SUMMARY VOTING INSTRUCTIONS

 

Meeting		Holder		Proxy/Voting Instruction Form		Where Can I Find My Proxy?
Abitibi Meeting		Registered Shareholder Non-Registered Shareholder		BLUE Proxy Form Broker Voting Instruction Form		Attached to this Document Sent by or obtained from Broker
Bowater Meeting		Registered Common Stockholder Registered Exchangeable Shareholder Non-Registered Common Stockholder Non-Registered Exchangeable Shareholder		PINK Proxy Card GREEN Trustee Voting Instruction Form Broker Voting Instruction Card Broker Voting Instruction Form		Attached to this Document Attached to this Document Sent by or obtained from Broker Sent by or obtained from Broker
Bowater Canada Meeting		Registered Exchangeable Shareholder Non-Registered Exchangeable Shareholder		YELLOW Proxy Form Broker Voting Instruction Form		Attached to this Document Sent by or obtained from Broker

IF YOU ARE AN ABITIBI SHAREHOLDER AND YOU SUPPORT THE COMBINATION, YOU SHOULD:

Ensure that your shares can be voted at the Abitibi Meeting by submitting your proxy form or broker voting instruction form or contacting your broker or other nominee.

 

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If your Abitibi common shares are registered in the name of your broker or other nominee: contact your broker or other nominee in order to obtain directions as to how to ensure that your shares are voted FOR the adoption of the special resolution approving the plan of arrangement and the combination agreement and to receive a broker voting instruction form.

 

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If your Abitibi common shares are registered in your name: submit your proxy form on or prior to [            ], 2007 by telephone, via the Internet or by signing, dating and returning the enclosed BLUE proxy form in the envelope provided (which must be received on or prior to [            ], 2007), so that your shares can be voted FOR the adoption of the special resolution approving the plan of arrangement and the combination agreement (instructions regarding telephone and Internet voting are included on the proxy form).

IF YOU ARE A BOWATER COMMON STOCKHOLDER OR A HOLDER OF BOWATER CANADA EXCHANGEABLE SHARES AND YOU SUPPORT THE COMBINATION, YOU SHOULD:

Ensure that your shares can be voted at the Bowater Meeting by submitting your proxy card, trustee voting instruction form or broker voting instruction card or form or contacting the trustee, your broker or other nominee.

 

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If your shares of Bowater common stock or Bowater Canada exchangeable shares are registered in the name of your broker or other nominee: contact your broker or other nominee in order to obtain directions as to how to ensure that your shares are voted FOR the combination agreement and the merger and to receive a broker voting instruction card or form.

 

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If your shares of Bowater common stock are registered in your name: submit your proxy card on or prior to [            ], 2007 by telephone, via the Internet or by signing, dating and returning the enclosed PINK proxy card in the envelope provided (which must be received on or prior to [            ], 2007), so that your shares can be voted FOR the combination agreement and the merger (instructions regarding telephone and Internet voting are included on the proxy card).

 

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If your Bowater Canada exchangeable shares are registered in your name: you must submit your voting instructions to Computershare Trust Company of Canada, as trustee under a voting and exchange trust agreement, on or prior to [            ], 2007 by telephone, via the Internet or by completing, signing, dating and returning the enclosed GREEN trustee voting instruction form in the envelope provided (which must be received by 5:00 p.m. (local time) on [            ], 2007) in order to instruct the trustee as to how to vote your Bowater Canada exchangeable shares (instructions regarding telephone and Internet voting are included on the trustee voting instruction form).

IF YOU ARE A HOLDER OF BOWATER CANADA EXCHANGEABLE SHARES AND YOU ARE IN FAVOR OF THE BOWATER CANADA ARTICLES OF AMENDMENT, YOU SHOULD:

Ensure that your shares can be voted at the Bowater Canada Meeting by submitting your proxy form or broker voting instruction form or contacting your broker or other nominee.

 

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If your Bowater Canada exchangeable shares are registered in the name of your broker or other nominee: contact your broker or other nominee in order to obtain directions as to how to ensure that your shares are voted FOR the adoption of the special resolution approving the Bowater Canada articles of amendment and to receive a broker voting instruction form.

 

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If your Bowater Canada exchangeable shares are registered in your name: submit your proxy form on or prior to [            ], 2007 by telephone, via the Internet or by signing, dating and returning the enclosed YELLOW proxy form in the envelope provided (which must be received on or prior to [            ], 2007), so that your shares can be voted FOR the adoption of the special resolution approving the Bowater Canada articles of amendment (instructions regarding telephone and Internet voting are included on the proxy form).

 

THE PROXY SOLICITOR FOR THE COMBINATION IN CANADA AND OTHER COUNTRIES OUTSIDE THE UNITED STATES IS:		THE PROXY SOLICITOR FOR THE COMBINATION IN THE UNITED STATES IS:
Kingsdale Shareholder Services Inc. The Exchange Tower 130 King Street West Suite 2950, P.O. Box 361 Toronto, Ontario Canada M5X 1E2		Innisfree M&A Incorporated 501 Madison Avenue, 20th Floor New York, New York 10022 United States of America
Any questions and requests for assistance by Abitibi shareholders, Bowater stockholders or holders of Bowater Canada exchangeable shares resident in Canada or other countries outside the U.S. should be directed to Kingsdale Shareholder Services Inc. at the telephone numbers set out below:		Any questions and requests for assistance by Abitibi shareholders, Bowater stockholders or holders of Bowater Canada exchangeable shares resident in the U.S. should be directed to Innisfree M&A Incorporated at the telephone numbers set out below:
Canada Toll Free Telephone:   (866) 639-7993 (English/French)     Banks and Brokers Call Collect: (416) 867-2272		United States Toll Free Telephone:   (877) 825-8730 (English) (877) 825-8777 (French)   Banks and Brokers Call Collect: (212) 750-5833

Holders of Bowater Canada exchangeable shares may also contact Computershare Trust Company of Canada, Bowater Canada’s transfer agent and registrar, at (800) 564-6253 or (514) 982-7555.

 

 FORWARD-LOOKING STATEMENTS

This document, including information incorporated by reference in this document (see “Where You Can Find Additional Information”), contains certain statements that are not historical facts and are forward-looking statements because they are based on management’s beliefs, certain assumptions and current expectations with respect to the financial condition, results of operations, plans, objectives, future performance and businesses of each of Abitibi, Bowater and AbitibiBowater, as well as certain statements relating to the combination. These forward-looking statements include, without limitation:

 

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statements regarding the expected timetable for completing the combination, or the achievement of significant benefits or synergies from the combination and the manner in which we expect to achieve them, in particular an estimated US$250 million (C$295 million) of annualized cost synergies within two years;

 

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statements relating to the future financial and operating results of AbitibiBowater and statements relating to revenue, income and operations of AbitibiBowater after the combination;

 

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statements relating to our plans, objectives, expectations and intentions regarding AbitibiBowater’s products and the future development of AbitibiBowater’s business;

 

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statements relating to our ability to secure necessary regulatory and shareholder approvals for the combination;

 

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statements regarding our ability to generate expected synergies and efficiencies, improve our financial profile, become more competitive, improve product quality and breadth, develop new products and better serve our customers; and

 

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other statements identified by the use of forward-looking terminology such as the words “expects,” “projects,” “intends,” “believes,” “anticipates” and other terms with similar meanings indicating possible future events or actions or potential impact on the business or shareholders of Abitibi and the business or stockholders of Bowater.

The managements of Abitibi and Bowater believe that these forward-looking statements are reasonable; however, you should not place undue reliance on these statements, as they are based on our managements’ current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

 

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the risk factors described under “Risk Factors;”

 

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the ability to obtain required governmental or third-party approvals of, or non-objections to, the combination on the proposed terms and timetable and without material concessions and the effect of any conditions, restrictions or concessions imposed on, or proposed with respect to, AbitibiBowater by regulators;

 

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the cost savings and other expected synergies from the combination may not be fully realized or may take longer to realize than expected;

 

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the businesses may not be integrated successfully or the anticipated improved financial performance, product quality and development may not be achieved, the costs or difficulties related to the integration of the businesses of Abitibi and Bowater may be greater than expected or disruptions from the combination may make it more difficult to maintain relationships with customers, employees and suppliers;

 

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other demand and supply developments within the industry or other factors may limit our ability to improve our competitive position;

 

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AbitibiBowater may obtain credit on less favorable terms than those available to Abitibi or Bowater individually;

 

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the determination that the combination constitutes a change in control under the change in control and severance agreements between Bowater and its executive officers, directors, key employees and affiliates resulting in the payment of change in control or severance payments in amounts greater than currently anticipated;

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the failure of our shareholders and stockholders to approve the combination or the exercise by a material percentage of Abitibi shareholders of their dissent rights;

 

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general economic conditions, either internationally, nationally or in the jurisdictions in which Abitibi and Bowater are doing business, may be less favorable than expected;

 

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there may be environmental risks and liabilities under U.S. federal and state, Canadian federal and provincial and foreign environmental laws and regulations; and

 

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changes may occur in the Canadian or U.S. securities markets or in the currency markets in general or fluctuations may occur in the Canadian and U.S. currencies.

Additional factors that could cause AbitibiBowater’s results to differ materially from those described in the forward-looking statements can be found in the periodic reports filed by Abitibi and Bowater with the SEC and the Canadian securities regulatory authorities.

 

 QUESTIONS AND ANSWERS ABOUT THE COMBINATION AND THE MEETINGS

 GENERAL QUESTIONS AND ANSWERS

Q:    What are Abitibi and Bowater proposing?

A:    Abitibi and Bowater are proposing to combine the two companies in a merger of equals to create AbitibiBowater, a Delaware corporation. We refer to the combination as a “merger of equals” because:

 

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the exchange ratios reflect the approximate respective market capitalizations of Abitibi and Bowater during the period prior to the announcement of the combination with no significant premium received by either company’s shareholders,

 

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following the combination Abitibi’s shareholders and Bowater’s stockholders (including the holders of Bowater Canada exchangeable shares) will collectively have relatively equal ownership of AbitibiBowater, and

 

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there will be an equal number of directors from each of Abitibi and Bowater comprising AbitibiBowater’s new Board of Directors.

On January 29, 2007, Abitibi, Bowater, AbitibiBowater, Alpha-Bravo Merger Sub Inc., a newly formed Delaware corporation and a wholly owned subsidiary of AbitibiBowater, which we refer to as “Merger Sub,” and Bowater Canada entered into a combination agreement, providing for the combination of Abitibi and Bowater under AbitibiBowater by means of a merger under Delaware law and a plan of arrangement to be submitted for approval by the Superior Court, District of Montreal, Province of Quebec. On May 7, 2007, Abitibi, Bowater, AbitibiBowater, Merger Sub and Bowater Canada entered into a first amendment to the combination agreement, which we refer to as the “first amendment to the combination agreement,” in order to provide for a limit on the number of Bowater Canada exchangeable shares that Bowater Canada will issue to eligible Abitibi shareholders. In this document, we refer to the combination agreement described above, as amended by the first amendment to the combination agreement, as the “combination agreement,” unless otherwise indicated or required by the context in which such reference is made. Following completion of the combination, each of Abitibi and Bowater will continue to exist as subsidiaries of AbitibiBowater.

Q:    What are the steps to the combination and what will I receive in the combination?

A:    The following steps of the combination and the issuance of consideration in the combination will be carried out in accordance with, and subject to the terms and conditions of, the combination agreement, the plan of arrangement and the other documents referred to in the combination agreement:

 

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Merger Sub will merge with and into Bowater. After completion of the merger, Bowater will be a subsidiary of AbitibiBowater. In the merger, stockholders of Bowater will receive 0.52 of a share of common stock of AbitibiBowater, which we refer to as the “Bowater exchange ratio,” in exchange for each share of common stock of Bowater they own. We refer to this transaction as the “merger.” We anticipate that pursuant to the merger AbitibiBowater will issue to the former stockholders of Bowater (or reserve for issuance to current holders of Bowater Canada exchangeable shares) approximately [            ] shares of AbitibiBowater common stock.

 

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Except as described in the following sentence, each issued and outstanding Abitibi common share will be transferred to AbitibiBowater in exchange for 0.06261 of a share of AbitibiBowater common stock, which we refer to as the “Abitibi exchange ratio.” In addition, certain Canadian resident holders of Abitibi common shares may elect to receive, in lieu of shares of AbitibiBowater common stock, 0.06261 of a share of Bowater Canada exchangeable shares, which will be exchangeable for shares of AbitibiBowater common stock. We refer to this transaction as the “arrangement.” We cannot predict how many eligible Abitibi shareholders will elect to receive Bowater Canada exchangeable shares. We

 

anticipate that in the arrangement, AbitibiBowater will issue to the former shareholders of Abitibi (or reserve for issuance to former Abitibi shareholders who elect to receive Bowater Canada exchangeable shares) approximately [            ] shares of AbitibiBowater common stock.

 

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Bowater will cause Bowater Canada to amend its articles of incorporation. We refer to these amendments as the “Bowater Canada articles of amendment.” The purpose of the Bowater Canada articles of amendment is to:

 

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change Bowater Canada’s name to “AbitibiBowater Canada Inc.,”

 

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effect a share consolidation with the result that each issued and outstanding Bowater Canada exchangeable share will be changed into 0.52 of a Bowater Canada exchangeable share, which is the same exchange ratio as the Bowater exchange ratio,

 

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amend the provisions governing the Bowater Canada exchangeable shares to extend the date prior to which the directors of Bowater Canada may not, unless there are fewer than 500,000 Bowater Canada exchangeable shares outstanding or there is a proposed change-in-control transaction with respect to AbitibiBowater, cause the redemption of the Bowater Canada exchangeable shares, from June 30, 2008 to June 30, 2018, and

 

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amend the provisions governing the Bowater Canada exchangeable shares to clarify that the Bowater Canada exchangeable shares will become exchangeable for shares of AbitibiBowater common stock, instead of being exchangeable for shares of Bowater common stock, and to make other conforming changes required to give effect to the combination.

Neither AbitibiBowater nor Bowater Canada will issue fractional shares to shareholders in connection with the combination, including the Bowater Canada articles of amendment. Shareholders will receive cash, without interest, equal to the shareholder’s pro rata portion of the net proceeds after expenses received upon the sale of whole shares representing the accumulation of all fractional interests in the shares to which all shareholders are entitled.

Q:    How do the Abitibi and Bowater Boards of Directors recommend that I vote regarding the combination?

A:    Abitibi’s Board of Directors unanimously recommends that Abitibi’s shareholders vote FOR the adoption of the special resolution approving the plan of arrangement and the combination agreement. Bowater’s Board of Directors unanimously recommends that Bowater stockholders and holders of Bowater Canada exchangeable shares vote FOR the approval and adoption of the combination agreement and the merger.

Q:    Why are Abitibi and Bowater proposing to combine?

A:    The Abitibi and Bowater Boards of Directors have concluded that the combination offers significant benefits to our shareholders and stockholders. For a discussion of the factors considered by the Abitibi and Bowater Boards of Directors, see “The Combination—Factors Considered by the Abitibi Board of Directors,” and “The Combination—Factors Considered by the Bowater Board of Directors.” AbitibiBowater will have pro forma annual revenues of approximately US$7.8 billion (C$9.1 billion), making it the third largest publicly traded paper and forest products company in North America and the eighth largest in the world. AbitibiBowater’s product lines will include newsprint, uncoated and coated commercial printing papers, market pulp and wood products. AbitibiBowater will also be one of North America’s largest recyclers of newspapers and magazines. AbitibiBowater will own or operate 32 pulp and paper facilities and 35 wood product facilities located mainly in Eastern Canada and the Southeastern U.S. For the year ended December 31, 2006, pro forma combined pulp and paper production capacity was approximately 11.3 million metric tons per year and pro forma combined lumber capacity was approximately 3.1 billion board feet of lumber. The combination is expected to generate approximately US$250 million (C$295 million) of annualized cost synergies within two years from improved

 

efficiencies in such areas as production, selling, general and administrative (SG&A) costs and distribution and procurement, in addition to cost saving initiatives already underway at both companies. For more information, see “The Combination—Estimated Cost Synergies.”

Q:    What will be the name of the combined company after the combination?

A:    After the completion of the combination, the name of the new public company will be “AbitibiBowater Inc.”

Q:    Are there risks I should consider in deciding whether to vote for the combination?

A:    Yes. The combination is subject to a number of risks and uncertainties. Before deciding whether to vote for or against the combination, you should carefully consider the risks set forth in “Risk Factors” and other information included or incorporated by reference in this document.

Q:    What is the aggregate amount of change in control, compensatory and severance payments and other benefits that the executive officers, directors, key employees and affiliates of Abitibi and Bowater will receive as a result of the combination?

A:    Abitibi: The aggregate amount of change in control, compensatory and severance payments and other benefits that the executive officers, directors, key employees and affiliates of Abitibi could receive as a result of the combination is approximately C$46,290,728. With respect to certain change in control severance benefits, the foregoing amount assumes that each such individual’s employment is terminated at or following the consummation of the combination under circumstances entitling them to receive such severance payments and benefits. Accordingly, Abitibi’s estimates of these amounts are based on a number of assumptions, and are subject to contingencies that may or may not occur; therefore, these estimates may not reflect actual payouts of change in control or severance payments after completion of the combination. For more information, see “The Combination—Interests of Abitibi’s Directors and Management in the Combination.”

Bowater: It is the position of Bowater that the combination does not constitute a change in control under any change in control or severance agreement between Bowater and its executive officers, directors, key employees or affiliates. The aggregate amount of compensatory and severance payments and other benefits that such individuals could receive as a result of the combination (which does not include change in control payments) is approximately US$15,830,837. The foregoing aggregate amount assumes that, with respect to estimated severance payments, each such individual’s employment is terminated at or following the consummation of the combination under circumstances entitling them to receive such severance payments or other benefits and, with respect to the vesting of certain restricted stock units, that the combined company attains certain post-combination synergies during the two-year period following the combination. Accordingly, Bowater’s estimates of these amounts are based on a number of assumptions, and are subject to contingencies that may or may not occur, including such assumptions and contingencies set forth above, among others; therefore, the estimates may not reflect the actual payouts of change in control or severance payments or other benefits after the completion of the combination. For more information, see “The Combination—Interests of Bowater’s Directors and Management in the Combination” and “Additional Information Relating to the Bowater Annual Meeting—Executive Compensation—Severance and Change in Control Arrangements.”

Q:    What are the Canadian and U.S. federal income tax consequences of the combination to holders of Abitibi common shares and Bowater common stock?

A:    Holders of Abitibi Common Shares

Canadian Residents. The exchange of Abitibi common shares for AbitibiBowater common stock or Bowater Canada exchangeable shares generally will be a taxable event to a Canadian resident shareholder. However, if

you are an eligible shareholder and exchange all or a portion of your Abitibi common shares for consideration that includes Bowater Canada exchangeable shares and you make a valid tax election with Bowater Canada, you may obtain a full or partial tax deferral (rollover) of any capital gain otherwise arising upon the exchange of

 

those shares. For more information, see “Special Meeting of Abitibi Shareholders—Election to Receive Bowater Canada Exchangeable Shares and Exchange of Share Certificates” and “Material Canadian Federal Income Tax Consequences of the Combination—Abitibi Shareholders Who Are Residents of Canada.”

United States Residents. U.S. holders of Abitibi common shares generally will not recognize gain or loss for United States federal income tax purposes as a result of their exchange of Abitibi common shares for shares of AbitibiBowater common stock. For more information see “Material U.S. Federal Income Tax Consequences of the Combination—Consequences to U.S. Holders of Abitibi Common Shares.”

        Holders of Bowater Common Stock

United States Residents. U.S. holders of Bowater common stock generally will not recognize gain or loss for United States federal income tax purposes as a result of their exchange of Bowater common stock for AbitibiBowater common stock. For more information, see “Material U.S. Federal Income Tax Consequences of the Combination—Consequences to U.S. Holders of Bowater Common Stock.”

Canadian Residents. The exchange of Bowater common stock for shares of AbitibiBowater common stock generally will be tax-deferred for Canadian resident holders for Canadian federal income tax purposes. For more information, see “Material Canadian Federal Income Tax Consequences of the Combination—Bowater Stockholders Who Are Residents of Canada.”

Q:    What are the Canadian federal income tax consequences of the filing of the Bowater Canada articles of amendment?

A:    The filing of the proposed Bowater Canada articles of amendment will not have any tax consequences to Canadian residents under Canadian federal income tax laws. For more information, see “Material Canadian Federal Income Tax Consequences of the Combination.”

Q:    What will happen to stock options and other stock-based awards in the combination?

A:    All Abitibi stock options, stock appreciation rights and other stock-based awards outstanding at the effective time of the combination, whether vested or unvested, will be converted into AbitibiBowater stock options, stock appreciation rights or stock-based awards.

In general, Bowater stock options, stock appreciation rights and stock-based awards outstanding at the effective time of the combination, whether vested or unvested, are required to be repurchased by Bowater in accordance with the applicable terms of the Bowater plans pursuant to which each stock option, stock appreciation right or stock-based award was initially issued. Other Bowater stock options, stock appreciation rights and stock-based awards outstanding at the effective time of the combination, whether vested or unvested, will be converted into AbitibiBowater stock options, stock appreciation rights or stock-based awards.

The number of shares subject to such converted Abitibi or Bowater stock options, stock appreciation rights and stock-based awards will be adjusted by multiplying the number of shares subject to such Abitibi or Bowater stock option, stock appreciation right or stock-based award by 0.06261 in the case of Abitibi, and by 0.52 in the case of Bowater. Similarly, the exercise price of the converted stock options or base price of the stock appreciation rights will be adjusted by dividing such price by 0.06261 in the case of Abitibi, and by 0.52 in the case of Bowater, rounded to the nearest one-hundredth of a cent. The stock options, stock appreciation rights and other stock-based awards to acquire AbitibiBowater common stock will be issued subject to the same terms and conditions as were applicable under the respective Abitibi or Bowater plans pursuant to which each stock option, stock appreciation right or stock-based award was initially issued but taking into account any changes to such terms and conditions, including acceleration thereof, by reason of the combination agreement or the combination.

 

Q:    What are the Bowater Canada exchangeable shares and why are Bowater Canada exchangeable shares being offered to certain Canadian residents in the combination?

A:    Bowater Canada exchangeable shares are a separate class of shares of the capital of Bowater Canada, a Canadian subsidiary of Bowater. After consummation of the combination, each Bowater Canada exchangeable share will be substantially the economic equivalent of one share of AbitibiBowater common stock and will be exchangeable at any time for shares of AbitibiBowater common stock. In addition, each holder of a Bowater Canada exchangeable share will receive the right, under a voting and exchange trust agreement and pursuant to the terms of the special AbitibiBowater voting stock, to effectively have the ability to cast votes at all AbitibiBowater stockholder meetings along with holders of shares of AbitibiBowater common stock and the rights, under a support agreement, to receive dividends, distributions and liquidation entitlements economically equivalent to those rights of an AbitibiBowater common stockholder and to exchange such Bowater Canada exchangeable shares for shares of the common stock of AbitibiBowater. For more information, see “Description of Bowater Canada Exchangeable Share Documents and Other Information Relating to Bowater Canada—Bowater Canada’s Share Capital—Bowater Canada Exchangeable Shares.” When we refer to the “Bowater Canada exchangeable shares,” we mean the Bowater Canada exchangeable shares, including these ancillary rights.

The exchangeable share structure will provide an opportunity for shareholders of Abitibi who are eligible shareholders to make a tax election to defer Canadian income tax on any capital gain otherwise arising on the exchange of their Abitibi common shares. By “eligible shareholder” we mean, pursuant to the Income Tax Act (Canada), which we refer to as the “Canadian Tax Act”:

 

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a person who is a resident of Canada for purposes of the Canadian Tax Act, other than a person who is exempt from tax under the Canadian Tax Act by virtue of Subsection 149(1) of the Canadian Tax Act; or

 

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a partnership any of whose partners is a person who is a resident of Canada for purposes of the Canadian Tax Act, other than a person who is exempt from tax for purposes of the Canadian Tax Act by virtue of Subsection 149(1) of the Canadian Tax Act.

Since the election to receive Bowater Canada exchangeable shares is only provided to enable Abitibi shareholders to defer Canadian income tax, it is not available to Abitibi shareholders who are neither residents of Canada nor subject to the Canadian Tax Act or to Bowater stockholders.

Q:    What limit has been placed on the number of Bowater Canada exchangeable shares that will be issued to eligible Abitibi shareholders?

A:    The combination agreement was amended as of May 7, 2007 to limit the number of Bowater Canada exchangeable shares that may be issued to eligible Abitibi shareholders in the combination to an amount that, when combined with Bowater Canada exchangeable shares issued to current holders of Bowater Canada exchangeable shares, is less than 20% of the total voting power of AbitibiBowater. We refer to this limit as the “Bowater Canada exchangeable share limit.” The Bowater Canada exchangeable share limit is being established as a precaution to ensure that the combination remains tax deferred for U.S. resident holders of Abitibi shares.

In the event that eligible Abitibi shareholders elect to receive more Bowater Canada exchangeable shares than are available pursuant to the Bowater Canada exchangeable share limit, the remainder of their shares will be exchanged for shares of AbitibiBowater common stock, pro rata to their shareholdings. Based on publicly available information regarding the currect shareholdings of Abitibi, we do not expect the Bowater Canada exchangeable share limit to have a material effect on the ability of eligible Abitibi shareholders to receive tax deferred treatment on the exchange of their shares under the combination should they so elect. Neither AbitibiBowater nor Bowater Canada will issue fractional shares to eligible Abitibi shareholders in connection with the combination, including in the event an electing eligible Abitibi shareholder is subject to prorationing as described above. See “The Combination Agreement and Related Matters—No Fractional Shares.” Abitibi shareholders will not have the opportunity to elect to defer Canadian income tax on the exchange of their Abitibi

 

common shares to the extent that they receive shares of AbitibiBowater common stock in consideration for such Abitibi common shares as a result of the application of the Bowater Canada exchangeable share limit.

Q:    What percentage of AbitibiBowater will the shareholders of Abitibi and the stockholders of Bowater own?

A:    Upon completion of the combination, we estimate that Abitibi’s former shareholders and Bowater’s former stockholders (including current holders of Bowater Canada exchangeable shares) will own approximately 48% and 52%, respectively, of the outstanding equity interests and voting rights in AbitibiBowater (in each case, directly or through the ownership of Bowater Canada exchangeable shares that are substantially the economic equivalent of AbitibiBowater common stock).

Q:    What will be the dividend payable on AbitibiBowater common stock and the Bowater Canada exchangeable shares after the closing of the combination?

A:    Any decision regarding the dividend policies of AbitibiBowater will be determined by the Board of Directors of AbitibiBowater following completion of the combination. In addition, the ability of AbitibiBowater to pay dividends may be restricted by the company’s credit facilities and other debt instruments, as well as by applicable law. There can be no assurances that AbitibiBowater will pay a dividend or that any dividend, if paid, will be comparable to the historical dividend rate of Bowater prior to the combination. Abitibi does not currently pay dividends.

Q:    Where will the AbitibiBowater common stock and the Bowater Canada exchangeable shares be listed?

A:    AbitibiBowater intends to list its common stock on the New York Stock Exchange and the Toronto Stock Exchange and that the Bowater Canada exchangeable shares will remain listed on the Toronto Stock Exchange. We refer to the New York Stock Exchange as the “NYSE” and to the Toronto Stock Exchange as the “TSX.”

The proposed stock symbols for AbitibiBowater are “ABH” on both the NYSE and the TSX and the proposed new stock symbol for Bowater Canada (after it is renamed “AbitibiBowater Canada Inc.”) on the TSX is “AXB.”

Q:    When do Abitibi and Bowater expect to complete the combination?

A:    Abitibi and Bowater will complete the combination when all of the conditions to completion of the combination have been satisfied or waived. Abitibi and Bowater are working toward satisfying these conditions and completing the combination as quickly as possible. Abitibi and Bowater currently expect to complete the combination in the third quarter of 2007. Because the combination is subject to a number of other conditions, some of which are beyond Bowater’s and Abitibi’s control, the exact timing cannot be predicted and the combination may not be completed in the third quarter of 2007.

Q:    What expenses do Abitibi and Bowater expect to incur in connection with the combination?

A:    Abitibi and Bowater each estimate that total cash expenses to be incurred by them, respectively, in connection with the combination will be approximately US$33 million. These expenses include investment banking fees, accounting, legal and other advisors’ and independent consultants’ fees, fees to be incurred in connection with the preparation, printing and mailing of this document, proxy solicitation fees and other out-of-pocket transaction costs. These estimates are based on Abitibi’s and Bowater’s current expectations and do not include extraordinary or other unforeseen costs that may otherwise arise in connection with the combination.

Q:    Where can I find more information about the companies?

A:    You can find more information about Abitibi and Bowater from various sources described under “Where You Can Find Additional Information” and about Bowater Canada under “Description of Bowater Canada Exchangeable Share Documents and Other Information Relating to Bowater Canada.”

 

 ABITIBI SHAREHOLDER QUESTIONS AND ANSWERS

Q: When and where is the Special Meeting of the Abitibi shareholders?

A:    We will hold a Special Meeting of the shareholders of Abitibi-Consolidated Inc. on [            ], 2007, at [    ] (local time), at [    ]. In this document, we refer to the Special Meeting of the Abitibi Shareholders as the “Abitibi Meeting.”

Q: On what am I being asked to vote?

A:    Abitibi shareholders are being asked to adopt the special resolution approving the plan of arrangement and ratifying and approving the combination agreement, which we refer to as the “Abitibi shareholders’ resolution.” A copy of the Abitibi shareholders’ resolution is attached to this document as Schedule A.

Q: What vote is required to approve the Abitibi shareholders’ resolution?

A:    Adoption of the Abitibi shareholders’ resolution will require the affirmative vote of not less than 66 ²/3% of the votes cast at the Abitibi Meeting by holders of Abitibi common shares present at the Abitibi Meeting in person or represented by proxy. On the record date, directors and executive officers of Abitibi and their affiliates beneficially owned and had the right to vote [            ] Abitibi common shares, representing approximately [    ] of the shares outstanding on the record date. Each Abitibi common share is entitled to one vote on all matters scheduled to come before the Abitibi Meeting.

Q:    How do I vote on the Abitibi shareholders’ resolution?

 

A:

•      First, please review the information contained in this document, including the schedules and annexes. This document contains important information about AbitibiBowater, Abitibi, Bowater, Bowater Canada and the combination. It also contains important information about what the Boards of Directors of Abitibi and Bowater considered in evaluating the combination.

 

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Second:

 

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If you are a registered holder of Abitibi common shares, please submit your proxy form promptly by telephone, via the Internet or by signing, dating and returning the appropriate enclosed proxy form in the envelope provided so that your shares can be voted at the Abitibi Meeting. The Abitibi proxy form applicable to Abitibi shareholders is printed on BLUE paper. You may also attend in person and vote at the Abitibi Meeting, even if you have already submitted a proxy form.

 

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If you hold your Abitibi common shares in non-registered name, you must contact your broker or other nominee to obtain a broker voting instruction form (if you did not receive one together with this document) and for other instructions as to how to vote your shares.

 

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If you hold your Abitibi common shares in both registered and non-registered name, you will receive both a proxy form and a broker voting instruction form. To ensure that all your shares are represented at the Abitibi Meeting, please submit a vote by telephone, via the Internet or by mail for each proxy form or broker voting instruction form you receive.

Q:    What happens if I don’t indicate how to vote on my signed proxy form?

A:    If you are a registered holder of Abitibi common shares and you sign and send in your proxy form but do not mark the form to indicate your vote, your Abitibi common shares will be voted FOR the Abitibi shareholders’ resolution and in accordance with management’s recommendation with respect to amendments or variations of the matters set forth in the notice of meeting or any other matters that may properly come before the Abitibi Meeting.

 

Q:    Can I change my vote after I have mailed my signed proxy form or broker voting instruction form?

A:    Yes. You can change your vote before the Abitibi Meeting.

Registered Holders. If you are a registered holder, you can change your vote in one of three ways:

 

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First, before the Abitibi Meeting, you can deliver a signed notice of revocation of proxy to the Secretary of Abitibi at the address specified below at any time up to and including the last business day before the Abitibi Meeting or deposit the revocation with the Chair of the Abitibi Meeting.

 

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Second, you can complete and submit a later-dated proxy form no later than 5:00 p.m. (local time) on the last business day before the Abitibi Meeting.

 

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Third, you can attend the Abitibi Meeting and vote in person. Your attendance at the Abitibi Meeting alone will not revoke your proxy; rather, you must deposit a new proxy form or a notice of revocation of proxy with the Chair of the Abitibi Meeting on the day of the Abitibi Meeting, before any vote is cast under the proxy’s authority, in order to revoke your previously submitted proxy form.

If you are a registered holder and want to change your proxy directions by mail or by fax, you should send any notice of revocation or your completed new proxy form, as the case may be, to Abitibi at the following address:

 

Abitibi-Consolidated Inc. 1155 Metcalfe Street Suite 800 Montreal, Quebec Canada H3B 5H2 Attention: Secretary Fax: (514) 394-3644

Non-Registered Holders. If you are a non-registered holder and a broker, investment dealer, bank, trust company or other nominee holds your shares in “street name” and you have instructed such nominee to vote your shares and wish to change your vote, you must follow directions received from such nominee to change those instructions.

You may also revoke or change your vote by telephone or via the Internet by following the instructions set forth below under “Can I vote by telephone or electronically?”

Q:    Can I vote by telephone or electronically?

A:    Yes, in most cases. To vote by telephone, please call the number shown on your proxy form from a touch-tone telephone and follow the instructions. To vote via the Internet, please go to the website shown on your proxy form and follow the instructions on the screen. Please note that you will need to refer to the control number indicated on your proxy form to identify yourself in the electronic voting system. Please also refer to the instructions on your proxy form for information regarding the deadline for voting your shares electronically.

If you hold your Abitibi common shares through a broker or other nominee, you should check your broker voting instruction form forwarded to you by such nominee to see which options are available.

Q:    If my broker or other nominee holds my shares in “street name,” and I fail to provide a signed broker voting instruction form, or to vote by telephone or Internet, will my broker or other nominee vote my shares for me?

A:    No. Your broker or other nominee will not vote your shares unless it receives your specific instructions in a completed broker voting instruction form. After carefully reading and considering the information contained in

 

this document, including the schedules and annexes, please follow the directions provided by your nominee with respect to voting procedures and complete a broker voting instruction form. Please ensure that your broker voting instruction form is submitted to your nominee in sufficient time to ensure that your vote is received by Abitibi on or before 5:00 p.m. (local time) on [            ], 2007. If you have instructed a nominee to vote your shares and wish to change your vote, you must follow directions received from your nominee to change those instructions.

Q:    If I am an eligible shareholder, how do I get tax-deferred treatment?

A:    If you are an eligible shareholder and wish to receive Bowater Canada exchangeable shares in the combination, and you so elect in the letter of transmittal and election form accompanying this document, we will send you a tax election package by mail after completion of the combination. The tax election package will also be made available via the Internet on AbitibiBowater’s website at http://www.abitibibowater.com. You must provide to Bowater Canada, at the address indicated in the tax election package, two completed and signed copies of the applicable tax election forms on or before the 90th day after the effective date of the combination. For more information see “Material Canadian Federal Income Tax Consequences of the Combination.”

Q:    Do I need to send in my share certificates now?

A:    You are not required to send in your share certificate(s) representing your Abitibi common shares in order to validly cast your vote at the Abitibi Meeting. In addition, if you are either (i) not an eligible shareholder or (ii) an eligible shareholder but you do not wish to elect to receive Bowater Canada exchangeable shares (or a combination of Bowater Canada exchangeable shares and shares of AbitibiBowater common stock), then you do not need to send in your share certificate(s) representing your Abitibi common shares nor do you need to complete a letter of transmittal and election form. After the combination is completed, we will send registered holders of Abitibi common shares written instructions for exchanging their share certificates.

However, if you are an eligible shareholder and you would like to elect to receive Bowater Canada exchangeable shares (or a combination of Bowater Canada exchangeable shares and shares of AbitibiBowater common stock), you must send in your share certificate(s) representing your Abitibi common shares in addition to the letter of transmittal and election form accompanying this document, duly completed and signed, prior to 5:00 p.m. (local time) on [            ], 2007, in order to receive evidence of ownership of Bowater Canada exchangeable shares (or a combination of Bowater Canada exchangeable shares and shares of AbitibiBowater common stock). If you hold Abitibi common shares that are registered in the name of a broker, investment dealer, bank, trust company or other nominee, you should contact that nominee for instructions about how to elect to receive Bowater Canada exchangeable shares (or a combination of Bowater Canada exchangeable shares and shares of AbitibiBowater common stock).

Q:    If I want to exercise my stock options, what do I do?

A:    You are under no obligation to exercise your Abitibi stock options before the completion of the combination. Abitibi stock options that have not been exercised prior to the effective time will be exchanged in the combination for replacement stock options to acquire shares of AbitibiBowater common stock. If you hold exercisable Abitibi stock options and wish to exercise them to acquire Abitibi common shares in order to receive Bowater Canada exchangeable shares or shares of AbitibiBowater common stock in connection with the plan of arrangement, then you should exercise your stock options through the Human Resources Department at Abitibi or by telephone at the following number: (514) 394-3257 prior to 4:00 p.m. (local time) on the second business day immediately prior to the date of closing of the combination.

Q:    Am I entitled to dissent or appraisal rights?

A:    Yes. Abitibi shareholders are entitled to dissent rights in connection with the adoption of the Abitibi shareholders’ resolution approving the plan of arrangement and the combination agreement. Those Abitibi

 

shareholders who properly exercise their dissent rights will be entitled to be paid the fair value of their shares. If you wish to dissent, you must provide to Abitibi, at the address specified above, a dissent notice prior to 5:00 p.m. (local time) on the business day immediately preceding the Abitibi Meeting. It is important that you strictly comply with this requirement, otherwise your dissent right may not be recognized. You must also strictly comply with the other requirements of the dissent procedure. For more information, see “The Combination—Dissenting Shareholder Rights—Abitibi.”

Q:    Are there risks I should consider in deciding whether to vote for the Abitibi shareholders’ resolution?

A:    Yes. As in any significant combination, there are a number of risk factors to consider in connection with the combination that are described in the section of this document entitled “Risk Factors” and in other information included or incorporated by reference in this document.

Q:    Who can help answer my questions about the combination?

A:    Kingsdale Shareholder Services Inc., which we refer to as “Kingsdale,” and Innisfree M&A Incorporated, which we refer to as “Innisfree,” are acting as proxy solicitors for Abitibi. If you have any questions about the combination or about how to vote your shares, and you are an Abitibi shareholder resident in Canada or another country outside the U.S., please call (866) 639-7993 (English/French); banks and brokers call collect at (416) 867-2272. If you are an Abitibi shareholder resident in the U.S., please call (877) 825-8730 (English), (877) 825-8777 (French); banks and brokers call collect at (212) 750-5833.

Q:    Are shareholder rights under Delaware law in respect of AbitibiBowater the same as under Canadian law in respect of Abitibi?

A:    Although the rights and privileges of stockholders of a Delaware corporation, such as AbitibiBowater, are in many instances comparable to those of shareholders of a corporation organized under the Canada Business Corporations Act, which we refer to as the “CBCA,” such as Abitibi, there are a number of important differences. For example, the CBCA, contrary to Delaware law, provides an oppression remedy that enables a court to make any order to rectify matters that are oppressive or unfairly prejudicial to or that unfairly disregard the interests of any security holder, director or officer of a corporation governed by the CBCA. Also, dissent rights are available to stockholders of corporations incorporated under the laws of Delaware in more limited circumstances than under the CBCA. In addition, the charter documents of AbitibiBowater will contain important differences from those of Abitibi including, among others, a requirement that certain amendments to the certificate of incorporation of AbitibiBowater, be made only with approval of at least 75% of the voting power of AbitibiBowater stock. For more information, see “Comparison of Shareholder and Stockholder Rights.”

 BOWATER STOCKHOLDER QUESTIONS AND ANSWERS

Q:    When and where is the Annual Meeting of the Bowater stockholders?

A:    We will hold the Annual Meeting of the stockholders of Bowater Incorporated on [            ], 2007, at [            ] (local time), at [            ]. In this document, we refer to the Annual Meeting of Bowater stockholders as the “Bowater Meeting.”

Q:    On what am I being asked to vote?

A:    Bowater common stockholders and holders of Bowater Canada exchangeable shares are being asked to approve the following proposals at the Bowater Meeting:

 

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to approve and adopt (i) the combination agreement and (ii) the merger contemplated by the combination agreement;

 

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to elect three directors, each for a term of three years or until the earlier of the due election and qualification of their successors or the consummation of the combination;

 

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to ratify the appointment of KPMG LLP as the independent registered public accounting firm for the 2007 fiscal year; and

 

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to transact any other business that may properly come before the Bowater Meeting or any adjournment or postponement of the Bowater Meeting.

Q:    Who is entitled to vote on each of the proposals?

A:    Holders of Bowater common stock and holders of Bowater Canada exchangeable shares (through Computershare Trust Company of Canada, as trustee under a voting and exchange trust agreement), as of the record date for the Bowater Meeting are entitled to vote on each of the proposals at the Bowater Meeting. A list of holders is available, upon request, from [            ] through [            ], 2007 from Bowater’s Legal Department and will be available at the Bowater Meeting.

The trustee will vote its share of special voting stock in accordance with the provisions of a voting and exchange trust agreement. Under this agreement, each holder of Bowater Canada exchangeable shares is entitled to instruct the trustee how to vote at the Bowater Meeting. The trustee will cast votes equal to the number of outstanding Bowater Canada exchangeable shares not owned by Bowater or its affiliates and as to which the trustee has timely received voting instructions. The Bowater common stockholders and the trustee (acting for the holders of Bowater Canada exchangeable shares) will vote together as a single class on all matters.

Q:    What vote is required to approve each of the proposals?

 

A.

•      Approval and adoption of the combination agreement and the merger requires the affirmative vote of a majority of the total voting power of all outstanding shares of Bowater common stock and Bowater special voting stock (representing the Bowater Canada exchangeable shares) entitled to vote at the Bowater Meeting, voting together as a single class.

 

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Directors are elected by a plurality of the total voting power of all outstanding shares of Bowater common stock and Bowater special voting stock (representing the Bowater Canada exchangeable shares) present in person or represented by proxy and entitled to vote at the Bowater Meeting, voting together as a single class.

 

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The ratification of the appointment of KPMG LLP must be approved by an affirmative vote of a majority of the total voting power of all shares of Bowater common stock and Bowater special voting stock (representing the Bowater Canada exchangeable shares) present in person or represented by proxy and entitled to vote on the matter at the Bowater Meeting, voting together as a single class.

As of the record date, Bowater directors and executive officers owned and were entitled to vote [            ] shares of Bowater common stock and [            ] Bowater Canada exchangeable shares representing approximately [    ]% of the common stock and [    ]% of the total voting power of all shares of Bowater common stock and Bowater special voting stock outstanding on that date.

Q:    How do I vote on the approval and adoption of the combination agreement and the merger?

 

A:

•      First, please review the information contained in this document, including the schedules and the annexes. This document contains important information about AbitibiBowater, Abitibi, Bowater, Bowater Canada and the combination. It also contains important information about what the Boards of Directors of Abitibi and Bowater considered in evaluating the combination.

 

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Second:

 

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If you are a registered or record holder of Bowater common stock, please submit your proxy card promptly by telephone, via the Internet or by signing, dating and returning the enclosed appropriate proxy card in the envelope provided so that your shares can be voted at the Bowater Meeting. The Bowater proxy card applicable to Bowater stockholders is printed on PINK paper. You may also attend in person and vote at the Bowater Meeting, even if you have already submitted a proxy card.

 

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If you are a registered or record holder of Bowater Canada exchangeable shares, you are entitled to instruct the trustee how to vote your exchangeable shares at the Bowater Meeting. To instruct the trustee as to how you wish to exercise your voting rights, please submit your trustee voting instruction form promptly by telephone, via the Internet or by signing, dating and returning the enclosed trustee voting instruction form in the envelope provided. The trustee voting instruction form applicable to holders of Bowater Canada exchangeable shares is printed on GREEN paper. If you do not give voting instructions to the trustee, the trustee will not be able to vote your Bowater Canada exchangeable shares and it will have the same effect as a vote AGAINST the combination. Alternatively, you may instruct the trustee to give you or your designee a proxy to personally exercise the voting rights attached to your Bowater Canada exchangeable shares and attend the Bowater Meeting in person.

 

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If you hold your Bowater common stock or Bowater Canada exchangeable shares in non-registered name, you must contact your broker or other nominee to obtain a broker voting instruction card or form (if you did not receive one together with this document) and for other instructions as to how to vote your shares.

 

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If you hold your Bowater common stock or Bowater Canada exchangeable shares in both registered and non-registered name, you will receive both a proxy card or a trustee voting instruction form and a broker voting instruction card or form.

 

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To ensure that all of your shares are represented at the Bowater Meeting, please submit a vote by telephone, via the Internet or by mail for each proxy card, trustee voting instruction form or broker voting instruction card or form you receive.

Q:    What happens if I don’t indicate how to vote on my signed proxy card or trustee voting instruction form?

A:    If you are a registered or record holder of Bowater common stock and sign and send in your proxy card, but do not mark the card to indicate your vote, your shares will be voted FOR the approval and adoption of the combination agreement and the merger and FOR each of the other proposals.

If you are a registered or record holder of Bowater Canada exchangeable shares and sign and send in your trustee voting instruction form, but do not mark the form to indicate your vote, the trustee will vote your Bowater Canada exchangeable shares FOR the approval and adoption of the combination agreement and the merger and FOR each of the other proposals at the Bowater Meeting.

Q:    What happens if I don’t return a proxy card or trustee voting instruction form?

A:    If you are a registered or record holder of Bowater common stock or Bowater Canada exchangeable shares, not returning your proxy card or trustee voting instruction form and not voting at the Bowater Meeting will have the same effect as a vote AGAINST the approval and adoption of the combination agreement and the merger because a majority of the total voting power of all outstanding shares of Bowater common stock and Bowater special voting stock (representing the Bowater Canada exchangeable shares) entitled to vote at the Bowater

 

Meeting and voting together as a single class is required to approve and adopt the combination agreement and the merger.

Not returning your proxy card or trustee voting instruction form may also contribute to a failure to obtain a quorum at the Bowater Meeting. Under Bowater’s bylaws, holders of shares representing one-third of the total voting power of all outstanding shares of Bowater common stock and Bowater special voting stock (representing the Bowater Canada exchangeable shares) entitled to vote at the Bowater Meeting, present in person or represented by proxy, are necessary to constitute a quorum to take action with respect to that matter at the Bowater Meeting.

Q:    Can I change my vote after I have mailed my signed proxy card, trustee voting instruction form or broker voting instruction card or form?

A:    Yes. You can change your vote before the Bowater Meeting.

Registered or Record Holders. If you are a registered holder, you can change your vote in one of three ways:

 

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First, if you are a common stockholder, before the Bowater Meeting, you can deliver a signed notice of revocation of proxy to the Secretary of Bowater at the address specified below at any time up to and including the last business day before the Bowater Meeting or, if you are a holder of Bowater Canada exchangeable shares, you can deliver a signed change of instructions to the offices of Computershare Trust Company of Canada before the Bowater Meeting.

 

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Second, you can complete and submit a later-dated proxy card or trustee voting instruction form at any time up to and including the last business day before the Bowater Meeting.

 

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Third, you can attend the Bowater Meeting and vote in person. Your attendance at the Bowater Meeting alone will not revoke your proxy; rather, you must also vote at the Bowater Meeting in order to revoke your previously submitted proxy card. If you are a holder of Bowater Canada exchangeable shares, you must instruct the trustee to give you or your designee a proxy to personally exercise the voting rights attached to your Bowater Canada exchangeable shares in order to attend the Bowater Meeting and vote in person.

If you are a Bowater stockholder and want to change your proxy directions by mail or by fax, you should send any notice of revocation or your completed new proxy card, as the case may be, to Bowater at the following address:

 

Bowater Incorporated 55 East Camperdown Way P.O. Box 1028 Greenville, South Carolina 29602 United States of America Attention: Secretary Fax: (864) 282-9573

If you are a holder of Bowater Canada exchangeable shares and want to change your voting instructions by mail or by fax, you should send any notice of revocation or your completed new trustee voting instruction form, as the case may be, to Computershare Trust Company of Canada at the following address:

Computershare Trust Company of Canada

100 University Avenue, 9th Floor

Toronto, Ontario

Canada M5J 2Y1

Fax: (888) 453-0330 or (416) 263-9394

 

Non-Registered Holders. If you are not a holder of record and a broker, investment dealer, bank, trust company or other nominee holds your shares in “street name” and you have instructed such nominee to vote your shares and wish to change your vote, you must follow directions received from such nominee to change those instructions.

You may also revoke or change your proxy or trustee voting instructions by telephone or via the Internet by following the instructions set forth below under “Can I vote by telephone or electronically?”

Q:    Can I vote by telephone or electronically?

A:    Yes, in most cases. To vote by telephone, please call the number shown on your proxy card or trustee voting instruction form from a touch-tone telephone and follow the instructions. To vote via the Internet, please go to the website shown on your proxy card or trustee voting instruction form and follow the instructions on the screen. Please note that you will need to refer to the control number indicated on your proxy card or trustee voting instruction form to identify yourself in the electronic voting system. Please also refer to the instructions on your proxy card or trustee voting instruction form for information regarding the deadline for voting your shares by telephone or electronically.

If you hold your shares of Bowater common stock or Bowater Canada exchangeable shares through a broker or other nominee, you should check your broker voting instruction card or form forwarded to you by such nominee to see which options are available.

Q:    If my broker or other nominee holds my shares of Bowater common stock or Bowater Canada exchangeable shares in “street name,” and I fail to provide a signed broker voting instruction card or form, or to vote by telephone or Internet, will my broker or other nominee vote my shares for me?

A:    If your shares of Bowater common stock or Bowater Canada exchangeable shares are held in “street name” and you do not provide voting instructions to your broker or other nominee, which we refer to as a “broker non-vote,” your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote. Accordingly, if you do not provide your broker with voting instructions, your shares may be considered present at the Bowater Meeting for purposes of determining a quorum, but will not be considered to have been voted for approval and adoption of the combination agreement and the merger. Shares not voted for approval and adoption of the combination agreement and the merger will have the same effect as a vote AGAINST that proposal. Your broker or other nominee will vote your shares for the election of each of the director nominees and for the ratification of the appointment of KPMG LLP if you do not provide your broker or other nominee with instructions on how to vote for those proposals.

Q:    Am I entitled to dissent or appraisal rights in connection with the combination?

A:    No. Holders of Bowater common stock and holders of Bowater Canada exchangeable shares do not have dissent or appraisal rights in connection with the combination and the merger; however, holders of Bowater Canada exchangeable shares will have dissent rights in connection with the adoption of the special resolution approving the Bowater Canada articles of amendment as described under “The Combination—Dissenting Shareholder Rights—Bowater Canada.”

Q.    Do I need to send in my stock certificates now?

A.    No. After the combination is completed, we will send Bowater stockholders of record written instructions for exchanging their stock certificates.

 

Q.    Are there risks I should consider in deciding whether to vote for the combination?

A:    Yes. There are a number of risk factors to consider in connection with the combination that are described in the section of this document entitled “Risk Factors” and in other information included or incorporated by reference in this document.

Q:    Who can help answer my questions about the combination?

A:    Kingsdale and Innisfree are acting as proxy solicitors for Bowater. If you have any questions about the combination or about how to vote your shares or options, and you are a Bowater stockholder or a holder of Bowater Canada exchangeable shares resident in Canada or another country outside the U.S., please call (866) 639-7993 (English/French); banks and brokers call collect at (416) 867-2272. If you are a Bowater stockholder or a holder of Bowater Canada exchangeable shares resident in the U.S., please call (877) 825-8730 (English), (877) 825-8777 (French); banks and brokers call collect at (212) 750-5833.

 BOWATER CANADA SHAREHOLDER QUESTIONS AND ANSWERS

Q:    When and where is the Special Meeting of the Bowater Canada shareholders?

A:    We will hold the Special Meeting of the shareholders of Bowater Canada Inc. on [                    ], 2007, at [            ] (local time), at [            ]. In this document, we refer to the Special Meeting of the Bowater Canada shareholders as the “Bowater Canada Meeting.”

Q:    On what am I being asked to vote?

A:    Holders of Bowater Canada exchangeable shares are being asked to adopt a special resolution at the Bowater Canada Meeting (a copy of which is attached to this document as Schedule B) approving the filing of the Bowater Canada articles of amendment in connection with the combination of Bowater and Abitibi. We refer to this special resolution as the “Bowater Canada shareholders’ resolution.” See “General Questions and Answers—What are the steps to the combination and what will I receive in the combination?”

Also, holders of Bowater Canada exchangeable shares have the opportunity to vote on the combination at the Bowater Meeting by giving instructions to Computershare Trust Company of Canada, the trustee under a voting and exchange trust agreement. For more information see “Bowater Stockholder Questions and Answers.”

Q:    What vote is required to approve the Bowater Canada shareholders’ resolution?

A:    Approval of the Bowater Canada shareholders’ resolution will require the affirmative votes of not less than:

 

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66 2/3% of the votes cast at the Bowater Canada Meeting by holders of the Bowater Canada common shares and the Bowater Canada exchangeable shares voting together as a single class, and

 

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66 2/3% of the votes cast at the Bowater Canada Meeting by holders of the Bowater Canada exchangeable shares voting as a separate class.

All issued and outstanding Bowater Canada common shares are held by a wholly owned subsidiary of Bowater. Bowater will cause all of the Bowater Canada common shares held by its subsidiary to be voted at the Bowater Canada Meeting in favor of the Bowater Canada shareholders’ resolution approving the filing of the Bowater Canada articles of amendment.

Each Bowater Canada exchangeable share that is not held by Bowater or its affiliates carries with it the right to one vote with respect to the Bowater Canada shareholders’ resolution.

 

Q:    What happens if the Bowater Canada shareholders’ resolution does not receive the required shareholder approval?

A:     If Bowater Canada’s shareholders do not approve the Bowater Canada shareholders’ resolution, Bowater and its affiliates will, in accordance with the terms of the combination agreement, cause the redemption of all outstanding Bowater Canada exchangeable shares on the business day immediately preceding the effective date of the combination. In addition, the provisions governing the Bowater Canada exchangeable shares generally provide that, if Bowater Canada exercises a redemption right or is required to redeem Bowater Canada exchangeable shares upon request by a holder of such shares, then Bowater Canadian Holdings Incorporated, a wholly owned Canadian subsidiary of Bowater, which we refer to as “Bowater Canadian Holdings,” may avail itself of a pre-emptive call right to purchase such Bowater Canada exchangeable shares from the holder thereof, which right we refer to as the “call right” of Bowater Canadian Holdings. In such case, the holders of Bowater Canada exchangeable shares will receive one share of Bowater common stock in exchange for each Bowater Canada exchangeable share, and each share of Bowater common stock so received will be converted into the right to receive 0.52 of a share of AbitibiBowater common stock in the merger.

A redemption or purchase of the Bowater Canada exchangeable shares may have certain tax consequences to holders, depending on their tax status. A holder of Bowater Canada exchangeable shares whose shares are purchased by Bowater Canadian Holdings pursuant to the exercise of its call right will generally realize a capital gain (or a capital loss) to the extent that the purchase price for the Bowater Canada exchangeable shares exceeds (or is less than) the adjusted cost base to the holder of the Bowater Canada exchangeable shares. If Bowater Canadian Holdings does not exercise its call right and the Bowater Canada exchangeable shares instead are redeemed by Bowater Canada, a holder of Bowater Canada exchangeable shares will generally be deemed to receive a dividend and to have realized either a capital gain or a capital loss depending on the holder’s own circumstances. Different consequences may result for a holder that is a corporation. For more information see “Material Canadian Federal Income Tax Consequences of the Combination—Holders of Bowater Canada Exchangeable Shares.”

Any redemption or exercise of the Bowater Canadian Holdings call right described above will not affect an eligible Abitibi shareholder’s ability to elect to receive Bowater Canada exchangeable shares.

Q:    Do I need to send in my share certificates now?

A:     No. After the combination is completed, we will send registered holders of Bowater Canada exchangeable shares written instructions for exchanging their share certificates.

Q:    How do I vote on the Bowater Canada shareholders’ resolution?

 

A:

•      First, please review the information contained in this document, including the schedules and annexes. This document contains important information about AbitibiBowater, Abitibi, Bowater, Bowater Canada, the combination and the Bowater Canada articles of amendment. It also contains important information about what the Boards of Directors of Abitibi and Bowater considered in evaluating the combination.

 

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Second:

 

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If you are a registered holder of Bowater Canada exchangeable shares, please submit your proxy form promptly by signing, dating and returning the appropriate enclosed proxy form in the envelope provided (which must be received in time to be voted at the Bowater Canada Meeting) so that your shares can be voted at the Bowater Canada Meeting. You may also submit your proxy by telephone or via the Internet by following the instructions set forth below under “Can I vote by telephone or electronically?” The Bowater Canada proxy form applicable to holders of Bowater

 

Canada exchangeable shares is printed on YELLOW paper. You may also attend in person and vote at the Bowater Canada Meeting, even if you have already submitted a proxy form.

 

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If you hold your Bowater Canada exchangeable shares in non-registered name, you must contact your broker or other nominee to obtain a broker voting instruction form (if you did not receive one together with this document) and other instructions as to how to vote your shares.

 

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If you hold your Bowater Canada exchangeable shares in both registered and non-registered name, you will receive both a proxy form and a broker voting instruction form. To ensure that all your shares are represented at the Bowater Canada Meeting, please submit a vote by telephone, via the Internet or by mail for each proxy form or broker voting instruction form you receive.

Q:    What happens if I do not indicate how to vote on my signed proxy form?

A:     If you are a registered holder of Bowater Canada exchangeable shares and you sign and send in your proxy form but do not mark your form to indicate your vote, your shares will be voted FOR the Bowater Canada shareholders’ resolution and in accordance with management’s recommendation with respect to amendments or variations of the matters set forth in the notice of meeting or any other matters that may properly come before the Bowater Canada Meeting.

Q:    Can I change my vote after I have mailed my signed proxy form or broker voting instruction form?

A:    Yes. You can change your vote before the Bowater Canada Meeting.

Registered Holders. If you are a registered holder, you can change your vote in one of three ways:

 

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First, before the Bowater Canada Meeting, you can deliver a signed notice of revocation of proxy to the Secretary of Bowater Canada at the address of its transfer agent and registrar specified below at any time up to and including the last business day before the Bowater Canada Meeting or deposit the revocation with the Chairman of the Bowater Canada Meeting.

 

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Second, you can complete and submit a later-dated proxy form no later than 5:00 p.m. (local time) on the last business day before the Bowater Canada Meeting.

 

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Third, you can attend the meeting and vote in person. Your attendance at the Bowater Canada Meeting alone will not revoke your proxy; rather, you must also deposit a new proxy form or a notice of revocation of proxy with the Chairman of the Bowater Canada Meeting before any vote is cast under the proxy’s authority in order to revoke your previously submitted proxy form.

If you are a registered holder and want to change your proxy directions by mail, you should send any notice of revocation or your completed new proxy form, as the case may be, to Bowater Canada’s transfer agent and registrar at the following address: Computershare Trust Company of Canada, 100 University Avenue, 9th Floor, Toronto, Ontario, Canada M5J 2Y1.

Non-Registered Holders. If a broker, investment dealer, bank, trust company or other nominee holds your shares in “street name” and you have instructed such nominee to vote your shares and wish to change your vote, you must follow directions received from such nominee to change those instructions.

You may also revoke or change your proxy or broker voting instructions by telephone or via the Internet by following the instructions set forth below under “Can I vote by telephone or electronically?”

Q:    Can I vote by telephone or electronically?

A:    Yes, in most cases. To vote by telephone, please call the number shown on your proxy form from a touch-tone telephone and follow the instructions. To vote via the Internet, please go to the website shown on your proxy

 

form and follow the instructions on the screen. Please note that you will need to refer to the control number indicated on your proxy form to identify yourself in the electronic voting system. Please also refer to the instructions on your proxy form for information regarding the deadline for voting your shares by telephone or electronically.

If you hold your Bowater Canada exchangeable shares through a broker or other nominee, you should check your broker voting instruction form forwarded to you by such nominee to see which options are available.

Q:    If my broker or other nominee holds my shares in “street name,” and I fail to provide a signed broker voting instruction form, or to vote by telephone or Internet, will my broker or other nominee vote my shares for me?

A:    No. Your broker or other nominee will not vote your shares unless it receives your specific instructions in a broker voting instruction form. After carefully reading and considering the information contained in this document, including the schedules and annexes, please follow the directions provided by your nominee with respect to voting procedures and complete a broker voting instruction form. Please ensure that your broker voting instruction form is submitted to your nominee in sufficient time to ensure that your votes are received by Bowater Canada on or before 5:00 p.m. (local time) on [            ], 2007. If you have instructed a nominee to vote your shares and wish to change your vote, you must follow directions received from your nominee to change those instructions.

Q:    Am I entitled to dissent or appraisal rights in connection with the Bowater Canada articles of amendment?

A:    Yes. Holders of Bowater Canada exchangeable shares are entitled to exercise dissent rights in connection with the Bowater Canada articles of amendment (however, holders of Bowater Canada exchangeable shares are not entitled to exercise dissent rights in connection with the combination). Those holders of Bowater Canada exchangeable shares who properly exercise their dissent rights will be entitled to be paid the fair value of their Bowater Canada exchangeable shares. If you wish to dissent, you must provide to Bowater Canada, at the address specified above, a dissent notice at or before the time fixed for the Bowater Canada Meeting. It is important that you strictly comply with this requirement, otherwise your dissent right may not be recognized. You must also strictly comply with the other requirements of the dissent procedure. For more information regarding your right to dissent, see “The Combination—Dissenting Shareholder Rights—Bowater Canada.”

Q:    Are there risks I should consider in deciding whether to vote for the Bowater Canada shareholders’ resolution approving the filing of the Bowater Canada articles of amendment?

A:    Yes. If approved, the filing of the Bowater Canada articles of amendment will form part of, and will be effected in connection with, the combination. There are a number of risk factors to consider in connection with the combination that are further described in the section of this document entitled “Risk Factors” and in other information included or incorporated by reference in this document.

Q:    Who can help answer my questions about the Bowater Canada articles of amendment and the combination?

A:    Kingsdale and Innisfree are acting as proxy solicitors for Bowater Canada. If you have any questions about the Bowater Canada articles of amendment or about how to vote your shares, and you are a holder of Bowater Canada exchangeable shares resident in Canada or another country outside the U.S., please call (866) 639-7993 (English/French); banks and brokers call collect at (416) 867-2272. If you are a holder of Bowater Canada exchangeable shares resident in the U.S., please call (877) 825-8730 (English) (877) 825-8777 (French); banks and brokers call collect at (212) 750-5833. In addition, you may also contact Computershare Trust Company of Canada, the transfer agent and registrar for the Bowater Canada exchangeable shares, toll free at the following numbers: (800) 564-6253 or (514) 982-7555.

 

 SUMMARY

This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the combination fully and for a more complete description of the legal terms of the combination, you should read carefully this entire document, including the schedules and annexes, and the other documents to which we have referred you. For information on how to obtain the documents that we have filed with the SEC and the Canadian securities regulatory authorities, see “Where You Can Find Additional Information.”

 The Companies

Abitibi-Consolidated Inc.

1155 Metcalfe Street

Suite 800

Montreal, Quebec

Canada H3B 5H2

(514) 875-2160

Abitibi-Consolidated Inc. is a corporation amalgamated under the laws of Canada and is a global leader in newsprint and commercial printing papers as well as a major producer of wood products, serving clients in some 70 countries from its 45 operating facilities. Abitibi is among the largest recyclers of newspapers and magazines in North America, serving 21 metropolitan areas in Canada and the United States and 13 regions in the United Kingdom, with more than 28,000 Paper Retriever^® and paper bank containers. It also ranks first in Canada in terms of total certified woodlands. 

For additional information about Abitibi and its business, see “Where You Can Find Additional Information.”

Bowater Incorporated

55 East Camperdown Way

Greenville, South Carolina 29601

United States of America

(864) 271-7733

Bowater Incorporated was incorporated in Delaware in 1964 and is a leading producer of newsprint and coated mechanical papers. In addition, Bowater produces uncoated mechanical papers, bleached kraft pulp and lumber products and operates 12 pulp and paper manufacturing facilities in the United States, Canada and South Korea. Bowater also operates a facility that converts a mechanical base sheet to coated products. Bowater’s operations are supported by approximately 800,000 acres of timberlands owned or leased in the United States and Canada and 28 million acres of timber cutting rights on Crown-owned lands in Canada.

For additional information about Bowater and its business, see “Where You Can Find Additional Information.”

AbitibiBowater Inc.

1155 Metcalfe Street

Suite 800

Montreal, Quebec

Canada H3B 5H2

(514) 875-2160

 

AbitibiBowater Inc. is a newly formed Delaware corporation, formed by Abitibi and Bowater for the sole purpose of effecting the combination and to date AbitibiBowater has not conducted any activities other than those incident to its formation, the execution of the combination agreement and the preparation of this document. Upon completion of the combination, Abitibi and Bowater will become subsidiaries of AbitibiBowater and the business of AbitibiBowater will be the businesses currently conducted by Abitibi and Bowater.

Bowater Canada Inc.

1000 de la Gauchetiere Street West, Suite 2820

Montreal Quebec

Canada H3B 4W5

(514) 954-2060

Bowater Canada Inc. was incorporated under the laws of Canada on April 15, 1998 for the purpose of implementing Bowater’s acquisition of Avenor Inc. in connection with which Bowater Canada issued a number of Bowater Canada exchangeable shares to certain of the former shareholders of Avenor. Bowater Canada issued additional Bowater Canada exchangeable shares to certain of the former shareholders of Alliance Forest Products Inc. in connection with Bowater’s acquisition of Alliance Forest Products in 2001. Bowater Canada’s sole material assets consist of the shares of the capital of Bowater Canadian Forest Products Inc. (formerly Avenor).

 The Combination (page 68)

On January 29, 2007, AbitibiBowater, Abitibi, Bowater, Bowater Canada and Merger Sub entered into the combination agreement, providing for the combination of Abitibi and Bowater under AbitibiBowater, a newly formed Delaware corporation, by means of a merger under Delaware law and a plan of arrangement to be submitted for approval by the Superior Court, District of Montreal, Province of Quebec. On May 7, 2007, Abitibi, Bowater, AbitibiBowater, Merger Sub and Bowater Canada entered into the first amendment to the combination agreement in order to establish the Bowater Canada exchangeable share limit. The combination agreement, as amended, is attached as Annex C to this document. We encourage you to read the combination agreement carefully and in its entirety. Following completion of the combination, each of Abitibi and Bowater will continue to exist as subsidiaries of AbitibiBowater. The combination is expected to be completed during the third quarter of 2007.

Upon completion of the combination, in each case subject to the terms and conditions set forth in the combination agreement, the plan of arrangement and applicable law:

 

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Merger Sub will merge with and into Bowater and issued and outstanding shares of Bowater common stock will be cancelled and converted into the right to receive shares of AbitibiBowater common stock at the Bowater exchange ratio, Bowater will be the surviving corporation in the merger and continue as a subsidiary of AbitibiBowater and the former stockholders of Bowater will become stockholders of AbitibiBowater;

 

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issued and outstanding Abitibi common shares, other than shares in respect of which a properly made election to receive Bowater Canada exchangeable shares has been effected and that are not subject to pro ration in the event the Bowater Canada exchangeable share limit is exceeded (see “Special Meeting of Abitibi Shareholders—Election to Receive Bowater Canada Exchangeable Shares and Exchange of Share Certificates”), will be transferred to AbitibiBowater in exchange for shares of AbitibiBowater common stock, while shares in respect of which a properly made election has been effected and that are not subject to pro ration in the event the Bowater Canada exchangeable share limit is exceeded will be transferred in exchange for Bowater Canada exchangeable shares, each at the Abitibi exchange ratio, Abitibi will continue as a subsidiary of AbitibiBowater and the former shareholders of Abitibi will become stockholders of AbitibiBowater or holders of Bowater Canada exchangeable shares;

 

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Bowater will file the Bowater Canada articles of amendment. The purpose of the Bowater Canada articles of amendment is to:

 

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change Bowater Canada’s name to “AbitibiBowater Canada Inc.,”

 

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effect a share consolidation with the result that each issued and outstanding Bowater Canada exchangeable share is changed into 0.52 of a Bowater Canada exchangeable share, which is the same exchange ratio as the Bowater exchange ratio,

 

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amend the provisions governing the Bowater Canada exchangeable shares to extend the date prior to which the directors of Bowater Canada may not, unless there are fewer than 500,000 Bowater Canada exchangeable shares outstanding or there is a proposed change-in-control transaction with respect to AbitibiBowater, cause the redemption of the Bowater Canada exchangeable shares, from June 30, 2008 to June 30, 2018, and

 

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amend the provisions governing the Bowater Canada exchangeable shares to clarify that the Bowater Canada exchangeable shares will become exchangeable for shares of AbitibiBowater common stock, instead of being exchangeable for shares of Bowater common stock, and to make other conforming changes required to give effect to the combination; and

 

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all Abitibi stock options, stock appreciation rights and other stock-based awards outstanding, whether vested or unvested, will be converted into AbitibiBowater stock options, stock appreciation rights or stock-based awards. In general, Bowater stock options, stock appreciation rights and stock-based awards outstanding at the effective time of the combination, whether vested or unvested, are required to be repurchased by Bowater in accordance with the applicable terms of the Bowater plans pursuant to which each option, stock appreciation right or stock-based award was initially issued. Other Bowater stock options, stock appreciation rights and stock-based awards outstanding at the effective time of the combination, whether vested or unvested, will be converted into AbitibiBowater stock options, stock appreciation rights or stock-based awards. The number of shares subject to such converted Abitibi or Bowater stock options, stock appreciation rights and stock-based awards will be adjusted by multiplying the number of shares subject to such Abitibi or Bowater stock option, stock appreciation right or stock-based award by the Abitibi exchange ratio, in the case of Abitibi, and by the Bowater exchange ratio, in the case of Bowater. Similarly, the exercise price of the converted stock options or base price of the stock appreciation rights will be adjusted by dividing such price by the Abitibi exchange ratio or the Bowater exchange ratio as appropriate, rounded to the nearest one-hundredth of a cent.

Neither AbitibiBowater nor Bowater Canada will issue fractional shares to shareholders in connection with the combination, including the Bowater Canada articles of amendment. Rather, shareholders will receive cash, without interest, equal to the shareholder’s pro rata portion of the net proceeds after expenses received upon the sale of whole shares representing the accumulation of all fractional interests in the shares to which all shareholders are entitled.

 

Immediately following the consummation of the combination, the structure of AbitibiBowater will be as follows:

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*

Former Abitibi shareholders will own approximately 48% of AbitibiBowater and former Bowater stockholders and holders of Bowater Canada exchangeable shares will own approximately 52% of AbitibiBowater (either directly or through the ownership of Bowater Canada exchangeable shares that are substantially the economic equivalent of AbitibiBowater common stock).

**	Represents percentage of Abitibi common shares exchanged for Bowater Canada exchangeable shares in the arrangement.

 Recommendations of the Boards of Directors (pages 47, 54 and 63)

Abitibi. At its meeting on January 26, 2007, the Abitibi Board of Directors, after an extensive review and thorough discussion of all facts and issues it considered relevant with respect to the combination, unanimously determined that the combination agreement and the transactions contemplated by the combination agreement, including the merger and the arrangement, are advisable and fair to and in the best interests of Abitibi and the shareholders of Abitibi. The Abitibi Board of Directors authorized and approved the combination agreement and the transactions contemplated by the combination agreement, including the merger and the arrangement, and agreed to recommend that the Abitibi shareholders vote for the adoption of the Abitibi shareholders’ resolution approving the plan of arrangement and the combination agreement at the Abitibi Meeting. The Abitibi Board of Directors unanimously recommends that its shareholders vote FOR the adoption of the Abitibi shareholders’ resolution approving the plan of arrangement and the combination agreement.

Bowater. At its meeting on January 27, 2007, after due consideration, the Bowater Board of Directors unanimously determined that the combination agreement and the transactions contemplated by the combination agreement, including the merger and the arrangement, are advisable and fair to and in the best interests of Bowater, Bowater stockholders and the current holders of the Bowater Canada exchangeable shares. The Bowater Board of Directors approved the combination agreement and the transactions contemplated by the

 

combination agreement, including the merger and the arrangement, and authorized Bowater to enter into the combination agreement and agreed to recommend that the Bowater stockholders and the current holders of Bowater Canada exchangeable shares vote for the approval and adoption of the combination agreement and the merger at the Bowater Meeting. The Bowater Board of Directors unanimously recommends that its stockholders and the holders of Bowater Canada exchangeable shares vote FOR the approval and adoption of the combination agreement and the merger.

The Bowater Board of Directors also recommends that Bowater stockholders and the current holders of Bowater Canada exchangeable shares vote FOR each of the director nominees of Bowater listed under the heading “Proposal No. 2—Election of Bowater Directors” and FOR the ratification of the appointment of KPMG LLP as Bowater’s independent registered public accounting firm for fiscal year 2007.

Bowater Canada. Bowater Canada’s Board of Directors unanimously recommends that holders of Bowater Canada exchangeable shares vote FOR the adoption of the Bowater Canada shareholders’ resolution approving the Bowater Canada articles of amendment.

 Opinions of Financial Advisors (pages 80 and 98)

Abitibi. In deciding to approve the combination agreement and the transactions contemplated thereby, including the arrangement, the Abitibi Board of Directors considered the opinions of its financial advisors, CIBC World Markets Inc., which we refer to as “CIBC World Markets,” and Credit Suisse (USA) LLC, which we refer to as “Credit Suisse,” to the effect that, as of the dates of their opinions, and based upon the procedures followed, assumptions made, matters considered and limitation on the scope of review set forth in their respective opinions, the Abitibi exchange ratio was fair, from a financial point of view, to the holders of Abitibi common shares. The written opinions of CIBC World Markets and Credit Suisse are attached as Annexes L and M, respectively, to this document. WE ENCOURAGE ABITIBI SHAREHOLDERS TO READ EACH OF THESE OPINIONS CAREFULLY AND IN ITS ENTIRETY.

Bowater. In deciding to approve the combination agreement and the transactions contemplated thereby, including the merger, the Bowater Board of Directors considered the opinions of its financial advisors, Goldman, Sachs & Co., which we refer to as “Goldman Sachs,” and UBS Investment Bank, which we refer to as “UBS,” to the effect that, as of the dates of their opinions, and based upon the assumptions made, matters considered and limits of review set forth in their respective written opinions, the Bowater exchange ratio was fair, from a financial point of view, to the holders of Bowater common stock and the holders of outstanding Bowater Canada exchangeable shares. The written opinions of Goldman Sachs and UBS are attached as Annexes N and O, respectively, to this document. WE ENCOURAGE BOWATER STOCKHOLDERS AND HOLDERS OF BOWATER CANADA EXCHANGEABLE SHARES TO READ EACH OF THESE OPINIONS CAREFULLY AND IN ITS ENTIRETY.

 Interests of Directors and Management in the Combination (pages 94 and 110)

Abitibi. Abitibi shareholders should note that some Abitibi directors and officers have interests in the combination that are different in certain respects from the interests of other Abitibi shareholders generally. As provided in the combination agreement, upon the completion of the combination, seven Abitibi designees (including John W. Weaver, President and Chief Executive Officer of Abitibi) and seven Bowater designees will become members of the AbitibiBowater Board of Directors. The combination agreement also provides that Mr. Weaver will become Executive Chairman of AbitibiBowater.

In addition, Mr. Weaver has received a special grant of up to 462,000 restricted share units to which he will be entitled upon the meeting of certain performance targets following the completion of the combination related to the achievement of different levels of synergies.

 

Ten senior officers of Abitibi, including Mr. Weaver, are covered by severance compensation agreements. These agreements provide for a severance package which includes a lump sum payment equal to one and a half to three times the annual compensation of the terminated officer and other benefits. The severance benefits are payable only upon termination of the officer’s employment within two years following a change of control of Abitibi, including upon completion of the combination, whether the termination is made by Abitibi without just cause or by the officer for a good reason, as such terms are defined in the severance compensation agreements.

In addition to a severance compensation agreement on the terms described above, Mr. Weaver also benefits from a severance arrangement with Abitibi, which entitles him to receive a lump sum payment equal to three times his annual compensation, a bonus compensation, group and pension benefits and the right to an early vesting of his stock options. The severance benefits are only payable upon termination of Mr. Weaver’s employment without just cause in a circumstance other than a circumstance involving a change of control of Abitibi. In the context of the combination, the Board of Directors of Abitibi has agreed to vary the terms of such severance arrangement to allow Mr. Weaver to be entitled to a lump sum payment equal to three years of annual compensation, less one-half of the compensation paid to Mr. Weaver between the completion of the combination and the termination of his employment, provided that Mr. Weaver remains at the employ of AbitibiBowater for at least two years following the completion of the combination (unless his employment is terminated by AbitibiBowater at an earlier date for any reason other than cause).

Abitibi has introduced an enhanced severance policy for certain designated employees, including certain officers, pursuant to which such employees will be entitled to receive a minimum severance payment ranging from nine to 24 months of such employee’s base salary in lieu of the amount to which each would normally be entitled under Abitibi’s standard severance policies in case of termination of employment at Abitibi’s discretion within two years following the announcement of the combination, other than termination for cause.

The aggregate amount of change in control, compensatory and severance payments and other benefits that the executive officers, directors, key employees and affiliates of Abitibi could receive as a result of the combination is approximately C$46,290,728. With respect to certain change in control severance benefits, the foregoing amount assumes that each such individual’s employment is terminated at or following the consummation of the combination under circumstances entitling them to receive such severance payments and benefits. Accordingly, Abitibi’s estimates of these amounts are based on a number of assumptions, and are subject to contingencies that may or may not occur; therefore, these estimates may not reflect actual payouts of change in control or severance payments after completion of the combination.

Bowater. Bowater stockholders and holders of Bowater Canada exchangeable shares should note that some Bowater directors and officers have interests in the combination that are different in certain respects from the interests of other Bowater stockholders and holders of Bowater Canada exchangeable shares generally. As provided in the combination agreement, upon the completion of the combination, seven Bowater designees (including David J. Paterson, Chairman, President and Chief Executive Officer of Bowater) and seven Abitibi designees will become members of the AbitibiBowater Board of Directors. The combination agreement also provides that Mr. Paterson will become President and Chief Executive Officer of AbitibiBowater.

Bowater Severance Agreements and Change in Control Payments. Most executive officers of Bowater are covered by an employment agreement and all are covered by a change in control agreement. In the event of a termination of employment following the combination, an executive could seek either severance benefits under his employment agreement or change in control benefits under his change in control agreement. However, it is the position of Bowater that the combination does not constitute a change in control under any change in control or severance agreement between Bowater and its executive officers, directors, key employees or affiliates.

 

Under each change in control agreement, upon a change in control (as defined in such agreements), if the executive’s employment is terminated within 36 months, or if the executive elects to terminate his employment under certain conditions, the executive could be eligible to receive his accrued salary. Unless the executive’s termination is for “cause,” he also could be eligible to receive a prorated annual incentive award and all benefits under Bowater’s benefit plans and policies to which he is entitled through his date of termination. In addition, the executive could receive, in lieu of any severance payments provided in any applicable employment agreement and depending on the applicable version of the change in control agreement, an amount equal to the sum of: (a) one to three times the executive’s annual base salary; (b) one to three times the highest possible (changed to target in the revised change in control agreements) annual incentive award; (c) one to three times the largest annual contribution that could have been made by Bowater to its savings plans on the executive’s behalf; (d) 10% to 30% of the executive’s annual base salary (as compensation for certain other benefits lost as a result of the termination of employment); (e) an amount equal to the present value of the additional retirement benefits the executive would have earned for one to three years (assuming the waiver of all vesting requirements); and (f) retiree health care and life insurance.

The change in control agreements also generally provide a terminated executive with: (a) either a cash payment of US$20,000 (to be paid in the currency of his country of residence) or outplacement assistance; (b) a grossed up reimbursement of certain excise taxes that may be levied on “excess parachute payments;” (c) a waiver of any non-compete obligation; and (d) under certain agreements, the right to receive a lump sum payment equal to the present value of any non-statutory retirement benefits to which the executive is entitled. A terminated executive also would be entitled to be paid or reimbursed for all costs incurred (or to be incurred) in connection with realizing the benefits of the change in control agreement.

Bowater Stock Options and Other Stock-Based Awards. Upon the consummation of the combination, all of the outstanding equity awards issued to Bowater’s executive officers under Bowater’s equity compensation plans will automatically vest except for those granted in 2007. Some of Bowater’s equity compensation plans also provide for a cash-out of the equity awards at an acceleration price. However, considering the exercise price of most of the outstanding equity awards subject to cash-out provisions is greater than Bowater’s recent stock price, the payout for cashed-out equity awards is expected to be zero (i.e., the awards are “underwater”).

Upon the consummation of the combination, all outstanding awards to directors under the 2004 Non-Employee Director Stock Unit Plan become due and payable. All outstanding stock options held by directors are subject to cash-out provisions upon the consummation of the combination. However, considering the exercise price of the outstanding stock options subject to cash-out provisions is greater than Bowater’s recent stock price, the payout for cashed-out stock options held by directors is expected to be zero.

Certain executive officers also received awards of restricted stock units which will vest (and be payable in common stock of Bowater) if they remain with Bowater through the closing of the combination (or if the closing of the combination does not occur due to the failure of Bowater and Abitibi to obtain regulatory approval or due to the actions of Abitibi).

In addition, Mr. Paterson has received a special grant of up to 54,200 restricted stock units to which he will be entitled upon the meeting of certain performance targets following the completion of the combination. The vesting of the restricted stock units is contingent upon attaining certain post-combination synergies during the two-year period following consummation of the combination.

Bowater Retention Bonus Plan. Bowater executive officers also may be eligible to receive a retention bonus if they remain with Bowater through the consummation of the combination. The retention bonus is payable as of the date of the consummation of the combination or on the date the combination is cancelled (as determined by the Chief Executive Officer of Bowater). The amount of the retention bonus is 50% of the executive’s base salary, plus 50% of a pro rata portion of his target bonus for the year.

 

Because it is the position of Bowater that the combination does not constitute a change in control under any change in control or severance agreements between Bowater and its executive officers, directors, key employees or affiliates, the aggregate amount of compensatory and severance payments and other benefits that such individuals could receive as a result of the combination (which does not include change in control payments) is approximately US$15,830,837. The foregoing aggregate amount assumes that, with respect to estimated severance payments, each such individual’s employment is terminated at or following the consummation of the combination under circumstances entitling them to receive such severance payments or other benefits and, with respect to the vesting of certain restricted stock units, that the combined company attains certain post-combination synergies during the two-year period following the combination. Accordingly, Bowater’s estimates of these amounts are based on a number of assumptions, and are subject to contingencies that may or may not occur, including such assumptions and contingencies set forth above, among others; therefore, the estimates may not reflect the actual payouts of change in control or severance payments or other benefits after the completion of the combination. For more information, see “The Combination—Interests of Bowater’s Directors and Management in the Combination” and “Additional Information Relating to the Bowater Annual Meeting—Executive Compensation—Severance and Change in Control Arrangements.”

 Material Income Tax Consequences of the Combination (pages 157 and 172)

Canadian Tax Consequences to Abitibi Shareholders. The exchange of Abitibi common shares for shares of AbitibiBowater common stock will generally be a taxable event to a Canadian resident holder of Abitibi common shares. Such a shareholder will be considered, at the effective time of the exchange, to have disposed of his or her Abitibi common shares for proceeds of disposition equal to the fair market value of the AbitibiBowater common stock acquired by such shareholder on the exchange. As a result, such a shareholder may realize a capital gain (or capital loss) to the extent that such proceeds of disposition exceed (or are less than) the sum of (i) the adjusted cost base to such shareholder of his or her Abitibi common shares immediately prior to the exchange and (ii) any reasonable costs of disposition.

The exchange of Abitibi common shares for Bowater Canada exchangeable shares will also generally be a taxable event to a Canadian resident holder of Abitibi common shares. However, eligible shareholders who make a valid joint tax election with Bowater Canada, may obtain a full or partial tax deferral (rollover) of any capital gain otherwise arising upon the exchange. For more information see “Material Canadian Federal Income Tax Consequences of the Combination.”

Canadian Tax Consequences to Bowater Stockholders and Holders of Bowater Canada Exchangeable Shares. The exchange of Bowater common stock for shares of AbitibiBowater common stock generally will be tax-deferred to Canadian resident holders for Canadian federal income tax purposes. The filing of the proposed Bowater Canada articles of amendment will not have any tax consequences for Canadian federal income tax purposes. For more information see “Material Canadian Federal Income Tax Consequences of the Combination.”

U.S. Tax Consequences to Abitibi Shareholders. As more fully described herein, U.S. holders of Abitibi common shares generally will not recognize gain or loss for United States federal income tax purposes as a result of their exchange of Abitibi common shares for AbitibiBowater common stock. For more information see “Material U.S. Federal Income Tax Consequences of the Combination.”

U.S. Tax Consequences to Bowater Stockholders. As more fully described herein, U.S. holders of Bowater common stock generally will not recognize gain or loss for United States federal income tax purposes as a result of their exchange of Bowater common stock for AbitibiBowater common stock. For more information see “Material U.S. Federal Income Tax Consequences of the Combination.”

 

 Conditions to the Completion of the Combination (page 140)

Abitibi’s and Bowater’s obligations to effect the transactions contemplated by the combination agreement are subject to a number of conditions that must be satisfied or waived before the completion of the combination, including:

 

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the receipt of the Abitibi shareholder approval and of the Bowater stockholder approval;

 

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the receipt of a final order from the Superior Court of Quebec approving the arrangement;

 

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the absence of legal prohibitions on consummating the transactions contemplated by the combination agreement and the absence of injunctions, orders or laws restraining, enjoining or making illegal the completion of the combination;

 

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the receipt of required approvals under the Competition Act (Canada), which we refer to as the “Canadian Competition Act,” the expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Act, which we refer to as the “HSR Act,” and the receipt of all approvals and expiration or termination of all waiting periods under antitrust laws of other jurisdictions, except with respect to such other jurisdictions as would not, individually or in the aggregate, have a material adverse effect on Abitibi or Bowater;

 

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the receipt, or deemed receipt, of required notices under the Investment Canada Act (Canada), which we refer to as the “Investment Canada Act,” on terms and conditions that will not have a material adverse effect on Abitibi or Bowater;

 

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the receipt of all consents, approvals and authorizations of any governmental authority required of Abitibi, Bowater or any of their respective subsidiaries to consummate the transactions contemplated by the combination agreement, other than matters described in the two preceding bullet points, the failure of which to be obtained, individually or in the aggregate, would have a material adverse effect on Abitibi or Bowater;

 

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the absence of any termination, cancellation, reduction or failure to renew of any of the tree farm licenses, forest resource licenses, forest resource processing facility licenses, forest management agreements, timber permits, cutting rights or timber licenses located in Quebec held by Abitibi or Bowater, unless such termination, cancellation, reduction, non-renewal or other material change, whether taken individually or in the aggregate, would not have a material adverse effect on Abitibi or Bowater;

 

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the effectiveness under the Securities Act of 1933, as amended, of the registration statement on Form S-4 in which this document is included, any registration statement with respect to Bowater Canada exchangeable shares on any alternative form and the registration statement on Form S-3 with respect to shares of AbitibiBowater common stock issuable upon exchange of Bowater Canada exchangeable shares and the absence of any stop order suspending such effectiveness;

 

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the amendment of the share provisions in respect of the Bowater Canada exchangeable shares to reflect the Bowater Canada articles of amendment and the amendment of the voting and exchange trust agreement and support agreement; and

 

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the exercise of dissent rights by Abitibi shareholders in respect of the arrangement by holders of no more than 12% of all of the issued and outstanding Abitibi common shares.

Each of Abitibi’s and Bowater’s respective obligation to effect the transactions contemplated by the combination agreement is subject to the satisfaction of the following additional conditions by the other party:

 

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(x) certain representations and warranties of the other party (or, in the case of Bowater, of Bowater and Bowater Canada) in the combination agreement regarding organization, standing, corporate power, capitalization, authority, takeover laws (in the case of Bowater) and broker or other financial advisor fees, being true and correct in all material respects as of the closing date (or, if applicable, an earlier

 

specified date) and (y) the other representations and warranties of the other party (or, in the case of Bowater, of Bowater and Bowater Canada) in the combination agreement being true and correct (without giving effect to any materiality or material adverse effect qualifier) as of the closing date (or, if applicable, an earlier specified date), except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on such other party;

 

•

the other party (or, in the case of Bowater, Bowater and Bowater Canada) having performed or complied in all material respects with all agreements and covenants required by the combination agreement to be performed or complied with by it on or prior to the closing date, with certain exceptions; and

 

•

the absence of a material adverse effect on the other party since the date of the combination agreement.

 Termination of the Combination Agreement (page 142)

Abitibi and Bowater can jointly agree to terminate the combination agreement at any time. Either company may also terminate the combination agreement, subject to certain restrictions, if:

 

•

the combination is not completed on or before January 31, 2008;

 

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a governmental authority of competent jurisdiction whose approval is a condition to the obligations of the parties to complete the transactions contemplated by the combination agreement has denied such approval and such denial has become final and nonappealable, or if any law makes the consummation of the transactions contemplated by the combination agreement illegal or otherwise prohibited, or if a governmental authority in the United States or Canada has issued an order or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the combination agreement;

 

•

either the Abitibi shareholder approval or the Bowater stockholder approval is not obtained;

 

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there is a breach by the other party of any representation, warranty, covenant or agreement contained in the combination agreement such that the conditions of the terminating party described above with respect to the accuracy of the other party’s representations and warranties or compliance by the other party with its covenants and agreements is incapable of being satisfied prior to January 31, 2008;

 

•

prior to receipt of the other party’s required shareholder or stockholder approval, (x) the other party’s Board of Directors has made a change in recommendation or (y) the other party has intentionally and materially breached its obligations under the combination agreement with respect to (1) the filing of this document and the registration statement on Form S-4 of which this document forms a part, (2) the “no solicitation” covenants, or (3) its obligation to convene its shareholder or stockholder meeting; or

 

•

prior to receipt of the terminating party’s shareholder or stockholder approval, in connection with a superior proposal, (x) the terminating party has complied with the procedures set forth in the combination agreement and (y) immediately prior to such termination the terminating party pays to the other party the termination fee and expense reimbursement.

In the event of termination of the combination agreement, the obligations of Abitibi and Bowater will terminate, except for the provisions relating to confidentiality, payment of fees and expenses and termination of the combination agreement. Except for the foregoing, there will be no liability on the part of either Abitibi or Bowater upon termination of the combination agreement except for liabilities or damages arising from a willful or intentional breach of the combination agreement.

 Termination Fee and Expense Reimbursement (page 143)

Abitibi and Bowater have agreed to reciprocal provisions for the reimbursement, under certain circumstances, of up to US$12 million of reasonable and documented out-of-pocket expenses of the other party incurred in connection with the combination agreement and the payment to the other party, under certain circumstances, of a termination fee of US$28 million.

 

 “No Solicitation” Covenant (page 136)

The combination agreement contains detailed provisions prohibiting Abitibi and Bowater from seeking an alternative transaction. The no solicitation covenant generally prohibits Abitibi and Bowater, as well as their directors, officers, subsidiaries, employees, agents and representatives, from taking any action to solicit an acquisition proposal as further described in “The Combination Agreement and Related Matters—Covenants—No Solicitation.” The combination agreement does not, however, prohibit either Abitibi or Bowater or their respective Boards of Directors from considering, and potentially recommending, an unsolicited bona fide written superior proposal from a third party in the circumstances further described in “The Combination Agreement and Related Matters—Covenants—No Solicitation.”

 Regulatory Matters (page 116)

U.S. Antitrust Filing. It is a condition to the completion of the combination that the applicable waiting period under the HSR Act expires or early termination is granted. Bowater and Abitibi each filed a Pre-Merger Notification and Report Form under the HSR Act with the U.S. Department of Justice and the Federal Trade Commission on February 14 and February 16, 2007, respectively. The applicable waiting period began on February 16, 2007 and would have expired on March 19, 2007; however, on March 19, 2007, each of Abitibi and Bowater received a request for additional information from the U.S. Department of Justice thereby extending the waiting period to 30 days after Abitibi and Bowater substantially comply with this request for additional information.

Canadian Competition Act. It is a condition to the completion of the combination that Abitibi and Bowater (i) receive an advance ruling certificate or (ii) the waiting period under Part IX of the Canadian Competition Act has expired or been waived by the Commissioner and a letter from the Commissioner or a person authorized by the Commissioner that the Commissioner has determined not to make an application for an order under Section 92 of the Canadian Competition Act in respect of the combination (referred to as a no-action letter) has been received. Abitibi and Bowater each filed a long form notification to the Commissioner on February 19, 2007 and the prescribed waiting period applicable to this filing ended on April 2, 2007. The Commissioner’s substantive review continues and Abitibi and Bowater are awaiting completion of this review and obtaining either the advance ruling certificate or no action letter described above.

Investment Canada Act. It is a condition to the completion of the combination that AbitibiBowater (i) receive a notice pursuant to Subsection 21(1) of the Investment Canada Act stating that the combination is likely to be of net benefit to Canada or (ii) the applicable time period for receiving such notice under Subsection 21(1) of the Investment Canada Act will have expired such that the Minister of Industry will be deemed, pursuant to Subsection 21(2) of the Investment Canada Act, to be satisfied that the combination is of net benefit to Canada. AbitibiBowater filed an application under the Investment Canada Act on April 20, 2007 and on April 23, 2007 received confirmation that the filing is complete and the initial 45-day review period has commenced.

Competition Filings in Other Jurisdictions. Abitibi and Bowater submitted a joint filing to the antitrust authorities of Brazil on February 16, 2007, although the approval of this authority is not required to complete the combination. On March 21, 2007, Abitibi and Bowater submitted a joint filing to the Competition Board of Turkey which approved the combination on April 12, 2007. Abitibi and Bowater also may provide notification of the combination to the competition authorities in Greece, but such a filing is not required prior to completion of the combination. It is a condition to the completion of the combination that all waiting periods, approvals, or consents required to be expired, terminated, or obtained prior to the effective time of the combination under applicable antitrust laws other than the HSR Act or the Canadian Competition Act, will have either expired, been terminated or otherwise obtained, as the case may be, except to the extent the failure to obtain such other approvals or consents, or the failure to have such other waiting periods expire or terminate, would not, individually or in the aggregate, have a material adverse effect on Abitibi or Bowater.

Timber and Water Rights. Abitibi and Bowater are required to obtain the consent of the Minister of Natural Resources of Ontario at least 30 days prior to completion of the combination in respect of the timber cutting

 

rights of Abitibi and Bowater in the Province of Ontario. In addition, Abitibi is required to provide notice to the Minister of Natural Resources and Wildlife and the Minister of the Environment of Quebec within 30 days following the completion of the combination in respect of an agreement granting water rights to Abitibi in the Province of Quebec.

 Risk Factors (page 37)

The combination is subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in this document. We believe the following are significant risks related to the combination and the future business of AbitibiBowater:

 

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Abitibi and Bowater may experience difficulties in integrating their businesses and AbitibiBowater may not realize the anticipated synergies, efficiencies and cost savings from the combination.

 

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Abitibi and Bowater must obtain governmental and regulatory consents to complete the combination, which, if delayed, not granted or granted with unacceptable conditions, may jeopardize or delay the completion of the combination, reduce the anticipated benefits of the combination or have a material adverse effect on the business of AbitibiBowater.

 

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AbitibiBowater may not pay dividends.

 

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The value of the shares of AbitibiBowater common stock or Bowater Canada exchangeable shares that you receive in the combination, or of the Bowater Canada exchangeable shares that existing holders of such shares retain following the combination, may be less than the value of your Abitibi common shares, shares of Bowater common stock or Bowater Canada exchangeable shares as of the date of the combination agreement or the dates of the shareholder meetings.

 

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Certain directors and executive officers of Abitibi and Bowater have interests that are different from, or in addition to, interests of Abitibi and Bowater shareholders and holders of Bowater Canada exchangeable shares, generally.

 

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Because the risks and uncertainties facing each of Abitibi and Bowater may differ, the market price, results of operations and financial condition of AbitibiBowater may be affected by risks and uncertainties different from those currently affecting each of Abitibi and Bowater on a stand-alone basis.

 

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The shares of AbitibiBowater common stock to be received by Abitibi shareholders as a result of the combination will have different rights from the Abitibi common shares.

 

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The trading prices of the Bowater Canada exchangeable shares and the AbitibiBowater common stock may not reflect equivalent values.

 

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Abitibi shareholders who elect to receive Bowater Canada exchangeable shares will experience a delay in receiving shares of AbitibiBowater common stock from the date they request an exchange, which may affect the value of the shares the holder receives in an exchange.

 

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The combination requires Abitibi and Bowater to provide notice to or obtain the consent of certain Canadian provincial governments with respect to their timber rights in such provinces.

 

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Each of Abitibi and Bowater is restricted under the combination agreement from pursuing alternative transactions.

 

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The ability of Abitibi shareholders to receive tax deferred treatment on the exchange of their shares in the combination may be limited by the Bowater Canada exchangeable share limit.

 

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AbitibiBowater will face intense competition in the forest products industry and the failure to compete effectively would have a material adverse effect on our business, financial condition and results of operations.

 

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AbitibiBowater will have substantial indebtedness that could adversely affect our financial health and our efforts to reduce this indebtedness may not be successful.

 

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Developments in alternative media could continue to adversely affect the demand for AbitibiBowater’s products.

 

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The forest product industry is highly cyclical. Fluctuations in the prices of and the demand for our products could result in smaller profit margins and lower sales volumes.

 

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AbitibiBowater’s manufacturing businesses may have difficulty obtaining fiber at favorable prices, or at all.

 

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An increase in the cost of AbitibiBowater’s purchased energy, chemicals and other raw materials would lead to higher manufacturing costs, thereby reducing our margins.

 

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Currency fluctuations may adversely affect AbitibiBowater’s results of operations and financial condition and changes in foreign currency exchange rates can affect AbitibiBowater’s competitive position, selling prices and manufacturing costs.

 

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AbitibiBowater could experience disruptions in operations and/or increased labor costs due to labor disputes.

 

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AbitibiBowater’s operations require substantial capital and we may not have adequate capital resources to provide for all of our capital requirements.

 

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AbitibiBowater will be exposed to changes in banking and capital markets and changes in interest rates.

 

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Changes in laws and regulations could adversely affect AbitibiBowater’s results of operations.

 

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Changes in the political or economic conditions in Canada, the United States or other countries in which AbitibiBowater’s products will be manufactured or sold could adversely affect our results of operations.

 

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AbitibiBowater may be subject to environmental liabilities.

 

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AbitibiBowater has net liabilities with respect to our pension plans and the actual cost of our pension plan obligations could exceed current provisions.

 

 SELECTED HISTORICAL FINANCIAL DATA

Selected Historical Consolidated Financial Data of Abitibi

The following selected historical financial data of Abitibi for each of the fiscal years in the five-year period ended December 31, 2006 have been derived from the audited consolidated financial statements of Abitibi. This information is only a summary and should be read in conjunction with the audited consolidated financial statements of Abitibi and the notes thereto and the “Management’s Discussion and Analysis” filed with the Canadian securities regulatory authorities on SEDAR on March 15, 2007 and contained in Abitibi’s report on Form 40-F filed with the SEC on March 15, 2007, which are incorporated by reference into this document. See “Where You Can Find More Information.”

 

		Year Ended December 31,
CANADIAN GAAP/ (C$)		2006			2005				2004				2003			2002
		(in millions, except per share data)
Consolidated Statement of Earnings Data:
Sales		$	4,851		$	5,342			$	5,299			$	4,980		$	5,221
Net earnings (loss) from continuing operations			54			(353	)			(126	)			152			(112	)
Net earnings (loss)			54			(350	)			(36	)			175			257
Net earnings (loss) per share from continuing operations—basic and diluted			0.12			(0.81	)			(0.29	)			0.35			(0.25	)
Net earnings (loss) per share—basic and diluted			0.12			(0.80	)			(0.08	)			0.40			0.58
Cash dividends declared per share			0.05			0.10				0.10				0.18			0.40
		As at December 31,
		2006			2005				2004				2003			2002
		(in millions)
Consolidated Balance Sheet Data:
Total assets		$	7,962		$	8,044			$	9,787			$	10,241		$	11,156
Total long-term debt (including current portion)			3,864			3,762				4,612				4,701			5,343
Shareholders’ equity			2,451			2,401				2,726				2,870			3,086

Abitibi’s audited consolidated financial statements are prepared in accordance with Canadian GAAP, which differ in some respects from U.S. GAAP. The following provides Abitibi’s consolidated financial information as reconciled to U.S. GAAP in Canadian dollars. This information should be read in conjunction with the discussion of the principal differences between Canadian GAAP and U.S. GAAP as well as the reconciliation and other financial information provided in Note 29 to Abitibi’s audited consolidated financial statements for the year ended December 31, 2006 filed with the Canadian securities regulatory authorities on SEDAR on March 15, 2007 and contained in Abitibi’s report on Form 40-F filed with the SEC on March 15, 2007, which are incorporated by reference into this document. See “Where You Can Find More Information.”

 

		Year Ended December 31,
U.S GAAP/ (C$)		2006			2005				2004				2003			2002
		(in millions, except per share data)
Consolidated Statement of Earnings Data:
Sales		$	4,787		$	5,266			$	5,162			$	4,829		$	4,984
Net earnings (loss) from continuing operations			55			(350	)			(113	)			194			(26	)
Net earnings (loss)			55			(350	)			(38	)			191			280
Net earnings (loss) per share from continuing operations—basic and diluted			0.12			(0.80	)			(0.26	)			0.44			(0.06	)
Net earnings (loss) per share—basic and diluted			0.12			(0.80	)			(0.09	)			0.44			0.63
Cash dividends declared per share			0.05			0.10				0.10				0.18			0.40