalized the acquisition of 50% of the shares that it does not already hold in its affiliated company Papersource Converting Mill Corp (Papersource), located in Granby, Québec. The cash consideration of the transaction is $60 million. A net gain of $37 million resulted from this transaction.

2010

In the third quarter of 2010, the Corporation sold the building and land of its Québec City-based corrugated products plant closed in 2009 and recorded a gain of $3 million.

In 2010, the Corporation established an unfunded supplemental executive retirement plan in favour of its founding shareholders, Bernard, Laurent and Alain Lemaire. The actuarial deficit of the plan was evaluated at $18 million as at December 31, 2010, and an equivalent charge was recorded.

Please refer to note 24 of the consolidated financial statements on page 45 for more details on business disposals and acquisitions.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			11

IMPAIRMENT CHARGES, CLOSURE AND OTHER RESTRUCTURING COSTS

The following impairment charges and closure and restructuring costs were recorded in 2011 and 2010:


	2011				2010
(in millions of Canadian dollars)	Impairment charges		Closure and restructuring costs		Impairment charges		Closure and restructuring costs
Containerboard–Leominster and others		—		3		20		—
Containerboard–Burnaby and Trenton		23		2		—		—
Boxboard Toronto, Lachute and others		10		1		3		1
Specialty Products East Angus, St-Jérôme		15		2		—		—
Tissue Papers–Toronto and others		11		—		6		—

		59		8		29		1

2011

In the Containerboard segment, the closure of converting plants of Leominster in New England, U.S. and Le Gardeur, Québec resulted in closure and restructuring costs totalling $3 million. On September 20, 2011, the Corporation announced the closure of its Burnaby mill in British Columbia and that it had reached an agreement to sell the land and the mill. An impairment charge of $8 million and closure and restructuring costs of $2 million were recorded. The Corporation reviewed the net realizable value of its Trenton manufacturing mill and an impairment charge of $15 million was recorded.

In the Boxboard Group, the Corporation recorded an impairment charge of $10 million for its closed boxboard mill in Toronto, Ontario, and for its converting plant in Lachute, Québec, as well as for other intangible assets. We also recorded a charge of $1 million in our European operations.

In the Specialty Products segment, the Corporation closed its old East Angus pulping facility in Québec and recorded closure and restructuring costs totalling $2 million as well as an impairment charge of $3 million. The Corporation reviewed the net realizable value of its St-Jérôme Fine Paper mill and an impairment charge of $11 million was recorded. The Corporation recorded a $1 million impairment charge for other assets that were closed.

The Tissue Group reviewed the net realizable value of its Toronto manufacturing mill and an impairment charge of $9 million was recorded. Another impairment charge was recorded in the amount of $2 million for other assets no longer in use.

2010

Following low profitability at its U.S.-based Leominster corrugated plant and its Avot-Vallée, France, containerboard mill, the Containerboard Group recorded total impairment charges of $18 million to value these assets to their net realizable value. This Group also recorded additional impairment charges totalling $2 million on some assets of its converting activities.

In 2010, the Corporation reviewed the status of some of the equipment at the Toronto mill in the Boxboard Group and in the Tissue Group that were not in service and concluded that reopening was unlikely to occur and recorded impairment charges of $3 million and $6 million respectively on these units. Restructuring charges of $1 million were also recorded at the Boxboard mill in La Rochette, France.

DERIVATIVE FINANCIAL INSTRUMENTS

In 2011, the Corporation recorded an unrealized loss of $12 million on certain financial instruments not designated as hedging instruments. The loss includes a $7 million loss on financial instruments on currency hedging as well as on commodities such as electricity, natural gas and waste paper. It also includes a $5 million loss resulting from a put and call agreement reached between the Corporation and Industria E Innovazione (see the “Significant facts and developments” section for more details on this agreement).

In 2010, the Corporation recorded an unrealized loss of $7 million on certain financial instruments that were not designated as hedging instruments. More specifically, the 2010 loss includes a $5 million loss on foreign exchange forward derivatives as well as a gain of $5 million on commodity financial instruments. It also includes a $7 million loss resulting from a put and call agreement reached between the Corporation and Industria E Innovazione. (See “Significant facts and developments” section for more details.)


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			12

INVENTORY ADJUSTMENT RESULTING FROM BUSINESS ACQUISITION

As a consequence of the allocation of the combination value on the RdM and Papersource transactions, 2011 operating results were reduced by $10 million since the inventory acquired at the time of the combination was recognized at fair value and no profit was recorded on its subsequent sale.

DISCONTINUED OPERATIONS

On May 2, 2011, the Corporation concluded the sale of Dopaco and realized a net gain of $110 million. The Corporation also incurred a loss of $2 million following the amendment of a health benefit plan prior to the sale.

BUSINESS HIGHLIGHTS

Over the past two years, the Corporation completed several transactions (closure or sale of certain operating units and acquisitions) in order to optimize its asset base and streamline its cost structure.

The following transactions that occurred in 2010 and 2011 should be taken into consideration when reviewing the overall or segmented analysis of the Corporation’s results:

CLOSURE, RESTRUCTURING AND DISPOSAL

Containerboard Group

On March 10, 2011, the Group announced the closure of its Leominster converting plant and the consolidation of its New England (U.S.) converting activities. The Leominster plant was closed in May and production was transferred to other containerboard converting plants.

On March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France.

On September 20, 2011, the Corporation announced the closure of its containerboard mill located in Burnaby, British Columbia. The closure was effective on December 1, 2011, and the production was redirected to other Containerboard Group facilities. The Burnaby mill land and building were sold on October 17, 2011.

On October 12, 2011, the Group announced the closure of its Le Gardeur converting plant. The production was transferred to other containerboard converting plants.

Boxboard Group

On May 2, 2011, the Corporation completed the sale of Dopaco, its converting business for the quick-service restaurant industry.

On June 23, 2011, the Corporation sold its Versailles mill and its Hebron converting activities.

BUSINESS ACQUISITIONS

Boxboard Group

On April 7, 2011, the Corporation reached a share ownership of 40.95% in RdM, a recycled boxboard manufacturing leader based in Europe. Since the second quarter, the Corporation has fully consolidated RdM with a non-controlling interest, as at December 31, 2011, of 55.69%. In 2011, the Corporation acquired an additional 4.65% of RdM’s outstanding shares on the open market. The Corporation’s share in the equity of RdM stood at 44.31% at the end of 2011.

Specialty Products Group

On April 6, 2011, the Corporation acquired the flexible film for packaging product activities of NorCan Flexible Packaging Inc., based in Ontario. Total interest held in the subsidiary is now 50% of outstanding shares with a non-controlling interest of 50%.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			13

On May 31, 2011, the Corporation acquired the recovery and recycling activities of Genor Recycling Services Limited, based in Ontario.

On September 15, 2011, the Corporation acquired the uncoated partition board manufacturing assets of Packaging Dimensions Inc., located in Illinois, U.S.

Tissue Group

On November 1, 2011, the Group announced that it had finalized the acquisition of 50% of the shares that it did not hold already in its affiliated company Papersource Converting Mill Corp (Papersource), located in Granby, Québec.

Please refer to notes 5 and 6 of the consolidated financial statements on pages 23 to 27 for more details on business disposals and acquisitions.

BUSINESS SEGMENT REVIEW

PACKAGING

Boxboard


							Operating income (loss)						OIBD						Shipments ¹						Average selling price ²								Price reference ²
	Sales (in millions of dollars)						(in millions of dollars)						(in millions of dollars)						(in thousands of short tons)						(in Canadian dollars/unit)				(in U.S. dollars or euros/unit)				(in U.S. dollars or euros/unit)
	2011			2010			2011			2010			2011			2010			2011			2010			2011		2010		2011		2010		2011		2010
North America		466			846			(23	)		23			(8	)		56			382			578			746		705		754		684		909		828
Europe		745			208			14			5			46			8			897			212			831		979	€	604	€	716	€	736	€	955
Discontinued operations		(148	)		(470	)		(6	)		(28	)		(12	)		(52	)		(70	)		(186	)		n/a		n/a		n/a		n/a		n/a		n/a

		1,063			584			(15	)		—			26			12			1,209			604
Specific items								18			11			18			11

Excluding specific items								3			11			44			23

1	Shipments do not take into account the elimination of business sector intercompany shipments.

2	Average selling price and Price reference include RdM recycled boxboard activities starting in Q2-2011. Average selling price and Price reference are a weighted average of virgin and recycled boxboard shipments.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			14

LOGO

For notes 1 to 4, see definition on page 9.

North America

Sales decreased by $58 million to reach $318 million in 2011 compared to $376 million in 2010. Excluding the sale in June 2011 of the Versailles mill and the Hebron folding carton plant, sales would have increased by $3 million. Both sectors experienced an increase in their average Canadian dollar selling price despite a stronger Canadian dollar. On the other hand, shipments were 5.3% lower counterbalancing the price increase impact. Finally, the appreciation of the Canadian dollar resulted in a reduction of $9 million in sales.

The mills saw their sales decrease by $42 million to $215 million. Excluding the impact of the sale of the Versailles mill, sales would have increased by $3 million. Indeed, the mills benefited from price increases


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			15

in the boxboard market, thus creating $14 million of additional revenue. However, a decrease of 2% in shipments and the appreciation of the Canadian dollar negatively impacted sales by $4 and $7 million respectively. Lower shipments in this sector reflect the contribution of the Versailles mills for six months only. In fact, the two remaining mills recorded an increase of 1% in their shipments.

In the converting activities, sales decreased by $20 million to $138 million. The sale of the Hebron folding carton plant accounts for $16 million of the reduction. Average selling prices slightly increased but were not sufficient to reverse the negative impact of a 2% reduction in volume, essentially tied to a single unit. In fact, all the units posted better shipments except one that lost a major client at the end of 2010. The volume of this customer is progressively being replaced by smaller and more profitable accounts.

Operating income decreased by $24 million to an operating loss of $29 million for 2011 compared to an operational loss of $5 million for 2010. Excluding specific items, operating income decreased by $13 million to an operating loss of $8 million. As stated before, the Group benefited from price increases in both sectors (manufacturing and converting), resulting in a favourable variance of $17 million. However, it was not sufficient to counterbalance the increase in raw material prices, lower volumes and an increase in both variable and fixed costs. In the manufacturing sector, following an increase in recycled fiber prices as well as a change in the type of fiber used in one of the mills, the average raw material price increased by CAN$34/s.t. The converting units also experienced an increase in the cost of their external board. Combined with a rise in the price of raw material, it contributed to a reduction in the Group’s operating income of $6 million. The above-mentioned volume decline of 5.3% lowered the operating profit by $4 million. Chemicals costs and usage in the manufacturing sector and an increase in freight costs both led to a negative impact of $4 million. In 2011, as part of continuous improvement programs, the mills invested an additional $3 million in maintenance and repairs. Finally, the strength of the Canadian dollar in 2011 resulted in a loss of profit of $2 million when compared to last year.

Europe

European operations’ sales increased to $745 million compared to $208 million in 2010. The full consolidation of RdM is responsible for $526 million of the increase. Excluding the impact of RdM, selling prices in Euros and Canadian dollars were slightly higher compared to 2010 following announced price increases, which were applied to cover raw material and other variable cost increases while volumes slightly declined.

In 2011, operating income was negatively impacted by other variable cost such as chemicals and freight. However, the full consolidation of RdM, higher selling prices and improvements in other fixed costs more than offset these negative variances and positively contributed to profitability. All these factors combined with the contribution of RdM led to a $9 million increase in operating income compared to 2010.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 28 to 31 for more details and reconciliation.

BUSINESS SEGMENT REVIEW

PACKAGING

Containerboard


					Operating income (loss)				OIBD				Shipments ¹				Average selling price								Price reference
	Sales (in millions of dollars)				(in millions of dollars)				(in millions of dollars)				(in thousands of short tons)				(in Canadian dollars/unit)				(in U.S. dollars/unit)				(in U.S. dollars/unit)
	2011		2010		2011		2010		2011		2010		2011		2010		2011		2010		2011		2010		2011		2010
As reported		979		1,086		—		75		61		144		1,063		1,225		487		493		492		479		640		625
Specific items						22		12		22		12

Excluding specific items						22		87		83		156

1	Elimination of business sector intercompany shipments are excluded from shipments.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			16

LOGO

For notes 1 to 4, see definition on page 27.

The Containerboard Group’s sales decreased by $107 million to $979 million in 2011 compared to $1,086 million in 2010. The sale of the Avot-Vallée mill on March 1, 2011 accounts for $74 million of the reduction while the closure of the Burnaby mill and Leominster corrugated products plant had a combined effect of $22 million. Also, the temporary closure of the Trenton mill in June and July 2011 had a negative impact of $11 million. Excluding the impact of these divestitures and closures, sales remained stable. The appreciation of the Canadian dollar had a major impact on the Group’s sales. Indeed, the impact of the strength of the Canadian dollar nullified the favourable contribution related to higher U.S. dollar selling prices. Sales of the Canadian entities were lower by $18 million due to the rise of the Canadian dollar, while the U.S. entities sales were reduced by $9 million due to the translation effect.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			17

In the North American manufacturing segment, sales decreased by $97 million to $487 million. Excluding the impact of the divestitures and closures described above, revenues generated by our mills decreased by $9 million as the average U.S. dollar selling price increased by US$20/s.t., which was offset by the appreciation of the Canadian dollar. Thus, the Canadian mills saw their average Canadian dollar selling price decrease by CAN$5/s.t. As for shipments, the mills registered a decrease of 22,000 s.t. (2.2%) creating an unfavourable impact of $3 million on sales. To adjust to weaker market demand, the mills took 22,000 short tons (68 days) of downtime compared to 12,000 short tons (33 days) in 2010.

In the converting sector, sales decreased by $38 million. The Leominster plant closure accounts for half of the reduction. The other half is mainly attributable to the appreciation of the Canadian dollar. In fact, the strength of the Canadian dollar reduced sales in the U.S. plants by $6 million and by $15 million for the Canadian units. Excluding the foreign exchange effect, the average selling price of the converting units would have increased by CAN$15/s.t. U.S. industry shipments increased by 0.5% while Canadian industry shipments decreased by 0.7%. As for our converting units, an increase of 0.6% was recorded in the U.S., while the Canadian operations saw a decline of 1.7%. In Canada, we experienced a decline in shipments that was higher than the industry due to the loss of an important client in the food sector and to weaker demand in the farmers’ business. However, this situation should improve as new business recently developed is expected to contribute positively in 2012.

Operating income fell from $75 million to nil in 2011. Excluding specific items, operating income fell by $65 million to $22 million in 2011. Approximately 75% of the variance is tied to the increase in raw material cost. Indeed, average fiber price in the mills increased by CAN$27/s.t. while the converting sector recorded an increase of CAN$30/s.t. The appreciation of the Canadian dollar also had a negative impact of $9 million on the group’s operating income. The latter was also reduced by higher freight and energy costs. The group’s administrative expenses also negatively contributed to income due to spending associated with the Greenpac project. Finally, as stated before, better US$ selling prices and better shipments contributed positively to the operating income but were far from being sufficient to reverse the impact of the fibre price.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 10 to 14 for more details and reconciliation.

BUSINESS SEGMENT REVIEW

PACKAGING

Specialty Products


	Sales				Operating income (loss)					OIBD				Shipments ¹				Average selling price ²								Price reference
	(in millions of dollars)				(in millions of dollars)					(in millions of dollars)				(in thousands of short tons)				(in Canadian dollars/unit)				(in U.S. dollars or euros/unit)				(in U.S. dollars or euros/unit)
	2011		2010		2011			2010		2011		2010		2011		2010		2011		2010		2011		2010		2011		2010
As reported		851		786		(12	)		36		16		63		377		393		920		924		930		897		899		855
Specific items						18			—		18		—

Excluding specific items						6			36		34		63

1	Elimination of business sector intercompany shipments are excluded from shipments.

2	Average selling price is for paper manufacturing mills only.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			18

LOGO

For notes 1 to 4, see definition on page 9.

Specialty Products Group sales increased by $65 million to reach $851 million compared to $786 million in 2010. $50 million of this increase is attributable to the Recovery and Recycling sector, which benefited from higher volume and increased waste paper prices. Sales in the Industrial Packaging sector increased by $9 million mainly resulting from higher volume and average selling price experienced by our European units. Sales in the Specialty Papers sector decreased by $14 million in 2011 compared to 2010 due to lower demand and an unfavourable exchange rate. For the Group, business acquisitions have positively impacted sales by $22 million.

Operating income decreased by $48 million, from $36 million in 2010 to a loss of $12 million in 2011. Excluding specific items, operating income fell by $30 million to $6 million in 2011. Again, most of this decrease comes from our Specialty Papers business as they have been strongly impacted by lower demand, higher raw material costs, competitive market conditions and the appreciation of the Canadian dollar. Profitability decline in the Industrial Packaging sector is mainly attributable to less favourable product mix and exchange rate as well as higher energy and raw material prices.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 10 to 14 for more details.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			19

BUSINESS SEGMENT REVIEW

TISSUE PAPERS


	Sales				Operating income (loss)					OIBD					Shipments ¹				Average selling price								Price reference
	(in millions of dollars)				(in millions of dollars)					(in millions of dollars)					(in thousands of short tons)				(in Canadian dollars/unit)				(in U.S. dollars/unit)				(in U.S. dollars/unit)
	2011		2010		2011			2010		2011			2010		2011		2010		2011		2010		2011		2010		2011		2010
As reported		871		853		52			45		93			84		513		518		1,697		1,646		1,713		1,598		1,707		1,619
Specific items						(21	)		6		(21	)		6

Excluding specific items						31			51		72			90

1	Shipments do not take into account the elimination of business sector intercompany shipments.

LOGO

For notes 1 to 4, see definition on page 9.

Tissue Group sales increased by $18 million, or 2%, to $871 million in 2011, compared to $853 million in 2010 despite a negative currency impact of 3% (-$26 million). Organic sales rose 4% (+$34 million), driven by an increase of 3% in average selling prices (+$27 million), a 2.4% impact related to a more favourable product mix (+$20 million) and a positive contribution of 1.3% from business acquisitions (+$11 million). These were partially offset by a decrease of 1.6% in shipments (-$13 million).

The shipments decline of 5,000 tons was mainly due to lower parent roll sales resulting from non recurring production issues in 2011. However, our Away From Home (AFH) and Consumer Product segments grew by 4% (+11,000 tons), mainly in the U.S. The growth in bath tissue and perforated roll towel categories were the main drivers behind the AFH business increase. On the Consumer Product side, we exceeded our targeted growth objectives, and this was sufficient to compensate for overall softer demand caused by slower economic activity.

Despite the unfavourable currency impact of 3%, the average selling price increased by 3% (+$51/s.t.) in 2011 primarily due to the implementation of price increases in all our market segments. The increase in parent roll sales price has contributed to a 2.2% growth (+$19 million), while AFH and Consumer Product grew by 1% (+$7 million). Also, a higher rate for converting of parent rolls into finished products resulted in a more favourable product mix and an average selling price that was 2.4% higher (+$20 million). The acquisition of Papersource also positively impacted the average selling price by 0.6% (+$5 million) due to a higher converting rate.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			20

The Tissue Group’s operating income stood at $52 million for 2011 compared to $45 million in 2010. Excluding specific items, operating income reached $31 million in 2011, down by $20 million versus $51 million generated in 2010. Inflation in key costs, including manufacturing, transportation and recycled fibre costs accounted for over $62 million of cost increases in 2011, combined with a $7 million loss on foreign exchange and a $4 million loss related to lower volume. Favourable variance such as $47 million related to higher selling prices and better product mix, $5 million due to SG&A and manufacturing overhead cost reduction were not sufficient to offset the unfavourable cost inflation.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 10 to 14 for more details and reconciliation.

CORPORATE ACTIVITIES

Operating income for the year ended December 31, 2011, includes a foreign exchange gain of $3 million on working capital items following the rapid depreciation of the Canadian dollar at the end of the third quarter combined with foreign exchange gain in the amount of approximately $14 million in the third quarter on the US$ consideration received from the sale of Dopaco. As well, 2011 operating income includes an unrealized loss of $5 million on financial instruments compared to a loss of $5 million in 2010. Corporate operating income also includes a loss of $4 million resulting from a flood at one of our Tissue Group’s operating units during the third quarter.

Operating income for 2010 includes a loss of $2 million resulting from a fire at one of our Specialty Products Group’s units in the United States during the first quarter. In 2010, operating income also includes a foreign exchange loss of $4 million following the appreciation of the Canadian dollar and a charge of $18 million following the establishment of a supplemental executive retirement plan (“SERP”) in favour of the Corporation’s founding shareholders.

OTHER ITEMS ANALYSIS

DEPRECIATION AND AMORTIZATION

The depreciation and amortization expense increased to $180 million in 2011, compared to $155 million in 2010. The increase is due to the full consolidation of RdM that started during the second quarter of 2011 which contributed to a depreciation and amortization expense of $28 million. The appreciation of the Canadian dollar against the U.S. dollar and the sale of our Versailles, Hebron and Avot-Vallée units as well as the closure of our Leominster plant all reduced the depreciation and amortization expense. The impairment charges recorded at the end of 2010 also decreased the depreciation and amortization expense but these were partially offset by capital investments completed in the last twelve months and by acquisitions in our Specialty Products Group and the acquisition of Papersource during the fourth quarter of 2011.

FINANCING EXPENSE

The financing expense decreased to $100 million in 2011, compared to $107 million in 2010. The appreciation of the Canadian dollar against the U.S. dollar and the lower level of our debt following the sale of Dopaco in 2011 led to a decrease in financing expenses. Also, the Corporation benefited from the renegotiated and amended revolving credit agreement, which decreased the interest rate as well as standby fees on our revolving credit facility. However, these favourable impacts were partly offset by the full consolidation of RdM that started during the second quarter of 2011 and the payment for the Papersource acquisition.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			21

LOSS ON REFINANCING OF LONG-TERM DEBT

During the first quarter of 2010, the Corporation purchased, for a total consideration of US$162 million ($168 million), including a premium of US$3 million ($3 million), a total US$107 million ($111 million) aggregate principal amount of 7.25% unsecured senior notes and a US$52 million ($54 million) aggregate principal amount of 6.75% unsecured senior notes due in 2013. The Corporation recorded a $3 million loss resulting from this transaction.

FOREIGN EXCHANGE LOSS ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

In 2011, the Corporation recorded a gain of $4 million on its US$-denominated debt compared to a loss of $4 million in 2010. This is composed of a loss of $3 million (2010–$13 million gain) on our US$-denominated long-term debt net of our net investment hedge the U.S. and forward exchange contracts designated as hedging instruments. It also includes a gain of $7 million (2010–$13 million loss) on its foreign exchange forward contracts not designated as hedging instruments. The 2010 loss also includes a loss of $4 million resulting from the recognition of charges previously recorded under “Accumulated other comprehensive income” upon the termination of the hedge accounting of foreign exchange contracts.

PROVISION FOR INCOME TAXES

In 2011, the Corporation recorded income tax recovery of $56 million for an effective tax rate of 64%. The income tax recovery was impacted by specific items that are tax affected at different rates than normal income, prior period adjustments as well as valuation of tax benefits arising from income tax losses. Excluding these unfavourable impacts and other specific items, the income tax rate would have been approximately 31% for 2011.

The effective tax rate and current income taxes are affected by the results of certain subsidiaries and joint ventures located in countries—notably Europe and the United States—where the income tax rate is higher than in Canada. The normal effective tax rate is expected to be in the range of 27% to 35%.

SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES

The share of results of associates and joint ventures is partly represented by our 35% interest in Boralex Inc. (“Boralex”), a Canadian public corporation that is a major electricity producer and whose core business is the development and operation of power stations that generate renewable energy, with operations in the northeastern United States, Canada and France. It also includes the results of our joint ventures, including our interest in RdM until the first quarter of 2011. During the second quarter of 2011, the Corporation started to fully consolidate RdM and consequently ceased to record its share of results (please refer to notes 6 and 9 of the consolidated financial statements for more details).

RESULTS OF DISCONTINUED OPERATIONS

Results of discontinued operations mainly include the results of Dopaco, for which the sale transaction was closed on May 2, 2011. It includes the net gain on disposal of Dopaco of $110 million ($192 million before taxes) and a $2 million loss ($3 million before taxes) following the amendment of a health benefit plan. It also includes the normal results of operations until the date of disposal.

Results of Dopaco were as follows:


(in millions of Canadian dollars)	2011		2010
Results of discontinued operations
Sales		148		470
Cost of sales and expenses (excluding depreciation and amortization)		124		377
Depreciation and amortization		6		24
Other expenses and specific items		12		41
Net earnings before income tax of discontinued operations		6		28
Income tax		2		7
Share of results of associates and joint ventures		—		(1	)


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			22


(in millions of Canadian dollars)	2011		2010
Net earnings from operations		4		22
Gain on disposal, net of income taxes		110		—

Net earnings from discontinued operations		114		22

NET EARNINGS

For the year ended December 31, 2011, net earnings stood at $99 million, or $1.03 per share, compared to net earnings of $41 million, or $0.43 per share in 2010. After excluding certain specific items, the Corporation realized a net loss of $14 million, or ($0.14) per share, compared to net earnings of $80 million, or $0.83 per share in 2010 (see “Supplemental information on non-IFRS measures” for reconciliation of these amounts).

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES

Continuing operating activities generated $104 million in liquidity in 2011, compared to $170 million in 2010. Changes in non-cash working capital components required $22 million in funds, compared to $23 million in 2010. Lower operating income in 2011 compared to 2010 partly led to this deterioration. As well, price increases were implemented or announced in our Boxboard, Specialty Products and Tissue groups, which contributed to increased working capital requirements. The ending of a factoring program of accounts receivable in Europe for an amount of $14 million (€11 million) also increased working capital.

Cash flow from continuing operating activities, excluding the change in non-cash working capital components, stood at $126 million for 2011 compared to $193 million in 2010.

This cash flow measure is significant, since it positions the Corporation to pursue its capital expenditures program and reduces its indebtedness.

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

Investment activities in 2011 used total cash of $229 million, mainly for net capital expenditure projects ($141 million) and other assets and investments in associates and joint ventures ($65 million). The Corporation also received $32 million from the disposal of assets and $4 million from business disposal and recorded a net cash outflow of $60 million on business acquisitions.

Business acquisitions

Since April 7, 2011, the Corporation is deemed to have control of RdM as it increased its ownership to 40.95% when considering the effect of potential voting rights. Cash consideration to gain control of RdM is nil and the Corporation acquired cash in the amount of $4 million.

On May 31, 2011, the Corporation purchased all of the outstanding shares of Genor Recycling Services Ltd. and 533784 Ontario Limited (Genor) for a total consideration of $9 million, consisting of a cash consideration of $3 million, net of cash acquired of $1 million, and a balance of purchase price of $5 million. Genor recycles corrugated cardboard and other paper grades in Ontario, Canada.

On September 15, 2011, the Corporation acquired the uncoated partition board manufacturing assets of Packaging Dimensions Inc., located in Illinois, U.S., for a total consideration of $6 million, consisting of a cash consideration of $3 million and a balance of purchase price of $3 million.

On November 1, 2011, the Group announced that it had finalized the acquisition of 50% of the shares that it did not hold in its affiliated company Papersource Converting Mill Corp (Papersource), located in Granby, Québec, for a cash consideration of $56 million net of cash acquired of $4 million and the assumption of debts in the amount of $28 million.


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Disposal of businesses

On March 1, 2011, the Corporation sold its white-top linerboard mill located in Avot-Vallée, France, for a total consideration of €10 million ($14 million), including the long-term debt assumed by the acquirer in the amount of €5 million ($7 million) and a balance of sale price of €5 million ($7 million), which will be received over a maximum of three years. The Corporation realized a loss of $2 million before income taxes. The Corporation had to pay $1 million during the year in various fees in order to complete the transaction.

PURCHASES OF PROPERTY PLANT AND EQUIPMENT

Capital expenditure projects paid during the year amount to $141 million. Capital expenditures by sector are as follows:

LOGO

The major capital projects in 2011 are as follows:

Boxboard

$2 million for a new gluer replacing three old ones at our Winnipeg facility that will increase productivity, reduce labour costs and reduce discharges and maintenance.

$1 million for new scanners in Jonquière to perform better quality analysis and reduce claims from customers.

$2 million for new equipment at our La Rochette facility to automate processes and reduce labour costs.

$1 million for new equipment in La Rochette in order to save steam per tonne of cardboard produced.

Containerboard

$8 million for two new presses, replacing four old ones, installed at our St. Marys and Richmond converting plants to upgrade our equipment. These presses will reduce set-up time, labour costs and increase speed of rotation thereby improving productivity.

$5 million to expand our facility in Cabano. This investment will improve our production capacity and productivity.

$3 million for a electrostatic precipitator at our facility in Cabano that will significantly reduce the air emissions of the boilers well below the new government standards (Québec’ Ministère du Développement durable, de l’environnement et des Parcs).

Specialty Products

$3 million for a new extruder at our recently acquired Norcan Flexible Packaging subsidiary in order to increase our production of flexible film for packaging.


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$3 million to expand our plastics facility in Drummondville, enabling us to reduce external warehousing costs and allowing future development projects such as new thermomoulding equipment.

$2 million for a new pulper installed at our Kraft paper mill in East Angus in order to migrate from virgin to recycled pulp, enabling us to reduce costs.

$2 million for a disperger at our Auburn facility to improve the pulp quality, increase productivity and the sales volume.

$1 million for a new winder at St-Jérôme to reduce discharges and improve productivity.

Tissue Papers

$6 million for the replacement of two lines of hygienic tissue at our plant in Pennsylvania. This equipment is more efficient and will increase our production capacity and offer a wider variety of products.

$3 million for the purchase of manufacturing equipment for conventional and pocket size handkerchiefs at our factory in Kingsey Falls. This investment will increase our production capacity dedicated to this market.

$2 million for napkin manufacturing equipment at our plant in Laval. This acquisition will allow us to expand our range of product offerings, including our new brand “SERVONE™”.

$2 million for various equipment at our Candiac facility in order to start a new technology to produce better quality paper.

$1 million for various equipment in Toronto to optimize the pulp recipe and improve quality.

PROCEEDS OF PROPERTY PLANT AND EQUIPMENT

In June 2011, the Corporation completed the sale of a piece of land in Montréal, Québec, pertaining to a corrugated converting plant closed in 2005 for a cash consideration of $9 million.

In September 2011, the Corporation announced the closure of its containerboard mill located in Burnaby, British Columbia. At the same time, we announced an agreement regarding the sale of the land and building of the facility. The sale was completed in October for a cash consideration of $20 million and the closure was effective on November 6, 2011.

Increase in other assets and investment in associated and joint ventures

The main investments are as follows:

$19 million for modernization of our financial information system to an ERP information technology system of which $14 million is financed through a loan agreement which will be reimbursed over a period of three years.

$45 million for our Greenpac project in partnership with third parties in our Containerboard manufacturing segment.

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

Revolving and term facilities

On February 10, 2011, the Corporation entered into an agreement to amend and extend, until February 10, 2015, its existing $750 million revolving credit facility. Under the terms of the amendment, the existing financial covenants, namely the maximum funded debt-to-capitalization ratio of 65% and the minimum interest coverage ratio of 2.25x, will remain unchanged. As a result of the amendment, the margin applicable to outstanding borrowings has been reduced from 2.750% to 2.125%.

On December 30, 2010, the Corporation repaid in full its term loan in the amount of $100 million, and consequently the term loan facility has been cancelled.

These ratios are calculated on an adjusted consolidated basis. With regards to these two financial ratios, Cascades remains in compliance and expects to do so in 2012.


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Unsecured senior notes

Following the refinancing of its long-term debt in 2009, the Corporation purchased during the first quarter of 2010, for a total consideration of US$162 million ($168 million), including a premium of US$3 million ($3 million), a total of US$107 million ($111 million) aggregate principal amount of 7.25% Notes and US$52 million ($54 million) aggregate principal amount of 6.75% Notes due in 2013. As of December 30, 2011, approximately US$9 million ($9 million) aggregate principal amount of 7.25% Notes and approximately US$9 million ($9 million) aggregate principal amount of 6.75% Notes expiring in 2013 remains outstanding.

The Corporation also concluded, in the first quarter of 2010, an agreement with the majority of the remaining holders of the 7.25% and 6.75% notes outstanding, pursuant to which said holders have consented in writing to eliminate substantially all of the restrictive covenants contained in the indentures and to eliminate certain events of default contained in the indentures.

The Corporation also redeemed 2,057,563 of its common shares on the open market, pursuant to a normal-course issuer bid, for an amount of $11 million.

In 2011, we continued to increase our ownership in RdM by acquiring 4.65% of the outstanding shares for an amount of $3 million. Our ownership, excluding any other agreements, stood at 44.31% as at December 31, 2011. Since we have fully consolidated RdM since the second quarter, the purchase of these shares is considered an acquisition of non-controlling interest and accounted for as an equity transaction.

Including the $15 million in dividends paid out during the year, financing activities from continuing operations required $169 million in liquidity. Cash consideration received on the Dopaco disposal was applied to reduce our revolving credit facility.

LIQUIDITY FROM DISCONTINUED OPERATIONS

Cash flows from Dopaco discontinued operations are as follows:


(in millions of Canadian dollars)	2011			2010
Cash flows from discontinued operations
Cash flows generated (used) from:
Operating activities		14			51
Investing activities		(1	)		(13	)
Consideration received on disposal, net of transaction costs		288			—

Total		301			38

During the first quarter of 2011, the Corporation also paid $3 million ($2 million in 2010) in relation to a 2006 legal settlement in the fine paper distribution activities that were disposed of in 2006.

In 2010, the corporation recorded a $1 million change related to its Thunder Bay, Ontario, coated fine paper mill sold in 2007.

CONSOLIDATED FINANCIAL POSITION AS AT DECEMBER 31, 2011 AND 2010

The Corporation’s financial position and ratios are as follows:


(in millions of Canadian dollars, unless otherwise noted)	2011			2010
Working capital ¹		530			526
% of sales ²		13.7	%		14.6	%
Bank loans and advances		90			42
Current portion of long-term debt and revolving credit facility renewed in 2011		49			401


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			26


(in millions of Canadian dollars, unless otherwise noted)	2011			2010
Long-term debt		1,358			960
Total debt		1,497			1,403
Equity attributable to shareholders		1,029			1,049
Total equity attributable to shareholders and debt		2,526			2,452
Ratio of total debt/total equity attributable to shareholders and debt		59.3	%		57.2	%

Shareholders’ equity per share (in dollars)		10.87			10.86

1	Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less accounts payable and accrued liabilities.

2	% of sales = Working capital end of period/LTM sales. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM.

Liquidity available via the Corporation’s new amended and restated credit facilities, along with the expected cash flow generated by its operating activities, will provide sufficient funds to meet its financial obligations, fulfill its capital expenditure program and pay for its investment in Greenpac. Capital expenditure requests for 2012 are initially approved at approximately $150 million. This amount is subject to change depending on the Corporation’s operating results and on general economic conditions. The Corporation has capital projects in the works that could be approved if business conditions are favourable, which could lead to capital expenditures in the range of $225 to $250 million in 2012. As at December 31, 2011, the Corporation had $458 million (net of letters of credit in the amount of $10 million) available through its $750 million credit facility.

PENSION LIABILITIES

The Corporation’s future employee benefits assets and liabilities amounted to $560 million and $787 million respectively as at December 31, 2011. These liabilities include an amount of $115 million for post-retirement benefits other than pension plans and $39 million for pension plans, which do not require any funding by the Corporation until they are paid to the employees. This amount is not expected to increase, as the Corporation is reviewing its benefits program to phase out some of them for the majority of future and current employees.

With regards to pension plans, the Corporation’s risk is limited, as only approximately 25% of its active employees are subject to a defined benefit contribution pension plan while the remaining employees are part of the Corporation’s defined contribution plans, such as group RRSPs or 401 (K). As at December 31, 2010, almost all of the Corporation’s pension plans (97%) have had an actuarial valuation performed. Where applicable, Cascades used the measurement relief allowed by law in order to reduce the impact of its increased current contributions.

Considering the assumptions used and the asset ceiling limit, the deficit status for accounting purposes of its pension plans amounted to $125 million as at December 31, 2011, compared to $78 million in 2010. The 2011 pension plan expense was $6 million and the cash outflow was $27 million. Excluding specific events, the expense for these pension plans is expected to remain stable at $5 million in 2012. As for the cash flow requirement, these pension plans are expected to require a contribution of approximately $26 million in 2012. Finally, on a consolidated basis, the solvency ratio of the Corporation’s pension plans is expected to decrease from 89% as at December 31, 2010, to approximately 78% as at December 31, 2011, due to changes in discount rates and the mortality table.

In September 2011, the Canadian Institute of Actuaries issued an Educational Note. This Educational Note offers advice to pension actuaries who are hired to provide guidance to a pension plan sponsor on the selection of the discount rate for a Canadian pension plan under Canadian, U.S., or international accounting standards. After analyzing the recently announced Guidance, the Corporation has decided to retain the current methodology. The new accounting standard IAS19 effective in 2013 may have a significant impact on the valuation of our future pension expense. In addition, recent relief measures allowed by law may have a significant impact on our cash flow requirements if not pursued in the future.

COMMENTS ON THE FOURTH QUARTER OF 2011

In comparison to 2010, sales rose by 17% to $913 million in the fourth quarter of 2011 resulting from higher selling prices, the net contribution of business acquisitions over divestitures and the full consolidation of the results of RdM.


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The operating income excluding specific items was nil, compared to $34 million in Q4 2010. Higher selling prices and the contribution of business acquisitions were more than offset by the negative impacts of lower shipments and higher raw material costs. On a segmented basis, our tissue and European boxboard segments posted better results while our containerboard and specialty products segments experienced weaker profitability. When including specific items, the operating loss amounted to $14 million in comparison to an operating income of $7 million in the same period of last year.

Net loss excluding specific items amounted to $4 million ($0.04 per share) in the fourth quarter of 2011 compared to net earnings of $17 million ($0.17 per share) for the same period last year. Financing expenses were slightly lower than in Q4 2010 while the recovery of income taxes was significantly higher. Including specific items, net earnings were $5 million ($0.05 per share) compared to a net loss of $12 million ($0.12 per share) for the same quarter in 2010. The Corporation incurred some specific items in the fourth quarter of 2011 and 2010 that adversely or positively affected its operating results which are detailed below.

The reconciliation of the specific items by business group is as follows:


	Q4 - 2011
(in millions of Canadian dollars)	Boxboard			Container- board			Specialty Products			Tissue Papers			Corporate Activities			Discontinued Operations		Consolidated
Operating income (loss)		(13	)		(15	)		(17	)		37			(6	)		—		(14	)
Depreciation and amortization		13			15			7			13			3			—		51

Operating income (loss) before depreciation and amortization		—			—			(10	)		50			(3	)		—		37
Specific items:
Gain on disposal and others		—			—			—			(37	)		(1	)		—		(38	)
Inventory adjustment resulting from business acquisition		—			—			—			4			—			—		4
Impairment charge		7			15			12			10			—			—		44
Closure and restructuring costs		1			2			—			—			—			—		3
Unrealized loss (gain) on financial instruments		2			2			—			1			(4	)		—		1

		10			19			12			(22	)		(5	)		—		14
Operating income (loss) before depreciation and amortization—excluding specific items		10			19			2			28			(8	)		—		51

Operating income (loss)—excluding specific items		(3	)		4			(5	)		15			(11	)		—		—


	Q4 - 2010
(in millions of Canadian dollars)	Boxboard			Container- board			Specialty Products		Tissue Papers		Corporate Activities			Discontinued Operations			Consolidated
Operating income (loss)		(3	)		5			5		8		(5	)		(3	)		7
Depreciation and amortization		9			17			7		9		2			(6	)		38

Operating income (loss) before depreciation and amortization		6			22			12		17		(3	)		(9	)		45
Specific items:
Loss on disposal and others		7			—			—		—		—			(7	)		—
Impairment charge		3			19			—		6		—			—			28
Unrealized loss (gain) on financial instruments		1			(1	)		—		—		(1	)		—			(1	)

		11			18			—		6		(1	)		(7	)		27
Operating income (loss) before depreciation and amortization–excluding specific items		17			40			12		23		(4	)		(16	)		72

Operating income (loss)–excluding specific items		8			23			5		14		(6	)		(10	)		34

The main variances in operating income (loss) in 2011 compared to 2010 are shown below:


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LOGO

For notes 1 to 4, see definition on page 9.

NEAR-TERM OUTLOOK

Entering 2012, economic indicators suggest positive development in North America and point to an unstable environment in Europe. Demand for our products remains volatile but we should improve our performance in comparison to the same period last year. In particular, we should benefit from the full consolidation of Reno de Medici and Papersource in 2012.

We expect to continue to face challenges in relation to the volatility of raw material costs and the value of the Canadian dollar but we believe there are reasons to be optimistic in 2012 and future years. Indeed, since the latter part of 2011, we have witnessed more favourable market conditions. From a strategic perspective, our plan still stands: modernize, restructure, optimize and innovate. We expect to begin benefiting from decisions taken as part of our strategic plan, particularly with respect to the acquisition of Papersource and the consolidation of some of our operational centers.

To execute our strategy, we plan to invest to improve our operational performance. However we will deploy our capital in a prudent and gradual way to equip Cascades with a portfolio of assets that are competitive from a manufacturing cost and product offering perspective while maintaining an acceptable level of debt. We wish to maintain our financial flexibility and expect to increase it from return generated on capital invested, working capital reduction efforts and supply chain optimization. This will allow us to pursue our growth initiatives and return value to our shareholders, as we have done in the past.

CAPITAL STOCK INFORMATION

As at December 31, 2011, issued and outstanding capital stock consisted of 94,647,165 common shares (96,606,421 as at December 31, 2010), and 5,693,429 stock options were issued and outstanding (5,287,178 as at December 31, 2010). In 2011, 757,170 options were issued at an exercise price of $6.26, 98,307 options were exercised, 25,019 were forfeited and 227,593 expired.

As at March 19, 2012, issued and outstanding capital stock consisted of 94,219,265 common shares and 5,436,816 stock options.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The Corporation’s principal contractual obligations and commercial commitments relate to outstanding debt, leases and purchase obligations for its normal business operations. The following table summarizes these obligations as at December 31, 2011:


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Contractual obligations


Payment due by period (in millions of Canadian dollars)	Total		Year 2012		Years 2013 and 2014		Years 2015 and 2016		Thereafter
Long-term debt, including capital and interests		1,942		139		254		671		878
Leases		100		27		34		22		17
Legal settlement		2		2		—		—		—
Pension plans and other post-employment benefits		533		44		126		97		266

Total contractual obligations		2,577		212		414		790		1,161

TRANSACTIONS WITH RELATED PARTIES

The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities that are affiliated with one or more of its directors for the supply of raw materials, including recycled paper, virgin pulp and energy as well as the supply of unconverted and converted products, and other agreements entered into in the normal course of business. Aggregate sales by the Corporation to its joint-venture partners and other affiliates totalled $174 million and $170 million for 2011 and 2010 respectively. Aggregate sales to the Corporation from its joint-venture partners and other affiliates came to $58 million and $66 million for 2011 and 2010 respectively.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, management reviews its estimates, including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments, contingencies, income taxes and related valuation allowance, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings in the period in which they occur.

A) IMPAIRMENT

In determining the recoverable amount of an asset or a Cash Generating Unit (CGU), the Corporation uses several key assumptions, based on external information on the industry when available and including, among others, production levels, selling prices, volume, raw material costs, foreign exchange rates, growth rates, discounting rates and capital spending.

The Corporation believes such assumptions to be reasonable. These assumptions involve a high degree of judgment and complexity and reflect management’s best estimates based on available information on the assessment date. In addition, products are commodity products; therefore, pricing is inherently volatile and often follows a cyclical pattern.

Description of significant impairment testing assumptions

Growth rates

The assumptions used were based on our internal budget. We projected revenues, operating margins and cash flows for a period of five years, and applied a perpetual long-term growth rate thereafter. In arriving at our forecasts, we considered past experience, economic trends such as Gross Domestic Product (“GDP”) growth and inflation, as well as industry and market trends.

Discount rates


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Foreign exchange rates

Foreign exchange rates are determined using banks’ average forecast for the first two years of forecasting. For the three following years, the Corporation uses the last five years’ historical average of foreign exchange rates.

Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination of our key assumptions could cause a significant change in the carrying amounts of these assets.

B) INCOME TAXES

C) EMPLOYEE BENEFITS

The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-rated on years of service and management’s best estimate of expected plan investment performance, salary escalations, retirement ages of employees and expected healthcare costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date.

Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.

D) ENVIRONMENTAL CLEAN-UP COSTS

The Corporation expenses environmental disbursements related to existing conditions caused by past or current operations from which no future benefit is discernible. The Corporation’s estimated environmental remediation costs are based upon an evaluation of currently available facts pertaining to each individual site, including the results of environmental studies and testing, and taking into consideration existing technology, applicable laws and regulations, and prior experience in contaminated site remediation. Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are capitalized. The Corporation determines its liability on a site-by-site basis and records a liability when one is probable and can be reasonably estimated. The contingencies take into account the anticipated participation of other potentially responsible parties when it is probable that such parties are legally responsible or financially capable of paying their respective shares of the relevant costs. Actual costs to be incurred in future periods at the identified sites may differ from the estimates, given the inherent uncertainties in evaluating environmental exposures. Future information and developments may require the Corporation to reassess the expected impact of these environmental matters.

E) COLLECTIBILITY OF ACCOUNTS RECEIVABLE

In order to record its accounts receivable at their net realizable value, the Corporation must assess their “collectibility”. A considerable amount of judgment is required in making this assessment, including a review of the receivables’ aging and each customer’s current creditworthiness. The Corporation has recorded allowances for receivables that it feels are uncollectible. However, if the financial condition of the Corporation’s customers were to deteriorate, their ability to make required payments may become further impaired, and increases in these allowances would be required.


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NEW ACCOUNTING STANDARDS NOT YET ADOPTED

IFRS 9–FINANCIAL INSTRUMENTS

IFRS 9 was issued in November 2009 and contain requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.

Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments—Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income.

This standard is required to be applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. The Corporation has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

In May 2011, the IASB issued the following standards which have not yet been adopted by the Corporation: IFRS 10, Consolidated Financial Statements (IFRS 10), IFRS 11, Joint Arrangements (IFRS 11), IFRS 12, Disclosure of Interests in Other Entities (IFRS 12), IAS 27, Separate Financial Statements (IAS 27), IFRS 13, Fair Value Measurement (IFRS 13) and amended IAS 28, Investments in Associates and Joint Ventures (IAS 28). Each of the new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Corporation has not yet begun the process of assessing the impact that the new and amended standards will have on its financial statements or whether to early adopt any of the new requirements.

The following is a brief summary of the new standards:

IFRS 10–CONSOLIDATION

IFRS 10 requires an entity to consolidate an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation—Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.

IFRS 11–JOINT ARRANGEMENTS


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IFRS 12–DISCLOSURE OF INTERESTS IN OTHER ENTITIES

IFRS 13–FAIR VALUE MEASUREMENT

IAS 19–EMPLOYEE BENEFITS

IAS 19, Employee Benefits, has been amended to make significant changes to the recognition and measurement of defined benefit pension expense and termination benefits and to enhance the disclosure of all employee benefits. The amended standard requires immediate recognition of actuarial gains and losses in other comprehensive income as they arise, without subsequent recycling to net income. This is consistent with the Corporation’s current accounting policy. Past service cost (which will now include curtailment gains and losses) will no longer be recognized over a service period but instead will be recognized immediately in the period of a plan amendment. Pension benefit cost will be split between (i) the cost of benefits accrued in the current period (service cost) and benefit changes (past service cost, settlements and curtailments); and (ii) finance expense or income. The finance expense or income component will be calculated based on the net defined benefit asset or liability. A number of other amendments have been made to recognition, measurement and classification, including redefining short-term and other long-term benefits, guidance on the treatment taxes related to benefit plans, guidance on risk/cost sharing features, and expanded disclosures.

IAS 1–PRESENTATION OF FINANCIAL STATEMENTS

IAS 1, Presentation of Financial Statements, has been amended to require entities to separate items presented in OCI into two groups based on whether or not items may be recycled in the future. Entities that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012, with earlier application permitted.

AMENDMENTS TO OTHER STANDARDS

In addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements (IAS 27), and IAS 28, Investments in Associates and Joint Ventures (IAS 28). IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to 13.

IFRS 7–FINANCIAL INSTRUMENTS DISCLOSURES

IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial instruments subject to masternetting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, “Financial Instruments: Presentation” to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to IAS 32 are effective as of January 1, 2014.


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CONTROLS AND PROCEDURES

EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Corporation’s President and Chief Executive Officer and the Vice-President and Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and procedures (DC&P) and internal controls over financial reporting (ICOFR) as defined in National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. They have limited the scope of their design of disclosure controls and procedures and internal control over financial reporting to exclude controls, policies and procedures of Reno de Medici S.p.A. (“RdM”). The design and evaluation of the operating effectiveness of RdM’s disclosure controls and procedures and internal control over financial reporting will be completed within a 12-month period from the date of acquisition.

Audited financial information pertaining to RdM and included in the Corporation’s audited consolidated financial statements as at December 31, 2011, is as follows:


For the 9-month period ended December 31, 2011, unaudited
Results of RdM:
Sales	526
Cost of sales and expenses	507
Depreciation and amortization	28
Operating loss	(9	)
Financing expense	5
Loss before income tax and other	(14	)
Recovery of income tax	(7	)
Share of results of associates and joint ventures	(1	)

Net loss	(8	)


For the 9-month period ended December 31, 2011, unaudited
Cash flows from RdM:
Cash flows generated (used) from:
Operating activities	39
Investing activities	(19	)
Financing activities	(16	)

Total	4


As at December 31, 2011, unaudited
Balance sheet of RdM:
Current assets			237
Long-term assets			325
Current liabilities			240
Long-term liabilities			134
Non-controlling interest			108

Further details on this acquisition are disclosed in note 6 of the Corporation’s consolidated financial statements.

Subject to the limitation hereinabove mentioned, the DC&P have been designed to provide reasonable assurance that material information relating to the Corporation is made known to the President and Chief Executive Officer and the Vice-President and Chief Financial Officer by others and that information required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under securities legislation is recorded, processed, summarized and


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			34

reported within the time periods specified in securities legislation. The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have evaluated the effectiveness of the Corporation’s disclosure controls and procedures related to the preparation of Management’s discussion and analysis and the consolidated financial statements. They have concluded that the design and operation of disclosure controls were effective as at December 31, 2011.

The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have assessed the effectiveness of ICOFR as at December 31, 2011 based on the framework established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, they have concluded that the Corporation’s internal control over financial reporting was effective as at December 31, 2011 and expect to certify the Corporation’s annual filings with the U.S Securities and Exchange Commission on Form 40-F, as required by the United States Sarbanes Oxley Act.

No changes were made to the Corporation’s internal controls over financial reporting during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, its ICOFR.

RISK FACTORS

As part of its ongoing business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in selling prices for its principal products, costs of raw materials, interest rates and foreign currency exchange rates, all of which impact the Corporation’s financial position, operating results and cash flows. The Corporation manages its exposure to these and other market risks through regular operating and financing activities and, on a limited basis, through the use of derivative financial instruments. We use these derivative financial instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key areas of business risks and uncertainties that we have identified, and our mitigating strategies. The risk areas below are listed in no particular order, as risks are evaluated based on both severity and probability. Readers are cautioned that the following is not an exhaustive list of all the risks we are exposed to, nor will our mitigation strategies eliminate all risks listed.

a)	The markets for some of the Corporation’s products tend to be cyclical in nature and prices for some of its products, as well as raw materials and energy costs, may fluctuate significantly, which can adversely affect its business, operating results, profitability and financial position.

The markets for some of the Corporation’s products, particularly containerboard and boxboard, are highly cyclical. As a result, prices for these types of products and for its two principal raw materials, recycled paper and virgin fibre, have fluctuated significantly in the past and will likely continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced by the strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and the United States, the Corporation’s two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers and consumer preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced spending by consumers and businesses results in decreased demand, which can potentially cause downward price pressure. Industry participants may also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and exerting downward price pressure. Depending on market conditions and related demand, Cascades may have to take market-related downtime. In addition, the Corporation may not be able to maintain current prices or implement additional price increases in the future. If Cascades is not able to do so, its revenues, profitability and cash flows could be adversely affected. In addition, other participants may introduce new capacity or increase capacity utilization rates, which could also adversely affect the Corporation’s business, operating results and financial position. Prices for recycled and virgin fibre also fluctuate considerably. The costs of these materials present a potential risk to the Corporation’s profit margins, in


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			35

the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price of recycled fibre generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If Cascades wasn’t able to implement increases in the selling prices for its products to compensate for increases in the price of recycled or virgin fibre, the Corporation’s profitability and cash flows would be adversely affected. In addition, Cascades uses energy, mainly natural gas and fuel oil, to generate steam, which it then uses in the production process and to operate machinery. Energy prices, particularly for natural gas and fuel oil, have continued to remain very volatile. Cascades continues to evaluate its energy costs and consider ways to factor energy costs into its pricing. However, if energy prices were to increase, the Corporation’s production costs, competitive position and operating results would be adversely affected. A substantial increase in energy costs would adversely affect the Corporation’s operating results and could have broader market implications that could further adversely affect the Corporation’s business or financial results.

To mitigate price risk, our strategies include the use of various derivative financial instrument transactions, whereby it sets the price for notional quantities of old corrugated containers, electricity and natural gas.

Additional information on our North American raw material, electricity and natural gas hedging programs as at December 31, 2011, is set out below:

North American Finished Products and Raw Materials Hedging


	Old corrugated containers			Sorted office paper
Quantity hedge		160,000 s.t.			14,500 s.t.
% of annual consumption hedged		7	%		4	%
Average prices	US$	120/s.t.		US$	187/s.t.
Fair value as at December 31, 2011 (in millions of Canadian dollars)		(0.8	) ¹		(0.1	)

1	Based on various indexes.

North American Electricity Hedging


	United States			Canada
Electricity consumption		28	%		72	%
Electricity consumption in a regulated market		53	%		76	%
% of consumption hedged in a deregulated market (2012)		36	%		23	%
Average prices (2012—2014)	US$	0.41/KWh		$	0.039/KWh
Fair value as at December 31, 2011 (in millions of Canadian dollars)		(0.7	)		(1.5	)

North American Natural Gas Hedging


	United States			Canada
Natural gas consumption		37	%		63	%
% of consumption hedged (2012)		62	%		44	%
Average prices (2012—2017)	US$	5.99/mmBtu		$	5.28/GJ
Fair value as at December 31, 2011 (in millions of Canadian dollars)		(10.2	)		(21.1	)

Cascades faces significant competition and some of its competitors may have greater cost advantages or be able to achieve greater economies of scale or be able to better withstand periods of declining prices and adverse operating conditions, which could negatively affect the Corporation’s market share and profitability.

The markets for the Corporation’s products are highly competitive. In some of its markets in which Cascades competes, particularly in tissue and boxboard, it competes with a small number of other producers. In some businesses, such as the containerboard industry, competition tends to be global. In others, such as the tissue industry, competition tends to be regional. In the Corporation’s packaging products segment, it also faces competition from alternative packaging materials, such as vinyl, plastic and styrofoam, which can lead to excess capacity, decreased demand and pricing pressures. Competition in the Corporation’s markets is primarily based on price as well as customer service and the quality, breadth and performance characteristics of its products. The Corporation’s ability to compete successfully depends on a variety of factors, including:


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			36

•

its ability to maintain high plant efficiencies, operating rates and lower manufacturing costs;

•

the availability, quality and cost of raw materials, particularly recycled and virgin fibre, and labour; and

•

the cost of energy.

Some of the Corporation’s competitors may, at times, have lower fibre, energy and labour costs, and less restrictive environmental and governmental regulations to comply with than Cascades does. For example, fully integrated manufacturers, which are those whose requirements for pulp or other fibre are met fully from their internal sources, may have some competitive advantages over manufacturers that are not fully integrated, such as Cascades, in periods of relatively high raw materials pricing, in that the former are able to ensure a steady source of these raw materials at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated than Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp or fibre at prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than Cascades is, which may allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions. In addition, there has been an increasing trend among the Corporation’s customers towards consolidation. With fewer customers in the market for the Corporation’s products, the strength of its negotiating position with these customers could be weakened, which could have an adverse effect on its pricing, margins and profitability.

To mitigate competition risk, Cascades’ targets are to offer quality products that meet customers’ needs at competitive prices and to provide good customer service.

c)	Because of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect its business, operating results, profitability and financial condition.

Cascades has customers and operations located outside Canada. In 2011, sales outside Canada represented approximately 60% of the Corporation’s consolidated sales, including 37% to the United States. In 2011, 29% of sales from Canadian operations were made to the United States.

The Corporation’s international operations present it with a number of risks and challenges, including:

•

the effective marketing of its products in other countries;

•

tariffs and other trade barriers; and

•

different regulatory schemes and political environments applicable to the Corporation’s operations, in areas such as environmental and health and safety compliance.

In addition, the Corporation’s consolidated financial statements are reported in Canadian dollars, while a portion of its sales is made in other currencies, primarily the U.S. dollar and the euro. The appreciation of the Canadian dollar against the U.S. dollar over the last few years has adversely affected the Corporation’s reported operating results and financial condition. This had a direct impact on export prices and also contributed to reducing Canadian dollar prices in Canada, because several of the Corporation’s product lines are priced in U.S. dollars. However, a substantial portion of the Corporation’s debt is also denominated in currencies other than the Canadian dollar.

The Corporation has senior notes outstanding and also some borrowings under its credit facility that are denominated in U.S. dollars and in euros in the amount of US$809 million and €98 million respectively.

Moreover, in some cases, the currency of the Corporation’s sales does not match the currency in which it incurs costs, which can negatively affect the Corporation’s profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility, where the facility faces competition from non-local producers, as well as the Corporation’s ability to successfully market its products in export markets. As a result, the continuing appreciation of the Canadian dollar can affect the profitability of the Corporation’s facilities, which could lead Cascades to shut down facilities either temporarily or permanently, all of which could adversely affect its business or financial results.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			37

To mitigate the risk of currency rises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations, which are partially covered by purchases and debt, management has implemented a policy for managing foreign exchange risk against the relevant functional currency.

The Corporation uses various foreign-exchange forward contracts and related currency option instruments to anticipate sales net of purchases, interest expenses and debt repayment. Gains or losses from the derivative financial instruments designated as hedges are recorded under “Accumulated other comprehensive income” and are reclassified under earnings in accordance with the hedge items.

Additional information on our North American foreign exchange hedging program is set out below:

North American foreign exchange hedging ¹


Sell contracts and options:	2012			2013			2013			2017
Total amount in millions of U.S. dollars		66			20			324			200
Estimated % of Sales, net of expenses from Canadian operations		25	%		8	%		n/a			n/a
Estimated % of US$ denominated debt		n/a			n/a			n/a			27	%
Average rate (CAN$)		1.0305			1.0250			1.1930			0.9987

Fair value as at December 31, 2011 (in millions of Canadian dollars)		0.7			0.0			(44.1	)		(7.6	)

1	See note 27 of the consolidated financial statements for more details on derivatives.

d)	The Corporation’s operations are subject to comprehensive environmental regulations and involve expenditures that may be material in relation to its operating cash flow.

The Corporation is subject to environmental laws and regulations imposed by the various governments and regulatory authorities in all countries in which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among other things:

•

air emissions;

•

water discharges;

•

use and handling of hazardous materials;

•

use, handling and disposal of waste; and

•

remediation of environmental contamination.

The Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) as well as to other applicable legislation in the United States, Canada and Europe that holds companies accountable for the investigation and remediation of hazardous substances. The Corporation’s European subsidiaries are also subject to the Kyoto protocol, aimed at reducing worldwide CO ₂ emissions. Each unit has been allocated emission rights (“CO ₂ quota”). On a calendar-year basis, the Corporation must buy the necessary credits to cover its deficit, on the open market, if its emissions are higher than quota.

The Corporation’s failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines, penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, the installation of pollution control equipment or remedial actions, any of which could entail significant expenditures. It is difficult to predict the future development of such laws and regulations, or their impact on future earnings and operations, but these laws and regulations may require capital expenditures to ensure compliance. In addition, amendments to, or more stringent implementation of, current laws and regulations governing the Corporation’s operations could have a material adverse effect on its business, operating results or financial position. Furthermore, although Cascades generally tries to plan for capital expenditures relating to environmental and health and safety compliance on an annual basis, actual capital expenditures may exceed those estimates. In such an event, Cascades may be forced to curtail other capital expenditures or other activities. In addition, the enforcement of existing environmental laws and regulations has become increasingly strict. The Corporation may discover currently unknown environmental problems or conditions in relation to its past or present operations, or may face unforeseen environmental liabilities in the future. These conditions and liabilities may:


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			38

•

require site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations; or

•

result in governmental or private claims for damage to person, property or the environment.

Either of these could have a material adverse effect on the Corporation’s financial condition or operating results.

Cascades may be subject to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and remediation of soil, surface and groundwater contamination, including contamination caused by other parties, at properties that it owns or operates, and at properties where the Corporation or its predecessors have arranged for the disposal of regulated materials. As a result, the Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. The Corporation may become involved in additional proceedings in the future, the total amount of future costs and other environmental liabilities of which could be material.

To date, the Corporation is in compliance, in all material respects, with all applicable environmental legislation or regulations. However, we expect to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable environmental requirements.

e)	Cascades may be subject to losses that might not be covered in whole or in part by its insurance coverage.

Cascades carries comprehensive liability, fire and extended coverage insurance on most of its facilities, with policy specifications and insured limits customarily carried in its industry for similar properties. The cost of the Corporation’s insurance policies has increased over the past few years. In addition, some types of losses, such as losses resulting from wars, acts of terrorism or natural disasters, are generally not insured because they are either uninsurable or not economically practical. Moreover, insurers have recently become more reluctant to insure against these types of events. Should an uninsured loss or a loss in excess of insured limits occur, Cascades could lose capital invested in that property, as well as the anticipated future revenues derived from the manufacturing activities conducted at that property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any such loss could adversely affect its business, operating results or financial condition.

To mitigate the risk subject to insurance coverage, the Corporation reviews its strategy annually with the Board of Directors and is seeking different alternatives to achieve more efficient forms of insurance coverage, at the lowest costs possible.

f)	Labour disputes could have a material adverse effect on the Corporation’s cost structure and ability to run its mills and plants.

As at December 31, 2011, the Corporation had approximately 12,150 employees, of whom approximately 10,000 were employees of its Canadian and United States operations. Approximately 43% of the Corporation’s employees are unionized under 43 separate collective bargaining agreements. In addition, in Europe, some of the Corporation’s operations are subject to national industry collective bargaining agreements that are renewed on an annual basis. The Corporation’s inability to negotiate acceptable contracts with these unions upon expiration of an existing contract could result in strikes or work stoppages by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or another form of work stoppage, Cascades could experience a significant disruption in operations or higher labour costs, which could have a material adverse effect on its business, financial condition, operating results and cash flow. Of the Corporation’s 43 collective bargaining agreements in North America, 15 will expire in 2012 and 7 more in 2013. The Corporation generally begins the negotiation process several months before agreements are due to expire and is currently in the process of negotiating with the unions where the agreements have expired or will soon expire. However, Cascades may not be successful in negotiating new agreements on satisfactory terms, if at all.

g)	Cascades may make investments in entities that it does not control and may not receive dividends or returns from those investments in a timely fashion or at all.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			39

Cascades has established joint ventures and made minority interest investments to increase its vertical integration, enhance customer service and increase efficiencies in its marketing and distribution in the United States and other markets. The Corporation’s principal joint ventures and minority investments include:

•

three 50%-owned joint ventures with Sonoco Products Corporation, two of which are in Canada and one in the United States, that produce specialty paper packaging products such as headers, rolls and wrappers;

•

a 73%-owned interest in Cascades Recovery Inc., a Canadian operator of wastepaper recovery and recycling operations;

•

a 35% interest in Boralex Inc., a Canadian public corporation and a major electricity producer whose core business is the development and operation of power stations that generate renewable energy, with operations in Canada, the northeastern United States and France; and

•

a 44.31%-owned joint venture interest in RdM, a European manufacturer of recycled boxboard.

Apart from Cascades Recovery, Cascades does not have effective control over these entities. The Corporation’s inability to control entities in which it invests may affect its ability to receive distributions from those entities or to fully implement its business plan. The incurrence of debt or entrance into other agreements by an entity not under the Corporation’s control may result in restrictions or prohibitions on that entity’s ability to pay distributions to the Corporation. Even where these entities are not restricted by contract or by law from paying dividends or making distributions to Cascades, the Corporation may not be able to influence the making or timing of these dividends or distributions. In addition, if any of the other investors in a non-controlled entity fails to observe its commitments, the entity may not be able to operate according to its business plan or Cascades may be required to increase its level of commitment. If any of these events were to transpire, the Corporation’s business, operating results, financial condition and ability to make payments on the Notes could be adversely affected.

In addition, the Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments. Some of these agreements contain “shotgun” provisions, which provide that if one shareholder offers to buy all the shares owned by the other parties to the agreement, the other parties must either accept the offer or purchase all the shares owned by the offering shareholder at the same price and conditions. Some of the agreements also provide that in the event that a shareholder is subject to bankruptcy proceedings or otherwise defaults on any indebtedness, the non-defaulting parties to that agreement are entitled to invoke the shotgun provision or sell their shares to a third party. The Corporation’s ability to purchase the other shareholders’ interests in these joint ventures if they were to exercise these shotgun provisions could be limited by the covenants in the Corporation’s credit facility and the indenture. In addition, Cascades may not have sufficient funds to accept the offer or the ability to raise adequate financing should the need arise, which could result in the Corporation having to sell its interests in these entities or otherwise alter its business plan.

On September 13, 2007, we entered into a Combination Agreement with RdM, a publicly traded Italian corporation that is the second largest recycled boxboard producer in Europe. The Combination Agreement was amended on June 12, 2009. It provides, among other things, that RdM and Cascades are granted an irrevocable call option or put option, respectively, to purchase two European virgin boxboard mills of Cascades (the “Virgin Assets”). RdM may exercise its call option 120 days after delivery of Virgin Assets Financials for the year ended December 31, 2011, by Cascades to RdM. Cascades may exercise its put option 120 days after delivery of Virgin Assets Financials for the year ended December 31, 2012, by Cascades to RdM. The call option price shall be equal to 6.5 times the 2011 audited EBITDA of the Virgin Assets as per the Virgin Assets Financials at December 31, 2011. The put option price shall be equal to 6 times the 2012 audited EBITDA of the Virgin Assets as per the Virgin Assets Financials for the year ended December 31, 2012. Cascades Europe is also granted the right to require that all of the call option price or put option price, as the case may be, be paid in newly issued ordinary shares of RdM.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			40

Acquisitions have been and are expected to continue to be a substantial part of the Corporation’s growth strategy, which could expose the Corporation to difficulties in integrating the acquired operation, diversion of management time and resources, and unforeseen liabilities, among other business risks.

Acquisitions have been a significant part of the Corporation’s growth strategy. Cascades expects to continue to selectively seek strategic acquisitions in the future. The Corporation’s ability to consummate and to integrate effectively any future acquisitions on terms that are favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources and, to the extent necessary, its ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation to additional risks, including:

•

difficulty in integrating and managing newly acquired operations and in improving their operating efficiency;

•

difficulty in maintaining uniform standards, controls, procedures and policies across all of the Corporation’s businesses;

•

entry into markets in which Cascades has little or no direct prior experience;

•

the Corporation’s ability to retain key employees of the acquired Corporation;

•

disruptions to the Corporation’s ongoing business; and

•

diversion of management time and resources.

In addition, future acquisitions could result in Cascades incurring additional debt to finance the acquisition or possibly assuming additional debt as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert management attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected synergies may not materialize. The Corporation’s failure to effectively address any of these issues could adversely affect its operating results, financial condition and ability to service debt, including its outstanding senior notes.

Although Cascades generally performs a due diligence investigation of the businesses or assets that it acquires, and anticipates continuing to do so for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor, or other reasons.

i)	The Corporation undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a material adverse effect.

IFRS requires that Cascades regularly undertake impairment tests of long-lived assets and goodwill to determine whether a write-down of such assets is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the Corporation’s reported earnings. Further, a reduction in the Corporation’s asset value could have a material adverse effect on the Corporation’s compliance with total debt to capitalization tests under its current credit facilities and, as a result, limit its ability to access further debt capital.

j)	Certain Cascades insiders collectively own a substantial percentage of the Corporation’s common shares.

Messrs. Bernard, Laurent and Alain Lemaire (“the Lemaires”) collectively own 33.1% of the common shares (94,647,165), and there may be situations in which their interests and the interests of other holders of common shares will not be aligned. Because the Corporation’s remaining common shares are widely held, the Lemaires may be effectively able to:


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			41

•

elect all of the Corporation’s directors and, as a result, control matters requiring Board approval;

•

control matters submitted to a shareholder vote, including mergers, acquisitions and consolidations with third parties, and the sale of all or substantially all of the Corporation’s assets; and

•

otherwise control or influence the Corporation’s business direction and policies.

In addition, the Lemaires may have interests in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance the value of their equity investment, even though the transactions might involve increased risk to the holders of the common shares.

k)	If Cascades is not successful in retaining or replacing its key personnel, particularly if the Lemaires do not stay active in the Corporation’s business, its business, financial condition or operating results could be adversely affected.

The Lemaires are key to the Corporation’s management and direction. Although Cascades believes that the Lemaires will remain active in the business and that Cascades will continue to be able to attract and retain other talented personnel and replace key personnel should the need arise, competition in recruiting replacement personnel could be significant. However, the appointment of Mario Plourde, in February 2011, as new Chief Operating Officer (COO) is a part of the transition process. The new COO has more than 25 years of seniority within the Corporation. Cascades does not carry key man insurance on the Lemaires or any other members of its senior management.

l)	Risks relating to the Corporation’s indebtedness and liquidity.

The significant amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its obligations under its outstanding indebtedness . The Corporation has a significant amount of debt. As of December 31, 2011, it had $1.497 billion in outstanding debt on a consolidated basis, including capital-lease obligations. The Corporation also had approximately $540 million available under its revolving credit facility and those of its subsidiaries. On the same basis, its consolidated ratio of total debt to capitalization as of December 31, 2011, was 59.3%. The Corporation’s actual financing expense for 2011 was $100 million. Cascades also has significant obligations under operating leases, as described in its audited consolidated financial statements that are incorporated by reference herein.

On February 10, 2011, the Corporation entered into an agreement to amend and extend, for 4 years, its existing bank credit agreement. Under the terms of the amendment, the existing financial covenants will remain unchanged. As a result of the amendment, the interest rate applicable to borrowings outstanding will be reduced from 2.750% to 2.125%. Also, the amendment did not include the renewal of the term loan in the amount of $100 million as it was repaid in full on December 30, 2010.

In 2009, the Corporation refinanced a portion of its long-term debt to extend its maturity profile from 2013 to 2016, 2017 and 2020.

The Corporation has outstanding senior notes rated by Moody’s Investor Service (“Moody’s”) and Standard & Poor’s (“S&P”).

The following table reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating as at the date on which this MD&A was approved by the Board of Directors, and the evolution of these ratings compared to past years:


Credit Rating (outlook)	Moody’s	Standard & Poor’s

2004	Ba1/Ba2/Ba3 (stable)	BBB-/BB+/BB+ (negative)

2005–2006	Ba1/Ba2/Ba3 (stable)	BB+/BB/BB-(negative)

2007	Baa3/Ba2/Ba3 (stable)	BBB-/BB/BB-(stable)

2008	Baa3/Ba2/Ba3 (negative)	BB+/BB-/B+ (negative)

2009–2010	Baa3/Ba2/Ba3 (stable)	BB+/BB-/B+ (stable)

2011	Baa3/Ba2/Ba3 (stable)	BB+/BB-/B+ (positive)


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			42

This facility is in place with a core group of highly rated international banks. The Corporation may decide to enter into certain derivative instruments to reduce interest rates and foreign exchange exposure.

The Corporation’s leverage could have major consequences for holders of its common shares. For example, it could:

•

make it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness;

•

increase the Corporation’s vulnerability to competitive pressures and to general adverse economic or market conditions and require it to dedicate a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

•

limit its flexibility in planning for, or reacting to, changes in its business and industry; and

•

limit its ability to obtain additional sources of financing.

Cascades may incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as described above. Even though we are substantially leveraged, we and our subsidiaries will be able to incur substantial additional indebtedness in the future. Although our credit facility and the indentures governing the notes restrict us and our restricted subsidiaries from incurring additional debt, these restrictions are subject to important exceptions and qualifications. If we or our subsidiaries incur additional debt, the risks that we and they now face as a result of our leverage could intensify.

The Corporation’s operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react to market conditions, or to meet its capital needs. The Corporation’s credit facilities and the indenture governing its senior notes include a number of significant restrictive covenants. These covenants restrict, among other things, the Corporation’s ability to:

•

borrow money;

•

pay dividends on stock or redeem stock or subordinated debt;

•

make investments;

•

sell capital stock in subsidiaries;

•

guarantee other indebtedness;

•

enter into agreements that restrict dividends or other distributions from restricted subsidiaries;

•

enter into transactions with affiliates;

•

create or assume liens;

•

enter into sale and leaseback transactions;

•

engage in mergers or consolidations; and

•

enter into a sale of all or substantially all of our assets.

These covenants could limit the Corporation’s ability to plan for or react to market conditions, or to meet its capital needs. The Corporation’s current credit facility contains other, more restrictive covenants, including financial covenants that require it to achieve certain financial and operating results and maintain compliance with specified financial ratios. The Corporation’s ability to comply with these covenants and requirements may be affected by events beyond its control, and it may have to curtail some of its operations and growth plans to maintain compliance.

The restrictive covenants contained in the Corporation’s senior note indenture along with the Corporation’s credit facility do not apply to its joint ventures. However, for financial reporting purposes, Cascades consolidates these entities’ results and financial position based on its proportionate ownership interest.

The Corporation’s failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a result of events beyond its control or due to other factors, could result in an event of default that could cause accelerated repayment of the debt . If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or its other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger a default under its other debt instruments, Cascades could be prohibited from accessing additional borrowings and the holders of the defaulted debt could declare amounts outstanding with respect to that debt, which would then be immediately due and payable. The Corporation’s assets


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			43

and cash flow may not be sufficient to fully repay borrowings under its outstanding debt instruments. In addition, the Corporation may not be able to refinance or restructure the payments on the applicable debt. Even if the Corporation were able to secure additional financing, it may not be available on favourable terms. A significant or prolonged downtime in general business and difficult economic conditions may affect the Corporation’s ability to comply with its covenants and could require it to take actions to reduce its debt or to act in a manner contrary to its current business objectives.

m)	Cascades is a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt service obligations.

Cascades is structured as a holding corporation, and its only significant assets are the capital stock or other equity interests in its subsidiaries, joint ventures and minority investments. As a holding corporation, Cascades conducts substantially all of its business through these entities. Consequently, the Corporation’s cash flow and ability to service its debt obligations are dependent on the earnings of its subsidiaries, joint ventures and minority investments, and the distribution of those earnings to Cascades, or on loans, advances or other payments made by these entities to Cascades. The ability of these entities to pay dividends or make other payments or advances to Cascades will depend on their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their debt. In the case of the Corporation’s joint ventures and minority investments, Cascades may not exercise sufficient control to cause distributions to itself. Although its credit facility and the indenture respectively limit the ability of its restricted subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to the Corporation, these limitations do not apply to its joint ventures or minority investments. The limitations are also subject to important exceptions and qualifications. The ability of the Corporation’s subsidiaries to generate cash flow from operations that is sufficient to allow the Corporation to make scheduled payments on its debt obligations will depend on their future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of the Corporation’s control. If the Corporation’s subsidiaries do not generate sufficient cash flow from operations to satisfy the Corporation’s debt obligations, Cascades may have to undertake alternative financing plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Refinancing may not be possible, and any assets may not be able to be sold, or, if they are sold, Cascades may not realize sufficient amounts from those sales. Additional financing may not be available on acceptable terms, if at all, or the Corporation may be prohibited from incurring it, if available, under the terms of its various debt instruments in effect at the time. The Corporation’s inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on its business, financial condition and operating results. The earnings of the Corporation’s operating subsidiaries and the amount that they are able to distribute to the Corporation as dividends or otherwise may not be adequate for the Corporation to service its debt obligations.

n)	Risks related to the common shares.

The market price of the common shares may fluctuate, and purchasers may not be able to resell the common shares at or above the purchase price. The market price of the common shares may fluctuate due to a variety of factors relative to the Corporation’s business, including announcements of new developments, fluctuations in the Corporation’s operating results, sales of the common shares in the marketplace, failure to meet analysts’ expectations, general conditions in all of our segments, or the worldwide economy. In recent years, the common shares, the stock of other companies operating in the same sectors and the stock market in general have experienced significant price fluctuations, which have been unrelated to the operating performance of the affected companies. There can be no assurance that the market price of the common shares will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to the Corporation’s performance.

o)	Cash-flow and fair-value interest rate risks.

As the Corporation has no significant interest-bearing assets, its earnings and operating cash flows are substantially independent of changes in market interest rates.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			44

The Corporation’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to a cash-flow interest rate risk. Borrowings issued at a fixed rate expose the Corporation to a fair-value interest rate risk.

p)	Credit risk.

The Corporation is exposed to credit risk on accounts receivable from its customers. In order to reduce this risk, the Corporation’s credit policies include the analysis of a customer’s financial position and a regular review of its credit limits. The Corporation also believes that no particular concentration of credit risks exists due to the geographic diversity of its customers and the procedures in place for managing commercial risks. Derivative financial instruments include an element of credit risk, should the counterparty be unable to meet its obligations.

q)	Enterprise Resource Planning (ERP) implementation.

The Corporation decided to modernize its financial information system with the implementation of an integrated Enterprise Resource Planning (ERP) system. The Corporation identified the risks associated with said project and adopted a step-by-step plan to address any risks related to the implementation process. The Corporation dedicated a project team and required corporate oversight with the appropriate skills and knowledge and retained the services of consultants to provide expertise and training. Supported by senior management and key personnel, the Corporation undertook a detailed analysis of its requirements during 2010, and in November of 2010 successfully completed a pilot project in one of its plant. The project team has finalized a detailed blueprint for its manufacturing operations and implemented the solution in one of its Tissue Group units at the beginning of November 2011. The project team is continuing to review the blueprint and programming related to its converting operations and to evaluate its deployment strategy for the coming years, including the human and capital resources required for the project.


CASCADES 2011 ANNUAL REPORT MANAGEMENT’S DISCUSSION & ANALYSIS			45

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the inclusion in this Annual Report on Form 40-F as at December 31, 2011 and 2010 and January 1, 2010 and for the years ended December 31, 2011 and 2010 of Cascades Inc. of our report dated March 19, 2012, relating to the consolidated financial statements, which appears in the Exhibit incorporated by reference in this Annual Report.

We also consent to reference to us under the heading “Interests of Experts” in the Annual Information Form incorporated by reference in this Annual Report on Form 40-F which is incorporated by reference in such Registration Statement.

/s/ PricewaterhouseCoopers LLP ¹

Montréal, Canada

March 29, 2012

¹ Chartered accountant auditor permit no. 12300

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER IN ACCORDANCE

WITH SECTION 302 OF THE SARBANES – OXLEY ACT OF 2002

I, Alain Lemaire, certify that:

I have reviewed this annual report on Form 40-F of Cascades Inc.;

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;

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 officers 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 period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) 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: March 29, 2012

/s/ Alain Lemaire


		Alain Lemaire
		Chief Executive Office

- 2 -

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER IN ACCORDANCE

WITH SECTION 302 OF THE SARBANES – OXLEY ACT OF 2002

I, Allan Hogg, certify that:

I have reviewed this annual report on Form 40-F of Cascades Inc.;

The registrant’s other certifying officer(s) 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:

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: March 29, 2012

/s/ Allan Hogg


		Allan Hogg
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND

OF THE CHIEF FINANCIAL OFFICER IN ACCORDANCE

WITH SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

In accordance with Section 906 of the Sarbanes Oxley Act of 2002, each of the undersigned officers of Cascades Inc. (the “Corporation”), does hereby certify, to such officer’s knowledge, that:

1)	the Annual Report on Form 40-F (the “Report”) for the year ended December 31, 2011 of the Corporation as filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated March 29, 2012



		/s/ Alain Lemaire

		Name: Alain Lemaire
		Title: President and Chief Executive Officer



		/s/ Allan Hogg

		Name: Allan Hogg
		Title: Vice — President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.