10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

OR

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

For the transition period from          to

Commission File Number: 001-32240

NEENAH PAPER, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-1308307
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3460 Preston Ridge Road Alpharetta, Georgia	30005
(Address of principal executive offices)	(Zip Code)

(678) 566-6500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

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

Large accelerated filer o	Accelerated filer x		Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

As of July 31, 2008, there were 14,592,824 shares of the Company’s common stock outstanding.

TABLE OF CONTENTS

Part I — Financial Information	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosure About Market Risk	41
Item 4. Controls and Procedures	42
Part II — Other Information	43
Item 1. Legal Proceedings	43
Item 1a. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 4. Submission of Matters to a Vote of Security Holders	44
Item 6. Exhibits	45

2

Part I—FINANCIAL INFORMATION

Item 1.  Financial Statements

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share and per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net sales	$	194.5		$	206.1		$	400.1		$	378.8
Cost of products sold	165.6			168.7			337.0			305.9
Gross profit	28.9			37.4			63.1			72.9
Selling, general and administrative expenses	17.6			21.1			38.8			38.2
Other income - net	(2.9		)	(1.9		)	(7.8		)	(2.9		)
Operating income	14.2			18.2			32.1			37.6
Interest expense - net	6.1			6.6			12.3			12.6
Income from continuing operations before income taxes	8.1			11.6			19.8			25.0
Provision for income taxes	1.9			4.2			5.1			7.5
Income from continuing operations	6.2			7.4			14.7			17.5
Loss from discontinued operations	(30.6		)	(4.8		)	(112.0		)	(0.2		)
Net income (loss)	$	(24.4	)	$	2.6		$	(97.3	)	$	17.3
Earnings (Loss) Per Common Share
Basic
Continuing operations	$	0.43		$	0.50		$	1.00		$	1.18
Discontinued operations	(2.10		)	(0.32		)	(7.62		)	(0.01		)
	$	(1.67	)	$	0.18		$	(6.62	)	$	1.17
Diluted
Continuing operations	$	0.42		$	0.49		$	0.99		$	1.16
Discontinued operations	(2.08		)	(0.32		)	(7.55		)	(0.02		)
	$	(1.66	)	$	0.17		$	(6.56	)	$	1.14
Weighted Average Common Shares Outstanding (in thousands)
Basic	14,591			14,857			14,707			14,835
Diluted	14,707			15,221			14,839			15,124
Cash Dividends Declared Per Share of Common Stock	$	0.10		$	0.10		$	0.20		$	0.20

See Notes to Condensed Consolidated Financial Statements

3

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

	June 30, 2008		December 31, 2007
ASSETS
Current Assets
Cash and cash equivalents	$	1.8	$	2.4
Accounts receivable (less allowances of $1.8 million and $2.1 million)	125.3		145.4
Inventories	99.2		110.6
Other receivables	10.7		9.7
Income taxes receivable	12.5		0.6
Deferred income taxes (Note 5)	57.7		1.9
Prepaid and other current assets (Note 4)	19.1		19.6
Assets held for sale—discontinued operations	5.5		—
Total Current Assets	331.8		290.2
Property, Plant and Equipment, at cost	591.4		925.1
Less accumulated depreciation	249.0		492.8
Property, plant and equipment—net	342.4		432.3
Deferred Income Taxes	34.4		55.4
Goodwill	114.8		106.6
Intangible Assets—net	35.0		33.6
Other Assets	9.5		14.7
TOTAL ASSETS	$	867.9	$	932.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Debt payable within one year	$	19.4	$	10.9
Accounts payable	77.6		86.9
Accrued salaries and employee benefits	20.1		34.2
Accrued income taxes	15.4		13.7
Accrued expenses	19.5		24.2
Liabilities related to discontinued operations	17.4		—
Total Current Liabilities	169.4		169.9
Long-term Debt	342.5		321.2
Deferred Income Taxes	32.2		30.4
Noncurrent Employee Benefits	83.6		109.9
Other Noncurrent Obligations	11.3		13.4
TOTAL LIABILITIES	639.0		644.8
Commitments and Contingencies (Note 13)
TOTAL STOCKHOLDERS’ EQUITY	228.9		288.0
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	867.9	$	932.8

See Notes to Condensed Consolidated Financial Statements

4

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Six Months Ended June 30,
	2008			2007
OPERATING ACTIVITIES
Net income (loss)	$	(97.3	)	$	17.3
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	20.8			22.0
Stock-based compensation	2.0			3.5
Excess tax benefit from stock-based compensation	—			(0.6		)
Deferred income tax benefit	(56.8		)	(1.1		)
Gain on curtailment of post employment benefit plan	(4.3		)	—
Gain on sale of woodlands	—			(2.9		)
Asset impairment loss (Note 5)	91.2			—
Loss on disposal - transfer of the Pictou Mill (Note 5)	29.7			—
Loss on disposal - transfer of the Pictou Mill post-employment benefit plans (Note 5)	53.7			—
(Gain) loss on asset dispositions	(2.9		)	0.1
Increase in working capital, net of effects of acquisitions	(28.0		)	(16.8		)
Pension and other post-employment benefits	(6.5		)	0.1
Other	(0.9		)	—
NET CASH PROVIDED BY OPERATING ACTIVITIES	0.7			21.6
INVESTING ACTIVITIES
Capital expenditures	(17.8		)	(23.6		)
Increase in restricted cash	—			(5.6		)
Acquisition cost of Fox River, net of cash acquired	—			(55.3		)
Additional acquisition cost of Neenah Germany	—			(1.5		)
Payment in conjunction with transfer of the Pictou Mill	(2.7		)	—
Proceeds from asset sales (Note 4)	3.2			—
Other	0.3			0.3
NET CASH USED IN INVESTING ACTIVITIES	(17.0		)	(85.7		)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	33.0			74.8
Debt issuance costs	—			(0.7		)
Repayments of long-term debt	(14.6		)	(11.9		)
Short-term borrowings	11.6			4.8
Repayments of short-term debt	(1.7		)	(4.7		)
Share purchases (Note 12)	(9.4		)	—
Cash dividends paid	(3.0		)	(3.0		)
Proceeds from exercise of stock options	—			3.6
Excess tax benefit from stock-based compensation	—			0.6
Other	(0.2		)	(0.1		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	15.7			63.4
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—			0.2
NET DECREASE IN CASH AND CASH EQUIVALENTS	(0.6		)	(0.5		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	2.4			1.6
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1.8		$	1.1
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest, net of interest expense capitalized	$	11.4		$	11.9
Cash paid during period for income taxes	$	0.8		$	3.8
Non-cash investing activities:
Liability for equipment acquired	$	2.2		$	3.8

See Notes to Condensed Consolidated Financial Statements

5

NEENAH PAPER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except as noted)

Note 1.  Background and Basis of Presentation

Background

Neenah Paper, Inc. (“Neenah” or the “Company”), a Delaware corporation, was incorporated in April 2004 in contemplation of the spin-off by Kimberly-Clark Corporation (“Kimberly-Clark”) of its fine paper and technical products businesses in the United States and its Canadian pulp business (collectively, the “Pulp and Paper Business”) . In November 2004, Kimberly-Clark completed the distribution of all of the shares of Neenah’s common stock to the stockholders of Kimberly-Clark (the “Spin-Off”). As a result of the Spin-Off, Kimberly-Clark transferred all of the assets and liabilities of the Pulp and Paper Business to Neenah. Following the Spin-Off, Neenah is an independent public company and Kimberly-Clark has no continuing stock ownership.

The fine paper business is a leading producer of premium writing, text, cover and specialty papers used in corporate identity packages, corporate annual reports, invitations, personal stationery and high-end packaging for point of sale advertising. The technical products business is a leading producer of transportation and other filter media, durable, saturated and coated substrates for a variety of end uses; and nonwoven wall coverings. The pulp business primarily produces northern bleached softwood kraft pulp used by paper mills to manufacture tissue, printing and writing papers.  At the time of the Spin-Off, the pulp business consisted of pulp mills in Terrace Bay, Ontario and Pictou, Nova Scotia and the related woodlands (including 1,000,000 acres in Nova Scotia).

In June 2006, the Company’s wholly owned subsidiary, Neenah Paper Company of Canada (“Neenah Canada”) sold approximately 500,000 acres of woodlands in Nova Scotia for proceeds of $139.1 million (proceeds net of transaction costs were $134.8 million). The woodlands sale agreement included a fiber supply agreement to secure a source of fiber for the Company’s Pictou pulp mill. See Note 5, “Discontinued Operations—Sale of Woodlands in 2006.”

In August 2006, Neenah Canada transferred the Terrace Bay, Ontario pulp mill and related woodlands operations (“Terrace Bay”) to certain affiliates of Buchanan Forest Products Ltd. (“Buchanan”). Buchanan acquired substantially all of the assets of Terrace Bay and assumed responsibility for substantially all of the liabilities related to its future operation.  The results of operations of Terrace Bay are reported as discontinued operations on the condensed consolidated statements of operations for the three and six months ended June 30, 2008 and 2007.  See Note 5, “Discontinued Operations—Transfer of Terrace Bay.”

In October 2006, the Company purchased the stock of FiberMark Services GmbH & Co. KG and the stock of FiberMark Beteiligungs GmbH (collectively, “Neenah Germany”).  Neenah Germany was acquired from FiberMark, Inc. (“FiberMark”) and FiberMark International Holdings LLC for $220.1 million in cash (net of cash acquired). The transaction was financed from available cash and debt drawn against the Company’s existing revolving credit facility. The Neenah Germany assets consist of two mills located near Munich, Germany and a third mill near Frankfurt, Germany, that produce a wide range of products, including transportation and other filter media, nonwoven wall coverings, masking and other tapes, abrasive backings, and specialized printing and coating substrates. The results of Neenah Germany are being reported as part of the Company’s Technical Products segment.

In March 2007, the Company acquired the stock of Fox Valley Corporation and its subsidiary, Fox River Paper Company, LLC (collectively, “Fox River”) for approximately $54.7 million in cash (net of cash acquired). The transaction was financed from available cash and debt drawn against the Company’s existing revolving credit facility. At the time of the acquisition, the Fox River assets consisted of four U.S. paper mills and various related assets. The results of Fox River are being reported as part of the Company’s Fine Paper segment and have been included in the Company’s consolidated financial results since the acquisition date. See Note 4, “Acquisitions,” for a summary of the allocation of the purchase price to the fair value of assets acquired and liabilities assumed, and a description of certain post-acquisition restructuring activities.

6

In February 2008, the Company committed to a plan to sell its pulp mill in Pictou, Nova Scotia (the “Pictou Mill”) and approximately 500,000 acres of woodland assets in Nova Scotia (the “Woodlands”).  In June 2008, Neenah Canada completed the sale of the Pictou Mill to Northern Pulp Nova Scotia Corporation (“Northern Pulp”), a new operating company jointly owned by Atlas Holdings LLC and Blue Wolf Capital Management LLC.  At closing, Neenah Canada made a payment of $1.8 million to Northern Pulp. Neenah Canada will make a second and final payment to Northern Pulp of approximately $8.7 million (which is net of an estimated $1.3 million favorable working capital settlement) in the third quarter of 2008. Pursuant to the terms of the transaction, Northern Pulp assumed all of the assets and liabilities associated with the Pictou Mill, as well as existing customer contracts, supply agreements, labor agreements and pension obligations. The sale excluded the Woodlands.

Management believes it is probable that the sale of the Woodlands will be completed within 12 months.  As of June 30, 2008, the assets and liabilities of the Woodlands are reported as assets held for sale—discontinued operations and liabilities related to discontinued operations, respectively, on the condensed consolidated balance sheet.  For the three and six months ended June 30, 2008, the results of operations of the Pictou Mill and the Woodlands and the loss on disposal of the Pictou Mill are reported as discontinued operations in the condensed consolidated statements of operations. The consolidated results of operations for all prior periods have been restated to reflect the results of operations of the Pictou Mill and the Woodlands as discontinued operations.  See Note 5, “Discontinued Operations—Sale of the Pictou Mill and the Woodlands.”

Basis of Consolidation and Presentation

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Management believes that the disclosures made are adequate for a fair presentation of the Company’s results of operations, financial position and cash flows. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of operations, financial position and cash flows for the interim periods presented herein.  The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts and disclosures.  Actual results may vary from these estimates.

These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.  The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

The condensed consolidated interim financial statements of Neenah and its subsidiaries included herein are unaudited, except for the December 31, 2007 condensed consolidated balance sheet, which was derived from audited financial statements.  The condensed consolidated financial statements include the financial statements of the Company, and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Earnings (Loss) per Share (“EPS”)

Basic earnings (loss) per share (“EPS”) was computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the three and six months ended June 30, 2008 and 2007.  Diluted EPS was calculated to give effect to all potentially dilutive common shares using the “Treasury Stock” method. Outstanding stock options, restricted shares, restricted stock units and restricted stock units with performance conditions represent the only potentially dilutive effects on the Company’s weighted-average shares.  For the three and six months ended June 30, 2008, approximately 1,550,000 and 1,420,000 potentially dilutive options, respectively, were excluded from the computation of dilutive common shares.  For the three and six months ended June 30, 2007, approximately 85,000 and 195,000 potentially dilutive options, respectively, were excluded from the computation of dilutive common shares.

7

The following table presents the computation of basic and diluted shares of common stock used in the computation of EPS (amounts in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2008	2007	2008	2007
Weighted-average basic shares outstanding	14,591	14,857	14,707	14,835
Add: Assumed incremental shares under stock compensation plans	116	364	132	289
Assuming dilution	14,707	15,221	14,839	15,124

Note 2.  Accounting Standard Changes

In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets”
(“FSP 142-3”).  FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.”  FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited.  The Company is reviewing FSP 142-3 and is unable to estimate the impact on its financial position, results of operations or cash flows.

Note 3.  Comprehensive Income (Loss)

Comprehensive income (loss) includes, in addition to net income (loss), gains and losses recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheet. These gains and losses are referred to as other comprehensive income items. Accumulated other comprehensive income (loss) consists of foreign currency translation gains and (losses), deferred gains and (losses) on cash flow hedges, and adjustments related to pensions and other post-employment benefits. Income taxes are not provided for foreign currency translation adjustments because they relate to indefinite investments in Neenah Germany. The Company also does not provide income taxes for foreign currency translation adjustments for its Canadian pulp operations.  For the three and six months ended June 30, 2008, the Company did not record the deferred tax consequences that may result if funds are repatriated upon the expected disposal of the Woodlands because a reasonable estimate of the impact could not be made. As of June 30, 2008 and December 31, 2007, accumulated other comprehensive income was $147.3 million and $98.5 million, respectively.

8

The following table presents the components of comprehensive income (loss):

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
Net income (loss)	$	(24.4	)	$	2.6	$	(97.3	)	$	17.3
Other comprehensive income (loss):
Unrealized foreign currency translation gain (loss)	(0.6		)	12.5		17.4			16.3
Adjustments to pension and other post-employment benefit liabilities (a)	34.0			0.6		31.7			1.0
Deferred gain (loss) on cash flow hedges	—			1.5		(0.3		)	1.3
Total other comprehensive income	33.4			14.6		48.8			18.6
Comprehensive income (loss)	$	9.0		$	17.2	$	(48.5	)	$	35.9

(a) In connection with the sale of the Pictou Mill, Northern Pulp assumed responsibility for Neenah Canada’s Nova Scotia, Canada defined benefit pension plan (the “Nova Scotia Plan”). As a result, the Company reclassified approximately $53.7 million ($33.2 million after income taxes) in deferred adjustments related to pensions and other post-employment benefits to loss from discontinued operations on the condensed consolidated statement of operations. See Note 5, “Discontinued Operations—Sale of the Pictou Mill and the Woodlands.”

Note 4.  Acquisitions

In March 2007, the Company acquired the stock of Fox River for $54.7 million in cash (net of cash acquired). Included in the cost of the acquisition were amounts for the repayment of debt, the payment of deferred employee compensation obligations of the acquired companies and fees and expenses directly related to the acquisition. The transaction was financed from available cash and debt drawn against the Company’s existing revolving credit facility. At the time of the acquisition, the Fox River assets consisted of four U.S. paper mills and various related assets, producing premium fine papers with well-known brands including STARWHITE®, SUNDANCE®, ESSE® and OXFORD®. The results of Fox River are reported as part of the Company’s Fine Paper segment and have been included in the Company’s consolidated financial results since the acquisition date.

In May 2007, the Company closed the former Fox River fine paper mill located in Housatonic, Massachusetts (the “Housatonic Mill”). In September 2007, the Company ceased manufacturing operations at the former Fox River fine paper mill located in Urbana, Ohio (the “Urbana Mill”). Converting operations at the Urbana Mill were phased out during the first quarter of 2008. The Company also closed a Fox River distribution center located in Neenah, Wisconsin during the second quarter of 2008. The closures of the Housatonic Mill and the Urbana Mill allowed the Company to maximize cost efficiencies by shifting fine paper manufacturing to utilize available capacity at its other fine paper mills.  For the three and six months ended June 30, 2008, the Company recognized a gain of approximately $3.0 million from the sale of the land and buildings at the Urbana Mill and certain real property at the Housatonic Mill.  The remaining long-lived assets of the Housatonic Mill and the Urbana Mill and the distribution center are classified as assets held for sale and recorded on the condensed consolidated balance sheet in prepaid and other current assets.  Assets held for sale are valued at the lower of cost (which was fair value at acquisition for the Fox River assets) or fair value less cost to sell.  As of June 30, 2008, the remaining assets of the Housatonic Mill, the Urbana Mill and the distribution center held for sale are reported at their aggregate cost of $7.1 million.

As of June 30, 2008, the Company had also substantially completed the process of terminating certain Fox River sales and administrative employees whose jobs were eliminated as the acquired Fox River business was integrated with the Company’s existing fine paper business. Approximately 318 former hourly and salaried employees at the Housatonic Mill and the Urbana Mill, and Fox River sales and administrative employees have or will receive severance benefits in conjunction with the previously described closure and integration activities.  All the previously described integration activities were components of the Company’s plan to exit certain activities of the acquired Fox River business and were accounted for in accordance with Emerging Issues Task Force Issue 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination (“EITF 95-3”).

9

The total cost of the Fox River acquisition has been allocated to the assets acquired and liabilities assumed by the Company in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”). The Company did not acquire any in-process research and development assets as part of the acquisition.  The following table summarizes the final allocation of the purchase price to the estimated fair value of the Fox River assets acquired and liabilities assumed at March 1, 2007:

Assets Acquired
Accounts receivable	$	18.8
Inventories	34.8
Current deferred income taxes	0.1
Assets held for sale	2.2
Prepaid and other current assets	1.8
Property, plant and equipment	32.9
Unamortizable intangible assets	2.6
Amortizable intangible assets	0.3
Deferred income taxes	16.8
Total assets acquired	110.3
Liabilities Assumed
Accounts payable	13.3
Accrued salaries and employee benefits	5.3
Accrued expenses	14.0
Noncurrent employee benefits	17.6
Other noncurrent obligations	5.4
Total liabilities assumed	55.6
Net assets acquired	$	54.7

The liabilities in the preceding table include approximately $12.4 million for the cost of post-acquisition exit activities that the Company recognized in accordance with EITF 95-3. As of June 30, 2008, approximately $4.9 million in severance benefits had been paid to 315 former Fox River employees and severance benefits due to three former Fox River employees remained unpaid.  The severance benefits for former Fox River employees include benefits that will be paid over a period of 18 to 36 months from the date of acquisition pursuant to the terms of employment agreements with certain former Fox River executives. As of June 30, 2008, approximately $1.3 million had been paid under such agreements and approximately $0.9 million remained to be paid. The Company expects the payment of all other severance benefits to be substantially completed by December 31, 2008. The following table presents the status of post-acquisition restructuring liabilities as of and for the six months ended June 30, 2008:

	Severance benefits			Contract termination  costs			Environmental clean-up and monitoring			Total
Post acquisition exit costs	$	6.4		$	4.9		$	1.2		$	12.5
Payments for the year ended December 31, 2007	(3.1		)	(1.5		)	(0.2		)	(4.8		)
Post acquisition exit costs at December 31, 2007	3.3			3.4			1.0				7.7
Adjustments to finalize exit plan	(0.2		)	0.1			—			(0.1		)
Payments for the six months ended June 30, 2008	(1.8		)	(1.0		)	(0.1		)	(2.9		)
Amounts recognized in income	—			(0.4		)	(0.1		)	(0.5		)
Post acquisition exit costs at June 30, 2008	$	1.3		$	2.1		$	0.8		$	4.2

10

Note 5.  Discontinued Operations

Sale of the Pictou Mill and the Woodlands

In February 2008, the Company committed to a plan to sell the Pictou Mill and the Woodlands.  In June 2008, Neenah Canada completed the sale of the Pictou Mill to Northern Pulp, a new operating company jointly owned by Atlas Holdings LLC and Blue Wolf Capital Management LLC.  At closing, Neenah Canada made a payment of $1.8 million to Northern Pulp. In addition, the Company paid approximately $0.9 million of transaction costs at closing. Neenah Canada will make a second and final payment to Northern Pulp of approximately $8.7 million (which is net of an estimated $1.3 million favorable working capital settlement) in the third quarter of 2008. Pursuant to the terms of the transaction, Northern Pulp assumed all of the assets and liabilities associated with the Pictou Mill, as well as existing customer contracts, supply agreements (including the Pulp Supply Agreement, as defined below, with Kimberly-Clark), labor agreements and pension obligations. The sale excluded the Woodlands.

In conjunction with the sale of the Pictou Mill, the Company entered into a stumpage agreement (the “Stumpage Agreement”) which allows Northern Pulp to harvest an average of approximately 400,000 metric tons of softwood timber annually from the Woodlands. The Stumpage Agreement is for a term of ten years and Northern Pulp has the option to extend the agreement for an additional three years.  For calendar year 2008, Northern Pulp will pay a nominal amount for approximately 236,000 metric tons of softwood timber harvested under the Stumpage Agreement.  As a result, the Company recorded $2.8 million in deferred revenue for the estimated fair value of the timber to be harvested by Northern Pulp in calendar 2008.  The loss on transfer of the Pictou Mill was increased by an amount equal to such deferred revenue.  For timber purchases during calendar year 2009, Northern Pulp will pay the then current stumpage rate charged by the Nova Scotia provincial government for harvesting on government licensed lands. The price paid for timber purchases during the remainder of the Stumpage Agreement will be based on an agreed upon index.   The Company believes the Stumpage Agreement prices for calendar year 2009 and beyond represent market rates.  Northern Pulp will pay all costs associated with maintaining the Woodlands and harvesting the timber.  An agreement to sell the Woodlands will require the buyer to assume the Stumpage Agreement.

During the first quarter of 2008, the Company determined that the estimated value it would receive from a sale of the Pictou Mill indicated that it would not recover the carrying value of the mill’s long-lived assets.  As a result, for the three and six months ended June 30, 2008, the Company recognized non-cash, pre-tax impairment charges of $0.7 million and $91.2 million, respectively, to write-off the carrying value of the Pictou Mill’s long-lived assets. In addition, for the three and six months ended June 30, 2008, the Company recorded pre-tax income (expense) of $9.8 million and ($29.7 million), respectively, to recognize the loss on disposal of the Pictou Mill.

In conjunction with the sale of the Pictou Mill, Northern Pulp assumed responsibility for all pension and other post-employment benefit obligations for active and retired employees of the mill.  The Company accounted for the transfer of these liabilities as a settlement of post-employment benefit obligations pursuant to Statement of Financial Accounting Standards No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.”  For the three and six months ended June 30, 2008, the Company recognized a non-cash, pre-tax settlement loss of $53.7 million due to the reclassification of deferred adjustments related to pensions and other post-employment benefits from accumulated other comprehensive income to loss from discontinued operations in the condensed consolidated statement of operations.

Management believes that it is probable that the sale of the Woodlands will be completed within 12 months.  As of June 30, 2008, the assets and liabilities of the Woodlands are reported as assets held for sale—discontinued operations and liabilities related to discontinued operations, respectively, on the condensed consolidated balance sheet.  For the three and six months ended June 30, 2008, the results of operations of the Pictou Mill and the Woodlands and the loss on disposal of the Pictou Mill are reported as discontinued operations in the condensed consolidated statements of operations. The consolidated results of operations for all prior periods have been restated to reflect the results of operations of the Pictou Mill and the Woodlands as discontinued operations.  Assets held for sale are valued at the lower of cost or fair value less cost to sell.  As of June 30, 2008, the assets of the Woodlands are reported at their historic book cost of $4.0 million.

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Transfer of Terrace Bay

In August 2006, Neenah Canada transferred Terrace Bay to Buchanan.  Buchanan assumed responsibility for substantially all liabilities related to the future operation of Terrace Bay. At closing, Neenah Canada retained pension and long-term disability obligations for current and former mill employees and post-employment medical and life insurance obligations for current retirees.  During the first quarter of 2008, Neenah Canada paid approximately $5.0 million to settle litigation related to the reduction and/or elimination of certain retiree benefits following Neenah Canada’s transfer of Terrace Bay to Buchanan.  In conjunction with the settlement, Neenah Canada agreed to continue certain retiree life insurance benefits at a reduced rate in the future.  As a result of the settlement, for the six months ended June 30, 2008, Neenah Canada recorded a curtailment gain of approximately $4.3 million which is recorded in other income-net on the condensed consolidated statement of operations.

As a closing condition of the agreement to transfer Terrace Bay to Buchanan, Neenah Canada initiated plans to curtail and settle its Ontario, Canada defined benefit pension plan (the “Ontario Plan”). In December 2007, the Ontario Plan was terminated and all outstanding pension obligations for active employees were settled through the purchase of annuity contracts or lump-sum payments pursuant to participant elections.

In conjunction with the transfer of Terrace Bay, the Company entered into a pulp manufacturing agreement (the “Pulp Manufacturing Agreement”) with Terrace Bay Pulp Inc. (“TBPI”).  Pursuant to the Pulp Manufacturing Agreement, the Company agreed to sell pulp manufactured by TBPI at Terrace Bay to satisfy the Company’s supply obligations under an amended and restated pulp supply agreement with Kimberly-Clark (as amended and restated, the “Pulp Supply Agreement”). The price paid by the Company under the Pulp Manufacturing Agreement equalled the price paid by Kimberly-Clark pursuant to the Pulp Supply Agreement. TBPI agreed to perform substantially all of the Company’s obligations under the Pulp Supply Agreement and, together with three of its affiliated companies, to indemnify and hold the Company harmless for any claims arising from TBPI’s failure to so perform.

For the three and six months ended June 30, 2008 and 2007, the Company did not recognize revenue or cost in its condensed consolidated statement of operations for pulp manufactured by TBPI for sale to Kimberly-Clark.  The Company receives payments from Kimberly-Clark for Kimberly-Clark’s purchases of pulp from TBPI and immediately remits such payments to TBPI.  In general, Kimberly-Clark pays for such pulp purchases in approximately 45 days from receipt of the product.  As of June 30, 2008, the Company had a receivable from Kimberly-Clark for $20.9 million recorded in accounts receivable, net, $1.3 million of cash received from Kimberly-Clark that had not been remitted to Buchanan recorded in cash and cash equivalents and a $22.2 million payable to TBPI recorded in accounts payable on the consolidated balance sheet.

In June 2007, the Company notified Kimberly-Clark of its intention to terminate its obligation to supply pulp from Terrace Bay under the Pulp Supply Agreement effective June 2008.  The Pulp Manufacturing Agreement was terminated contemporaneously with the Terrace Bay portion of the Pulp Supply Agreement in June 2008.

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The results of operations of the Pictou Mill, the Woodlands and Terrace Bay and the loss on sale of the Pictou Mill are reported as discontinued operations in the condensed consolidated statements of operations for each period presented. The following table summarizes the results of discontinued operations:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net sales, net of intersegment sales (a)	$	48.1		$	52.0		$	98.9		$	104.0
Discontinued operations:
Income (loss) from operations
Pictou Mill and the Woodlands (b)	$	(8.7	)	$	(6.6	)	$	(101.0	)	$	1.6
Terrace Bay	(0.2		)	(1.2		)	(0.2		)	(2.0		)
Loss from operations	(8.9		)	(7.8		)	(101.2		)	(0.4		)
Gain (loss) on disposal (c)	9.8			—			(29.7		)	—
Loss on settlement of post-employment benefit plans	(53.7		)	—			(53.7		)	—
Loss on disposal	(43.9		)	—			(83.4		)	—
Loss before income taxes	(52.8		)	(7.8		)	(184.6		)	(0.4		)
Benefit for income taxes	22.2			3.0			72.6			0.2
Loss from discontinued operations	$	(30.6	)	$	(4.8	)	$	(112.0	)	$	(0.2	)

(a)Represent net sales of the Pictou Mill and the Woodlands only.

(b)For the three and six months ended June 30, 2008, the loss from operations includes non-cash, pre-tax impairment charges of $0.7 million and $91.2 million, respectively, to write-off the carrying value of the Pictou Mill’s long-lived assets.

(c)The gain on disposal for the three months ended June 30, 2008 represents an adjustment of the previously estimated loss on sale of the Pictou Mill to the actual loss recognized upon closing the transaction.  The adjustment to the estimated loss was primarily due to the recognition of costs associated with scheduled maintenance downtime which occurred prior to closing.

The following table summarizes assets held for sale and liabilities related to discontinued operations:

	June 30, 2008
Current Assets
Other receivables	$	1.5
The Woodlands	4.0
Assets Held for Sale - Discontinued Operations	$	5.5
Current Liabilities
Accounts payable	$	5.9
Accrued expenses	2.8
Payable to Northern Pulp	8.7
Liabilities related to discontinued operations	$	17.4

As of June 30, 2008, the deferred tax consequences related to the Woodlands are reported as current deferred income taxes on the condensed consolidated balance sheet to conform to the classification of the assets and liabilities of discontinued operations as current assets and liabilities.

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Sale of Woodlands in 2006

In June 2006, Neenah Canada sold approximately 500,000 acres of woodlands in Nova Scotia to Atlantic Star Forestry LTD and Nova Star Forestry LTD (collectively, the “Purchaser”) for proceeds of $139.1 million (proceeds net of transaction costs were $134.8 million). Neenah Canada received the total proceeds from the sale in cash at closing. Neenah Canada also entered into a fiber supply agreement (the “FSA”) with the Purchaser to secure a source of fiber for the Pictou Mill. Following the sale, Neenah Canada had approximately 500,000 acres of owned and 200,000 acres of licensed or managed woodlands in Nova Scotia, Canada. Neenah Canada transferred the FSA to Northern Pulp in conjunction with the sale of the Pictou Mill. Neenah Canada’s rights to harvest timber on the 200,000 acres of licensed or managed lands in Nova Scotia were also transferred to Northern Pulp as part of the sale.

The sale qualified for gain recognition under the “full accrual method” described in Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (“SFAS 66”).  Neenah Canada’s commitment to accept acreage offered by the Purchaser to satisfy the timber requirements for the first 18 months of the FSA represented a “constructive obligation.”  As a result, Neenah Canada deferred approximately $9.1 million of the gain on sale, which represented Neenah Canada’s estimated maximum exposure to loss of profit due to the constructive obligation under the FSA.  For the three and six months ended June 30, 2007, Neenah Canada recognized approximately $1.5 million and $2.9 million, respectively, of such deferred gain.  As of December 31, 2007, the deferral of the gain related to the constructive obligation was fully amortized and no amounts of such deferred gain were recognized for the three and six months ended June 30, 2008.

Note 6.  Risk Management

The Company is exposed to risks such as changes in foreign currency exchange rates and pulp prices. The Company has, from time-to-time, employed a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. The Company has used derivative instruments only for risk management purposes and not for speculation or trading.  All foreign currency derivative instruments were either exchange traded or entered into with major financial institutions. Credit risk with respect to the counterparties was considered minimal in view of the financial strength of the counterparties. The notional amounts of the Company’s derivative instruments did not represent amounts exchanged by the parties and, as such, were not a measure of exposure to credit loss.  The amounts exchanged were determined by reference to the notional amounts and the other terms of the contracts.

In accordance with Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, the Company recorded all derivative instruments as assets (included in Prepaid and other current assets and Other Assets) or liabilities (included in Accrued expenses or Other Noncurrent Obligations) on the condensed consolidated balance sheet at fair value. Changes in the fair value of derivative instruments were either recorded in income or other comprehensive income, as appropriate.  Unrealized gains or losses from changes in the fair value of highly effective derivatives designated as cash flow hedges were recorded in accumulated other comprehensive income (loss) in the period that changes in fair value occurred and were reclassified to income in the same period that the hedged item affected income.  As of June 30, 2008, the Company does not have any outstanding derivative instruments.

Pulp Price and Foreign Currency Risk

The operating results, cash flows and financial condition of the Company are subject to pulp price risk. The profitability of the Company’s pulp operations was subject to foreign currency risk because the price of pulp is established in U.S. dollars and the Company’s cost of producing pulp was incurred principally in Canadian dollars. Prior to the sale of the Pictou Mill, the Company used foreign currency forward contracts to manage its foreign currency risks. In addition, the Company used pulp futures contracts to manage its pulp price risks.  The use of these instruments allowed management of this transactional exposure to exchange rate and pulp price fluctuations because the gains or losses incurred on the derivative instruments were intended to offset, in whole or in part, losses or gains on the underlying transactional exposure. (See “Cash Flow Hedges” below). The translation exposure related to the Company’s net investment in its Canadian and German subsidiaries is not hedged.  The Company’s reported operating results are also affected by changes in the Euro exchange rate relative to the U.S. dollar.  The Company’s exposure to such currency translation risk is not hedged.

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Cash Flow Hedges

As of June 30, 2008, the Company had no outstanding foreign currency forward exchange contracts. As of December 31, 2007, the Company had outstanding foreign currency forward exchange contracts designated as cash flow hedges of U.S. dollar denominated pulp sales in a notional amount of $3.4 million Canadian dollars. The fair value of the contracts was a current asset of $0.5 million U.S. dollars. For the six months ended June 30, 2008 and for the three and six months ended June 30, 2007, all realized gains and losses on foreign currency forward exchange contracts related to the operations of the Pictou Mill and were recorded in loss from discontinued operations on the condensed consolidated statements of operations.  As of June 30, 2008 and December 31, 2007, the Company had no outstanding pulp future contracts.

For the six months ended June 30, 2008, changes in the fair value of the Company’s derivative instruments were reflected in other comprehensive income.

Foreign Currency Transactions

Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) are included in other (income)—net in the condensed consolidated statements of operations.

The following table presents gains (losses) from the Company’s risk management activities:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Gains on foreign currency forward exchange contracts	$	—		$	2.0		$	0.5		$	2.6
Loss from foreign currency transactions	(0.2		)	(1.2		)	—			(1.3		)
Net gain (loss) from risk management activities	(0.2		)	0.8			0.5			1.3
Less: Amounts related to discontinued operations	(0.2		)	1.0			1.3			1.3
Net loss related to continuing operations	$	—		$	(0.2	)	$	(0.8	)	$	—

Note 7.  Inventories

The following presents inventories by major class:

	June 30, 2008			December 31, 2007
Inventories by major class:
Raw materials	$	26.0		$	26.2
Work in progress	18.3			18.1
Finished goods	62.4			70.2
Supplies and other	2.7			5.7
FIFO value of inventory	109.4			120.2
Excess of FIFO over LIFO cost	(10.2		)	(9.6		)
Total	$	99.2		$	110.6

The FIFO values of inventories valued on the LIFO method were $76.7 million and $75.3 million at June 30, 2008 and December 31, 2007, respectively.

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Note 8.  Debt

Long-term debt consisted of the following:

	June 30, 2008		December 31, 2007
Senior Notes (7.375% fixed rate) due 2014	$	225.0	$	225.0
Revolving bank credit facility (variable rates) due 2010	91.6		66.2
Term Loan (variable rates)	16.1		23.1
Neenah Germany project financing (3.8% fixed rate) due in 16 equal semi-annual installments beginning June 2009	15.8		14.6
Neenah Germany revolving line of credit (variable rates)	13.4		3.2
Total debt	361.9		332.1
Less: Debt payable within one year	19.4		10.9
Long-term debt	$	342.5	$	321.2

Principal Payments

The following table presents the Company’s required debt payments by respective calendar year:

	2008 (a)		2009		2010 (b)		2011		2012		Thereafter (c)		Total
Debt payments	$	16.0	$	7.0	$	102.1	$	1.9	$	2.0	$	232.9	$	361.9

(a)Represents required debt payments for the period July 1, 2008 through December 31, 2008.

(b)Includes principal payments on the Company’s revolving bank credit facility and outstanding term loan of $91.6 million and $8.6 million, respectively.

(c)Includes principal payments on the Senior Notes of $225.0 million.

Senior Unsecured Notes

In November 2004, the Company completed an underwritten offering of ten-year senior unsecured notes (the “Senior Notes”) at an aggregate face amount of $225 million. The Senior Notes bear interest at a rate of 7.375 percent, payable May 15 and November 15 of each year and mature on November 15, 2014. The Senior Notes are fully and unconditionally guaranteed by all of the Company’s subsidiaries, with the exception of Neenah Germany.

Secured Revolving Credit Facility

On November 30, 2004, the Company entered into a Credit Agreement by and among the Company, certain of its subsidiaries, the lenders listed in the Credit Agreement and JP Morgan Chase Bank, N.A. as agent for the lenders (the “Initial Credit Agreement”). Under the Initial Credit Agreement, the Company had a secured revolving credit facility that provided for borrowings of up to $150 million.  The Initial Credit Agreement was secured by substantially all of the Company’s assets, including the capital stock of its subsidiaries and was guaranteed by Neenah Canada.  The Company has subsequently amended the Initial Credit Agreement primarily to (i) increase the secured revolving line of credit, (ii) extend the termination date of the Initial Credit Agreement, (iii) set the interest rate under the secured revolving line of credit to either (A) the Prime Rate (as defined in the amended credit agreement) plus a percentage, or (B) London Interbank Offered Rate Borrowings (“LIBOR”) plus a percentage, (iv) reduce the annual facility fee on the average daily unused amount of the commitment from 0.375 percent, and (iv) make other definitional, administrative and covenant modifications.

In May 2008, the Company entered into the Sixth Amendment (the “Sixth Amendment”) to the Initial Credit Agreement.  In the Sixth Amendment, the Lenders consented to consummation of the sale of the Pictou Mill.  As of June 30, 2008, the Initial Credit Agreement (as amended the “Amended Credit Agreement”) provides for a secured revolving credit facility (the “Revolver”) to provide for borrowings of up to $210 million. The Company’s ability to borrow under the Revolver is limited to the lowest of (a) $210 million, (b) the Company’s borrowing base (as determined in accordance with the Amended Credit Agreement), and (c) the applicable cap on the amount of “credit facilities” under the indenture for the Senior Notes. The Amended Credit Agreement is currently scheduled to terminate on November 30, 2010.

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As of June 30,, 2008, the interest rate applicable to borrowings under the Revolver will be either (1) the Prime Rate plus a percentage ranging from 0 percent to 2.00 percent or (2)  LIBOR plus a percentage ranging from 1.25 percent to 3.50 percent. Interest is computed based on actual days elapsed in a 360-day year, payable monthly in arrears for base rate loans, or for LIBOR loans, payable monthly in arrears and at the end of the applicable interest period. The commitment is subject to an annual facility fee of 0.25 percent on the average daily unused amount of the commitment.

The Amended Credit Agreement is secured by substantially all of the assets of the Company and the subsidiary borrowers, including the capital stock of such subsidiaries, and is guaranteed by Neenah Canada.  Neenah Canada’s guarantee is secured by substantially all of that subsidiary’s assets.

In the Amended Credit Agreement, the lenders consented to the Company’s purchase of Neenah Germany.  Neenah Germany is not a borrower or guarantor with respect to the Revolver.  However, the Company pledged 65 percent of its equity interest in Neenah Germany as security for the obligations of the Company and its subsidiaries under the Amended Credit Agreement.

The weighted-average interest rate on outstanding Revolver borrowings as of June 30, 2008 and December 31, 2007 was 4.7 percent per annum and 6.4 percent per annum, respectively. Interest on amounts borrowed under the Revolver is paid monthly. Amounts outstanding under the Revolver may be repaid, in whole or in part, at any time without premium or penalty except for specified make-whole payments on LIBOR-based loans.  All principal amounts outstanding under the Revolver are due and payable on the date of termination of the Amended Credit Agreement. Borrowing availability under the Revolver is reduced by outstanding letters of credit and reserves for certain other items as defined in the Amended Credit Agreement. Availability under the Amended Credit Agreement will fluctuate over time depending on the value of the Company’s inventory, receivables and various capital assets. As of June 30, 2008, the Company had approximately $1.6 million of letters of credit outstanding and $76.9 million of borrowing availability under the Revolver.

The Amended Credit Agreement contains events of default customary for financings of this type, including failure to pay principal or interest, materially false representations or warranties, failure to observe covenants and other terms of the Amended Credit Agreement, cross-defaults to other indebtedness, bankruptcy, insolvency, various ERISA violations, the incurrence of material judgments and changes in control. As of June 30, 2008, no events of default had occurred.

Term Loan

In March 2007, the Company entered into an agreement by and among the Company, certain of its subsidiaries and JP Morgan Chase Bank, N.A. (the “Term Loan Agreement”) to borrow up to $25 million (the “Term Loan”). The weighted-average interest rate on outstanding Term Loan borrowings as of June 30, 2008 and December 31, 2007, was 4.0 percent per annum and 6.7 percent per annum. Borrowings under the Term Loan are being repaid in equal quarterly installments which began in November 2007.  Term Loan borrowings were used to repay outstanding Revolver borrowings. The Term Loan is secured by substantially all of the property, plant and equipment acquired by the Company in the acquisition of Fox River and is fully and unconditionally guaranteed by substantially all of the Company’s other subsidiaries, except Neenah Germany.  During the three months ended June 30, 2008, the Company prepaid approximately $3.2 million in Term Loan borrowings.  In June 2008, the Company entered into the First Amendment (the “First Amendment”) to the Term Loan.  The First Amendment reduced required amortization payments to $1.25 million per quarter.  Any remaining amounts outstanding under the Term Loan are due and payable upon termination of the Term Loan Agreement, currently scheduled to occur in November 2010.

At the Company’s option, Term Loan borrowings may be designated as either Alternate Base Rate Borrowings (as defined in the Term Loan Agreement) or LIBOR Borrowings. The interest rate on Alternate Base Rate Borrowings is the greater of (i) the Prime Rate (as defined in the Term Loan Agreement) or (ii) the Federal Funds Effective Rate (as defined in the Term Loan Agreement) plus a percentage ranging from 0 percent to 0.75 percent. The interest rate on LIBOR Borrowings is LIBOR plus a percentage ranging from 1.50 percent to 2.25 percent. Interest is computed based on actual days elapsed in a 360-day year, payable monthly in arrears for Alternate Base Rate Borrowings, or for LIBOR Borrowings, payable monthly in arrears and at the end of the applicable interest period. Amounts outstanding under the Term Loan may be repaid, in whole or in part, at any time without premium or penalty except that LIBOR Borrowings (as defined) may not be partially repaid such that less than $3.0 million of LIBOR Borrowings are outstanding.

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Other Financing

In December 2006, Neenah Germany entered into an agreement with HypoVereinsbank and IKB Deutsche Industriebank AG (the “Lenders”) to provide €10.0 million of project financing for the construction of a saturator and the financing matures in December 2016. Principal outstanding under the agreement may be repaid at any time without penalty.  Interest on amounts outstanding is based on actual days elapsed in a 360-day year and is payable semi-annually. As of June 30, 2008, €10.0 million ($15.8 million, based on exchange rates at June 30, 2008) was outstanding under this agreement.

Neenah Germany has an unsecured revolving line of credit (the “Line of Credit”) with HypoVereinsbank that provides for borrowings of up to €15 million for general corporate purposes.  The Line of Credit matures on November 30, 2008.  Neenah Germany has the ability to borrow in either Euros or U.S. dollars.  Interest is computed on U.S. dollars loans at the rate of 8.5 percent per annum and on Euro loans at EURIBOR plus a margin of 1.5 percent.  Interest is payable quarterly and principal may be repaid at any time without penalty. The weighted-average interest rate on outstanding Line of Credit borrowings as of June 30, 2008 and December 31, 2007 was 6.5 percent per annum.  As of June 30, 2008, €8.5 million ($13.4 million, based on exchange rates at June 30, 2008) was outstanding under the Line of Credit.

Note 9.  Pension and Other Post-employment Benefits

Pension Plans

Substantially all active employees of the Company’s U.S. paper operations and its former Canadian pulp operations participate in defined benefit pension plans and defined contribution retirement plans. Neenah Germany has defined benefit plans designed to provide a monthly pension upon retirement for all its employees in Germany. There is no legal or governmental obligation to fund Neenah Germany’s benefit plans and as such the plans are currently unfunded.

In June 2008, in conjunction with the sale of the Pictou Mill, Northern Pulp assumed responsibility for the Nova Scotia Plan and all other post-employment benefit obligations for active and retired employees of the Pictou Mill.  See Note 5, “Discontinued Operations—Sale of the Pictou Mill and the Woodlands.”

In December 2007, the Company terminated the Ontario Plan and all outstanding pension obligations for active employees were settled through the purchase of annuity contracts or lump-sum payments pursuant to participant elections.  See Note 5, “Discontinued Operations—Transfer of Terrace Bay.”

In November 2007, the Company amended the Fox River defined benefit pension plan to freeze the vested pension benefit for salaried employees born after December 31, 1957.  The affected employees were transferred to the Company’s defined contribution retirement plan. The pension benefit for salaried employees of Fox River born on or before December 31, 1957 was unaffected.

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The following table presents the components of net periodic benefit cost:

Components of Net Periodic Benefit Cost

	Pension Benefits						Post-Employment Benefits Other than Pensions
	Three Months Ended June 30,
	2008			2007			2008		2007
Service cost	$	2.1		$	2.4		$	0.6	$	0.6
Interest cost	5.9			7.2			0.8		0.6
Expected return on plan assets (a)	(6.7		)	(7.6		)	—		—
Recognized net actuarial loss	0.6			1.2			0.1		0.9
Amortization of unrecognized transition liability	(0.1		)	—			—		—
Amortization of prior service cost (credit)	0.5			0.4			0.1		(1.6		)
Net periodic benefit cost	2.3			3.6			1.6		0.5
Less: Costs related to discontinued operations (b) (c) (d)	1.0			1.8			0.3		0.3
Net periodic benefit cost related to continuing operations	$	1.3		$	1.8		$	1.3	$	0.2

	Pension Benefits						Post-Employment Benefits Other than Pensions
	Six Months Ended June 30,
	2008			2007			2008			2007
Service cost	$	4.1		$	4.4		$	1.2		$	1.2
Interest cost	11.9			13.1			1.5			1.1
Expected return on plan assets (a)	(13.5		)	(13.6		)	—			—
Recognized net actuarial loss	1.2			2.4			0.3			1.8
Amortization of unrecognized transition liability	(0.1		)	(0.1		)	—			—
Amortization of prior service cost (credit)	1.0			0.8			(1.2		)	(3.1		)
Amount of curtailment gain recognized	—			—			(4.3		)	—
Net periodic benefit cost (credit)	4.6			7.0			(2.5		)	1.0
Less: Costs (benefits) related to discontinued operations (b) (c) (d)	1.9			3.6			0.6			0.6
Net periodic benefit cost (credit) related to continuing operations	$	2.7		$	3.4		$	(3.1	)	$	0.4

(a)The expected return on plan assets is determined by multiplying the fair value of plan assets at the prior year-end (adjusted for estimated current year cash benefit payments and contributions) by the expected long-term rate of return.

(b)As a closing condition of the agreement to the transfer Terrace Bay to Buchanan, Neenah Canada initiated plans to curtail and settle the Ontario Plan.  Pension costs for the Ontario Plan have been classified as Loss from discontinued operations on the condensed consolidated statements of operations.

(c)Pursuant to the terms of the transfer agreement, Buchanan assumed responsibility for post-employment medical and life insurance benefits for active employees at Terrace Bay.

(d)Pension and other post-employment benefit costs for the Pictou Mill and the Woodlands are reported as results of discontinued operations on the condensed consolidated statements of operations

The Company expects to make pension contributions of approximately $7 million in 2008. For the six months ended June 30, 2008, the Company made pension contributions of approximately $5.0 million, including approximately $2.4 million related to the Pictou Mill and the Woodlands.  The Company will not make any future pension contributions for the Pictou Mill and the Woodlands. In addition, , Neenah Germany expects to pay approximately $2 million (based on exchange rates at June 30, 2008) for pension benefits in 2008. Neenah Germany made approximately $0.8 million of such pension benefit payments during the six months ended June 30, 2008.

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Note 10.  Stock Compensation Plan

The Company established the 2004 Omnibus Stock and Incentive Plan (the “Omnibus Plan”) in December 2004. The Company reserved 3,500,000 shares of $0.01 par value common stock (“Common Stock”) for issuance under the Omnibus Plan. Pursuant to the terms of the Omnibus Plan, the compensation committee of the Company’s Board of Directors may grant various types of equity-based compensation awards, including incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted stock units with performance conditions (“Performance Shares”) and performance units, in addition to certain cash-based awards. All grants under the Omnibus Plan will be made at fair market value and no grant may be repriced. In general, the options expire ten years from the date of grant and vest over a three-year service period. As of June 30, 2008, approximately 1,635,000 shares of Common Stock were reserved for future issuance under the Omnibus Plan.  The Company accounts for stock-based compensation pursuant to the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”).

Valuation and Expense Information

Substantially all stock-based compensation expense is recorded in selling, general and administrative expenses on the condensed consolidated statements of operations.  The following table summarizes stock-based compensation expense and related income tax benefits for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Stock-based compensation expense	$	0.7		$	1.8		$	2.0		$	3.5
Income tax benefit	(0.3		)	(0.7		)	(0.8		)	(1.3		)
Stock-based compensation, net of income tax benefit	$	0.4		$	1.1		$	1.2		$	2.2

The following table summarizes total compensation costs related to the Company’s equity awards and amounts recognized in the six months ended June 30, 2008.

	Stock Options		Restricted Stock
Unrecognized compensation cost — December 31, 2007	$	1.9	$	2.9
Add: Grant date fair value current year grants (a)	1.0		1.1
Less: Compensation expense recognized (a)	1.0		1.0
Less: Grant date fair value of shares forfeited	0.1		0.4
Unrecognized compensation cost — June 30, 2008	$	1.8	$	2.6
Expected amortization period (in years)	1.9		1.7

(a)The fair value of current year grants includes approximately $13 thousand related to a difference between estimated and actual forfeitures for certain stock option awards.

Stock Options

During the six months ended June 30, 2008, the Company awarded nonqualified stock options to Long-Term Incentive Plan (the “LTIP”) participants to purchase 126,325 shares of common stock (subject to forfeiture due to termination of employment and other conditions).  In addition, for the six months ended June 30, 2008, the Company awarded to non-employee members of the board of directors and other employees nonqualified stock options to purchase 12,800 shares and 375 shares, respectively, of Common Stock.  For the six months ended June 30, 2008, the weighted-average exercise price of such nonqualified stock option awards was $25.28 per share. The Company expects to make an additional award of approximately 130,000 nonqualified stock options to LTIP participants in the third quarter of 2008. The exercise price of the options was equal to the market price of the Company’s common stock on the date of grant.  The options expire in ten years and one-third vest on each of the first three anniversaries of the date of grant.  The weighted-average grant date fair value for stock options granted during the six months ended June 30, 2008 was $7.32 per share and was estimated using the Black-Scholes option valuation model with the following assumptions:

20

	Six Months Ended June 30, 2008
Expected life in years	5.9
Risk free interest rate	3.2	%
Volatility	31.3	%
Dividend yield	1.6	%

The expected term was estimated based upon historical data for Kimberly-Clark stock option awards and the expected volatility was estimated by reference to the historical stock price performance of a peer group of companies.  The risk-free interest rate was based on the yield on U.S. Treasury bonds with a remaining term approximately equivalent to the expected term of the stock option award.  Forfeitures were estimated at the date of grant.

No stock options were exercised during the six months ended June 30, 2008.  For the six months ended June 30, 2007, the aggregate pre-tax intrinsic value of stock options exercised was $1.7 million. As of June 30, 2008, 1,137,000 stock options were exercisable with an aggregate intrinsic value of $0. As of December 31, 2007, 1,133,000 stock options were exercisable with an aggregate intrinsic value of $0.7 million.

Forthe six months ended June 30, 2008, the aggregate grant date fair value of options vested was $0.9 million. As of June 30, 2008, certain participants met age and service requirements that allowed their options to qualify for accelerated vesting upon retirement. As of June 30, 2008, LTIP participants held options to purchase 122,735 shares of common stock that would have been exercisable if they had retired as of such date. The aggregate grant date fair value of options subject to accelerated vesting was $1.4 million. Stock options subject to accelerated vesting for expense recognition become exercisable according to the contract terms of the stock option grant.

As of June 30, 2008, the aggregate intrinsic value of 1,504,000 stock options that were vested or expected to vest was $0.  The weighted-average grant date fair value of such stock options was $11.59 per share. As of December 31, 2007, the weighted-average grant date fair value and aggregate intrinsic value of 1,449,000 stock options that were vested or expected to vest was $11.99 per share and $0.8 million, respectively.

As of June 30, 2008, the Company has approximately 253,000 unvested stock options with a weighted-average grant date fair value of $10.65 per share. As of December 31, 2007, approximately 233,000 unvested stock options were outstanding with a weighted-average grant date fair value of $13.01 per share.

Performance Shares

During the six months ended June 30, 2008, the Company made a target award of 73,400 Performance Shares to LTIP participants. The measurement period for the Performance Shares is January 1, 2008 through December 31, 2010. Common stock equal to between 30 percent and 250 percent of the performance share target will be awarded based on the Company’s growth in earnings before interest, taxes, depreciation and amortization (“EDITDA”) minus a capital charge and total return to shareholders relative to a peer group of companies and the Russell 2000® Value small cap index. The weighted-average grant date fair value for the Performance Shares was $13.55 per share (which represents the grant date market price of the Company’s common stock of $25.70 per share multiplied by the probability weighted expected payout of approximately 0.53 shares of common stock for each Performance Share) and was estimated using a “Monte Carlo” simulation technique. Compensation cost is recognized pro rata over the vesting period.

21

Restricted Stock Units

During the six months ended June 30, 2008, the Company awarded 6,960 RSUs to non-employee members of the board of directors.  In general, the RSUs vest one year from the date of grant.  During the vesting period, the holders of the RSUs are entitled to dividends, but are not permitted vote the shares and the RSUs are forfeited in the event the holder is no longer a member of the board of directors. The grant date fair value of the RSUs was $17.77 per share and was equal to the closing market price of the Company’s Common Stock on the date of grant.  Compensation cost is recognized pro rata over the vesting period. In addition, the Company issued 59 RSUs in lieu of dividends on RSUs held by non U.S employees.

Note 11.  Goodwill and Other Intangible Assets

The following table presents changes in the carrying amount of goodwill for the six months ended June 30, 2008.  All of such goodwill is reported in the Technical Products segment.

Balance at December 31, 2007	$	106.6
Foreign currency translation	8.2
Balance at June 30, 2008	$	114.8

The following table presents the gross carrying amount of intangible assets and the related accumulated amortization for intangible assets subject to amortization.

	June 30, 2008					December 31, 2007
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
Amortizable intangible assets
Customer based intangibles	$	19.4	$	(2.3	)	$	17.9	$	(1.5	)
Trade names and trademarks	7.4		(1.1		)	6.9		(0.7		)
Acquired technology	1.2		(0.2		)	1.2		(0.2		)
Total	28.0		(3.6		)	26.0		(2.4		)
Unamortizable intangible assets:
Trade names	10.6		—			10.0		—
Total	$	38.6	$	(3.6	)	$	36.0	$	(2.4	)

The increase in intangible assets at June 30, 2008 is due to the effect of foreign currency translation.  Estimated annual amortization expense for each of the next five years is approximately $2.0 million.

Note 12.  Stockholders’ Equity

Common Stock

On March 12, 2008, the Company’s shareholders approved a reverse/forward split of the issued and outstanding shares of Common Stock.  The reverse/forward split consisted of a 1-for-50 reverse split of Common Stock followed immediately by a 50-for-1 forward split of Common Stock. Holdings of stockholders with fewer than 50 shares of Common Stock prior to the split were converted into fractional shares.  Such fractional shares were purchased by the Company for $24.99 per share. The Company purchased 360,548 shares of Common Stock at a total cost of approximately $9.4 million including transaction costs.  The reverse/forward split resulted in a significant reduction in shareholder record keeping and mailing expenses and provided holders of fewer than 50 shares with a cost-effective way to efficiently dispose of their investment.

22

Note 13.  Contingencies and Legal Matters

Litigation

The Company is involved in certain other legal actions and claims arising in the ordinary course of business. While the outcome of these legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claim which is pending or threatened, either individually or on a combined basis, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

Indemnifications

Pursuant to the Distribution Agreement, the Pulp Supply Agreement, the Employee Matters Agreement and the Tax Sharing Agreement, the Company has agreed to indemnify Kimberly-Clark for certain liabilities or risks related to the Spin-Off. Many of the potential indemnification liabilities under these agreements are unknown, remote or highly contingent. Furthermore, even in the event that an indemnification claim is asserted, liability for indemnification is subject to determination under the terms of the applicable agreement. For these reasons, the Company is unable to estimate the maximum potential amount of the possible future liability under the indemnity provisions of these agreements. However, the Company accrues for any potential liability or risk under these agreements for which it believes a future payment is probable and a range of loss can be reasonably estimated. As of June 30, 2008, management believes the Company’s liability under such indemnification obligations was not material to the consolidated financial statements.

Other Contingencies

Pursuant to the terms of the purchase agreement with FiberMark, the Company is liable for potential additional taxes due for tax returns filed for periods prior to the Acquisition.  FiberMark has agreed to indemnify the Company for such additional taxes and a portion of the purchase price has been reserved in an escrow account to fund the indemnification.  The Company believes it is probable that Neenah Germany is liable for approximately €3.5 million ($5.5 million) in additional taxes.  As of June 30, 2008, the Company has recognized a current liability on the condensed consolidated balance sheet for such potential additional taxes.  The Company has also recognized a receivable in an equal amount in other receivables on the condensed consolidated balance sheet for the value of the indemnification.  The Company does not believe its liability for such taxes is in excess of the escrow amount.

Employees and Labor Relations

As of June 30, 2008, the Company had approximately 2,160 regular full-time employees of whom 930 hourly and 500 salaried employees were located in the United States and 470 hourly and 260 salaried employees were located in Germany.

Hourly employees at the Pictou Mill are represented by the Communications, Energy and Paperworkers Union of Canada.  The collective bargaining agreement for the Pictou Mill expires on May 31, 2009.  Upon consummation of the sale of the Pictou Mill, Northern Pulp assumed Neenah Canada’s obligations and responsibilities pursuant to the terms of the collective bargaining agreement with hourly employees at the mill.

Hourly employees at the Neenah, Appleton, Whiting, Munising, and Urbana paper mills and the Appleton converting center are represented by the United Steelworkers Union (the “USW”). The collective bargaining agreements for the Whiting, Urbana, Neenah, Munising, and Appleton paper mills expire on January 31, 2009, May 31, 2009, June 30, 2009, July 14, 2009 and May 31, 2010, respectively. Additionally, the Neenah, Whiting and Munising, paper mills have bargained jointly with the union on pension matters. In September 2007, the Company and the union entered into a new agreement governing pension matters that expires in 2019.  As of June 30, 2008, substantially all employees at the Urbana paper mill and the Appleton converting center represented by locals of the USW had been transferred to other facilities or terminated.

Hourly employees at the Ripon paper mill are represented by a local of the Association of Western Pulp and Paper Workers pursuant to a collective bargaining agreement that expires on April 30, 2010.

Approximately 50 percent of salaried employees and 80 percent of hourly employees of Neenah Germany are eligible to be represented by the Mining, Chemicals and Energy Trade Union, Industriegewerkschaft Bergbau, Chemie and Energie (the “IG BCE”).  The collective bargaining agreement covering union employees of Neenah Germany is negotiated by the IG BCE and a national trade association representing all employers in the industry.  Union membership is voluntary, and under German law does not need to be disclosed to the Company. As a result, the number of employees covered by the collective bargaining agreement that expires in September 2008 cannot be determined.  Negotiations on a new contract have not begun.

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Note 14.  Business Segment Information

The Company reports its operations in two segments: Fine Paper and Technical Products. The Fine Paper business is a leading producer of premium writing, text, cover and specialty papers. The Technical Products business is a leading producer of filtration media, durable, saturated and coated substrates for a variety of end uses; and nonwoven wall coverings.  Each segment employs different technologies and marketing strategies.  Disclosure of segment information is on the same basis that management uses internally for evaluating segment performance and allocating resources.  Transactions between segments are executed at market prices and such transactions are eliminated in consolidation. The costs of shared services, and other administrative functions managed on a common basis, are allocated to the segments based on usage, where possible, or other factors based on the nature of the activity.  General corporate expenses that do not directly support the operations of the business segments are shown as Unallocated corporate costs.

The following table summarizes the net sales, operating income (loss) and total assets for each of the Company’s business segments.

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Net sales
Fine Paper	$	84.5	$	103.6	$	181.5	$	175.9
Technical Products	110.0		102.5		218.6		203.2
Intersegment sales	—		—		—		(0.3		)
Consolidated	$	194.5	$	206.1	$	400.1	$	378.8

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Operating income (loss)
Fine Paper	$	11.7		$	13.2		$	21.7		$	25.6
Technical Products	6.0			8.7			14.1			18.9
Unallocated corporate costs	(3.5		)	(3.7		)	(3.7		)	(6.9		)
Consolidated	$	14.2		$	18.2		$	32.1		$	37.6

	June 30, 2008		December 31, 2007
Total Assets
Fine Paper	$	210.1	$	209.8
Technical Products	502.8		467.9
Pulp (a)	—		223.0
Assets held for sale - discontinued operations	5.5		—
Corporate and other	149.5		32.1
Total	$	867.9	$	932.8

(a)As of June 30, 2008, the Company’s pulp operations are not a reportable segment.  As of June 30, 2008, approximately $121.2 million of income tax and certain other assets previously reported in the Pulp segment have been reclassified to Corporate and other.  As of December 31, 2007, the value of these assets was approximately $69.0 million.

24

Note 15. Condensed Consolidating Financial Information

Neenah Paper Michigan, Inc., Neenah Paper Fox River, LLC, Neenah Paper Fox Valley Company, Inc., Neenah Paper Company of Canada, Neenah Paper International Holding Company, LLC and Neenah Paper International, LLC, (the “Guarantor Subsidiaries”) guarantee the Company’s Senior Notes. The Guarantor Subsidiaries are 100 percent owned by the Company and all guarantees are full and unconditional.  The following condensed consolidating financial information is presented in lieu of consolidated financial statements for the Guarantor Subsidiaries as of June 30, 2008 and December 31, 2007 and for the three and six months ended June 30, 2008 and 2007.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2008

	Neenah Paper, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Amounts
Net sales	$	80.6		$	39.7		$	74.2		$	—		$	194.5
Cost of products sold	63.5			35.3			66.8			—			165.6
Gross profit	17.1			4.4			7.4			—			28.9
Selling, general and administrative expenses	11.1			2.7			3.8			—			17.6
Other income - net	—			(2.8		)	(0.1		)	—			(2.9		)
Operating income	6.0			4.5			3.7			—			14.2
Equity in losses of subsidiaries	25.1			—			—			(25.1		)	—
Interest expense-net	5.4			0.3			0.4			—			6.1
Income (loss) from continuing operations before income taxes	(24.5		)	4.2			3.3			25.1			8.1
(Benefit) provision for income taxes	(0.1		)	1.6			0.4			—			1.9
Income (loss) from continuing operations	(24.4		)	2.6			2.9			25.1			6.2
Loss from discontinued operations	—			(30.6		)	—			—			(30.6		)
Net income (loss)	$	(24.4	)	$	(28.0	)	$	2.9		$	25.1		$	(24.4	)

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended June 30, 2007

	Neenah Paper, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Amounts
Net sales	$	56.3		$	83.6		$	66.2		$	—		$	206.1
Cost of products sold	38.9			74.0			55.8			—			168.7
Gross profit	17.4			9.6			10.4			—			37.4
Selling, general and administrative expenses	11.1			6.2			3.8			—			21.1
Other income - net	(0.1		)	(1.7		)	(0.1		)	—			(1.9		)
Operating income	6.4			5.1			6.7			—			18.2
Equity in earnings of subsidiaries	(3.2		)	—			—			3.2			—
Interest expense-net	5.8			0.8			—			—			6.6
Income from continuing operations before income taxes	3.8			4.3			6.7			(3.2		)	11.6
Provision for income taxes	1.2			1.6			1.4			—			4.2
Income from continuing operations	2.6			2.7			5.3			(3.2		)	7.4
Loss from discontinued operations	—			(4.8		)	—			—			(4.8		)
Net income (loss)	$	2.6		$	(2.1	)	$	5.3		$	(3.2	)	$	2.6

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2008

	Neenah Paper, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Amounts
Net sales	$	138.8		$	112.8		$	148.5	$	—		$	400.1
Cost of products sold	106.1			100.3			130.6		—			337.0
Gross profit	32.7			12.5			17.9		—			63.1
Selling, general and administrative expenses	24.2			6.6			8.0		—			38.8
Other (income) expense - net	(0.4		)	(7.6		)	0.2		—			(7.8		)
Operating income	8.9			13.5			9.7		—			32.1
Equity in losses of subsidiaries	96.6			—			—		(96.6		)	—
Interest expense-net	10.8			0.8			0.7		—			12.3
Income (loss) from continuing operations before income taxes	(98.5		)	12.7			9.0		96.6			19.8
(Benefit) provision for income taxes	(1.2		)	4.9			1.4		—			5.1
Income (loss) from continuing operations	(97.3		)	7.8			7.6		96.6			14.7
Loss from discontinued operations	—			(112.0		)	—		—			(112.0		)
Net income (loss)	$	(97.3	)	$	(104.2	)	$	7.6	$	96.6		$	(97.3	)

26

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2007

	Neenah Paper, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Amounts
Net sales	$	111.8		$	135.2		$	132.1		$	(0.3	)	$	378.8
Cost of products sold	76.5			119.7			110.0			(0.3		)	305.9
Gross profit	35.3			15.5			22.1			—			72.9
Selling, general and administrative expenses	20.5			10.7			7.0			—			38.2
Other income - net	(0.1		)	(2.6		)	(0.2		)	—			(2.9		)
Operating income	14.9			7.4			15.3			—			37.6
Equity in earnings of subsidiaries	(15.6		)	—			—			15.6			—
Interest expense-net	11.1			1.4			0.1			—			12.6
Income from continuing operations before income taxes	19.4			6.0			15.2			(15.6		)	25.0
Provision for income taxes	2.1			2.2			3.2			—			7.5
Income from continuing operations	17.3			3.8			12.0			(15.6		)	17.5
Loss from discontinued operations	—			(0.2		)	—			—			(0.2		)
Net income	$	17.3		$	3.6		$	12.0		$	(15.6	)	$	17.3

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CONDENSED CONSOLIDATING BALANCE SHEET

As of June 30, 2008

	Neenah Paper, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Amounts
ASSETS
Current assets
Cash and cash equivalents	$	(1.4	)	$	2.4	$	0.8	$	—		$	1.8
Accounts receivable, net	30.5			43.1		51.7		—			125.3
Inventories	53.9			13.3		32.0		—			99.2
Other receivables	10.4			0.3		—		—			10.7
Income taxes receivable	0.2			12.3		—		—			12.5
Deferred income taxes	(1.4		)	59.0		0.1		—			57.7
Prepaid and other current assets	4.0			11.9		3.2		—			19.1
Intercompany amounts receivable	66.5			48.5		0.1		(115.1		)	—
Assets held for sale—discontinued operations	—			5.5		—		—			5.5
Total current assets	162.7			196.3		87.9		(115.1		)	331.8
Property, plant and equipment, at cost	260.0			111.2		220.2		—			591.4
Less accumulated depreciation	163.9			60.8		24.3		—			249.0
Property, plant and equipment — net	96.1			50.4		195.9		—			342.4
Investments In Subsidiaries	403.3			—		—		(403.3		)	—
Deferred Income Taxes	12.0			22.4		—		—			34.4
Goodwill	—			—		114.8		—			114.8
Intangible Assets—net	2.9			—		32.1		—			35.0
Other Assets	8.0			—		1.5		—			9.5
TOTAL ASSETS	$	685.0		$	269.1	$	432.2	$	(518.4	)	$	867.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Debt payable within one year	$	5.0		$	—	$	14.4	$	—		$	19.4
Accounts payable	23.6			29.8		24.2		—			77.6
Accrued salaries and employee benefits	4.7			9.8		5.6		—			20.1
Accrued income taxes	5.5			0.2		9.7		—			15.4
Accrued expenses	16.8			2.6		0.1		—			19.5
Intercompany amounts payable	48.5			66.5		0.1		(115.1		)	—
Liabilities related to discontinued operations	—			17.4		—		—			17.4
Total current liabilities	104.1			126.3		54.1		(115.1		)	169.4
Long-term Debt	327.7			—		14.8		—			342.5
Deferred Income Taxes	—			—		32.2		—			32.2
Noncurrent Employee Benefits	21.6			23.9		38.1		—			83.6
Other Noncurrent Obligations	2.7			8.4		0.2		—			11.3
TOTAL LIABILITIES	456.1			158.6		139.4		(115.1		)	639.0
STOCKHOLDERS’ EQUITY	228.9			110.5		292.8		(403.3		)	228.9
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	685.0		$	269.1	$	432.2	$	(518.4	)	$	867.9

28

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2007

	Neenah Paper, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Amounts
ASSETS
Current assets
Cash and cash equivalents	$	(0.9	)	$	2.8	$	0.5	$	—		$	2.4
Accounts receivable, net	31.8			71.0		42.6		—			145.4
Inventories	21.7			56.7		32.2		—			110.6
Other receivables	9.7			—		—		—			9.7
Income taxes receivable	0.5			—		0.1		—			0.6
Deferred income taxes	0.5			1.3		0.1					1.9
Prepaids and other current assets	3.2			14.1		2.3		—			19.6
Intercompany amounts receivable	44.6			16.9		—		(61.5		)	—
Total current assets	111.1			162.8		77.8		(61.5		)	290.2
Property, plant and equipment, at cost	253.8			472.1		199.2		—			925.1
Less accumulated depreciation	157.5			319.7		15.6		—			492.8
Property, plant and equipment — net	96.3			152.4		183.6		—			432.3
Investments In Subsidiaries	467.5			—		—		(467.5		)	—
Deferred Income Taxes	(1.4		)	56.8		—		—			55.4
Goodwill	—			—		106.6		—			106.6
Intangible Assets—net	—			2.8		30.8		—			33.6
Other Assets	8.5			4.7		1.5		—			14.7
TOTAL ASSETS	$	682.0		$	379.5	$	400.3	$	(529.0	)	$	932.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Debt payable within one year	$	7.7		$	—	$	3.2	$	—		$	10.9
Accounts payable	15.0			46.0		25.9		—			86.9
Accrued salaries and employee benefits	8.1			21.8		4.3		—			34.2
Accrued income taxes	5.1			0.4		8.2		—			13.7
Accrued expenses	10.7			12.3		1.2		—			24.2
Intercompany amounts payable	16.9			44.6		—		(61.5		)	—
Total current liabilities	63.5			125.1		42.8		(61.5		)	169.9
Long-term Debt	306.5			—		14.7		—			321.2
Deferred Income Taxes	—			—		30.4		—			30.4
Noncurrent Employee Benefits	22.0			52.8		35.1		—			109.9
Other Noncurrent Obligations	2.0			11.2		0.2		—			13.4
TOTAL LIABILITIES	394.0			189.1		123.2		(61.5		)	644.8
STOCKHOLDERS’ EQUITY	288.0			190.4		277.1		(467.5		)	288.0
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	682.0		$	379.5	$	400.3	$	(529.0	)	$	932.8

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2008

	Neenah Paper, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Amounts
OPERATING ACTIVITIES
Net income (loss)	$	(97.3	)	$	(104.2	)	$	7.6		$	96.6		$		(97.3	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	7.6			5.0			8.2			—			20.8
Stock-based compensation	2.0			—			—			—			2.0
Deferred income tax benefit	(1.8		)	(54.5		)	(0.5		)	—			(56.8			)
Gain on curtailment of post employment benefit plan	—			(4.3		)	—			—			(4.3			)
Asset impairment loss	—			91.2			—			—			91.2
Loss on disposal - transfer of the Pictou Mill	—			29.7			—			—			29.7
Loss on disposal - transfer of the Pictou Mill post-employment benefit plans	—			53.7			—			—			53.7
Loss on asset dispositions	(2.9		)	—			—			—			(2.9			)
Increase in working capital, net of effects of acquisitions	(18.6		)	(3.1		)	(6.3		)	—			(28.0			)
Equity in losses of subsidiaries	96.6			—			—			(96.6		)	—
Pension and other post-employment benefits	—			(7.4		)	0.9			—			(6.5			)
Other	0.7			(1.7		)	0.1			—			(0.9			)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(13.7		)	4.4			10.0			—			0.7
INVESTING ACTIVITIES
Capital expenditures	(8.3		)	(3.6		)	(5.9		)	—			(17.8			)
Payment in conjunction with transfer of the Pictou Mill	—			(2.7		)	—			—			(2.7			)
Proceeds from asset sales	—			3.2			—			—			3.2
Other	(1.3		)	1.6			—			—			0.3
NET CASH USED IN INVESTING ACTIVITIES	(9.6		)	(1.5		)	(5.9		)	—			(17.0			)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	33.0			—			—			—			33.0
Repayments of long-term debt	(14.6		)	—			—			—			(14.6			)
Short-term borrowings	—			—			11.6			—			11.6
Repayments of short-term debt	—			—			(1.7		)	—			(1.7			)
Share purchases	(9.4		)	—			—			—			(9.4			)
Cash dividends paid	(3.0		)	—			—			—			(3.0			)
Other	(0.2		)	—			—			—			(0.2			)
Intercompany transfers - net	17.0			(3.3		)	(13.7		)	—			—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	22.8			(3.3		)	(3.8		)	—			15.7
NET CHANGE IN CASH AND CASH EQUIVALENTS	(0.5		)	(0.4		)	0.3			—			(0.6			)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	(0.9		)	2.8			0.5			—			2.4
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	(1.4	)	$	2.4		$	0.8		$	—		$	1.8

30

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2007

	Neenah Paper, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Amounts
OPERATING ACTIVITIES
Net income	$	17.3		$	3.6		$	12.0		$	(15.6	)	$	17.3
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	7.6			7.7			6.7			—			22.0
Stock-based compensation	3.2			0.2			0.1			—			3.5
Excess tax benefit from stock-based compensation	(0.6		)	—			—			—			(0.6		)
Deferred income tax provision (benefit)	(1.5		)	1.1			(0.7		)	—			(1.1		)
Gain on sale of woodlands	—			(2.9		)	—			—			(2.9		)
Loss on other asset dispositions	0.1			—			—			—			0.1
Increase in working capital	(1.1		)	(4.6		)	(11.1		)	—			(16.8		)
Equity in earnings of subsidiaries	(15.6		)	—			—			15.6			—
Pension and other post-employment benefits	0.1			(0.8		)	0.8			—			0.1
Other	(0.2		)	(0.2		)	0.4			—			—
NET CASH PROVIDED BY OPERATING ACTIVITIES	9.3			4.1			8.2			—			21.6
INVESTING ACTIVITIES
Capital expenditures	(6.2		)	(6.5		)	(10.9		)	—			(23.6		)
Increase in restricted cash	—			—			(5.6		)	—			(5.6		)
Acquisition of Fox River, net of cash acquired	(55.3		)	—			—			—			(55.3		)
Additional acquisition cost of Neenah Germany	(1.5		)	—			—			—			(1.5		)
Other	0.1			0.2			—			—			0.3
NET CASH USED IN INVESTING ACTIVITIES	(62.9		)	(6.3		)	(16.5		)	—			(85.7		)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	61.5			—			13.3			—			74.8
Debt issuance costs	(0.7		)	—			—			—			(0.7		)
Repayments of long-term debt	(11.9		)	—			—			—			(11.9		)
Short-term borrowings	—			—			4.8			—			4.8
Repayments of short-term debt	—			—			(4.7		)	—			(4.7		)
Cash dividends paid	(3.0		)	—			—			—			(3.0		)
Proceeds from exercise of stock options	3.6			—			—			—			3.6
Excess tax benefit from stock-based compensation	0.6			—			—			—			0.6
Other	(0.1		)	—			—			—			(0.1		)
Intercompany transfers - net	3.0			2.2			(5.2		)	—			—
NET CASH PROVIDED BY FINANCING ACTIVITIES	53.0			2.2			8.2			—			63.4
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—			0.2			—			—			0.2
NET CHANGE IN CASH AND CASH EQUIVALENTS	(0.6		)	0.2			(0.1		)	—			(0.5		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	0.1			0.5			1.0			—			1.6
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	(0.5	)	$	0.7		$	0.9		$	—		$	1.1

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents the factors that had a material effect on our financial position as of June 30, 2008 and our results of operations for the three and six months ended June 30, 2008 and 2007. You should read this discussion in conjunction with our consolidated and combined  financial statements and the notes to those consolidated and combined financial statements included in our most recent Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

In this report, unless the context requires otherwise, references to “we,” “us,” “our,” “Neenah” or the “Company” are intended to mean Neenah Paper, Inc. and its consolidated subsidiaries. (Tabular amounts in millions, except as noted)

Executive Summary

During 2007 and 2006, we completed several complementary initiatives in line with our strategy to transition to a premium technical products and fine paper company: (1) we sold 500,000 acres of woodlands in Nova Scotia, (2) we divested our Terrace Bay pulp operations, (3) we acquired the German technical and specialty paper business of FiberMark, Inc. and (4) we purchased Fox River Paper Company (“Fox River”).

In February 2008, we committed to a plan to sell our Pictou pulp mill (the “Pictou Mill”) and approximately 500,000 acres of woodland assets in Nova Scotia (the “Woodlands”).  In June 2008, our wholly owned subsidiary, Neenah Paper Company of Canada (“Neenah Canada”) completed the sale of the Pictou Mill to Northern Pulp Nova Scotia Corporation (“Northern Pulp”), a new operating company jointly owned by Atlas Holdings LLC and Blue Wolf Capital Management LLC.  At closing, Neenah Canada made a payment of $1.8 million to Northern Pulp. In addition, we paid approximately $0.9 million in transaction costs at closing. Neenah Canada will make a second and final payment to Northern Pulp of approximately $8.7 million (which is net of an estimated $1.3 million favorable working capital settlement) in the third quarter of 2008. Pursuant to the terms of the transaction, Northern Pulp assumed all of the assets and liabilities associated with the Pictou Mill, as well as existing customer contracts, supply agreements (including the Pulp Supply Agreement with Kimberly-Clark), labor agreements and pension obligations. The sale excluded the Woodlands.

In conjunction with the sale of the Pictou Mill, we entered into a stumpage agreement (the “Stumpage Agreement”) which allows Northern Pulp to harvest an average of approximately 400,000 metric tons of softwood timber annually from the Woodlands. The Stumpage Agreement is for a term of ten years and Northern Pulp has the option to extend the agreement for an additional three years.  For calendar year 2008, Northern Pulp will pay a nominal amount for approximately 236,000 metric tons of softwood timber harvested under the Stumpage Agreement.  As a result, we recorded $2.8 million in deferred revenue for the estimated fair value of the timber to be harvested by Northern Pulp in calendar 2008.  The loss on transfer of the Pictou Mill was increased by an amount equal to such deferred revenue.  For timber purchases during calendar year 2009, Northern Pulp will pay the then current stumpage rate charged by the Nova Scotia provincial government for harvesting on government licensed lands.  The price paid for all subsequent purchases will be based on an agreed upon index which will approximate market.  Northern Pulp will pay all costs associated with maintaining the Woodlands and harvesting the timber.  An agreement to sell the Woodlands will be subject to the terms of the Stumpage Agreement.

We believe it is probable that a sale of the Woodlands will occur within 12 months.  We expect to recognize a substantial gain on the sale of the Woodlands. Upon consummation of the sale of the Woodlands, we will have completely divested our pulp manufacturing operations and the revenues of our remaining businesses will be almost evenly divided between fine paper and technical products. In addition, we will have significantly changed the profile of our company by eliminating our pulp operations in favor of higher growth, more profitable and less capital-intensive specialty paper businesses, and reducing our exposure to cyclicality in pulp prices and fluctuations in exchange rates.

Results of Continuing Operations

For the three months ended June 30, 2008, our consolidated net sales decreased approximately $12 million from the prior year period to $194.5 million. The decrease was primarily due to reduced volume in our fine paper business, partially offset by favorable currency translation effects due to the strengthening of the Euro versus the U.S. dollar. Our consolidated operating income of $14.2 million for the three months ended June 30, 2008 decreased $4.0 million compared to the prior year primarily due to manufacturing input cost increases and reduced volume in our fine paper business due to the discontinuance of certain pieces of business as we rationalized our product portfolio following the acquisition of Fox River,

32

weak economic conditions and an unusually large decline in market demand for uncoated free sheet papers. These unfavorable factors were partially offset by the benefits of improved manufacturing efficiencies, the realization of selling price increases and a gain on the sale of certain assets acquired in the Fox River acquisition.

Results of Discontinued Operations

For the three months ended June 30, 2008, net sales of discontinued operations of $48.1 million decreased $3.9 million from the comparable prior year period.  The unfavorable comparison was primarily due to lower sales volume that was partially offset by higher market prices for softwood pulp.

For the three months ended June 30, 2008, we incurred a pre-tax loss from discontinued operations of $52.8 million compared to a pre-tax loss of $7.8 million in the prior year period.  The loss from discontinued operations in the current quarter includes a pre-tax loss from operations of $8.9 million and a pre-tax loss on disposal of $43.9 million.  The losses from operations in both years primarily reflect costs related to scheduled maintenance downtime. The loss on disposal was primarily due to recognition of a non-cash charge of $53.7 million for the reclassification from accumulated other comprehensive income of deferred adjustments related to pensions and other post-employment benefits in connection with the transfer of post-employment benefit plans for the Pictou Mill to Northern Pulp.  In addition, we recognized pre-tax income of $9.8 million to adjust the estimated loss on transfer to the actual loss recognized upon closing the transaction.

Results of Operations and Related Information

In this section, we discuss and analyze our net sales, operating income and other information relevant to an understanding of our results of operations for the three and six months ended June 30, 2008 and 2007.

Analysis of Net Sales—Three and Six Months Ended June 30, 2008 and 2007

The following table presents net sales by segment, expressed as a percentage of total net sales before the elimination of intersegment sales:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Fine Paper	43	%	50	%	45	%	46	%
Technical Products	57	%	50	%	55	%	54	%
Total	100	%	100	%	100	%	100	%

The following table presents our net sales by segment for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Net sales
Fine Paper	$	84.5	$	103.6	$	181.5	$	175.9
Technical Products	110.0		102.5		218.6		203.2
Intersegment sales	—		—		—		(0.3		)
Consolidated	$	194.5	$	206.1	$	400.1	$	378.8

33

Commentary:

Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007

	Change in Net Sales Compared to Prior Period
				Change Due To
	Total Change			Volume			Average Net Price		Currency
Fine Paper	$	(19.1	)	$	(19.7	)	$	0.6	$	—
Technical Products	7.5			(3.2		)	0.5		10.2
Consolidated	$	(11.6	)	$	(22.9	)	$	1.1	$	10.2

Consolidated net sales of $194.5 million in the three months ended June 30, 2008 were $11.6 million lower than the prior year period primarily due to reduced volume in our fine paper business, partially offset by favorable currency translation effects in our technical products business due to the strengthening of the Euro versus the U.S. dollar and the realization of price increases in both segments.

·Net sales in our fine paper business of $84.5 million decreased $19.1 million or 18 percent primarily due to a 19 percent decrease in shipments. The lower volume reflected a double digit decline in market demand for premium uncoated free sheet papers in the second quarter of 2008 and the intentional discontinuance of certain pieces of business as we rationalized our product portfolio following the acquisition of Fox River. The improvement in average net price reflected increased selling prices for most products due to the realization of price increases implemented in the third quarter of 2007 and the second quarter of 2008, partially offset by a less favorable mix in part due to the intentional discontinuance of higher priced art papers.

·Net sales in our technical products business of $110.0 million increased $7.5 million or 7 percent, primarily due to favorable currency effects and higher net prices that were partly offset by lower total volumes.  Overall volumes declined as significant increases in volumes for filtration and abrasives were offset by declines in export tape as a result of the strengthening of the Euro, and in certain other markets due to the timing of certain orders, weaker economic conditions and intentional reductions in products that did not meet internal profitability thresholds.

Commentary:

Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007

	Change in Net Sales Compared to Prior Period
			Change Due To
	Total Change		Volume			Average Net Price			Currency
Fine Paper	$	5.6	$	7.7		$	(2.1	)	$	—
Technical Products	15.4		(8.2		)	4.1			19.5
Intersegment sales	0.3		0.3			—			—
Consolidated	$	21.3	$	(0.2	)	$	2.0		$	19.5

Consolidated net sales of $400.1 million in the six months ended June 30, 2008 were $21.3 million higher than the prior year period primarily due to favorable currency translation effects related to the strengthening of the Euro versus the U.S. dollar and higher average net price.

·Net sales in our fine paper business of $181.5 million increased $5.6 million or 3 percent primarily due to the acquisition of Fox River.  The overall increase in sales was due to a four percent gain in volumes, partially offset by a three percent decline in average net price. The increase in volume was due to incremental sales related to the acquisition of Fox River in March 2007; partially offset by reduced volumes of other products as a result of weaker economic conditions and an unusually large market decline in the first six months of 2008 for premium uncoated free sheet papers. The decline in average net price reflected increased selling prices for most products that were more than offset by a less favorable mix. The less favorable mix was due to selling a higher proportion of the relatively lower priced grades acquired from Fox River.

34

·Net sales in our technical products business of $218.6 million increased $15.4 million or 7 percent, primarily due to favorable currency effects and higher net prices that were partly offset by lower volumes for certain products. Volumes declined as increases in volumes for filtration and abrasives were offset by declines in export tape as a result of the strengthening of the Euro, and in certain other markets due to timing of certain orders, weaker economic conditions and intentional reductions in products that did not meet internal profitability thresholds.

The following table sets forth line items from our condensed consolidated statements of operations as a percentage of net sales for the periods indicated and is intended to provide a perspective of trends in our historical results:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of products sold	85.1		81.9		84.2		80.8
Gross profit	14.9		18.1		15.8		19.2
Selling, general and administrative expenses	9.1		10.2		9.7		10.1
Other income - net	(1.5	)	(0.9	)	(1.9	)	(0.8	)
Operating income	7.3		8.8		8.0		9.9
Interest expense-net	3.1		3.2		3.0		3.3
Income from continuing operations before income taxes	4.2		5.6		5.0		6.6
Provision for income taxes	1.0		2.0		1.3		2.0
Income from continuing operations	3.2	%	3.6	%	3.7	%	4.6	%

Analysis of Operating Income—Three and Six Months Ended June 30, 2008 and 2007

The following table sets forth our operating income (loss) by segment for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Operating income (loss)
Fine Paper	$	11.7		$	13.2		$	21.7		$	25.6
Technical Products	6.0			8.7			14.1			18.9
Unallocated corporate costs	(3.5		)	(3.7		)	(3.7		)	(6.9		)
Consolidated	$	14.2		$	18.2		$	32.1		$	37.6

35

Commentary:

Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007

	Change in Operating Income (Loss) Compared to Prior Period
				Change Due To
	Total Change			Volume			Net Price (a)			Material Costs (b)			Currency		Other (c)
Fine Paper	$	(1.5	)	$	(4.2	)	$	2.3		$	(4.5	)	$	—	$	4.9
Technical Products	(2.7		)	(0.9		)	(0.7		)	(2.9		)	0.4		1.4
Unallocated corporate costs	0.2			—			—			—			—		0.2
Consolidated	$	(4.0	)	$	(5.1	)	$	1.6		$	(7.4	)	$	0.4	$	6.5

(a)Includes changes in selling price and product mix.

(b)Includes price changes for raw materials and energy.

(c)Includes other materials, manufacturing labor, distribution, selling, general and administrative expenses and gains and losses on asset sales.

Consolidated operating income of $14.2 million for the three months ended June 30, 2008 decreased $4.0 million compared to 2007 primarily due to increased manufacturing input costs in excess of selling price increases in both businesses and decreased volume in our fine paper business that more than offset the benefits of higher net price in our fine paper business and a gain on sale of certain assets acquired in the acquisition of Fox River.

·Operating income for our fine paper business decreased $1.5 million primarily due to lower volumes as a result of weaker economic conditions and an unusually large decline in market demand for premium uncoated free sheet papers that more than offset a gain of approximately $3 million in the second quarter of 2008 on the sale of certain assets acquired in the acquisition of Fox River. Higher manufacturing input costs in 2008, principally for hardwood pulp and energy were largely offset by higher selling prices, improved manufacturing efficiencies, including benefits from the Fox River acquisition; and a reduction in controllable selling, general and administrative costs.

·Operating income for our technical products business decreased $2.7 million primarily due to higher manufacturing input costs, lower volume and a less favorable product mix.  The increase in manufacturing input costs primarily reflected higher prices for energy, latex and pulp, as well as costs following the start-up of certain assets in Germany and planned downtime.   These unfavorable factors were partially offset by improved pricing, improved operations at our Munising mill, a reduction in controllable selling, general and administrative costs and the favorable translation impact from a stronger Euro relative to the U.S. dollar.

·Unallocated corporate expenses decreased by $0.2 million primarily due to absence in the current year of costs associated with an executive retirement that offset higher costs in 2008 for certain employee benefit liabilities and currency translation losses on an intercompany loan.

36

Commentary:

Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007

	Change in Operating Income (Loss) Compared to Prior Period
				Change Due To
	Total Change			Volume			Net Price (a)			Material Costs (b)			Currency		Other (c)
Fine Paper	$	(3.9	)	$	4.6		$	(4.2	)	$	(6.4	)	$	—	$	2.1
Technical Products	(4.8		)	(2.1		)	0.7			(5.3		)	1.1		0.8
Unallocated corporate costs	3.2			—			—			—			—		3.2
Consolidated	$	(5.5	)	$	2.5		$	(3.5	)	$	(11.7	)	$	1.1	$	6.1

(a)Includes changes in selling price and product mix.

(b)Includes price changes for raw materials and energy.

(c)Includes other materials, manufacturing labor, distribution, selling, general and administrative expenses and gains and losses on asset sales.

Consolidated operating income of $32.1 million for the six months ended June 30, 2008 decreased $5.5 million compared to 2007 primarily due to increased manufacturing input costs in excess of selling price increases in both businesses and a less favorable mix of products in our fine paper business that more than offset the benefits of increased volume from the acquisition of Fox River.  These factors also offset benefits in 2008 from a gain of approximately $3 million related to the sale of certain assets acquired in the acquisition of Fox River, reductions in controllable selling, general and administrative costs and the settlement of certain employee benefit liabilities that we retained following the sale of Terrace Bay.

·Operating income for our fine paper business decreased $3.9 million primarily due to higher manufacturing input costs, principally for hardwood pulp, and a less favorable product mix due to the dilutive effect of selling relatively lower priced grades acquired in the Fox River acquisition. These unfavorable factors were only partially offset by increased volume related to the acquisition of Fox River, improved manufacturing efficiencies, including benefits from the Fox River acquisition, reductions in controllable selling, general and administrative costs, higher selling prices and the gain on asset sales.

·Operating income for our technical products business decreased $4.8 million primarily due to higher manufacturing costs and lower volume.  The increase in manufacturing costs primarily reflected higher input prices for energy, pulp and latex and increased costs in Germany following the start-up of certain assets.   These unfavorable factors were partially offset by improved pricing and mix, improved operations at our Munising mill, reductions in controllable selling, general and administrative costs and the favorable translation impact from a stronger Euro relative to the U.S. dollar.

·Unallocated corporate expenses decreased by $3.2 million primarily due to the settlement of certain employee benefit liabilities that we retained following the sale of our Terrace Bay pulp mill that offset increased costs for other corporate expenses.

Additional Statement of Operations Commentary:

·Selling, general and administrative (“SG&A”) expenses of $17.6 million for the three months ended June 30, 2008 decreased $2.5 million from the prior year period partly due to spending reductions in certain categories and the absence in the current period of costs related to an executive retirement in the prior year period. For the three months ended June 30, 2008, SG&A expense as a percentage of sales was approximately 9 percent and was 0.7 percentage points lower than the prior year period.

·For the three months ended June 30, 2008 and 2007, we incurred $6.1 million and $6.7 million, respectively, of net interest expense (including $0.5 million of amortization of debt issuance costs in each period).  The decrease in net interest expense was primarily due to lower average interest rates.

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·The effective tax rate was approximately 23 percent and 36 percent for the three months ended June 30, 2008 and 2007, respectively.  The decrease in the effective tax rate was primarily due to the benefit in the current period of a change in German tax laws reducing the statutory tax rate beginning in 2008 and the mix of pretax income between tax jurisdictions with different marginal tax rates.

Liquidity and Capital Resources

	Six Months Ended June 30,
	2008			2007
Net cash flow provided by (used in):
Operating activities	$	0.7		$	21.6
Investing activities, including capital expenditures	(17.0		)	(85.7		)
Capital expenditures	(17.8		)	(23.6		)
Financing activities	15.7			63.4

Operating Cash Flow Commentary:

·Cash provided by operating activities of $0.7 million for the six months ended June 30, 2008 was $20.9 million unfavorable to cash provided by operating activities of $21.6 million in the prior year. This unfavorable comparison to the prior year was primarily due to increased investments in working capital and a $5.0 million payment to settle litigation related to Terrace Bay post-employment benefits in the current year.

Investing Commentary:

·For the six months ended June 30, 2008, cash used in investing activities was $17.0 million, a decrease of $68.7 million versus the prior year period.  The decrease in cash used was primarily due to spending of $55.3 million for the acquisition of Fox River in 2007 and a $5.6 million increase in restricted cash associated with capital expansion projects in Germany in the first six months of 2007.  Capital spending for the first six months of 2008 was $17.8 million compared to spending of $23.6 million in the comparable prior year period.  We have aggregate planned capital expenditures for 2008 of $30 million to $35 million.  These capital expenditures are not expected to have a material adverse effect on our financial condition, results of operations or liquidity.

·Upon closing the sale of the Pictou Mill, Neenah Canada made a payment of $1.8 million to Northern Pulp. Neenah Canada will make a second and final payment to Northern Pulp of approximately $8.7 million (which is net of an estimated $1.3 million favorable working capital settlement) in the third quarter of 2008.  This payment was offset by approximately $3 million for proceeds from the sale of certain Fox River assets.

Financing Commentary:

·Our liquidity requirements are being provided by cash generated from operations, short- and long-term borrowings and proceeds from asset sales. Availability under our revolving credit facility varies over time depending on the value of our inventory, receivables and various capital assets. As of June 30, 2008, we had $91.6 million outstanding under our revolving credit facility, outstanding letters of credit of $1.6 million and $76.9 million of available credit.

·In June 2008, we entered into the sixth amendment to the bank credit agreement in which the lenders consented to the sale of the Pictou Mill.

·In June 2008, we entered into the first amendment to the Term Loan agreement which reduced required amortization payments to $1.25 million per quarter.  Any remaining amounts outstanding under the Term Loan are due and payable upon termination of the agreement, currently scheduled to occur in November 2010.

·For the six months ended June 30, 2008, we paid approximately $9.4 million to purchase shares of common stock in connection with a reverse/forward split of issued and outstanding shares of common stock.

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•For the six months ended June 30, 2008, additional net borrowings on our revolving credit facility were $25.4 million primarily to finance our increased investment in operating working capital and the reverse/forward split of common stock. In the six months ended June 30, 2007, net borrowings on our revolving credit facility increased $25.2 million, principally to finance the Fox River acquisition.

•We paid cash dividends of $0.20 per share or approximately $3.0 million in each of the six months ended June 30, 2008 and 2007.

Management believes that our ability to generate cash from operations and our borrowing capacity are adequate to fund working capital, capital spending and other cash needs for the next 12 months.

Contractual Obligations

The following table presents the total contractual obligations for which cash flows are fixed or determinable as of June 30, 2008:

	For the Years ended December 31,
(In millions)	2008(a)		2009		2010		2011		2012		Beyond 2012		Total
Unconditional purchase obligations	$	0.5	$	0.6	$	0.6	$	0.5	$	0.3	$	—	$	2.5
Long-term debt payments	16.0		7.0		102.1		1.9		2.0		232.9		361.9
Interest payments on long-term debt	11.4		22.3		21.5		17.0		16.9		33.1		122.2
Other post-employment benefit obligations	3.8		1.6		1.8		2.1		2.3		15.1		26.7
Operating leases	1.6		3.1		2.3		1.9		1.4		2.3		12.6
Open purchase orders	17.5		—		—		—		—		—		17.5
Contributions to pension trusts	1.8		—		—		—		—		—		1.8
Liability for uncertain tax positions	—		1.0		—		—		—		—		1.0
Total contractual obligations	$	52.6	$	35.6	$	128.3	$	23.4	$	22.9	$	283.4	$	546.2

(a)           Represents amounts due on contractual obligations for the period July 1, 2008 through December 31, 2008.

The unconditional purchase obligations are for the purchase of services for the maintenance of information systems. Although we are primarily liable for payments on the above operating leases and unconditional purchase obligations, based on historic operating performance and forecasted future cash flows, we believe our exposure to losses, if any, under these arrangements is not material.

Interest payments on long-term debt includes interest on variable rate debt at June 30, 2008 weighted average interest rates.

The open purchase orders displayed in the table represent amounts we anticipate will become payable within the next year for goods and services that we have negotiated for delivery.

The above table includes future payments that we will make for post-employment benefits other than pensions. Those amounts are estimated using actuarial assumptions, including expected future service, to project the future obligations.

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Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. We believe that the estimates, assumptions and judgments described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. The critical accounting policies used in the preparation of the consolidated financial statements are those that are important both to the presentation of financial condition and results of operations and require significant judgments with regard to estimates used. These critical judgments relate to the timing of recognizing sales revenue, the recoverability of deferred income tax assets, pension benefits and future cash flows associated with impairment testing of long-lived assets. Actual results could differ from these estimates, and changes in these estimates are recorded when known. We believe that the consistent application of these policies enables us to provide readers of our financial statements with useful and reliable information about our operating results and financial condition. There has been no significant change in these policies, or the estimates used in the application of the policies, since December 31, 2007.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), or in releases made by the Securities and Exchange Commission (the “SEC”), all as may be amended from time to time. Statements contained in this quarterly report that are not historical facts may be forward-looking statements within the meaning of the PSLRA. Any such forward-looking statements reflect our beliefs and assumptions and are based on information currently available to us. Forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. The Company cautions investors that any forward-looking statements we make are not guarantees or indicative of future performance. For additional information regarding factors that may cause our results of operations to differ materially from those presented herein, please see “Risk Factors” contained in our most recent Annual Report on Form 10-K and as are detailed from time to time in other reports we file with the SEC.

You can identify forward-looking statements as those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “contemplate,” “estimate,” “believe,” “plan,” “project,” “predict,” “potential” or “continue,” or the negative of these, or similar terms. In evaluating these forward-looking statements, you should consider the following factors, as well as others contained in our public filings from time to time, which may cause our actual results to differ materially from any forward-looking statement:

•general economic conditions, particularly in the United States and Europe;

•fluctuations in global equity and fixed-income markets;

•the competitive environment;

•fluctuations in commodity prices, exchange rates (in particular changes in the U.S. dollar/Euro currency exchange rates) and interest rates;

•the ability to realize anticipated cost savings in our businesses, and completion of the successful integration of the former Fox River business;

•the cost or availability of raw materials and energy;

•unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations;

•our ability to control costs and implement measures designed to enhance operating efficiencies;

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

•increases in the funding requirements for our pension and post-employment liabilities;

•changes in asset valuations including write-downs of assets including fixed assets, inventory, accounts receivable or other assets for impairment or other reasons;

•our existing and future indebtedness;

•strikes, labor stoppages and changes in our collective bargaining agreements and relations with our employees and unions;

•other risks that are detailed from time to time in reports we file with the SEC.

Any subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth or referred to above, as well as the risk factors contained in our most recent Annual Report on Form 10-K. Except as required by law, we disclaim any obligation to update such statements or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Except as described below, there have been no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2007.

Foreign Currency Risk

Prior to the sale of the Pictou Mill, our results of operations and cash flows were affected by changes in the Canadian dollar exchange rate relative to the U.S. dollar.  Exchange rate fluctuations could have a material impact on our financial results because substantially all of our pulp mill’s expenses were incurred in Canadian dollars and our pulp revenues were denominated in U.S. dollars. For the year ended December 31, 2007, a hypothetical $0.01 increase in the Canadian dollar relative to the U.S dollar would have decreased our income before income taxes by approximately $2 million, excluding additional currency re-measurement losses. In addition, our reported operating results are affected by changes in the exchange rates of the Canadian dollar relative to the U.S. dollar. For the year ended December 31, 2007, a hypothetical 10 percent increase in the exchange rates of the Canadian dollar relative to the U.S dollar would have decreased our income before income taxes by approximately $1.6 million. Following the sale of the Pictou Mill, the risk that our results of operations and cash flows will be affected by changes in the Canadian dollar exchange rate relative to the U.S. dollar have been substantially eliminated.

From time-to-time, we have used hedging arrangements to reduce our exposure to Canadian dollar exchange rate fluctuations, although these arrangements could result in us incurring higher costs than we would incur without the arrangements. At June 30, 2008, we had no foreign currency contracts outstanding. At December 31, 2007 we had foreign currency contracts outstanding in a notional amount of $3.4 million Canadian dollars designated as cash flow hedges of U.S dollar denominated pulp sales. The fair value of the contracts was a current asset of $0.5 million U.S. dollars. The weighted average exchange rate for the foreign currency contracts at December 31, 2007 was $0.852 U.S. dollars per Canadian dollar and the contracts extended through February 2008.

Commodity Risk

Pulp

Prior to the sale of the Pictou Mill, our results of operations, cash flows and financial position are sensitive to the selling prices of wood pulp. Wood pulp is a commodity for which there are multiple other suppliers. Typically, commodities businesses compete primarily on the basis of price and availability. The revenues from producing a commodity tend to be cyclical, with periods of shortage and rapidly rising prices leading to increased production and increased industry investment until supply exceeds demand. Those periods are then typically followed by periods of reduced prices and excess and idle capacity until the cycle is repeated.

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The markets and profitability of pulp have been, and are likely to continue to be, cyclical. Because our pulp business competed primarily on the basis of price and availability, the financial success of our pulp mills depended on their ability to produce pulp at a competitive cost.

From time-to-time, we have used hedging arrangements to reduce our exposure to pulp price fluctuations, although these arrangements could result in us incurring higher costs than we would incur without the arrangements. At June 30, 2008 and December 31, 2007, we had no outstanding pulp future contracts.

Based on 2007 shipment volume, a 10 percent decrease in the market price for northern bleached softwood kraft pulp (excluding the impact of volume and other discounts) would reduce pretax income of our Pulp segment by approximately $22.6 million. Following the sale of the Pictou Mill, we have substantially reduced our exposure to cyclicality in pulp prices.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management in a timely manner.

As of June 30, 2008, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, 2008.

Internal Controls over Financial Reporting

During the three months ended June 30, 2008, we implemented general ledger, manufacturing and costing, inventory, and order management modules of our Enterprise Resource Planning system in the Appleton, Wisconsin and Ripon, California operating locations acquired in the Fox River acquisition resulting in a material change in our processes over financial reporting at those locations.  We assessed the design effectiveness of the internal controls over the key processes affected by the system change.  We also assessed the design effectiveness of the internal controls over financial reporting for our Fox River manufacturing operations acquired in March 2007 which management had elected to exclude from its assessment of internal control over financial reporting made as of December 31, 2007.  As a result of these assessments, management believes that we maintained adequate internal control over financial reporting.

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2007, management’s assessment of our internal control over financial reporting identified the following material weakness in our internal controls over financial reporting:

Controls Over Income Tax Accounting: We did not maintain effective controls over the determination and reporting of the provision for income taxes and related income tax balances. Specifically, the requisite level of skills and resources in accounting for income taxes was inadequate and our procedures for preparing, analyzing, reconciling and reviewing our income tax provision and income tax balance sheet accounts did not provide effective internal control. Spreadsheets supporting the calculation of income tax balances are inadequately controlled and are susceptible to manual input errors.

Despite these control deficiencies, management believes that the consolidated financial statements are fairly stated in all material respects as of and for the year ended December 31, 2007. However, until such control deficiency is remediated, it is reasonably possible that these control deficiencies could result in a material misstatement of the provision for income taxes and related income tax balances in the Company’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. Therefore, management has concluded that, as of December 31, 2007, there is a material weakness in internal control over financial reporting as it relates to accounting for income taxes that resulted from a deficiency in the operation of internal control.

Remediation and Changes in Internal Controls

We have developed and implemented remediation plans to address our material weakness. During the three months ended June 30, 2008, the following remedial actions have been put in place:

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During the second quarter of 2008, responsibility for the preparation and analysis of our income tax provision and the reconciliation of income tax balance sheet accounts was outsourced to a nationally recognized public accounting firm. In addition, a standard spreadsheet template was utilized to summarize the components of our income tax provision to improve process controls, reduce the possibility of manual errors and increase the likelihood that any such errors will be identified and corrected during the review process. Management retained responsibility for reviewing such work confirming that our income tax provision and income tax balance sheet accounts were fairly stated in all material respects.

As a result of the implementation of these processes, management believes that the consolidated financial statements are fairly stated in all material respects as of and for the three and six months ended June 30, 2008. Management is continuing to collect evidence of the effectiveness of the design and operation of our internal controls over financial reporting as it relates to accounting for income taxes before reaching a conclusion on whether the deficiency in the operation of internal control has been remediated.

Other than as described above, there have not been any other changes in our internal control over financial reporting during the three months ended June 30, 2008, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in certain other legal actions and claims arising in the ordinary course of business. While the outcome of these legal actions and claims cannot be predicted with certainty, it is the opinion of management that the outcome of any such claim which is pending or threatened, either individually or on a combined basis, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities:

The following table contains information about our purchases of our equity securities for the three months ended June 30, 2008.

Period	Total Number of Shares Purchased (a)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs
April 1, 2008 — April 30, 2008	—	$	—	—	—
May 1, 2008 — May 31, 2008	179	$	23.20	—	—
June 1, 2008 — June 30, 2008	—	$	—	—	—

(a)Transactions represent the purchase of common shares from employees to satisfy tax withholding requirements upon the exercise of vesting of stock-based awards. None of these transactions were made in the open market. The average price paid is based upon the closing sales price on the New York Stock Exchange on the date of the transaction.

Item 4.  Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Stockholders on May 20, 2008, the following business was transacted:

Election of Class I Directors -

All the Class III nominees for election to the Board of Directors were elected:

	Number of Shares For	Number of Shares Authority Withheld
Timothy S. Lucas	12,762,947	470,518
Phillip C. Moore	12,959,066	274,399

Ratification of Appointment of Independent Registered Public Accounting Firm

The appointment of Deloitte & Touche LLP was ratified:

	Number of Shares For	Number of Shares Against	Number of Shares Abstain
Appointment of Deloitte & Touche LLP	13,180,083	577,951	9,917

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Item 6. Exhibits

Exhibit Number	Exhibit
10.1	Sixth Amendment, dated as of May 15, 2008 to the Credit Agreement dated as of November 30, 2004, by and among Neenah Paper, Inc., certain of its subsidiaries, the lenders listed therein and JPMorgan Chase Bank, N.A., as agent for the Lenders.
10.2	Amended and Restated Share Purchase Agreement dated as of June 24, 2008, by and among Neenah Paper Company of Canada, NPCC Holding Company, LLC, Neenah Paper, Inc., Azure Mountain Capital Holdings LP, Northern Pulp NS LP, and Azure Mountain Capital Financial LP.
10.3	Asset Purchase Agreement dated as of June 24, 2008, by and between Neenah Paper Company of Canada, and Azure Mountain Financial Corporation.
10.4	Asset Purchase Agreement dated as of June 24, 2008, by and between Neenah Paper Company of Canada, and Northern Pulp Nova Scotia Corporation.
10.5	Stumpage Agreement, dated as of June 24, 2008, by and between Neenah Paper Company of Canada, and Northern Pulp Nova Scotia Corporation.
10.6	Subscription Agreement, dated as of June 24, 2008, by and between Neenah Paper Company of Canada, and Azure Mountain Capital Financial Corporation.
10.7	Consent and Guarantee Agreement Concerning Amended and Restated Pulp Supply Agreement, dated as of June 19, 2008, by and between Neenah Paper, Inc. and Kimberly-Clark Global Sales, LLC.
31.1	Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

		NEENAH PAPER, INC
	By:	/s/ Sean T. Erwin
		Sean T. Erwin
		Chairman of the Board, President and Chief
		Executive Officer (Principal Executive Officer)
		/s/ Bonnie C. Lind
		Bonnie C. Lind
		Senior Vice President, Chief Financial Officer
		and Treasurer (Principal Financial Officer)
August 11, 2008

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EX-10.1

Exhibit 10.1

SIXTH AMENDMENT, dated as of May 15, 2008 (this “Amendment”), to the Credit Agreement dated as of November 30, 2004 (as heretofore amended, supplemented, or otherwise modified, the “Credit Agreement”) among NEENAH PAPER, INC., a Delaware corporation (the “Parent”), each subsidiary of the Parent listed as a “Borrower” on the signature pages thereto (together with the Parent, each a “Borrower” and collectively, the “Borrowers”), each subsidiary of the Parent listed as a “Guarantor” on the signature pages thereto, the lenders party thereto (the “Lenders”), JPMORGAN CHASE BANK, N.A., as agent for the Lenders (in such capacity, the “Agent”), and J.P. MORGAN SECURITIES INC., as the exclusive arranger and sole bookrunner (“Book-Runner”).

The Credit Parties have requested that the Lenders agree to amend certain provisions of the Credit Agreement.  The Lenders party hereto are willing to amend the Credit Agreement as set forth herein on the terms and subject to the conditions set forth herein.  Capitalized terms used but not defined herein have the meanings assigned to them in the Credit Agreement, including after giving effect to the amendments set forth in this Amendment.

Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.           Amendments to Section 1.1 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 1.1 of the Credit Agreement is hereby amended

(a)           by adding the following new definitions in their appropriate alphabetical order:

Pictou Disposition shall mean the related series of transactions consisting of (i) the transfer of the Pictou Properties to the Pictou Subsidiaries and the cash capital contribution by one of more of the Credit Parties to the Pictou Subsidiaries in an aggregate amount not to exceed $15,000,000, and (ii) the sale of all equity interests in the Pictou Subsidiaries to Azure Capital Holdings LP or one or more of its Affiliates.  Notwithstanding anything to the contrary contained in Section 6.10 of this Agreement, the Pictou Subsidiaries shall not be required to become Guarantors, to grant a security interest in their assets or to have their Stock pledged, so long as the Pictou Disposition is consummated within the time provided in clause (xii)(3) of Section 7.4(4).

Pictou Properties shall mean the Property comprising, located at or used solely in connection with the Pictou County, Nova Scotia facilities, as well as any or all of the real property or related personal property owned by Neenah Paper Company of Canada in or near Abercrombie Point and Boat Harbour, Pictou County, Nova Scotia (excluding the Nova Scotia Woodlands, but including the woodland operations and nursery operations, and real property related to the

nursery operations, in or near Debert, Nova Scotia), plus all related Inventory and Receivables of Neenah Paper Company of Canada.

Pictou Subsidiaries shall mean Azure Mountain Capital Financial Corporation, an unlimited liability company incorporated under the laws of Nova Scotia, and Northern Pulp Nova Scotia Corporation, an unlimited liability company incorporated under the laws of Nova Scotia, both of which are newly formed or to be formed Subsidiaries of Neenah Paper Company of Canada as of the Sixth Amendment Effective Date.

Sixth Amendment Effective Date shall mean May 15, 2008.

Special Fixed Asset Component shall mean $20,000,000; provided, that, the Special Fixed Asset Component shall reduce (i) in equal installments of $1,666,666.67 commencing on August 31, 2008, and continuing on the last day of each third month thereafter, (ii) upon the consummation of Dispositions of Timberland Properties, Eligible Equipment and Mill Properties consisting of Eligible Real Estate, by the applicable percentage of the Net Recovery Value Percentage of the Property so disposed of, and (iii) to zero ($0.00) on the earlier to occur of (A) October 31, 2009, and (B) the Agent’s receipt from Parent of an irrevocable written notice to permanently reduce the Special Fixed Asset Component to zero ($0.00); provided, that such notice may not be delivered (1) prior to May 30, 2009, (2) unless Availability would be greater than zero ($0.00) after giving effect to such reduction, and (3) unless no Default or Event of Default exists.

SFAC Loans shall mean, at any time, that portion of the Revolving Loans then outstanding that is equal to the Special Fixed Asset Component at such time; provided, that if the aggregate amount of all Revolving Loans outstanding at such time is less than the Special Fixed Asset Component, all of such Revolving Loans shall be deemed to be SFAC Loans.

(b)           by deleting the definition of “Applicable Margin” and by inserting the following in lieu thereof:

Applicable Margin shall mean, with respect to any Loan, a rate per annum determined in accordance with this definition.  The “Applicable Margin” from and after the Sixth Amendment Effective Date and continuing until June 30, 2008 shall be the applicable rate set forth below in Category 4.  As of the end of each fiscal quarter of the Credit Parties, and also as of the end of the third full calendar month after the consummation of the Pictou Disposition, the Applicable Margin shall be adjusted upward or downward, as applicable, to the respective amounts shown in the schedule below based on Availability, tested on an average daily basis for the most recent fiscal quarter of the Credit Parties. For purposes hereof, any such adjustment in the respective amounts of the Applicable Margin, whether upward or downward, shall be effective ten (10) Business Days after the Borrowing Base Compliance Certificate of the Credit Parties and their

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Subsidiaries with respect to the final month of such fiscal quarter (or, if it occurs sooner, with respect to the third full calendar month after the consummation of the Pictou Disposition) has been delivered to and received by the Agent in accordance with the terms of Section 6.3(i) hereof; provided, however, if any such Borrowing Base Compliance Certificate is not delivered in a timely manner as required under the terms of Section 6.3(i) hereof, the Applicable Margin from the date such Borrowing Base Compliance Certificate was due until ten (10) Business Days after Agent and Lenders receive the same will be the applicable rate set forth below in Category 1.  Notwithstanding the foregoing, from and after the date on which the Pictou Disposition is consummated and continuing until the end of the third full calendar month following the consummation of the Pictou Disposition, the Applicable Margin shall be the applicable rate set forth below in Category 2.

Availability	Per Annum Percentage for Non- FAC Loan LIBOR Borrowings		Per Annum Percentage for Non- FAC Loan Alternate Base Rate Borrowings		Per Annum Percentage for FAC Loan LIBOR Borrowings		Per Annum Percentage for FAC Loan Alternate Base Rate Borrowings		Per Annum Percentage for SFAC Loan LIBOR Borrowings		Per Annum Percentage for SFAC Loan Alternate Base Rate Borrowings
Category 1: Less than $30,000,000	2.00	%	0.50	%	2.25	%	0.75	%	3.50	%	2.00	%
Category 2: Less than $50,000,000, but greater than or equal to $30,000,000	1.75	%	0.25	%	2.00	%	0.50	%	3.25	%	1.75	%
Category 3: Less than $90,000,000, but greater than or equal to $50,000,000	1.50	%	0.0	%	1.75	%	0.25	%	3.00	%	1.50	%
Category 4: Greater than or equal to $90,000,000	1.25	%	0.0	%	1.50	%	0.0	%	2.75	%	1.25	%

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(c)           by deleting the definition of “Borrowing Base” and inserting the following in lieu thereof:

Borrowing Base shall mean, as of any date, the amount of the then most recent computation of the Borrowing Base, determined by calculating the amount equal to the following:

(a)           85% of Eligible Receivables; plus

(b)           the lesser of (i) 75% of the value of Eligible Inventory (valued at the lower of cost or fair market value), and (ii) 85% of the applicable Net Recovery Value Percentage of Eligible Inventory; plus

(c)           the lesser of (i) $60,000,000 and (ii) the Margined PP&E Amount; plus

(d)           the Fixed Asset Component; plus

(e)           the Special Fixed Asset Component, provided, that, the Special Fixed Asset Component shall not be included in the Borrowing Base until such time as the Pictou Disposition has been consummated pursuant to Section 7.4(4)(xii).

(d)           by deleting the definition of “Capital Expenditures” and by inserting the following in lieu thereof:

Capital Expenditures shall mean, with respect to any Person for any period, all capital expenditures of such Person, on a Consolidated basis, for such period (including without limitation, the aggregate amount of Capital Lease Obligations incurred during such period which are required to be capitalized and reported as a liability on the consolidated balance sheet of such Person), determined in accordance with GAAP, consistently applied.

(e)           by deleting the definition of “FAC Loans” and by inserting the following in lieu thereof:

FAC Loans shall mean, at any time, that portion of the Revolving Loans then outstanding that is equal to the Fixed Asset Component at such time; provided, that if the aggregate amount of all Revolving Loans outstanding at such time is less than the sum of the Fixed Asset Component and the Special Fixed Asset Component, then only the portion of the Revolving Loans outstanding at such time which exceeds the Special Fixed Asset Component shall be deemed to be FAC Loans.

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(f)            by deleting the definition of “Fixed Asset Component” and by inserting the following in lieu thereof:

Fixed Asset Component  shall mean $15,000,000; provided, that, the Fixed Asset Component shall reduce (i) in equal installments of $2,500,000 commencing on July 31, 2008, and continuing on the last day of each third month thereafter, and (ii) upon the consummation of Dispositions of Timberland Properties, Eligible Equipment and Mill Properties consisting of Eligible Real Estate, by the applicable percentage of the Net Recovery Value Percentage of the Property so disposed of; provided, that any reductions resulting from such Dispositions shall first reduce the Special Fixed Asset Component until the Special Fixed Asset Component has been reduced to zero ($0.00) and thereafter (and without duplication) shall reduce the Fixed Asset Component.

(g)           by deleting the definition of “Fixed Charge Coverage Ratio” and by inserting the following in lieu thereof:

Fixed Charge Coverage Ratio shall mean, with respect to any Person and without duplication, the ratio of (i) EBITDA less (A) Capital Expenditures not funded by Indebtedness permitted by Section 7.1(c) or Section 7.1(m); less (B) loans, advances and Investments (other than the Pledged Inter-Company Loans so long as an Unpledged Inter-Company Loan in an equal amount is made substantially contemporaneously therewith) made to Persons that are not Credit Parties, less (C) cash payments of federal, state, provincial and local income or franchise taxes, plus (D) principal and interest payments paid in cash on the Pledged Inter-Company Note, plus (E) Cash Dividends and other distributions with respect to Stock held by a Credit Party to the extent received in cash by a Credit Party from any Person that is not a Credit Party, plus (F) the Fox Paper Initial Cash Restructuring Charges, to (ii) the sum of (A) cash Interest Expense, plus (B) Scheduled Principal Payments, plus (C) Cash Dividends, plus (D) $1,250,000 per calendar quarter in respect of scheduled reductions, if any, of the Fixed Asset Component as set forth in clause (i) of the definition of Fixed Asset Component, plus (E) the aggregate amount of the scheduled reductions, if any, of the Special Fixed Asset Component as set forth in clause (i) of the definition of Special Fixed Asset Component.

All components of the Fixed Charge Coverage Ratio shall be determined for the applicable Person on a Consolidated basis, without duplication and for the four (4) most recent consecutive fiscal quarters of the applicable Person ending on or prior to the date of determination; provided, that the results of operation of the Offshore Entities and their subsidiaries, including, without limitation, FiberMark and its subsidiaries, shall be excluded in the calculation of Fixed Charge Coverage Ratio (except as provided in clause (i)(B) above).

(h)           by deleting the definition of “Net Income” and by inserting the following in lieu thereof:

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Net Income shall mean, with respect to any Person for any period, net income of such Person for the applicable calculation period determined in accordance with GAAP; provided, that there shall not be included in such calculation of net income (without duplication) (a) any extraordinary gains or losses (including in connection with the sale or write-up of assets), (b) any nonrecurring gains or losses, (c) any gains or losses from dispositions of property or assets, other than dispositions of Inventory and Equipment in the ordinary course of business, and the tax consequences thereof, (d) the net income or loss of any other Person that is not a Subsidiary of such Person for whom net income is being calculated (or is accounted for by such Person by the equity method of accounting), (e) the net income (or loss) of any other Person acquired by, or merged with, such Person for whom net income is being calculated or any of its Subsidiaries for any period prior to the date of such acquisition, (f) the net income of any Subsidiary of such Person for whom net income is being calculated to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such net income is not at the time permitted by operation of the terms of its charter, certificate of incorporation or formation or other constituent document or any agreement or instrument or Legal Requirement applicable to such Subsidiary, all as determined in accordance with GAAP, (g) any non-cash non-recurring impairment charges with respect to a writedown of the carrying amount of the Consolidated assets of the Credit Parties acquired after the Third Amendment Effective Date (either through direct asset purchase or as part of the acquisition of all or substantially all of the Stock of another Person) based on the impairment of such assets, pursuant to the provisions of Section 7.4(f) and any benefits (including tax benefits) resulting from such writedown, (h) any non-cash compensation expense realized for grants of performance shares, stock options or other rights to officers, directors and employees, provided that such shares, options or other rights can be redeemed at the option of the holder only for capital stock of such Person, (i) with respect to the Credit Parties, any non-recurring charges or other expenses (determined in accordance with GAAP and as reflected in the Company’s financial statements produced from time to time pursuant to Section 6.3(a) and 6.3(b)) related to the restructuring, closure or Disposition of Neenah Paper Company of Canada’s Terrace Bay facility, not to exceed $120,000,000 in the aggregate, but excluding any cash charges or payments made in connection with the Disposition of the Terrace Bay facility, (j) with respect to the Credit Parties, any non-recurring charges or other expenses (determined in accordance with GAAP and as reflected in the Company’s financial statements produced from time to time pursuant to Section 6.3(a) and 6.3(b)) related to the restructuring or permanent closure of any facility (other than Neenah Paper Company of Canada’s Terrace Bay facility) of any Credit Party, which non-recurring charges or other expenses shall not exceed $5,000,000 in any calendar year or $10,000,000 in the aggregate during the term of this Agreement, (k) with respect to the Credit Parties, any non-cash non-recurring charges or other non-cash costs, expenses or liabilities (determined in accordance with GAAP and as reflected in the Company’s financial statements produced from time to time pursuant to Section 6.3(a) and 6.3(b)) incurred during

6

the eight (8) fiscal quarters commencing with and including the fiscal quarter in which the Fox Paper Merger Effective Date occurs related to the restructuring, closure or Disposition of Fox PP&E acquired on the Fox Merger Effective Date as part of the Fox Merger; (l) non-cash impairment costs and other non-cash write-offs related to the Pictou Disposition; and (m) with respect to the Credit Parties, the non-recurring cash charges or expenses (determined in accordance with GAAP and as reflected in the Company’s financial statements produced from time to time pursuant to Section 6.3(a) and 6.3(b)) consisting of the capital contributions and other cash payments associated with the Pictou Disposition and pre-closing maintenance expenses incurred in connection with the annual maintenance closure of the Pictou Properties during April and May, 2008, not to exceed $25,000,000 in the aggregate.

(i)            by deleting the definition of “Non-FAC Loans” and by inserting the following in lieu thereof:

Non-FAC Loans shall mean Revolving Loans which are neither FAC Loans nor SFAC Loans.

SECTION 2.           Amendment to Section 5.10 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 5.10 of the Credit Agreement is hereby amended and restated in its entirety as follows:

5.10         Permits, Licenses, Etc.  (a) Neenah Paper Company of Canada owns, possesses or has the benefit of the Canadian Licenses listed in clauses (i) through (vi) of the definition thereof, and (b) each Credit Party owns, possesses or has the benefit of all other material permits, licenses (including intellectual property licenses) and intellectual property rights which are required (i) to conduct its respective business or (ii) for the operation and use of each Real Property Asset owned in fee and each Material Leasehold Property; provided, that if Neenah Paper Company of Canada is not operating or has disposed of (in accordance with the terms of this Agreement) the Property with respect to which a Canadian License was obtained, it shall not be required to own, possess or have the benefit of such Canadian License, nor shall it be required to own, possess or have the benefit of any other permits, licenses and intellectual property rights which would otherwise be required to own or operate such facility or other Property; provided, further that the Credit Parties shall be required to comply in all material respects with all Legal Requirements (including, without limitation, Environmental Laws) related to the continued ownership (but not the operation) of any Property located in Canada so long as such Property is owned a Credit Party.  Except as set forth in Schedule 5.10, there are no material permits and licenses or agreements held by or issued to any Credit Party pertaining to or in connection with any part of the business or operations in Canada of such Credit Party; provided that such schedule may be updated by the Credit Parties from time to time to reflect the changes not otherwise prohibited by the Loan Documents, so long as any permit, license or agreement added thereto is subject to the Lien of the Agent (or the Canadian Collateral Agent, as applicable), if such

7

Lien can be obtained using commercially reasonable efforts, pursuant to the Loan Documents.

SECTION 3.           Amendment to Section 5.28 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 5.28 of the Credit Agreement is hereby amended and restated in its entirety as follows:

5.28         Electricity Activities.  No Credit Party nor any of its Subsidiaries is a “market participant” (as that term is defined in the Electricity Act (Ontario) S.O. 1998, Ch. 15, Schedule A (the “Electricity Act”)) other than Neenah Paper Company of Canada which may at times be a market participant.  Other than as set forth on Schedule 5.28, Neenah Paper Company of Canada does not carry on any of the following activities (the “Electricity Activities”):

(a)           own or operate, or direct the operations of, a “distribution system” or “transmission system”;

(b)           generate, purchase or sell electricity through the “IMO-administered markets” or directly from a “generator”; or

(c)           provide, purchase or sell “ancillary services” (whether directly or through the IMO-administered markets); or

(d)           “retail” electricity,

in Ontario other than in material compliance with applicable Legal Requirements or in material compliance with applicable statutory or regulatory exemptions.  Except as (and to the extent) set forth on Schedule 5.28, each Credit Party has furnished to the Agent all licenses, permits, registrations and authorizations in respect of any Electricity Activities carried on by it or any of its Subsidiaries.  Terms in quotation marks used in this Section 5.28 and Section 6.24 and not defined elsewhere shall have the respective meanings ascribed thereto in the OEB Act and the Electricity Act.

SECTION 4.           Amendment to Section 6.1 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, clauses (a) and (b) of Section 6.1 of the Credit Agreement are hereby amended and restated in their entirety as follows:

(a) do or cause to be done all things reasonably necessary to obtain, preserve, renew and keep in full force and effect the rights, licenses, permits, franchises, and Intellectual Property material to the conduct of its businesses; provided, that so long as the Credit Parties are not operating the processing facility at the Mill Property located at Terrace Bay, Ontario, or have sold or otherwise disposed of the Pictou Properties as permitted by this Agreement, they shall not be required to obtain, preserve, renew and keep in full force and effect the rights, licenses, permits, franchises, and Intellectual Property material to the conduct of such facility or facilities; (b) maintain and operate such businesses in the same general manner in which they are presently conducted and operated,

8

with such changes as such Credit Party deems prudent or as otherwise permitted by this Agreement; provided, that the Credit Parties shall not be required to continue the operation of the Mill Property located at Terrace Bay, Ontario;

SECTION 5.           Amendment to Section 6.3 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, clauses (c) and (d) of Section 6.3 of the Credit Agreement are hereby amended and restated in their entirety as follows:

(c)           as soon as available and in any event within thirty (30) days after the end of the month, Monthly Unaudited Financial Statements of the Credit Parties and their Subsidiaries; provided, however, that (i) except as provided in clause (ii) of this Section 6.3(c) such Monthly Unaudited Financial Statements for the months of January and February, 2007, for the calendar month in which the Pictou Disposition is consummated, and each of the immediately succeeding three (3) calendar months, shall be due as soon as available and in any event no later than forty-five (45) days after the end of each such respective calendar month, and (ii) the Monthly Unaudited Financial Statements for the first three months ending following the Fox Merger Effective Date shall be due as soon as available and in any event within sixty (60) days after the end of such calendar months;

(d)           concurrently with the financial statements provided for in Subsections 6.3(a), 6.3(b) and 6.3(c) hereof, (i) a Compliance Certificate, signed by a Responsible Officer of the Borrowers’ Agent, and (ii) a written certificate in Proper Form, identifying each Subsidiary which is otherwise required by the provisions of Section 6.10 hereof to become a Guarantor at the request of the Agent, but which has not yet done so as of the date of such certificate, and providing an explanation of the reasons why each such Subsidiary is not a Guarantor, signed by a Responsible Officer of the Borrowers’ Agent;

SECTION 6.           Amendment to Section 7.1 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 7.1 of the Credit Agreement is hereby amended by deleting clause (g) thereof in its entirety and by inserting in place thereof the following new clause (g):

(g)           Contingent Obligations of a Credit Party permitted by Section 7.3(e), and Contingent Obligations of a Credit Party with respect to (i) Indebtedness of another Credit Party that is permitted hereunder or (ii) Indebtedness of an Offshore Entity that is permitted under Section 7.20;

SECTION 7.           Amendment to Section 7.3 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 7.3 of the Credit Agreement is hereby amended by deleting the word “and” at the end of clause (c), by deleting the period at the end of clause (d) and inserting in place thereof “; and”, and by inserting a new clause (e) which shall read in full as follows:

(e)           The guarantees, indemnities and similar Contingent Obligations given by any Credit Party in respect of deferred capital contributions in

9

connection with the Pictou Disposition not to exceed $10,000,000 in the aggregate.

SECTION 8.           Amendment to Section 7.4 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, clause (4) of the proviso to Section 7.4 of the Credit Agreement is hereby amended and restated in its entirety as follows:

(4)           any of the Credit Parties may (i) sell Inventory in the ordinary course of business, (ii) sell, exchange or otherwise dispose of Permitted Investment Securities in the ordinary course of business; (iii) terminate, surrender or sublease a lease of real Property in the ordinary course of business; (iv) sell equipment and fixtures that are obsolete, worn out or no longer needed in the business of the Credit Parties; (v) sell the Offered Timberland Properties for an aggregate amount of not less than $75,000,000 in cash consideration in a single or related series of transactions occurring substantially simultaneously on or prior to July 31, 2006; (vi) sell, exchange, lease, transfer or otherwise dispose of, in one or more transactions, the Property comprising, located at or used solely in connection with the Terrace Bay, Ontario facility, as well as any or all of the apartment buildings, golf courses and other real property or personal property owned by Neenah Paper Company of Canada in or near Terrace Bay, Ontario (in each case for fair market value, giving due consideration to any diminution in value that may result from the closure of the Terrace Bay facility); (vii) terminate, assign or subcontract the rights and obligations of Parent relating solely to the Terrace Bay facility under the Pulp Supply Agreement (provided that the rights and obligations retained shall not be less favorable in any material respect to the Credit Parties than the rights and obligations which have historically benefited and been satisfied by the operations of the Credit Parties other than the operations of such Terrace Bay facility); (viii) sell, exchange, lease, transfer or otherwise dispose of (in each case for reasonably equivalent value) Timberland Properties in the Province of Nova Scotia other than the Offered Timberland Properties, and/or other real Property (wherever located) having a fair market value not to exceed the sum of (1) $2,000,000 for all such transactions in the aggregate in any calendar year; plus (2) the excess (if any) of $2,000,000 over the amount of dispositions pursuant to this clause (viii) consummated in the immediately preceding calendar year; (ix) sell, exchange, lease, transfer or otherwise dispose (in each case for reasonably equivalent value) of Property of any Credit Party acquired after the Third Amendment Effective Date (either through direct asset purchase or as part of the acquisition of all or substantially all of the Stock of another Person) having a fair market value not to exceed $5,000,000 in the aggregate during any twelve month period; (x) so long as Indebtedness secured by the Fox PP&E permitted pursuant to Section 7.1(n) (including any permitted refinancing thereof) is outstanding, sell, exchange, lease, transfer or otherwise dispose of Fox PP&E to the extent permitted under the Fox PP&E Financing Documents provided, that the net proceeds thereof are applied to the retirement, redemption or repayment of such Indebtedness in accordance with the terms of the Fox PP&E Financing Documents; (xi) at any time there is no Indebtedness secured by the Fox PP&E outstanding, sell for fair and adequate consideration

10

any Real Property Asset comprising the Fox Real Estate (1) on which the facilities located on such Real Property Asset have permanently ceased operations, and (2) which is no longer needed in the business of the Credit Parties; (xii) complete the Pictou Disposition, including, without limitation, the assignment of all rights and obligations of the Credit Parties under the Pulp Supply Agreement relating solely to the Pictou Properties; provided that (1) contemporaneously with the consummation of the Pictou Disposition, the Borrowing Base shall be recomputed after giving effect to such disposition and the Credit Parties shall deliver a duly completed and executed Borrowing Base Compliance Certificate dated and prepared as of such date after giving effect to such disposition, (2) the sum of (A) all cash capital contributions paid to the Pictou Subsidiaries sold as part of the Pictou Disposition and (B) all payments in nature of guaranty, indemnity or similar payments made by the Credit Parties in respect of deferred capital contributions in connection with the Pictou Disposition shall not exceed $25,000,000 in the aggregate, less a credit for one-half of the pre-closing maintenance expenses (estimated to be $8,846,092 as of the Sixth Amendment Effective Date) incurred in connection with the annual maintenance closure of the Pictou Properties during April and May, 2008, and (3) the Pictou Disposition shall occur within ninety (90) days from the Sixth Amendment Effective Date; and (xiii) sell for fair and adequate consideration any other equipment and fixtures having a fair market value not to exceed $1,000,000 in the aggregate during the period from the Closing Date through the Termination Date; provided that, upon the occurrence and during the continuation of a Dominion Event, all net proceeds of any and all of the foregoing shall be paid to the Agent for application in accordance with Section 2.7 to outstanding Loans or other Obligations, to the extent then outstanding;

SECTION 9.           Amendment to Section 7.5 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 7.5 of the Credit Agreement is hereby amended and restated in its entirety as follows:

7.5           Nature of Business.  Materially change the nature of its business or enter into any business which is substantially different from the business in which it is engaged as of the Third Amendment Effective Date, except for entry into related businesses that do not in the aggregate substantially change the overall composition of the Credit Parties’ or the Offshore Entities respective businesses; provided that the Credit Parties shall not be required to remain in the pulp business.

SECTION 10.         Amendment to Section 7.7 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, Section 7.7 of the Credit Agreement is hereby amended by deleting the word “and” at the end of clause (k), by deleting clause (l) thereof in its entirety, and by inserting, immediately after clause (k) of Section 7.7, the following as new clauses (l) and (m):

(l)            Investments in the Pictou Subsidiaries as permitted by Section 7.3(e) and Section 7.4(4)(xii); and

11

(m)          Other loans, advances or Investments not covered by clauses (a) through (l) above, in any aggregate amount not to exceed $10,000,000 at any time outstanding.

SECTION 11.         Amendment to Section 7.20 of the Credit Agreement.  Upon effectiveness of this Amendment in accordance with Section 13 hereof, clause (b) of Section 7.20 of the Credit Agreement is hereby amended and restated in its entirety as follows:

(b)           the Offshore Entities (other than FinCo) to create, incur, assume or suffer to exist Indebtedness in excess of €50,000,000 at any time outstanding.

SECTION 12.         Representations and Warranties.  To induce the other parties hereto to enter into this Amendment, the Credit Parties represent and warrant to the Agent and each of the other Lender Parties that, as of the Effective Date (defined below):

(a)           the representations and warranties of the Credit Parties set forth in Section 5 of the Credit Agreement are true and correct in all material respects on and as of the Effective Date with the same effect as if made on and as of the Effective Date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties were true and correct as of such earlier date, and except for any change of facts expressly permitted under the provisions of the Credit Agreement and the other Documents;

(b)           no Default has occurred and is continuing under the Credit Agreement; and

(c)           this Amendment has been duly executed and delivered by the Credit Parties and the Credit Agreement, as amended hereby, constitutes a legal, valid and binding obligation of the Credit Parties, enforceable against the Credit Parties in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 13.         Conditions to Effectiveness of Amendment. This Amendment shall become effective as of the date (the “Effective Date”) on which each of the following conditions has been satisfied:

(a)           the Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Credit Parties and all the Lenders;

(b)           the Agent shall have received payment of any and all fees owing in connection with this Amendment, including an amendment fee payable to each Lender in the amount of 15 basis points (0.15%) on the amount of such Lender’s Commitment;

(c)           to the extent invoiced, the Lenders, the Agent and the Book-Runner shall have received payment or reimbursement of their out-of-pocket expenses in connection with this Amendment and any other out-of-pocket expenses of the Lenders, the Agent or the Book-Runner

12

required to be paid or reimbursed pursuant to the Credit Agreement, including the reasonable fees, charges and disbursements of counsel for the Agent;

(d)           the Borrowers shall have delivered to the Agent such certificates of authorized officers of the Borrowers and the Guarantors, certificates of Governmental Authorities, certified copies of the certificates of incorporation, or formation, bylaws and operating agreements, as applicable, of the Borrowers and the Guarantors (or certified confirmation that no amendments, modifications or revisions have been to those previously certified and delivered to the Agent, as applicable), certified copies of resolutions of the directors, managers or members, as applicable of the Borrowers and the Guarantors and such other documents, instruments and agreements as the Agent shall require to evidence the valid corporate existence and authority to conduct business of the Borrowers and the Guarantors and the due authorization, execution and delivery of this Amendment any other documents related to this Amendment, and any other legal matters relating to the Borrowers, the Guarantors, any Subsidiary or the other Loan Documents by the Borrowers and/or the Guarantors, all in a form and substance reasonable satisfactory to the Agent and its counsel;

(e)           the Borrowers shall have delivered to the Agent favorable opinions of Powell Goldstein LLP, counsel to the Borrowers and the Guarantors, and general counsel to the Parent, each dated as of the Effective Date, addressed to the Agent and the Lenders and covering such matters in connection with the foregoing as the Agent or the Lenders may reasonably request, in a form and substance reasonably satisfactory to the Agent and its counsel; and

(f)            the Borrowers shall have delivered to the Agent the definitive documents relating to the Pictou Disposition, the terms of which will be reasonably satisfactory to the Agent and its counsel.

SECTION 14.         Effect of Amendment.  Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, amend, or otherwise affect the rights and remedies of the Agent or the other Lender Parties under the Credit Agreement or any other Loan Document and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect.  This Amendment shall apply and be effective with respect only to the matters expressly referred to herein, and nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances.  This Amendment shall constitute a “Loan Document” for all purposes of the Credit Agreement.

SECTION 15.         APPLICABLE LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 16.         Counterparts.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original but all of which when taken together shall

13

constitute but one and the same instrument.  Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

SECTION 17.         Costs and Expenses.  The Borrowers agree to reimburse the Agent for its reasonable out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of counsel for the Agent actually incurred.

SECTION 18.         Headings.  The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.

SECTION 19.         Severability.  Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

SECTION 20.         No Party Deemed Drafter.  Each of the parties hereto agrees that no party hereto shall be deemed to be the drafter of this Amendment.

SECTION 21.         Ratification of Guaranty.  Each Guarantor hereby consents to this Amendment and hereby confirms and agrees that (a) notwithstanding the effectiveness of this Amendment, the Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of this Amendment, each reference in the Guaranty to the “Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment, and (b) the Loan Documents to which it is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Obligations secured thereby.

[SIGNATURE PAGES FOLLOW]

14

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their authorized officers as of the day and year first written above.

NEENAH PAPER, INC., as a Borrower
By:
Name:
Title:
NEENAH PAPER MICHIGAN, INC., as a Borrower
By:
Name:
Title:
NPCC HOLDING COMPANY, LLC, as a Borrower
By:	Neenah Paper, Inc., as its sole member
	By:
	Name:
	Title:
NEENAH PAPER INTERNATIONAL
HOLDING COMPANY, LLC, as a Borrower
By:	Neenah Paper, Inc., as its sole member
	By:
	Name:
	Title:

[Signature Page — Sixth Amendment]

NEENAH PAPER INTERNATIONAL, LLC, as
a Borrower
By:	Neenah Paper International Holding Company, LLC, as its sole member
	By:		Neenah Paper, Inc., as its sole member
		By:
		Name:
		Title:
NEENAH PAPER FVC, INC., as a Borrower
By:
Name:
Title:
NEENAH PAPER FR, LLC, as a Borrower
By:
Name:
Title:
NEENAH PAPER COMPANY OF CANADA, as a Guarantor
By:
Name:
Title:

[Signature Page — Sixth Amendment]

JPMORGAN CHASE BANK, N.A., individually and as Agent
By:
	Jeff A. Tompkins
	Vice President
JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Collateral Agent,
By:
Name:
Title:

[Signature Page — Sixth Amendment]

SIGNATURE PAGE TO SIXTH AMENDMENT
DATED AS OF MAY       , 2008 TO THE
NEENAH PAPER CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 2004

To approve this Amendment:

Name of Institution:

WELLS FARGO FOOTHILL, L.L.C.

By:

Name:

Title:

[Signature Page — Sixth Amendment]

SIGNATURE PAGE TO SIXTH AMENDMENT
DATED AS OF MAY       , 2008 TO THE
NEENAH PAPER CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 2004

To approve this Amendment:

Name of Institution:

BANK OF AMERICA, N.A.

By:

Name:

Title:

[Signature Page — Sixth Amendment]

SIGNATURE PAGE TO SIXTH AMENDMENT
DATED AS OF MAY       , 2008 TO THE
NEENAH PAPER CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 2004

To approve this Amendment:

Name of Institution:

THE CIT GROUP/BUSINESS CREDIT, INC.

By:

Name:

Title:

[Signature Page — Sixth Amendment]

SIGNATURE PAGE TO SIXTH AMENDMENT
DATED AS OF MAY       , 2008 TO THE
NEENAH PAPER CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 2004

To approve this Amendment:

Name of Institution:

RBS BUSINESS CAPITAL, as a Lender

By:

Name:

Title:

[Signature Page — Sixth Amendment]

SIGNATURE PAGE TO SIXTH AMENDMENT
DATED AS OF MAY       , 2008 TO THE
NEENAH PAPER CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 2004

To approve this Amendment:

Name of Institution:

UBS AG, STAMFORD BRANCH

By:

Name:

Title:

By:

Name:

Title:

[Signature Page — Sixth Amendment]

SIGNATURE PAGE TO SIXTH AMENDMENT
DATED AS OF MAY       , 2008 TO THE
NEENAH PAPER CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 2004

To approve this Amendment:

Name of Institution:

GOLDMAN SACHS CREDIT PARTNERS L.P.

By:

Name:

Title:

[Signature Page — Sixth Amendment]

EX-10.2

Exhibit 10.2

AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT

AMONG

NEENAH PAPER COMPANY OF CANADA

As Seller

and

NPCC HOLDING COMPANY, LLC

As Seller Parent

and

NEENAH PAPER, INC.

As Guarantor

and

AZURE MOUNTAIN CAPITAL HOLDINGS LP

As Purchasers’ Parent

and

NORTHERN PULP NS LP

As NPNS Purchaser

and

AZURE MOUNTAIN CAPITAL FINANCIAL LP

As Azure Mountain Purchaser

MADE ON JUNE 24, 2008

PICTOU PULP MILL AND WOODLANDS OPERATIONS

TABLE OF CONTENTS

Article 1 – INTERPRETATION		1
1.1	Definitions	1
1.2	Headings	6
1.3	Extended Meanings	6
1.4	Statutory References	6
1.5	Accounting Principles	7
1.6	Currency, Prices and Values	7
1.7	Schedules	7
Article 2 – SALE AND PURCHASE		7
2.1	Sale and Purchase of Purchased Shares	7
2.2	Purchase Price	8
2.3	Payment of Purchase Price	8
2.4	Instruments of Conveyance and Assumption	8
Article 3 – REPRESENTATIONS AND WARRANTIES		8
3.1	Seller’s Representations and Warranties	8
3.2	Survival of Seller’s Representations, Warranties and Covenants	11
3.3	Purchasers’ Representations and Warranties	12
3.4	Survival of Purchasers’ Representations, Warranties and Covenants	13
3.5	Representations and Warranties of Seller Parent and NPI	13
3.6	Survival of Representations, Warranties and Covenants of Seller Parent and NPI	14
3.7	Representations and Warranties of Purchasers’ Parent	14
3.8	Survival of Representations, Warranties and Covenants of Purchasers’ Parent	16
Article 4 – COVENANTS		16
4.1	Governmental Filings	16
4.2	Expenses	16
4.3	Indemnification for Brokerage Commissions	17
4.4	Litigation	17
4.5	Access to Records	17
4.6	Non-Interference with Potential Sale of Woodlands	18
4.7	Affiliation with Seller	18
4.8	Further Assurances	18
4.9	Notice of Events	19
4.10	Conduct of Purchased Businesses	19
4.11	Capital Projects	19
4.12	Consents	20
4.13	Tax Elections by Purchased Companies	20
4.14	Dividends and Distributions by Purchaser Entities	20
Article 5 – CONDITIONS		21

5.1	Conditions for the Benefit of Purchasers	21
5.2	Conditions for the Benefit of Seller	23
5.3	Mutual Conditions	24
Article 6 – CLOSING ARRANGEMENTS		24
6.1	Closing	24
6.2	Risk of Loss	25
Article 7 – INDEMNIFICATION		25
7.1	Obligation of Seller to Indemnify	25
7.2	Obligation of Purchaser Indemnitors to Indemnify	25
7.3	Notice and Right to Defend	26
7.4	Limitations on Indemnification	27
Article 8 – TERMINATION		28
8.1	Termination	28
8.2	Survival	28
8.3	Confidentiality	28
Article 9 – GUARANTEE OF SELLER’S OBLIGATIONS BY SELLER PARENT AND NPI		29
9.1	Seller Guarantee	29
9.2	Guarantee Binding	29
9.3	Subrogation	29
9.4	Enforcement	29
Article 10 – GUARANTEE OF PURCHASERS’ OBLIGATIONS BY PURCHASERS’ PARENT		30
10.1	Purchasers Guarantee	30
10.2	Guarantee Binding	30
10.3	Subrogation	30
10.4	Enforcement	30
Article 11 – GENERAL		31
11.1	Time of the Essence	31
11.2	Public Announcements	31
11.3	Benefit of the Agreement	31
11.4	Third Party Beneficiaries	31
11.5	Entire Agreement	31
11.6	Amendments and Waivers	31
11.7	Assignment	32
11.8	Notices	32
11.9	Remedies Cumulative	33

11.10	Governing Law	34
11.11	Attornment	34
11.12	Counterparts	34

AMENDED AND RESTATED SHARE PURCHASE AGREEMENT

THIS AGREEMENT is made on June 24, 2008, among NEENAH PAPER COMPANY OF CANADA, an unlimited company incorporated under the laws of Nova Scotia (“Seller”), NPCC HOLDING COMPANY, LLC, a limited liability company organized under the laws of Delaware (“Seller Parent”), NEENAH PAPER INC., a corporation incorporated under the laws of Delaware (“NPI”), AZURE MOUNTAIN CAPITAL HOLDINGS LP, a limited partnership formed under the laws of Ontario (“Purchasers’ Parent”), NORTHERN PULP NS LP, a limited partnership formed under the laws of Ontario (“NPNS Purchaser”), and AZURE MOUNTAIN CAPITAL FINANCIAL LP, a limited partnership formed under the laws of Ontario (“Azure Mountain Purchaser”, and collectively with Mill Purchaser, the “Purchasers”).

PRELIMINARY STATEMENT

Each Purchaser desires to purchase, and Seller desires to sell, shares of operating subsidiaries of Seller that will hold, in the aggregate, substantially all of the assets and properties owned by Seller which are used exclusively by or in connection with (i) the business conducted by Seller at and only with respect to its Pictou County, Nova Scotia pulp mill (the “Pictou Pulp Mill” or the “Pulp Business”) and (ii) the business conducted by Seller in respect of its timberland properties in Nova Scotia (specifically excluding the Woodlands (as defined herein)), including the Debert Nursery (as defined herein) (the “Woodlands Business”, and collectively with the Pulp Business, the “Purchased Businesses”), and substantially all of the liabilities relating to the Purchased Businesses.

The parties hereto entered into a Share Purchase Agreement dated as of May 15, 2008 (the “Original Share Purchase Agreement”) and such parties deem it desirable to amend and restate the Original Share Purchase Agreement in its entirety as set out herein.

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

ARTICLE 1 – INTERPRETATION

1.1Definitions

In this Agreement, unless something in the subject matter or context is inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

“Additional Subscribed Shares” has the meaning set out in the definition of Azure Mountain Shares;

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person, and for these purposes “control” is the power whether by contract or ownership of equity interests or otherwise to select a majority of the board of directors or other supervisory management authority of an Entity, whether directly or indirectly through a chain of Entities that are “controlled” within the foregoing meaning;

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“Agreement” means this amended and restated share purchase agreement including the Preliminary Statement and Schedules to this agreement, as amended, supplemented or restated from time to time;

“Ancillary Agreements” means, collectively, the Transition Services Agreement and the Stumpage Agreement;

“Applicable Law” means any applicable domestic or foreign, federal, provincial or local law, including any statute or subordinate legislation or treaty and any applicable rule, regulation, ordinance, requirement, order, Permit, judgment, injunction, award or decree or other binding requirement of a Governmental Authority having the force of law;

“Asserted Liability” has the meaning set out in Section 7.3(a);

“Asset Purchase Agreements” means collectively, the Mill and Woodlands Purchase Agreement and the Finance Purchase Agreement, and “Asset Purchase Agreement” means either one of them;

“Assets” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Assumed Liabilities” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Azure Mountain” means Azure Mountain Capital Financial Corporation, an unlimited company incorporated by Seller under the laws of the Province of Nova Scotia, which will acquire the Finance Assets from Seller pursuant to the Finance Purchase Agreement;

“Azure Mountain Shares” means all of the issued and outstanding shares of Azure Mountain, consisting of (i) 41,993,380 fully paid no par value common shares of Azure Mountain, (ii) one fully paid common share of Azure Mountain having a par value of Cdn$1,000, which was issued at the time of incorporation of Azure Mountain, and (iii) the 25,000 common shares of Azure Mountain having a par value of Cdn$1,000 each that will be issued to Seller pursuant to the Subscription Agreement prior to the Closing (the “Additional Subscribed Shares”), in respect of which Seller shall have paid to Azure Mountain prior to the Closing the Canadian dollar equivalent of the amount (the “Paid-Up Capital Amount”) that is the difference between US$10,600,000 and the U.S. dollar equivalent of Cdn$646,267.10, as determined using the Bank of Canada noon exchange rate on the Business Day immediately prior to the Closing Date;

“Business Day” means a day other than a Saturday, Sunday or statutory holiday in New York, New York, Atlanta, Georgia or Halifax, Nova Scotia;

“Capital Projects” has the meaning set out in Section 4.11;

“Claims Notice” has the meaning set out in Section 7.3(a);

“Closing” means the closing of the transactions contemplated hereby;

“Closing Date” means the date upon which the last to be fulfilled or waived of the conditions set forth in Article 5 (other than those conditions that by their nature are to be satisfied at the

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Closing, but subject to the fulfillment or waiver of those conditions) shall be satisfied or waived in accordance with this Agreement, but no later than June 30, 2008 without the mutual agreement of the Parties;

“Confidentiality Agreement” means the confidentiality agreement dated December 11, 2007 between NPI, Blue Wolf Capital Management LLC and Atlas Holdings LLC;

“Contract” means any agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment, whether written or oral;

“Debert Nursery” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Distribution Agreement” means the Distribution Agreement dated as of November 30, 2004 between Kimberly-Clark Corporation and NPI;

“Down” has the meaning set out in Section 3.1(h);

“Effluent Treatment System” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Entity” means a Person other than an individual;

“Excluded Forest Licenses” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Finance Assets” means the Assets as defined in the Finance Purchase Agreement;

“Finance Purchase Agreement” means the asset purchase agreement in the form attached as Schedule 1.1(a) to be entered into between Seller and Azure Mountain prior to the Closing;

“Forest Licenses” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“GAAP” has the meaning set out in Section 1.5;

“Governmental Authority” means any domestic or foreign, federal, provincial, municipal, local or other governmental, quasi-governmental, legislative, executive, judicial or administrative body or person having jurisdiction in the relevant circumstances, including any governmental ministry, agency, branch, department, commission, board, tribunal, bureau or arbitrator;

“Indemnifying Party” has the meaning set out in Section 7.3(a);

“Indemnitee” has the meaning set out in Section 7.3(a);

“K-C Global” means Kimberly-Clark Global Sales, Inc. and its successors and assigns;

“knowledge”, with respect to Seller, has the meaning set out in the Mill and Woodlands Purchase Agreement;

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“lien or other encumbrance” or “Encumbrance” means any lien, pledge, hypothec, mortgage, security interest of any nature, adverse claim, reservation, easement, title retention agreement, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever, or any Contract to create any of the foregoing;

“Losses” means all fines, losses, liabilities, damages, deficiencies, costs or expenses (including interest, legal fees and disbursements of legal counsel) arising directly or indirectly as a consequence of such matter;

“Material Adverse Change” and “Material Adverse Effect” mean any event, change or effect that, when taken individually or together with all other adverse effects, will or is reasonably likely to have a materially adverse effect on the business, affairs, capitalization, assets, liabilities, results of operations, condition (financial or otherwise) or prospects of the Purchased Businesses, taken as a whole; provided, however, that effects or changes relating to:

(a)changes in general political and economic conditions and changes affecting generally the industries and markets in which the Purchased Businesses are conducted that, in any of the foregoing cases, do not affect the Purchased Businesses, taken as a whole, in a disproportionate manner relative to other participants in the same industry as the Purchased Businesses;

(b)the effect of any changes in applicable laws, regulations or accounting rules; and

(c)the fact of the pendency of the transactions contemplated by this Agreement and the identity of Purchaser;

are not Material Adverse Changes or Material Adverse Effects and are not to be taken into account in determining whether a Material Adverse Change or a Material Adverse Effect has occurred;

“Mill and Woodlands Purchase Agreement” means the asset purchase agreement in the form attached as Schedule 1.1(b) to be entered into between Seller and NPNS prior to the Closing;

“Mill Receivables” means the trade receivables of the Pulp Business which will be acquired by Azure Mountain from Seller pursuant to the Finance Purchase Agreement;

“Nova Scotia Forest Acts” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“NPI” has the meaning set out on Page 1;

“NPNS” means Northern Pulp Nova Scotia Corporation, an unlimited company incorporated by Seller under the laws of the Province of Nova Scotia, which will acquire the Assets and assume the Assumed Liabilities from Seller pursuant to the Mill and Woodlands Purchase Agreement;

“NPNS Shares” means all of the issued and outstanding shares of NPNS, consisting of 57,474,074 fully paid no par value common shares of NPNS;

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“Original Effective Date” means May 15, 2008;

“Original Share Purchase Agreement” has the meaning set out in the Preliminary Statement;

“Paid-Up Capital Amount” has the meaning set out in the definition of Azure Mountain Shares;

“Person” means any individual, corporation, company, unlimited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or other legal or business entity however designated or constituted;

“Pictou Pulp Mill” has the meaning set out in the Preliminary Statement;

“Pulp Business” has the meaning set out in the Preliminary Statement;

“Pulp Supply Agreement” means the Amended and Restated Pulp Supply Agreement dated as of November 30, 2004 between NPI and Kimberly-Clark Global Sales, Inc.;

“Purchase Price” has the meaning set out in Section 2.2;

“Purchased Businesses” has the meaning set out in the Preliminary Statement;

“Purchased Companies” means, collectively, NPNS and Azure Mountain;

“Purchased Shares” means, collectively, the NPNS Shares and the Azure Mountain Shares;

“Purchaser Indemnitors” has the meaning set out in Section 7.2;

“Purchaser Required Consents” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Purchasers” has the meaning set out on Page 1;

“Purchasers’ Parent” has the meaning set out on Page 1;

“Receivables Financier” means the purchaser of the Mill Receivables pursuant to the Receivables Purchase Agreement, the identity of which Azure Mountain Purchaser disclosed to Seller on the Original Effective Date;

“Receivables Proceeds” means the proceeds from the sale of the Mill Receivables by Azure Mountain to the Receivables Financier pursuant to the Receivables Purchase Agreement;

“Receivables Purchase Agreement” means the receivables purchase agreement to be entered into between Azure Mountain, as vendor, and the Receivables Financier, as purchaser, immediately after the closing of the transactions contemplated by the Finance Purchase Agreement and prior to the Closing, substantially in the form provided to Seller by Azure Mountain Purchaser on the Original Effective Date;

“Retained Assets” has the meaning set out in the Mill and Woodlands Purchase Agreement;

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“Retained Liabilities” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Seller” has the meaning set out on Page 1;

“Seller Parent” has the meaning set out on Page 1;

“Stumpage Agreement” has the meaning set out in Section 5.1(a)(viii);

“Subscription Agreement” has the meaning set out in Section 5.1(a)(xi);

“Taxes” means any federal, provincial, local or foreign, income, capital, branch, goods and services, value added, harmonized sales, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Authority; provided, however, that in no event shall Taxes be deemed to include any transfer tax or capital gains tax payable in connection with the purchase and sale of the Assets;

“Time of Closing” means 11:00 a.m. in Nova Scotia on the Closing Date;

“Transition Services Agreement” has the meaning set out in Section 5.1(a)(vi);

“Woodlands” has the meaning set out in the Mill and Woodlands Purchase Agreement;

“Woodlands Business” has the meaning set out in the Preliminary Statement; and

“Year End Financial Statements” has the meaning set out in the Mill and Woodlands Purchase Agreement.

1.2Headings

The division of this Agreement into articles and sections and the insertion of a table of contents and headings are for convenience of reference only and are not to affect the construction or interpretation of this Agreement.  The terms “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof.  Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement.

1.3Extended Meanings

In this Agreement words importing the singular number only include the plural and vice versa and words importing any gender include all genders.  Unless something in the subject matter or context is inconsistent therewith, the term “including” means “including without limiting the generality of the foregoing”.

1.4Statutory References

Unless something in the subject matter or context is inconsistent therewith and except with respect to Environmental Laws (as such term is defined in the Mill and Woodlands

6

Purchase Agreement), each reference to any statute refers to that statute and to the regulations made under that statute, as now enacted or as the same may from time to time be amended, re-enacted or replaced.

1.5Accounting Principles

Wherever in this Agreement reference is made to a calculation to be made or an action to be taken in accordance with generally accepted accounting principles, such reference will be deemed to be to the generally accepted accounting principles in the United States from time to time (“GAAP”), applicable as at the date on which such calculation or action is made or taken or required to be made or taken.

1.6Currency, Prices and Values

All references to currency, prices and values (monetary, accounting, financial or otherwise) herein are to lawful currency of Canada unless otherwise specified.

1.7Schedules

(a)The following Schedules are attached to and form part of this Agreement*:

Schedule		Contents
Schedule 1.1(a)	-	Form of Finance Purchase Agreement
Schedule 1.1(b)	-	Form of Mill and Woodlands Purchase Agreement
Schedule 3.1(d)	-	List of Consents and Approvals
Schedule 3.1(h)	-	Description of Annual Maintenance Down
Schedule 4.10	-	Conduct of Purchased Businesses
Schedule 4.11	-	List of Capital Projects
Schedule 5.1(a)(vi)	-	Form of Transition Services Agreement
Schedule 5.1(a)(viii)	-	Form of Stumpage Agreement
Schedule 5.1(a)(xi)	-	Form of Subscription Agreement

* The schedules listed above have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon supplemental request.

(b)Any matter disclosed on any of the Schedules hereto shall be deemed to be disclosed on each other Schedule hereto relating to such matters.

ARTICLE 2 – SALE AND PURCHASE

2.1Sale and Purchase of Purchased Shares

Upon the terms and subject to the conditions herein set forth, at the Closing:

7

(a)Seller shall sell, assign, transfer, convey and deliver to NPNS Purchaser, and NPNS Purchaser shall purchase from Seller, the NPNS Shares, being all of the issued and outstanding shares of NPNS; and

(b)Seller shall sell, assign, transfer, convey and deliver to Azure Mountain Purchaser, and Azure Mountain Purchaser shall purchase from Seller, the Azure Mountain Shares, being all of the issued and outstanding shares of Azure Mountain.

2.2Purchase Price

In consideration of Seller’s sale, assignment, transfer and conveyance of the Purchased Shares to Purchaser, each Purchaser shall pay to Seller $5.00 in cash at the Closing (collectively, the “Purchase Price”).

2.3Payment of Purchase Price

Subject to Sections 5.1 and 5.2, at the Closing, each Purchaser shall make a payment of immediately available funds in Canadian dollars to Seller in an amount equal to their respective portion of the Purchase Price.

2.4Instruments of Conveyance and Assumption

In order to effectuate the sale, assignment, transfer and conveyance of the Purchased Shares, Seller shall, or shall cause its Affiliates to, execute and deliver to Purchasers, immediately prior to the Time of Closing, certificates evidencing the Purchased Shares, duly endorsed in blank for transfer.

ARTICLE 3 – REPRESENTATIONS AND WARRANTIES

3.1Seller’s Representations and Warranties

Seller represents and warrants to Purchaser as follows and acknowledges that Purchaser is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

Seller is an unlimited company duly incorporated, validly existing and in good standing with respect to filing its annual returns under the laws of the Province of Nova Scotia and has all requisite corporate power and capacity to own, lease and operate its assets, properties and business and to carry on its business as presently conducted.

(b)Authority to Execute and Perform Agreement

Seller has all requisite corporate power and capacity to enter into, execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement has been, and each of the Asset Purchase Agreements, the Ancillary Agreements and the documents and agreements to be

8

delivered by Seller and its Affiliates prior to or at the Closing hereunder or thereunder will be, duly authorized, executed and delivered by each such party, and (assuming the due authorization, execution and delivery of this Agreement, the Asset Purchase Agreements, the Ancillary Agreements and the documents and agreements to be delivered by Seller or its Affiliates hereunder or thereunder by the other parties thereto and the validity and binding effect hereof and thereof on such other parties) each is, or upon execution by Seller or its Affiliates will be, a valid and binding obligation of Seller or its Affiliates, as applicable, enforceable against such entities in accordance with its terms.

(c)No Breach

Subject to obtaining the Purchaser Required Consents, the execution, delivery and performance by Seller and its Affiliates of this Agreement, the Asset Purchase Agreements, the Ancillary Agreements and the other documents and agreements required to be delivered hereunder or thereunder to which they are parties, and the consummation by Seller and its Affiliates of the transactions contemplated hereby and thereby, will not:

(i)violate or result in the breach of any provision of the constating documents of Seller or such Affiliates or any resolution of the board of directors (or any committee thereof) or shareholders of Seller or such Affiliates;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any Real Property Lease, material Assumed Contract, material Permit, Collective Agreement or Forest License, as each such term is defined in the Mill and Woodlands Purchase Agreement;

(iii)result in the creation or imposition of any lien or other encumbrance upon the Assets, the Finance Assets or the Purchased Shares (other than any liens or encumbrances created by Purchaser); or

(iv)violate any Applicable Law applicable to Seller or such Affiliates, the Pulp Business, the Assets, the Finance Assets or the Purchased Shares.

(d)Consents and Approvals

Except as described in Schedule 3.1(d), the execution and delivery by Seller of this Agreement, the Ancillary Agreements and the other agreements and documents required to be delivered hereunder to which it is a party, and the performance by Seller of its obligations hereunder, do not require Seller to obtain any consent, approval or action of, or make any filing with or give any notice to, any Governmental Authority or any other Person.

(e)Taxes

(i)Seller has duly filed on a timely basis all tax returns required to be filed by it, has duly, completely and correctly reported all revenue and other amounts and information required to be reported thereon in all material respects and has paid or remitted (in the case of goods and services tax,

9

harmonized sales tax or other sales tax) all Taxes which are due and payable, and all assessments, reassessments, governmental charges, penalties, interest and fines due and payable by it.  Seller has made adequate provision for Taxes payable for the current period and any previous period for which tax returns are not yet required to be filed.  There are no actions, suits, proceedings, investigations or claims pending or, to the knowledge of Seller, threatened against Seller in respect of Taxes, governmental charges or assessments, nor are any material matters under discussion with any Governmental Authority relating to Taxes, governmental charges or assessments asserted by any such authority.  Seller has withheld from each payment made to any of its past or present employees, officers or directors, and to any non-resident of Canada, the amount of all Taxes and other deductions required to be withheld therefrom, and has paid the same to the proper Tax or other receiving officers within the time required under any applicable legislation.

(ii)Seller is not a non-resident of Canada for the purposes of the Income Tax Act (Canada).

(f)Representations in Asset Purchase Agreements

Except as disclosed in the schedules attached to each of the Asset Purchase Agreements, each of the representations and warranties to be made by Seller in each of the Asset Purchase Agreements is true and correct as of the Original Effective Date and will be true and correct as of the Closing Date, and each such representation and warranty is hereby expressly incorporated into this Section 3.1.

(g)Purchased Companies

(i)At the Time of Closing, the only outstanding shares of the Purchased Companies will be the Purchased Shares, and Seller will be the beneficial owner of record of the Purchased Shares, with good title thereto, free and clear of all Encumbrances.  Upon completion of the transactions contemplated by this Agreement, all of the shares of NPNS and Azure Mountain will be owned by NPNS Purchaser and Azure Mountain Purchaser, respectively, as the beneficial owners of record, with good title thereto, free and clear of all Encumbrances (except for such Encumbrances as may have been granted by Purchaser).

(ii)At the Time of Closing (A) the NPNS Shares will consist of 57,474,074 fully paid no par value common shares of NPNS, and (B) the Azure Mountain Shares will consist of 41,993,380 fully paid no par value common shares of Azure Mountain, one fully paid common share with a par value of Cdn$1,000 and the Additional Subscribed Shares in respect of which not less than the Canadian dollar equivalent of US$10,000,000 shall remain outstanding and assessable.

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(iii)No Person other than Purchaser has or will have at the Time of Closing any Contract for the purchase or acquisition from Seller of any of the Purchased Shares.

(iv)At the Time of Closing, each of the Purchased Companies will be an unlimited company duly incorporated, validly existing and in good standing with respect to filing its annual returns under the laws of the Province of Nova Scotia, and each will have all requisite corporate power and capacity to own, lease and operate its assets, properties and business and to carry on its business as then conducted.

(v)At the Time of Closing, (A) the sole assets and liabilities of NPNS will be the Assets and the Assumed Liabilities as specified in the Mill and Woodlands Purchase Agreement, and (B) the sole assets of Azure Mountain will be the Receivables Purchase Agreement, the Finance Assets (other than the Mill Receivables, which will have been sold to the Receivables Financier pursuant to the Receivables Purchase Agreement) as specified in the Finance Purchase Agreement, cash in the amount of the sum of the Receivables Proceeds plus the Paid-Up Capital Amount as contemplated by the Subscription Agreement, and the right to make a capital call in an amount that is not less than the Canadian dollar equivalent of US$10,000,000 in respect of the partly paid Additional Subscribed Shares.

(vi)No election has been filed under Treasury Regulation section 301.7701-3 to treat either Purchased Company as an association taxable as a corporation for U.S. federal tax purposes.

(h)Maintenance Down

There were no material additions to or deletions from the budgeted maintenance work plan for the annual maintenance down that occurred at the Pictou Mill in April and May 2008 as described in more detail in Schedule 3.1(h) (the “Down”).

3.2Survival of Seller’s Representations, Warranties and Covenants

The representations and warranties and, to the extent they have not been fully performed at or prior to the Time of Closing, the covenants of Seller contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant hereto (including the certificates delivered pursuant to Section 5.1(a)(iv)) shall survive the Closing for a period of 18 months from and after the Closing Date and, notwithstanding such closing or any investigation made by or on behalf of Purchaser, shall continue in full force and effect for the benefit of Purchaser during such period, except that:

(i)the representations and warranties set out in Section 3.1(g)(i) shall survive and continue in full force and effect without limitation of time;

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(ii)the representations and warranties set out in the Asset Purchase Agreements and incorporated herein pursuant to Section 3.1(f) shall survive and continue in full force and effect for the periods specified therein; and

(iii)a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Time of Closing, subject only to applicable limitation periods imposed by law.

3.3Purchasers’ Representations and Warranties

Each Purchaser represents and warrants, as to itself only and on a several basis, to Seller as follows and acknowledges that Seller is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation or incorporation, as applicable, and has all requisite corporate power and authority to own, lease and operate its assets, properties and business and to carry on its business as presently conducted.

(b)Authority to Execute and Perform Agreement

Purchaser has all requisite corporate power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder.  This Agreement has been, and the Ancillary Agreements to be delivered by Purchaser at the Closing will be, duly authorized, executed and delivered by Purchaser and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by the other parties hereto and thereto and the validity and binding effect hereof and thereof on the other parties hereto and thereto) is, or upon execution by Purchaser will be, the valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms.

(c)No Breach

The execution, delivery and performance by Purchaser of this Agreement and the Ancillary Agreements and the consummation by Purchaser of the transactions contemplated hereby and thereby, will not

(i)violate or result in the breach of any provision of the constating documents of Purchaser;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any material contract to which Purchaser is a party or to which Purchaser or any of its assets or properties may be bound; or

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(iii)to Purchaser’s knowledge, violate any statute, law or regulation of any jurisdiction, which violation, individually or in the aggregate, could have a material adverse effect on Purchaser’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(d)Consents and Approvals

The execution and delivery by a Purchaser of this Agreement and the Ancillary Agreements and the performance by Purchaser of its obligations hereunder and thereunder do not require Purchaser to obtain any consents, approvals, authorizations, licenses, permits or other actions of, or make any filings with, any Governmental Authority or any other Person.

(e)Actions and Proceedings

There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or other Governmental Authority against Purchaser, and there are no actions, litigation or suits or legal, administrative or arbitral proceedings of any type whatsoever pending, or to the knowledge of Purchaser, threatened, against Purchaser which individually or in the aggregate could reasonably be expected to adversely affect Purchaser’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

3.4Survival of Purchasers’ Representations, Warranties and Covenants

The representations and warranties and, to the extent they have not been fully performed at or prior to the Time of Closing, the covenants of Purchaser set forth in this Agreement will survive the Closing for a period of 18 months from the Closing Date.

3.5Representations and Warranties of Seller Parent and NPI

Each of Seller Parent and NPI represents and warrants to Purchasers as follows, in respect of itself only, and acknowledges that Purchasers are relying on such representations and warranties in connection with their consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

It is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation or incorporation and has all requisite corporate power and authority to own, lease and operate its assets, properties and business and to carry on its business as presently conducted.

(b)Authority to Execute and Perform Agreement

It has all requisite corporate power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder.  This Agreement has been duly authorized, executed and delivered by such party and (assuming the due authorization, execution and delivery of this Agreement by the other parties hereto and the validity and binding effect

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hereof on the other parties hereto) is the valid and binding obligation of such party enforceable against such party in accordance with its terms.

(c)No Breach

The execution, delivery and performance by such party of this Agreement and the consummation by such party of the transactions contemplated hereby, will not

(i)violate or result in the breach of any provision of the constating documents of such party;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any material contract to which such party is a party or to which such party or any of its assets or properties may be bound; or

(iii)to such party’s knowledge, violate any statute, law or regulation of any jurisdiction, which violation, individually or in the aggregate, could have a material adverse effect on its ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(d)Consents and Approvals

The execution and delivery by such party of this Agreement and the performance by such party of its obligations hereunder do not require such to obtain any consents, approvals, authorizations, licenses, permits or other actions of, or make any filings with, any Governmental Authority or any other Person.

(e)Actions and Proceedings

There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or Governmental Authority against such party, and there are no actions, litigation or suits or legal, administrative or arbitral proceedings of any type whatsoever pending, or to the knowledge of such party, threatened, against such party which individually or in the aggregate could reasonably be expected to adversely affect such party’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

3.6Survival of Representations, Warranties and Covenants of Seller Parent and NPI

The representations and warranties of Seller Parent and NPI set forth in Section 3.5 will survive the Closing for a period of 18 months from the Closing Date.

3.7Representations and Warranties of Purchasers’ Parent

Purchasers’ Parent represents and warrants to Seller as follows and acknowledges that Seller is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

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(a)Due Incorporation and Authority

Purchasers’ Parent is a limited partnership formed, validly existing and in good standing under the laws of Ontario and has all requisite corporate or similar power and authority to own, lease and operate its assets, properties and business and to carry on its business as presently conducted.

(b)Authority to Execute and Perform Agreement

Purchasers’ Parent has all requisite corporate or similar power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder.  This Agreement has been duly authorized, executed and delivered by Purchasers’ Parent and (assuming the due authorization, execution and delivery of this Agreement by the other parties hereto and the validity and binding effect hereof on the other parties hereto) is the valid and binding obligation of Purchasers’ Parent enforceable against Purchasers’ Parent in accordance with its terms.

(c)No Breach

The execution, delivery and performance by Purchasers’ Parent of this Agreement and the consummation by Purchasers’ Parent of the transactions contemplated hereby, will not

(i)violate or result in the breach of any provision of the constating documents of Purchasers’ Parent;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any material contract to which Purchasers’ Parent is a party or to which Purchasers’ Parent or any of its assets or properties may be bound; or

(iii)to Purchasers’ Parent’s knowledge, violate any statute, law or regulation of any jurisdiction, which violation, individually or in the aggregate, could have a material adverse effect on its ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(d)Consents and Approvals

The execution and delivery by Purchasers’ Parent of this Agreement and the performance by Purchasers’ Parent of its obligations hereunder do not require such to obtain any consents, approvals, authorizations, licenses, permits or other actions of, or make any filings with, any Governmental Authority or any other Person.

(e)Actions and Proceedings

There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or Governmental Authority against Purchasers’ Parent, and there are no actions, litigation or suits or legal, administrative or arbitral proceedings of any type whatsoever pending,

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or to the knowledge of Purchasers’ Parent, threatened, against Purchasers’ Parent which individually or in the aggregate could reasonably be expected to adversely affect such party’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

3.8Survival of Representations, Warranties and Covenants of Purchasers’ Parent

The representations and warranties of Purchasers’ Parent set forth in Section 3.7 will survive the Closing for a period of 18 months from the Closing Date.

ARTICLE 4 – COVENANTS

The parties hereto covenant and agree as follows:

4.1Governmental Filings

As soon as practicable after the execution of this Agreement, Seller and Purchasers shall cooperate with each other and with their respective Affiliates and shall make any and all filings and submissions to any Governmental Authority which are required to be made in connection with the transactions contemplated hereby and by the Asset Purchase Agreements.  Seller shall furnish to Purchasers and their respective Affiliates and Purchaser shall furnish to Seller and its Affiliates such information and assistance as the other parties may reasonably request in connection with the preparation of any such notices, filings or submissions.  Each party hereto agrees to give the other parties hereto prompt written notice of any notification that it receives from any Governmental Authority in connection with the transactions contemplated hereby or by the Asset Purchase Agreements.

4.2Expenses

(a)Subject to Section 4.2(b), the parties to this Agreement shall bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement, including all fees and expenses of agents, representatives, counsel and accountants.

(b)If any covenant of Seller to be performed or condition of Closing in Section 5.1(a)(i), 5.1(a)(ii), 5.1(a)(iii), 5.1(a)(iv), 5.1(a)(vi), 5.1(a)(viii), 5.1(a)(ix) or 5.1(a)(xi) to be complied with by Seller for the benefit of Purchasers, which performance or compliance was in the reasonable control of Seller or its Affiliates, has not been performed or complied with at or prior to the Time of Closing, Seller agrees to pay the reasonable costs and expenses of Purchasers and their Affiliates actually incurred in connection with the transactions contemplated hereby, including the reasonable fees and expenses of legal counsel and consultants retained by Purchasers and their Affiliates, up to a maximum amount of $750,000.

(c)If any covenant of Purchasers to be performed or condition of Closing in Section 5.2(a)(i), 5.2(a)(ii), 5.2(a)(iii) or 5.2(a)(v) to be complied with by Purchasers for the benefit of Seller, which performance or compliance was in the reasonable control of Purchasers or their Affiliates, has not been performed or complied with at or prior to the Time of Closing, or

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if the transactions contemplated by the Receivables Purchase Agreement have not been consummated at or prior to the Time of Closing for any reason that was in the reasonable control of Purchasers or their Affiliates, Purchasers agree to pay the reasonable costs and expenses of Seller and its Affiliates actually incurred in connection with the transactions contemplated hereby, including the reasonable fees and expenses of legal counsel and consultants retained by Seller and its Affiliates, up to a maximum amount of $750,000.

4.3Indemnification for Brokerage Commissions

(a)Seller represents and warrants to Purchasers that there are no brokerage commissions, finder’s fees or similar fees or commissions payable in connection herewith on account of Seller’s actions or the actions of any of its Affiliates.  Seller agrees to indemnify and save Purchaser harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of Seller, NPI or any of their respective Affiliates, and to bear the cost of any legal expenses incurred by Purchaser in defending against any such claim.

(b)Each Purchaser represents and warrants to Seller there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection herewith on account of Purchaser’s actions or the actions of its Affiliates.  Each Purchaser agrees to indemnify and save Seller and its Affiliates harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of such Purchaser or any of its Affiliates and to bear the cost of any legal expenses incurred by Seller or any of its Affiliates in defending against any such claim.

4.4Litigation

Until the Time of Closing, Purchasers and Seller will promptly notify each other of any lawsuits, proceedings or investigations, which are threatened or commenced or, to the knowledge of a party, threatened against Purchaser or Seller, respectively, which may relate to, or affect, the Purchased Businesses, this Agreement or the transactions contemplated hereby or by the Asset Purchase Agreements.

4.5Access to Records

After the Closing Date, each Purchaser and Seller shall afford to each other and their respective representatives the opportunity, upon reasonable request, to examine and make copies of the books and records of NPNS or of the books and records of the Purchased Businesses retained by Seller, as the case may be, relating to periods prior to the Time of Closing and to consult with their respective officers, employees, accountants and other representatives, in connection with any bona fide business purpose, including the preparation of tax and financial reports and the conducting of any audits or disputes with respect thereto, the administration of the employee benefit plans described in the Mill and Woodlands Purchase Agreement, the review of any materials, books, records or circumstances relating to such party’s ongoing

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obligations under this Agreement, the Ancillary Agreements, the Deeds and Assignments or the Instruments of Assumption.  Each Purchaser and Seller shall each maintain all such books and records and shall not destroy or dispose of any such books and records without the prior written consent of the other for a period of six years following the Closing Date.  Notwithstanding the foregoing, a Purchaser or Seller may at any time notify the others that they desire to dispose of identified books and records, in which event the party receiving such notice may, at its own cost and expense, take delivery of some or all of such books and records, failing which the party giving such notice may dispose of such books and records without further liability to the other parties.

4.6Non-Interference with Potential Sale of Woodlands

NPNS Purchaser, on its own behalf and on behalf of its Affiliates, hereby covenants and agrees with Seller that, for a period of 18 months from and after the Closing Date, it will take reasonable steps to ensure that the Designated Persons and Senior Management, for so long as they remain employees of NPNS Purchaser, do not communicate with any Governmental Authority (including the Nova Scotia Ministry of Natural Resources and the Premier of Nova Scotia or his other Cabinet level ministers, staff or their deputies, employees or agents) that is known to such Person to be involved with Seller’s efforts to sell, lease or otherwise dispose of all or part of the Woodlands (each, a “Woodlands Disposition”) with the intention of reducing the amount of proceeds to be realized by Seller in connection with such Woodlands Disposition.  Notwithstanding the foregoing, (a) any communication or other action taken by or on behalf of NPNS or any other Affiliate of NPNS Purchaser in good faith at the request of or with the consent of Seller in respect of the Woodlands Disposition shall not give rise to a breach of this Section 4.6 by NPNS Purchaser, and (b) this Section 4.6 shall not apply in respect of any actions taken by the Senior Management or other agents of NPNS who provide assistance to Seller and its Affiliates in connection with the Woodlands Disposition as contemplated in the Timberland Services Agreement to be entered into by NPNS and Seller at the Time of Closing.  “Designated Persons” means Tim Fazio and Adam Blumenthal.  “Senior Management” means Keith Johnson, Wayne Gosse and Steve Rutledge.

4.7Affiliation with Seller

Neither Purchaser nor its Affiliates shall represent to any third party that it, its Affiliates or its business are in any way affiliated or associated with, or owned or operated by, Seller or its Affiliates except to the extent required by or permitted under any of the Ancillary Agreements or the Asset Purchase Agreements.

4.8Further Assurances

Seller and each Purchaser will from time to time execute and deliver all such further documents and instruments and do all acts and things as the other party may, either before or after the Closing Date, reasonably require to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

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4.9Notice of Events

Each of the parties shall promptly notify the other party of any event, occurrence, condition or circumstance of which it becomes aware from the Original Effective Date through the Closing Date that would constitute a violation or breach of any representation, warranty, covenant or agreement of such party in this Agreement.

4.10Conduct of Purchased Businesses

(a)From the Original Effective Date and except as set forth in Schedule 4.10 or Section 4.10(b), Seller shall, until the closing of the transactions contemplated by the Asset Purchase Agreements, and thereafter shall until the Closing cause each Purchased Company to: (a) conduct the operations of the Purchased Businesses in the ordinary course of business in substantially the same manner as such operations have been conducted since the close of business on the Original Effective Date, and use all commercially reasonable efforts to preserve intact such operations, including the Assets and all associated goodwill; (b) comply, in all material respects, with all Applicable Law applicable to the operations of the Purchased Businesses, the Assets and the Finance Assets; and (c) pay, perform and discharge, when due, in the ordinary course of business, all obligations of Seller with respect to the Purchased Businesses.

(b)From and after the Original Effective Date until and including the Closing, Seller shall perform of its obligations under the stumpage agreement dated June 29, 2006 between Nova Star Forestry Ltd. (“Nova”), Atlantic Star Forestry Ltd. (“Atlantic”, and together with Nova, “Stumpage Seller”) and Seller (the “Nova Star Stumpage Agreement”) in the ordinary course of business of the Pulp Business consistent with past practice, and Seller shall not take any action with respect to the Nova Star Stumpage Agreement that is not in the ordinary course of business of the Pulp Business and consistent with past practice without the prior consent of NPNS Purchaser, which consent shall not be unreasonably withheld; provided, that, if during such period of time Stumpage Seller makes an offer to sell the Annual Purchase Amount (as defined in the Nova Star Stumpage Agreement) to Seller pursuant to section 2.1 of the Nova Star Stumpage Agreement, Seller covenants that it will not respond to such offer in any manner without the prior written consent of NPNS Purchaser, which consent shall not be unreasonably withheld.

4.11Capital Projects

Seller agrees to proceed with the planned capital expenditures program associated with the Down as set forth on Schedule 4.11 (the “Capital Projects”).  No material additions or deletions to the Capital Projects shall occur prior to the Closing without the consent of NPNS Purchaser, and the aggregate costs of the Capital Projects undertaken prior to the Closing shall not exceed $2,300,000 without the consent of NPNS Purchaser.

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4.12Consents

(a)Consents

Prior to the Closing Date, Seller and Purchasers will cooperate and use all commercially reasonable efforts to:

(i)obtain the Purchaser Required Consents; and

(ii)obtain reissuance of all Excluded Forest Licenses in the name of NPNS,

in each case in order to permit or effect the transactions contemplated by the Asset Purchase Agreements and subject to the limitations expressed therein.

(b)Minister’s Consent

NPNS Purchaser acknowledges that the Excluded Forest Licenses are not transferable and that the Minister of Natural Resources of Nova Scotia may not agree to issue to NPNS a forest resource processing facility license pursuant to the Nova Scotia Forest Acts in respect of the operation of the Purchased Businesses or grant its consent relating to the transfer of the Forest Licenses unless NPNS or NPNS Purchaser first agrees to certain conditions imposed by the said Minister.  NPNS Purchaser is required to consent to the acceptance by NPNS of conditions on transfer required by the Minster of Natural Resources of Nova Scotia as long as those conditions do not have a material adverse effect on the Purchased Businesses.

4.13Tax Elections by Purchased Companies

The parties acknowledge and agree that each of NPNS and Azure Mountain will elect to be disregarded for U.S. tax purposes pursuant to Treasury Regulation section 301.7701-3(c).  Subject to the Closing, Purchasers covenant and agree that they shall cause each of NPNS and Azure Mountain to make such election on or before the day that is 75 days after the date of incorporation of the respective Purchased Company.

4.14Dividends and Distributions by Purchaser Entities

Purchasers’ Parent covenants and agrees with Seller that, for a period of two years from the Closing Date, it shall not, and it shall not permit NPNS, Azure Mountain, NPNS Purchaser or Azure Mountain Purchaser (collectively with Purchasers’ Parent and any other Entity that (i) is directly or indirectly wholly owned by Purchasers’ Parent and (ii) directly or indirectly owns NPNS or Azure Mountain, the “Purchaser Entities”) to, make or pay to any Related Person of a Purchaser Entity (other than another Purchaser Entity) any dividend, distribution or other payment in excess of the consolidated net income of the Purchased Businesses, calculated in accordance with GAAP and excluding extraordinary items and non-cash items, during such period of time; provided, however, that the foregoing will not limit or restrict the Purchaser Entities’ ability to make payments to any Person or to pay dividends or make distributions to a Related Person (a) in respect of customary management and transaction fees incurred by businesses similar to the Purchased Businesses in the ordinary course of business, (b) in connection with the payment of any Taxes by the Purchaser Entities or any

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Related Person which are or become due and payable in connection with the transactions contemplated hereby or the ongoing operations of the Purchased Businesses, or (c) in connection with the payment or reimbursement of any fees and expenses incurred by or on behalf of the Purchaser Entities in connection with the negotiation and closing of the transactions contemplated hereby.  For purposes of this Section 4.14, a Related Person means any Person who directly or indirectly owns, in whole or in part, or is under common ownership with, the Purchaser Entities.

ARTICLE 5 – CONDITIONS

5.1Conditions for the Benefit of Purchasers

(a)The sale by Seller and the purchase by Purchasers of the Purchased Shares are subject to the following conditions, which are for the exclusive benefit of Purchasers:

(i)the transactions contemplated by the Asset Purchase Agreements shall have been completed;

(ii)the representations and warranties of (A) Seller set forth or incorporated by reference in Section 3.1 and (B) NPI and Seller Parent set forth in Section 3.5, shall be true and correct in all material respects if the particular representation and warranty is not by its terms so qualified, and in all respects if by its terms it is so qualified, at the Time of Closing with the same force and effect as if made at and as of the Time of Closing;

(iii)Seller will have performed or complied with all of the terms, covenants and agreements in this Agreement to be performed or complied with by Seller at or prior to the Time of Closing;

(iv)Purchasers will have been furnished with certificates of officers of Seller, Seller Parent, NPI and each Purchased Company certifying with respect to such entity, as applicable:

(A)resolutions, as appropriate, of shareholders and/or directors of such entity approving the transactions contemplated herein and in the Asset Purchase Agreements;

(B)the incumbency of officers signing this Agreement, the Asset Purchase Agreements and the Ancillary Agreements; and

(C)in respect of Seller only, the matters contemplated in Sections 5.1(a)(i), 5.1(a)(ii) and 5.1(a)(iii), and in respect of Seller Parent and NPI, the matters contemplated in Section 5.1(a)(ii);

(v)all Purchaser Required Consents, Permits and reissuances of the Excluded Forest Licenses in the name of NPNS shall have been obtained, as contemplated by and subject to the limitations set forth in the Mill and

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Woodlands Purchase Agreement, in each case in form and substance reasonably satisfactory to Purchaser;

(vi)Seller or Seller Parent or its designee shall have executed and delivered a transition services agreement substantially in the form attached hereto as Schedule 5.1(a)(vi) (the “Transition Services Agreement”);

(vii)K-C Global shall have consented in writing to the transfer of NPI’s and Seller’s rights, obligations and interests under the Pulp Supply Agreement to NPNS and NPNS Purchaser in accordance with Section 12.01 of the Pulp Supply Agreement, in a form and in substance reasonably satisfactory to NPNS Purchaser and Seller;

(viii)Seller and NPNS shall have executed and delivered a stumpage agreement substantially in the form attached hereto as Schedule 5.1(a)(viii) (the “Stumpage Agreement”);

(ix)Seller shall have delivered or caused to be delivered to Purchasers:

(A)assignments or other instruments of transfer duly endorsed in blank, or accompanied by share powers or other instruments of transfer duly executed in blank, and otherwise in form and substance reasonably acceptable to Purchasers for transfer of the NPNS Shares to NPNS Purchaser and the transfer of the Azure Mountain Shares to Azure Mountain Purchaser;

(B)the minute books and share transfer records of the Purchased Companies;

(C)a written resignation and release from each of the officers and directors of the Purchased Companies, effective as of the Time of Closing; and

(D)an opinion of counsel to Seller (which may be Seller’s General Counsel) addressed to Purchasers, subject to customary assumptions and qualifications and in form and substance satisfactory to Purchasers and their counsel acting reasonably, covering corporate existence of Seller and the Purchased Companies, power and authority to enter into this Agreement, the Asset Purchase Agreements and the Ancillary Agreements, and that the foregoing agreements are valid, binding and enforceable in accordance with their terms, and the authorized and issued capital of the Purchased Companies;

(x)there shall have been no Material Adverse Change since the date of the Year End Financial Statements;

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(xi)Seller shall have executed and delivered to Azure Mountain a subscription agreement in the form attached hereto as Schedule 5.1(a)(xi) (the “Subscription Agreement”);

(xii)the transactions contemplated by the Receivables Purchase Agreement shall have been completed; and

(xiii)all actions, proceedings, instruments and documents required to implement this Agreement, or instrumental thereto, and all legal matters relating to the transactions contemplated hereby and by the Asset Purchase Agreements shall have been approved as to form and legality by counsel for Purchaser, acting reasonably.

(b)In case any term or covenant of Seller or condition to be performed or complied with for the benefit of Purchaser (including those set forth in Section 5.3 below) at or prior to the Time of Closing has not been performed or complied with at or prior to the Time of Closing, Purchaser, without limiting any other right that Purchaser has, may rescind this Agreement by notice to Seller without any further obligation under this Agreement or waive compliance with any such term, covenant or condition in whole or in part on such terms as may be agreed upon.

5.2Conditions for the Benefit of Seller

(a)The sale by Seller and the purchase by Purchasers of the Purchased Shares are subject to the following conditions, which are for the exclusive benefit of Seller:

(i)the representations and warranties of (A) each of the Purchasers set forth in Section 3.3 and (B) Purchasers’ Parent set forth in Section 3.7, shall be true and correct in all material respects, at the Time of Closing with the same force and effect as if made at and as of such Time of Closing;

(ii)Purchasers will have performed or complied with all of the terms, covenants and agreements in this Agreement to be performed or complied with by Purchasers at or prior to the Time of Closing;

(iii)Seller will have been furnished with certificates of an officer of the general partner of each Purchaser and of Purchasers’ Parent certifying with respect to such entity, as applicable:

(A)resolutions, as appropriate, of shareholders and/or directors of such entity approving the transaction contemplated herein;

(B)the incumbency of officers signing this Agreement and the Ancillary Agreements; and

(C)in respect of the Purchasers only, the matters contemplated in Section 5.2(a)(i) and 5.2(a)(ii), and in respect of Purchasers’ Parent, the matters contemplated in Section 5.2(a)(i);

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(iv)all Purchaser Required Consents and the reissuance of the Excluded Forest Licenses in the name of NPNS shall have been obtained, as contemplated by and subject to the limitations set forth in the Mill and Woodlands Purchase Agreement;

(v)each of the Purchasers shall have executed and delivered the Ancillary Agreements to which it is a party; and

(vi)K-C Global shall have consented in writing to the transfer of NPI’s and Seller’s rights, obligations and interests under the Pulp Supply Agreement to NPNS and NPNS Purchaser in accordance with Section 12.01 of the Pulp Supply Agreement, in a form and in substance reasonably satisfactory to NPNS Purchaser and Seller.

(b)If any term or covenant of a Purchaser or condition to be performed or complied with for the benefit of Seller (including those set forth in Section 5.3 below) at or prior to the Time of Closing has not been performed or complied with at or prior to the Time of Closing, Seller, without limiting any other right that Seller has, may rescind this Agreement without any further obligation to Purchasers under this Agreement or waive compliance with any such term, covenant or condition in whole or in part on such terms as may be agreed upon.

5.3Mutual Conditions

The sale by Seller and purchase by Purchasers of the Purchased Shares is subject to the condition, which is for the mutual benefit of Seller and Purchasers, that no legal or regulatory action or proceeding in any jurisdiction will be pending or threatened by any Person to enjoin, restrict or prohibit the transactions contemplated by this Agreement or the Asset Purchase Agreements, and there shall be in effect no injunction against Closing entered by a court of competent jurisdiction.

ARTICLE 6 – CLOSING ARRANGEMENTS

6.1Closing

The sale and purchase of the Purchased Shares will be completed at the Time of Closing on the Closing Date at:

Stewart McKelvey Stirling Scales
Purdy’s Wharf Tower One
1959 Upper Water Street
Suite 900
Halifax,  Nova Scotia B3J 2X2
Canada

or another mutually agreeable location.

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6.2Risk of Loss

Until the Time of Closing the Assets and, except as otherwise contemplated by the Receivables Purchase Agreement, the Finance Assets will remain at the risk of Seller.

ARTICLE 7 - INDEMNIFICATION

7.1Obligation of Seller to Indemnify

(a)Subject to the limitations contained in Sections 3.2 and 7.4(a), Seller agrees to indemnify, defend and hold harmless Purchasers from and against all Losses actually incurred by Purchasers based upon, arising out of, related to or otherwise in respect of:

(i)any breach of any representation or warranty of Seller contained in this Agreement or in either of the Asset Purchase Agreements;

(ii)Seller’s breach of any covenants or agreements contained in this Agreement, including the indemnification obligation set forth in Section 4.3(a), or in either of the Asset Purchase Agreements;

(iii)Seller’s failure to perform or satisfy any of the Retained Liabilities; and

(iv)all obligations and liabilities of Seller, Seller Parent, NPI and their Affiliates arising under or in connection with the Distribution Agreement not specifically relating to the Assets or the Purchased Businesses.

(b)Seller agrees to indemnify, defend and hold harmless Purchasers and their Affiliates (from and after the Closing, including Azure Mountain) from and against all Losses actually incurred by Purchasers or their Affiliates based upon, arising out of, related to or otherwise in respect of all obligations and liabilities of Seller as of the Closing for any unpaid capital calls (the “Unpaid Capital Call”) in respect of the Additional Subscribed Shares, provided that Seller’s indemnification obligation in respect of the Unpaid Capital Call itself shall not exceed US$10,000,000, and further provided that no such amounts shall be called or payable by Seller prior to August 29, 2008.

7.2Obligation of Purchaser Indemnitors to Indemnify

Subject to the limitations contained in Sections 3.4 and 7.4(b), Purchasers and Purchasers’ Parent agree, and from and after the Closing shall cause the Purchased Companies (collectively with Purchasers and Purchasers’ Parent, the “Purchaser Indemnitors”) to agree, to jointly and severally indemnify, defend and hold harmless Seller, Seller Parent and their respective Affiliates from and against any Losses actually incurred by Seller based upon, arising out of, related to or otherwise in respect of:

(a)any breach of any representation or warranty of a Purchaser Indemnitor contained in this Agreement;

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(b)a Purchaser Indemnitor’s breach of any covenants or agreements contained in this Agreement, including the indemnification obligations set forth in Section 4.3(b);

(c)the failure of NPNS to perform or satisfy any Assumed Liability; and

(d)any incident, occurrence or circumstances relating to the Assets, the Finance Assets or the Purchased Businesses commencing or coming into existence after the Time of Closing.

7.3Notice and Right to Defend

(a)Notice of Asserted Liability.  Promptly after receipt by any party hereto (the “Indemnitee”) of notice of any demand, claim or circumstances which could give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an “Asserted Liability”) that may result in a Loss, the Indemnitee shall give notice thereof (a “Claims Notice”) to the other party or parties (including Purchaser Indemnitors) obligated to provide indemnification or payment pursuant to Section 7.1 or 7.2 (the “Indemnifying Party”).  The Claims Notice shall describe the Asserted Liability in reasonable detail, and shall indicate the amount of the Loss that has been or may be suffered by the Indemnitee.  In no event shall the Indemnitee’s failure to give a Claims Notice to the Indemnifying Party relieve the Indemnifying Party of any liability under this Article 7 except to the extent the Indemnifying Party can establish that the Indemnitee’s failure to give such Claims Notice materially prejudiced the Indemnifying Party’s ability to adequately defend such claim or any related or other claim.

(b)Right to Defend.  Subject to Sections 7.3(b)(i) - (iv), the Indemnifying Party may elect to compromise or defend, at its own expense and with counsel reasonably satisfactory to the Indemnitee, any Asserted Liability, and if the Indemnifying Party so elects to compromise or defend, the Indemnifying Party shall have the right to control the defense of such Asserted Liability.  If the Indemnifying Party elects to compromise or defend such Asserted Liability, it shall within fifteen (15) days (or sooner, if the nature of the Asserted Liability so requires) notify the Indemnitee of its intent to do so, and the Indemnitee shall cooperate in the compromise of, or defense against, such Asserted Liability.  If the Indemnifying Party does not initially elect within fifteen (15) days, the Indemnifying Party may later elect to compromise or defend such Asserted Liability on the giving of five (5) calendar days notice of its intention to do so to the Indemnitee and the Indemnitee shall cooperate in the compromise of, or defence against, such Asserted Liability.  If the Indemnifying Party elects not to compromise or defend the Asserted Liability, fails to notify the Indemnitee of its election as herein provided or contests its obligation to indemnify under this Agreement, the Indemnitee may pay, compromise or defend such Asserted Liability and the Indemnitee shall have the right to control the defense of such Asserted Liability.  Notwithstanding the foregoing,

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(i)the Indemnifying Party may settle or compromise any Asserted Liability, provided that such settlement or compromise does not result in any liability to, restriction on, or admission of, the Indemnitee;

(ii)if the Indemnifying Party is not defending an Asserted Liability, the Indemnitee shall, if and whenever reasonably requested, provide the Indemnifying Party with regular updates on the status of the Asserted Liability;

(iii)if the Indemnifying Party is not defending an Asserted Liability, the Indemnitee may not settle or compromise such claim without first giving the Indemnifying Party at least fifteen (15) calendar days advance written notice of an intended settlement or compromise; and

(iv)provided that the Indemnifying Party is defending an Asserted Liability at its own expense, the Indemnitee may not settle or compromise such claim over the objection of the Indemnifying Party.

In any event, the Indemnitee may participate, at its own expense, in the defense of such Asserted Liability.  If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense.

7.4Limitations on Indemnification

(a)The indemnification provided for in Section 7.1(a) shall be subject to the following limitations:

(i)Seller shall not be obligated to pay any amounts for indemnification under Section 7.1(a) except to the extent that the aggregate Losses theretofore claimed as indemnifiable Losses pursuant to Section 7.1(a) and actually incurred by Purchaser (net of insurance recoveries thereunder) exceed $500,000, subject to the limits set forth in clauses (ii) and (iii) below;

(ii)Seller shall not be obligated to pay an aggregate amount for indemnification under Section 7.1(a) in excess of $15,000,000; and

(iii)Seller shall not be obligated to pay any amount for indemnification under Section 7.1(a) if the Loss associated with the individual claim does not exceed $100,000.

Notwithstanding anything to the contrary contained herein, the indemnification provided for in Section 7.1(b) shall not be subject to the foregoing limitations.

(b)The indemnification provided for in Section 7.2 shall be subject to the following limitations:

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(i)Purchaser Indemnitors shall not be obligated to pay any amounts for indemnification under Section 7.2 except to the extent that the aggregate Losses theretofore claimed as indemnifiable Losses pursuant to Section 7.2 and actually incurred by Seller (net of insurance recoveries thereunder) exceed $500,000, subject to the limits set forth in clauses (ii) and (iii) below;

(ii)Purchaser Indemnitors shall not be obligated to pay an aggregate amount for indemnification under Section 7.2 in excess of $15,000,000; and

(iii)Purchaser Indemnitors shall not be obligated to pay any amounts for indemnification under Section 7.2 if the Loss associated with the individual claim does not exceed $100,000; and

(iv)Purchaser Indemnitors shall not be obligated to pay any amount under Section 7.2 in respect of Losses for which Seller has indemnified Purchasers under Section 7.1, whether or not such indemnity is still in effect.  If after the expiry of the survival period such Losses are based upon, arise out of or are related to (A) an intentional misrepresentation of a matter which was represented or warranted to by Seller herein or in either of the Asset Purchase Agreements, or (B) an intentional failure by Seller to perform a covenant of Seller contained in this Agreement or either of the Asset Purchase Agreements, Purchaser Indemnitors shall have no obligation to indemnify under Section 7.2.

ARTICLE 8 – TERMINATION

8.1Termination

This Agreement may be terminated prior to the Closing by mutual written consent of each of the parties hereto.  If this Agreement so terminates, it shall become null and void and have no further force or effect, except as provided in Section 8.2.

8.2Survival

If this Agreement is terminated in accordance with Section 8.1 and the transactions contemplated hereby are not consummated, this Agreement shall become null and void and have no further force or effect and none of the parties shall have any liability to any other party under this Agreement.

8.3Confidentiality

If this Agreement is terminated, Purchasers and their respective Affiliates, representatives and agents shall continue to be bound by and subject to the terms and conditions of the Confidentiality Agreement.

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ARTICLE 9 – GUARANTEE OF SELLER’S OBLIGATIONS
BY SELLER PARENT AND NPI

9.1Seller Guarantee

Subject to the provisions of Section 9.4, Seller Parent and NPI hereby absolutely, unconditionally and irrevocably guarantee to Purchasers the punctual and complete fulfillment and performance when due of all of Seller’s (including its successors and permitted assignees) obligations under this Agreement (for purposes of this Article 9, the “Seller Guarantee”).

9.2Guarantee Binding

The liability of Seller Parent and NPI under the Seller Guarantee shall be binding upon Seller Parent, NPI and their respective successors and permitted assigns, shall not be subject to any counterclaim, set-off, deduction or defence based upon any claim that Seller Parent or NPI, as the case may be, may have against either of the Purchasers under this Agreement or otherwise and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not Seller Parent or NPI shall have any knowledge or notice thereof) that might otherwise constitute a legal or equitable discharge or defence of a guarantor (including the insolvency or bankruptcy of Seller); provided, however, that any claim of Purchasers under this Seller Guarantee against Seller Parent or NPI shall be subject to, and Seller Parent and NPI shall have available to them in defence of any such claim, any and all of Seller’s rights and defences, whether arising under this Agreement or otherwise, in respect of any such claim, other than those defences in respect of good standing, valid existence, corporate capacity, due authorization and due execution or delivery.

9.3Subrogation

To the extent of any payment by Seller Parent or NPI to a Purchaser under this Seller Guarantee, Seller Parent or NPI, as the case may be, shall succeed to all corresponding claims that such Purchaser may have and otherwise shall be subrogated to the rights of such Purchaser against Seller in respect thereof.

9.4Enforcement

A Purchaser shall not be required to exhaust all of its remedies against Seller before enforcing this Seller Guarantee; provided, however, that before enforcing the Seller Guarantee, a Purchaser shall be required to provide evidence reasonably satisfactory to Seller Parent or NPI that such Purchaser has demanded that Seller fulfill or perform its obligations under this Agreement and Seller has failed to do so, in whole or in part.  In such circumstances, Seller Parent or NPI, as the case may be, shall pay all costs and expenses (including legal fees and expenses) reasonably incurred by or on behalf of Purchasers in enforcing the obligations of Seller Parent or NPI under this Seller Guarantee.

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ARTICLE 10 – GUARANTEE OF PURCHASERS’ OBLIGATIONS

BY PURCHASERS’ PARENT

10.1Purchasers Guarantee

Subject to the provisions of Section 10.4, Purchasers’ Parent hereby absolutely, unconditionally and irrevocably guarantees to Seller the punctual and complete fulfillment and performance when due of all of Purchasers’ (including their successors and permitted assignees) respective obligations under this Agreement (for purposes of this Article 10, the “Purchasers Guarantee”).

10.2Guarantee Binding

The liability of Purchasers’ Parent under the Purchasers Guarantee shall be binding upon Purchasers’ Parent and its successors and permitted assigns, shall not be subject to any counterclaim, set-off, deduction or defence based upon any claim that Purchasers’ Parent may have against Seller under this Agreement or otherwise and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not Purchasers’ Parent shall have any knowledge or notice thereof) that might otherwise constitute a legal or equitable discharge or defence of a guarantor (including the insolvency or bankruptcy of either of the Purchasers); provided, however, that any claim of Seller under this Purchasers Guarantee against Purchasers’ Parent shall be subject to, and Purchasers’ Parent shall have available to it in defence of any such claim, any and all of Purchasers’ respective rights and defences, whether arising under this Agreement or otherwise, in respect of any such claim, other than those defences in respect of good standing, valid existence, corporate capacity, due authorization and due execution or delivery.

10.3Subrogation

To the extent of any payment by Purchasers’ Parent to Seller under this Purchasers Guarantee, Purchasers’ Parent shall succeed to all corresponding claims that Seller may have and otherwise shall be subrogated to the rights of Seller against either of the Purchasers in respect thereof.

10.4Enforcement

Seller shall not be required to exhaust all of its remedies against Purchasers before enforcing this Purchasers Guarantee; provided, however, that before enforcing the Purchasers Guarantee, Seller shall be required to provide evidence reasonably satisfactory to Purchasers’ Parent that Seller has demanded that the relevant Purchaser fulfill or perform its obligations under this Agreement and such Purchaser has failed to do so, in whole or in part.  In such circumstances, Purchasers’ Parent shall pay all costs and expenses (including legal fees and expenses) reasonably incurred by or on behalf of Seller in enforcing the obligations of Purchasers’ Parent under this Guarantee.

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ARTICLE 11 – GENERAL

11.1Time of the Essence

Time is of the essence of this Agreement.

11.2Public Announcements

Neither Seller nor Purchasers shall make any publicity release or announcement concerning this Agreement, or make any disclosure with respect to the consideration paid pursuant to this Agreement, or the transactions contemplated hereby without the prior written approval thereof by Purchasers or Seller, as the case may be, except as required by Applicable Law, in which case the party issuing the release or making such disclosure shall so advise the other party in writing in advance of such issuance or disclosure.

11.3Benefit of the Agreement

This Agreement will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and permitted assigns of the parties hereto.

11.4Third Party Beneficiaries

The provisions of this Agreement are solely for the benefit of the parties hereto and their respective Affiliates, successors and permitted assigns and shall not confer upon any third Person any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Agreement.  Nothing in this Agreement shall obligate Seller or its Affiliates or either Purchaser to assist any Employee to enforce any rights such Employee may have with respect to any of the Benefit Plans or other employment-related benefits referred to in this Agreement.

11.5Entire Agreement

This Agreement (including the Schedules hereto), the Ancillary Agreements referred to herein and the Confidentiality Agreement constitute the entire agreement between the parties hereto, with respect to the subject matter hereof and cancel and supersede any prior understandings and agreements (including the Original Share Purchase Agreement) between the parties hereto with respect thereto.  There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the parties other than as expressly set forth in this Agreement, the Ancillary Agreements and Confidentiality Agreement.

11.6Amendments and Waivers

No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by each of the parties hereto.  No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided, will be limited to the specific breach waived.

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11.7Assignment

This Agreement may not be assigned by any party hereto without the written consent of the other parties hereto.

11.8Notices

Any demand, notice or other communication to be given in connection with this Agreement will be given in writing and will be given by personal delivery or by facsimile communication addressed to the recipient as follows:

(i)	to Seller:
	Neenah Paper Company of Canada
	3460 Preston Ridge Road, Suite 600
	Alpharetta, Georgia 30005
	Attention:	Steven S. Heinrichs
		Senior Vice President, General Counsel and Secretary
	Facsimile:	678-518-3283
(ii)	to Seller Parent:
	NPCC Holding Company, LLC
	3460 Preston Ridge Road, Suite 600
	Alpharetta, Georgia 30005
:	Attention	Steven S. Heinrichs
		Senior Vice President, General Counsel and Secretary
	Facsimile:	678-518-3283
(iii)	to NPI:
	Neenah Paper, Inc.
	3460 Preston Ridge Road, Suite 600
	Alpharetta, Georgia 30005
	Attention:	Steven S. Heinrichs
		Senior Vice President, General Counsel and Secretary
	Facsimile:	678-518-3283
(iv)	to NPNS Purchaser:
	Northern Pulp NS LP
	c/o Atlas Holdings, LLC
	One Sound Shore Drive
	Suite 302
	Greenwich, Connecticut 06830
	Attention:	Tim Fazio
	Facsimile:	203-622-0151

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(v)	to Azure Mountain Purchaser:
	Azure Mountain Capital Financial LP
	Blue Wolf Capital Management
	48 Wall Street
	31st Floor
	New York, New York 10005
	Attention:	Josh Wolf-Powers
	Facsimile:	646-349-2280
(vi)	to Purchasers’ Parent:
	Azure Mountain Capital Holdings LP
	c/o Atlas Holdings, LLC
	One Sound Shore Drive
	Suite 302
	Greenwich, Connecticut 06830
	Attention:	Tim Fazio
	Facsimile:	203-622-0151

or to such other address, individual or electronic communication number as may be designated by notice given by any party to the others.  Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by facsimile communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the Business Day during which such normal business hours next occur if not given during such hours on any day if receipt of such facsimile communication is confirmed.

11.9Remedies Cumulative

The rights and remedies of the parties hereunder are cumulative and are in addition to, and not in substitution for, any other rights and remedies available at law or in equity or otherwise.  No single or partial exercise by a party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that party may be entitled.

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11.10Governing Law

This Agreement is governed by and will be construed in accordance with the laws of the Province of Nova Scotia and the federal laws of Canada applicable therein.

11.11Attornment

For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Nova Scotia and the courts of the Province of Nova Scotia (and all courts competent to hear appeals therefrom) will have exclusive jurisdiction to entertain any action arising under this Agreement.  Each of the parties hereto hereby attorns to the jurisdiction of the courts of the Province of Nova Scotia and all courts competent to hear appeals therefrom.

11.12Counterparts

This Agreement and any amendment, supplement, restatement or termination of any provision of this Agreement may be executed and delivered in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument.

[The next page is the signature page.]

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IN WITNESS WHEREOF the parties have executed this Agreement.

SELLER	NEENAH PAPER COMPANY OF CANADA
	Per:
		Name:Sean T. Erwin
		Title:  President and Chief Executive Officer
SELLER PARENT	NPCC HOLDING COMPANY, LLC
	Per:
		Name:Sean T. Erwin
		Title:  President and Chief Executive Officer
GUARANTOR	NEENAH PAPER, INC. (solely with respect to its representations and warranties in Section 3.5 and its obligations under Section 3.6 and Article 9)
	Per:
		Name:Sean T. Erwin
		Title:  President and Chief Executive Officer
PURCHASERS’ PARENT	AZURE MOUNTAIN CAPITAL HOLDINGS LP, by its general partner AZURE MOUNTAIN CAPITAL GP LLC
	Per
		Name:Adam Blumenthal
		Title:  Manager

Signature page for Share Purchase Agreement

NPNS PURCHASER	NORTHERN PULP NS LP, by its general partner NORTHERN PULP NS GP ULC
	Per
		Name: Tim Fazio
		Title:   President
AZURE MOUNTAIN PURCHASER	AZURE MOUNTAIN CAPITAL FINANCIAL LP, by its general partner AZURE MOUNTAIN CAPITAL FINANCIAL GP ULC
	Per
		Name:Josh Wolf-Powers
		Title:  Secretary

Signature page for Share Purchase Agreement

EX-10.3

Exhibit 10.3

ASSET PURCHASE AGREEMENT

AMONG

NEENAH PAPER COMPANY OF CANADA

As Seller

And

AZURE MOUNTAIN CAPITAL FINANCIAL CORPORATION

As Purchaser

MADE AS OF

June 24, 2008

PICTOU PULP MILL WORKING CAPITAL ASSETS

TABLE OF CONTENTS

Article 1 – INTERPRETATION		1
1.1	Definitions	1
1.2	Headings	3
1.3	Extended Meanings	3
1.4	Statutory References	4
1.5	Accounting Principles	4
1.6	Currency, Prices and Values	4
1.7	Schedules	4
Article 2 – SALE AND PURCHASE		5
2.1	Assets to be Sold and Purchased	5
2.2	Retained Liabilities	5
2.3	Purchase Price	5
2.4	Purchase Price Adjustment	5
2.5	Allocation of Purchase Price; Taxes	8
2.6	Section 85 Election	9
2.7	Instruments of Conveyance	9
Article 3 – REPRESENTATIONS AND WARRANTIES		9
3.1	Seller’s Representations and Warranties	9
3.2	Survival of Seller’s Representations, Warranties and Covenants	12
3.3	Purchaser’s Representations and Warranties	13
3.4	Survival of Purchaser’s Representations, Warranties and Covenants	14
Article 4 – COVENANTS		14
4.1	Governmental Filings	14
4.2	Expenses	14
4.3	Indemnification for Brokerage Commissions	15
4.4	Further Assurances	15
4.5	Use of Seller’s Trade Name	15
4.6	Money Received After Closing	15
Article 5 – CLOSING ARRANGEMENTS		16
5.1	Closing	16
Article 6 – GENERAL		16
6.1	Time of the Essence	16
6.2	Public Announcements	16
6.3	Benefit of the Agreement	16
6.4	Third Party Beneficiaries	16

6.5	Entire Agreement	16
6.6	Amendments and Waivers	17
6.7	Assignment	17
6.8	Notices	17
6.9	Remedies Cumulative	18
6.10	Governing Law	18
6.11	Attornment	18
6.12	Counterparts	18

ASSET PURCHASE AGREEMENT

THIS AGREEMENT is made as of June 24, 2008, between NEENAH PAPER COMPANY OF CANADA, an unlimited company incorporated under the laws of Nova Scotia (“Seller”) and AZURE MOUNTAIN CAPITAL FINANCIAL CORPORATION, an unlimited company incorporated under the laws of Nova Scotia (“Purchaser”).

PRELIMINARY STATEMENT

Purchaser desires to purchase, and Seller desires to sell, the Assets (as defined herein) relating to the business conducted by Seller at and only with respect to its Pictou County, Nova Scotia pulp mill (the “Pictou Pulp Mill” or the “Pulp Business”), for the consideration set forth below, subject to the terms and conditions of this Agreement.

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

ARTICLE 1 – INTERPRETATION

1.1          Definitions

In this Agreement, unless something in the subject matter or context is inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person, and for these purposes “control” is the power whether by contract or ownership of equity interests or otherwise to select a majority of the board of directors or other supervisory management authority of an Entity, whether directly or indirectly through a chain of Entities that are “controlled” within the foregoing meaning; provided, however, that for purposes of this Agreement, Seller and Purchaser shall be deemed not to be Affiliates of each other;

“Agreement” means this asset purchase agreement including the Preliminary Statement and Schedules to this agreement, as amended, supplemented or restated from time to time;

“Applicable Law” means any applicable domestic or foreign, federal, provincial or local law, including any statute or subordinate legislation or treaty and any applicable rule, regulation, ordinance, requirement, order, Permit, judgment, injunction, award or decree or other binding requirement of a Governmental Authority having the force of law;

“Assets” has the meaning set out in Section 2.1;

“Business Day” means a day other than a Saturday, Sunday or statutory holiday in New York, New York, Atlanta, Georgia or Halifax, Nova Scotia;

“Closing” means the closing of the transactions contemplated hereby;

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“Closing Date” means the date hereof;

“Contract” means any agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment, whether written or oral;

“Entity” means a Person other than an individual;

“GAAP” has the meaning set out in Section 1.5;

“Governmental Authority” means any domestic or foreign, federal, provincial, municipal, local or other governmental, quasi-governmental, legislative, executive, judicial or administrative body or person having jurisdiction in the relevant circumstances, including any governmental ministry, agency, branch, department, commission, board, tribunal, bureau or arbitrator;

“Issued Shares” has the meaning set out in Section 2.3(a);

“knowledge”, with respect to Seller, means the actual knowledge, after due enquiry, of any of the Persons listed on Schedule 1.1(a);

“lien or other encumbrance” or “Encumbrance” means any lien, pledge, hypothec, mortgage, security interest of any nature, adverse claim, reservation, easement, title retention agreement, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever, or any Contract to create any of the foregoing;

“Losses” means all fines, losses, liabilities, damages, deficiencies, costs or expenses (including interest, legal fees and disbursements of legal counsel) arising directly or indirectly as a consequence of such matter;

“Material Adverse Change” and “Material Adverse Effect” mean any event, change or effect that, when taken individually or together with all other adverse effects, will or is reasonably likely to have a materially adverse effect on the business, affairs, capitalization, assets, liabilities, results of operations, condition (financial or otherwise) or prospects of the Pulp Business, taken as a whole; provided, however, that effects or changes relating to:

(a)changes in general political and economic conditions and changes affecting generally the industries and markets in which the Pulp Business is conducted that, in any of the foregoing cases, do not affect the Pulp Business, taken as a whole, in a disproportionate manner relative to other participants in the same industry as the Pulp Business;

(b)the effect of any changes in applicable laws, regulations or accounting rules; and

(c)the fact of the pendency of the transactions contemplated by this Agreement and the identity of Purchaser;

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are not Material Adverse Changes or Material Adverse Effects and are not to be taken into account in determining whether a Material Adverse Change or a Material Adverse Effect has occurred;

“Person” means any individual, corporation, company, unlimited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or other legal or business entity however designated or constituted;

“Pictou Pulp Mill” has the meaning set out in the Preliminary Statement;

“Pulp Business” has the meaning set out in the Preliminary Statement;

“Purchase Price” has the meaning set out in Section 2.3;

“Purchaser” has the meaning set out on Page 2;

“Seller” has the meaning set out on Page 2;

“Taxes” means any federal, provincial, local or foreign, income, capital, branch, goods and services, valued added, harmonized sales, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Authority; provided, however, that in no event shall Taxes be deemed to include any transfer tax or capital gains tax payable in connection with the purchase and sale of the Assets; and

“Time of Closing” means 10:15 a.m. in Nova Scotia on the Closing Date, with an effective Time of Closing for accounting purposes of 12:01 a.m. in Nova Scotia on the Closing Date.

1.2Headings

The division of this Agreement into articles and sections and the insertion of a table of contents and headings are for convenience of reference only and are not to affect the construction or interpretation of this Agreement.  The terms “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof.  Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement.

1.3Extended Meanings

In this Agreement words importing the singular number only include the plural and vice versa and words importing any gender include all genders.  Unless something in the subject matter or context is inconsistent therewith, the term “including” means “including without limiting the generality of the foregoing”.

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1.4Statutory References

Unless something in the subject matter or context is inconsistent therewith and except with respect to Environmental Laws, each reference to any statute refers to that statute and to the regulations made under that statute, as now enacted or as the same may from time to time be amended, re-enacted or replaced.

1.5Accounting Principles

Wherever in this Agreement reference is made to a calculation to be made or an action to be taken in accordance with generally accepted accounting principles, such reference will be deemed to be to the generally accepted accounting principles in the United States from time to time (“GAAP”), applicable as at the date on which such calculation or action is made or taken or required to be made or taken.

1.6Currency, Prices and Values

All references to currency, prices and values (monetary, accounting, financial or otherwise) herein are to lawful currency of Canada unless otherwise specified.

1.7Schedules

(a)           The following Schedules are attached to and form part of this Agreement:

Schedule		Contents
Schedule 1.1(a)	-	Knowledge of Certain Persons
Schedule 2.5	-	Allocation of Purchase Price
Schedule 2.6	-	Section 85(1) Tax Election Amounts
Schedule 3.1(c)	-	Compliance with Laws
Schedule 3.1(e)	-	Actions and Proceedings
Schedule 3.1(j)	-	Location of Assets
Schedule 3.1(m)	-	Insurance Policies

* The schedules listed above have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon supplemental request.

(b)           Any matter disclosed on any of the Schedules hereto shall be deemed to be disclosed on each other Schedule hereto relating to such matters.

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ARTICLE 2 – SALE AND PURCHASE

2.1Assets to be Sold and Purchased

Seller hereby sells, assigns, transfers, conveys and delivers to Purchaser, as of the Time of Closing, the following current assets of Seller relating to the Pulp Business:

(a)the trade receivables of the Pulp Business as reflected in Seller’s general ledger accounts numbers 000-0321 and 000-0321-100; and

(b)the hardwood pulp inventory and the softwood pulp inventory of the Pulp Business as reflected in Seller’s general ledger accounts numbers 000-0631 and 000-0633, respectively.

All of the foregoing assets and properties being sold, assigned, transferred, conveyed and delivered to Purchaser hereunder are hereinafter referred to as the “Assets”.

2.2Retained Liabilities

Notwithstanding anything to the contrary contained herein, Purchaser shall not hereby assume, or in any way be liable or responsible for, any liabilities or obligations of Seller.

2.3Purchase Price

Subject to the adjustments contemplated in Section 2.4, the aggregate purchase price (the “Purchase Price”) payable by Purchaser to Seller for the Assets shall be $41,993,380, which shall be satisfied as follows:

(a)the issuance by Purchaser to Seller of 41,993,380 no par value common shares of Purchaser (the “Issued Shares”) represented by share certificate no. NPV-1 registered in the name of Seller, the receipt of which is hereby acknowledged by Seller; and

(b)all purchase price adjustments pursuant to Section 2.4 shall be satisfied by payment of cash as specified in Section 2.4.

2.4Purchase Price Adjustment

(a)           The Purchase Price shall be adjusted as set forth in this Section 2.4.

(b)           At the Time of Closing, Seller shall provide to Purchaser a complete list of the receivables referred to in Section 2.1(a) (the “Closing Date Receivables List”).  The aggregate amount of the receivables listed in the Closing Date Receivables List is referred to as the “Closing Date Receivables Amount”.

(i)If the Closing Date Receivables Amount is less than $28,086,792 (the “Target Receivables Amount”), the Purchase Price shall be decreased by an amount (the “Purchase Price Receivables Reduction Amount”) equal

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to the difference between the Target Receivables Amount and the Closing Date Receivables Amount, and Seller shall immediately thereafter pay to Purchaser in immediately available funds the Purchase Price Receivables Reduction Amount.

(ii)If the Closing Date Receivables Amount is greater than the Target Receivables Amount, the Purchase Price shall be increased by an amount (the “Purchase Price Receivables Increase Amount”) equal to the difference between the Closing Date Receivables Amount and the Target Receivables Amount, and Purchaser shall immediately after the Closing pay to Seller in immediately available funds the Purchase Price Receivables Increase Amount.

(c)           At the Time of Closing, Seller shall provide to Purchaser a reasonable estimate of the aggregate value of the inventories referred to in Section 2.1(b) (the “Closing Date Inventories Estimate”).

(i)If the Closing Date Inventories Estimate is less than $9,333,265 (the “Target Inventories Amount”), the Purchase Price shall be decreased by an amount (the “Purchase Price Inventories Reduction Amount”) equal to the difference between the Target Inventories Amount and the Closing Date Inventories Estimate, and Seller shall immediately thereafter pay to Purchaser in immediately available funds the Purchase Price Inventories Reduction Amount.

(ii)If the Closing Date Inventories Estimate is greater than the Target Inventories Amount, the Purchase Price shall be increased by an amount (the “Purchase Price Inventories Increase Amount”) equal to the difference between the Closing Date Inventories Estimate and the Target Inventories Amount, and Purchaser shall immediately after the Closing pay to Seller in immediately available funds the Purchase Price Inventories Increase Amount.

(d)           For purposes of Section 2.4(d), if the difference between (x) the sum of the Purchase Price Receivables Reduction Amount and the Purchase Price Inventories Reduction Amount, minus (y) the Purchase Price Receivables Increase Amount and the Purchase Price Inventories Increase Amount is a positive amount, such amount is referred to as the “Seller Closing Payment”; and if the difference is a negative amount, the absolute value thereof shall be referred to as the “Purchaser Closing Payment”.

Not later than 30 calendar days following the Closing Date, Purchaser will prepare and deliver to Seller a calculation of the value of the Assets as of the Closing Date (the “Final Net Working Capital”) in accordance with GAAP applied in a manner consistent with Seller’s historic practices.  The “Target Net Working Capital” is an amount equal to $37,420,057.

(i)If the Final Net Working Capital is less than:

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(A)the Target Net Working Capital minus the Seller Closing Payment, or

(B)the Target Net Working Capital plus the Purchaser Closing Payment,

the Purchase Price shall be decreased by an amount (the “Purchase Price Reduction Amount”) equal to:

(I)in the case of clause (A), (x) the Target Net Working Capital minus (y) the sum of the Final Net Working Capital plus the Seller Closing Payment, or

(II)in the case of clause (B), (x) the Target Net Working Capital minus (y) the difference between the Final Net Working Capital minus the Purchaser Closing Payment,

and Seller shall, on the Final Determination Date, pay to Purchaser in immediately available funds the Purchase Price Reduction Amount.

(ii)If the Final Net Working Capital is more than:

(A)the Target Net Working Capital minus the Seller Closing Payment, or

(B)the Target Net Working Capital plus the Purchaser Closing Payment,

the Purchase Price shall be increased by an amount (the “Purchase Price Increase Amount”) equal to:

(I)in the case of clause (A), (x) the sum of the Final Net Working Capital plus the Seller Closing Payment, minus (y) the Target Net Working Capital, or

(II)in the case of clause (B), (x) the difference between the Final Net Working Capital minus the Purchaser Closing Payment, minus (y) the Target Net Working Capital,

and Purchaser shall, on the Final Determination Date, pay to Seller in immediately available funds the Purchase Price Increase Amount.

(iii)For purposes of this Section 2.4, “Final Determination Date” means the date that is two Business Days after the Final Net Working Capital calculation is delivered unless the calculation is disputed in accordance with Section 2.4(d), in which case the Final Determination Date means within two Business Days of the date that the Final Net Working Capital is finally determined pursuant to Section 2.4(d).

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(e)           Seller shall have a period of five calendar days from the date it receives the Final Net Working Capital calculation in which to review the same.  For the purpose of such review, Purchaser agrees to cause its auditors to permit Seller and its authorized representatives to examine all working papers, schedules and other documentation used or prepared by Seller’s auditors.  If no objection to the Closing Financial Statements is given by Seller to Purchaser within such five-day period, the calculation shall be deemed to have been approved as of the last day of such five-day period.

(i)If Seller objects to the calculation within such five-day period by giving notice to Purchaser setting out in reasonable detail the nature of such objection, the parties agree to attempt to resolve the matters in dispute within 10 days from the date Seller gives such notice to Purchaser.  If all matters in dispute are resolved by the parties, the calculation shall be modified to the extent required to give effect to such resolution and shall be deemed to have been approved as of the date of such resolution.

(ii)If the parties cannot resolve all matters in dispute within such 10-day period, all unresolved matters shall be submitted to the Canadian national office of Ernst & Young (the “Arbitrator”) for resolution, and the Arbitrator shall be given access to all materials and information reasonably requested by it for such purpose.  The rules and procedures to be followed in the arbitration proceedings shall be determined by the Arbitrator in its discretion.  The Arbitrator’s determination of all such matters shall be final and binding on both parties and shall not be subject to appeal by either party.  The fees and expenses of the Arbitrator shall be borne equally by the parties unless the Arbitrator determines that the overall position taken by one of the parties was unreasonable and without material merit, in which case the Arbitrator may require such party to pay all of the costs of the arbitration.  The Final Net Working Capital calculation shall be modified to the extent required to give effect to the Arbitrator’s determination and shall be deemed to have been approved as of the date of such determination.

2.5Allocation of Purchase Price; Taxes

(a)The Purchase Price will be allocated in accordance with Schedule 2.5, which Schedule shall be modified as appropriate to reflect the adjustments to the Purchase Price contemplated in Section 2.4.

(b)Seller and Purchaser, in filing their respective income tax returns, will use the allocations of the Purchase Price as set forth in Schedule 2.5.

(c)Purchaser and Seller shall file all applicable transfer tax forms and declarations in connection with the transactions contemplated hereby.  All Taxes applicable to the Assets for periods beginning before and ending after the Closing Date, and any other charges which are appropriate subjects for proration, shall be prorated on a daily basis as of 12:01 a.m. on the Closing Date between Seller and

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Purchaser; provided, however, that all 2008 property, ad valorem or similar Taxes shall be allocated to Seller for the period (or partial periods) ending on the Closing Date based on a daily proration of the most recent (as of the Closing Date) ascertainable property, ad valorem or similar Taxes to be prorated.  Any amount of 2008 property, ad valorem or similar Taxes not allocated to Seller shall be allocated to Purchaser.  Any refund of 2008 property, ad valorem or similar Taxes (net of costs incurred to recover same) shall be prorated between Seller and Purchaser in the same proportion.

2.6Section 85 Election

Seller and Purchaser shall jointly elect under subsection 85(1) of the Income Tax Act (Canada) (the “ITA”), in prescribed form and within the time provided in subsection 85(6) of the ITA, that Seller’s proceeds of disposition and Purchaser’s cost of each asset transferred be such amounts as are set out in Schedule 2.6, which Schedule shall be modified as appropriate to reflect the adjustments to the Purchase Price contemplated in Section 2.4.

2.7Instruments of Conveyance

In order to effectuate the sale, assignment, transfer and conveyance of the Assets, the Seller has, or has caused its Affiliates to, execute and deliver to Purchaser at the Time of Closing:

(a)one or more bills of sale; and

(b)such other instruments of conveyance and other documents as Purchaser has reasonably deemed necessary or appropriate to vest in, or confirm to, Purchaser title to all of the Assets as contemplated by this Agreement.

ARTICLE 3 – REPRESENTATIONS AND WARRANTIES

3.1Seller’s Representations and Warranties

Seller represents and warrants to Purchaser as follows and acknowledges that Purchaser is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

Seller is an unlimited company duly incorporated, validly existing and in good standing with respect to filing its annual returns under the laws of the Province of Nova Scotia and has all requisite corporate power and capacity to own, lease and operate its assets, properties and business and to carry on its business as currently conducted.

(b)Authority to Execute and Perform Agreement

Seller has all requisite corporate power and capacity to enter into, execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement and the other documents

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and agreements being delivered by Seller hereunder have been duly authorized, executed and delivered by Seller and (assuming the due authorization, execution and delivery of this Agreement and the documents and agreements to be delivered by Seller hereunder by the other parties thereto and the validity and binding effect hereof and thereof on such other parties) are valid and binding obligations of Seller, as applicable, enforceable against Seller in accordance with their terms.

(c)Compliance with Laws

Except as set forth on Schedule 3.1(c), there are no current material violations of any Applicable Law relating to the Assets.

(d)No Breach

The execution, delivery and performance by Seller of this Agreement and the other agreements and documents required to be delivered by Seller under this Agreement, and the consummation by Seller of the transactions contemplated hereby and thereby, will not:

(i)violate or result in the breach of any provision of the constating documents of Seller or any resolution of the board of directors (or any committee thereof) or shareholders of Seller;

(ii)result in the creation or imposition of any lien or other encumbrance upon any of the Assets (other than any liens or encumbrances created by Purchaser); or

(iii)violate any Applicable Law in Canada applicable to Seller or any of the Assets.

(e)Actions and Proceedings

Except as set forth on Schedule 3.1(e):

(i)there are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or other Governmental Authority against Seller or any of its Affiliates in respect of any of the Assets; and

(ii)there are no actions, litigation or suits or legal, administrative or arbitral proceedings pending or, to the knowledge of Seller, threatened against or affecting Seller or any of its Affiliates in respect of any of the Assets at law or in equity or before any federal, provincial, municipal or other Governmental Authority, domestic or foreign, which could reasonably be expected to have a Material Adverse Effect.

(f)Consents and Approvals

The execution and delivery by Seller of this Agreement and the other agreements and documents required to be delivered by Seller under this Agreement, and the performance by

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Seller of its obligations hereunder and thereunder, do not require Seller or its Affiliates to obtain any consent, approval or action of, or make any filing with or give any notice to, any Governmental Authority or any other Person.

(g)Expropriation

No part of the Assets has been taken or expropriated by any Governmental Authority, nor, to Seller’s knowledge, are there any proposals to give any notice of or to commence any proceedings for expropriation or taking.

(h)Title to Assets

As of the Time of Closing, Seller will have title to the Assets free and clear of any lien or other encumbrance other than carriers’, mechanics’, warehousemen’s, suppliers’, repairers’, storers’ or similar possessory liens or encumbrances arising in the ordinary course of business of the Pulp Business.

(i)Taxes

(i)Seller has duly filed on a timely basis all tax returns required to be filed by it and has paid or remitted (in the case of goods and services tax, harmonized sales tax or other sales tax) all Taxes which are due and payable, and all assessments, reassessments, governmental charges, penalties, interest and fines due and payable by it.  Seller has made adequate provision for Taxes payable for the current period and any previous period for which tax returns are not yet required to be filed.  There are no actions, suits, proceedings, investigations or claims pending or, to the knowledge of Seller, threatened against Seller in respect of Taxes, governmental charges or assessments, nor are any material matters under discussion with any Governmental Authority relating to Taxes, governmental charges or assessments asserted by any such authority.  Seller has withheld from each payment made to any of its past or present employees, officers or directors, and to any non-resident of Canada, the amount of all Taxes and other deductions required to be withheld therefrom, and has paid the same to the proper Tax or other receiving officers within the time required under any applicable legislation.

(ii)Seller is not a non-resident of Canada for the purposes of the Tax Act.

(j)Location of Assets

With the exception of inventory in transit, all the tangible assets comprising the Assets are situate at the locations set out in Schedule 3.1(j).

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(k)Inventories

Since December 31, 2007, the inventories comprising part of the Assets have been maintained and accounted for in the ordinary course of business consistent with past practice and GAAP.

(l)Accounts Receivable

All accounts receivable, book debts and other debts due or accruing to Seller in connection with the Pulp Business are, to Seller’s knowledge, bona fide and good and, subject to an allowance for doubtful accounts which have been reflected on the books of Seller in accordance with GAAP, collectible without set-off or counterclaim (excluding any accounts receivable associated with MacTara Limited, the material details of which Seller has provided to Purchaser).

(m)Insurance

Schedule 3.1(m) sets out all insurance policies (specifying the insurer, the amount of the coverage, the type of insurance and the policy number) maintained by Seller on the Assets as of the date hereof.

3.2Survival of Seller’s Representations, Warranties and Covenants

The representations and warranties and, to the extent they have not been fully performed at or prior to the Time of Closing, the covenants of Seller contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant hereto shall survive the Closing for a period of 18 months from and after the Closing Date and, notwithstanding such closing or any investigation made by or on behalf of Purchaser, shall continue in full force and effect for the benefit of Purchaser during such period, except that:

(i)the representations and warranties set out in Section 3.1(h) shall survive and continue in full force and effect without limitation of time;

(ii)the representations and warranties set out in Section 3.1(i) shall survive and continue in full force and effect until 90 days after the expiration of the period, if any, during which an assessment, reassessment or other form of recognized written demand assessing liability for tax, interest or penalties under applicable tax legislation in respect of any taxation year to which such representations and warranties extend could be issued under such tax legislation; and

(iii)a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Time of Closing, subject only to applicable limitation periods imposed by law.

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3.3Purchaser’s Representations and Warranties

Purchaser represents and warrants to Seller as follows and acknowledges that Seller is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

Purchaser is duly incorporated, validly existing and in good standing with respect to filing its annual returns under the laws of the Province of Nova Scotia and has all requisite corporate power and capacity to own, lease and operate its assets, properties and business and to carry on its business as currently conducted.

(b)Authority to Execute and Perform Agreement

Purchaser has all requisite corporate power and capacity to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder.  This Agreement has been duly authorized, executed and delivered by Purchaser and (assuming the due authorization, execution and delivery of this Agreement by Seller and the validity and binding effect hereof on Seller) is the valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms.

(c)No Breach

The execution, delivery and performance by Purchaser of this Agreement and the consummation by Purchaser of the transactions contemplated hereby will not:

(i)violate or result in the breach of any provision of the constating documents of Purchaser;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any material contract to which Purchaser is a party or to which Purchaser or any of its assets or properties may be bound; or

(iii)to Purchaser’s knowledge, violate any statute, law or regulation of any jurisdiction, which violation, individually or in the aggregate, could have a material adverse effect on Purchaser’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(d)Consents and Approvals

The execution and delivery by Purchaser of this Agreement and the performance by Purchaser of its obligations hereunder do not require Purchaser to obtain any consents, approvals, authorizations, licenses, permits or other actions of, or make any filings with, any Governmental Authority or any other Person.

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(e)Actions and Proceedings

There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or other Governmental Authority against Purchaser, and there are no actions, litigation or suits or legal, administrative or arbitral proceedings of any type whatsoever pending, or to the knowledge of Purchaser, threatened, against Purchaser which individually or in the aggregate could reasonably be expected to adversely affect Purchaser’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(f)Issued Shares

The issuance of the Issued Shares has been duly authorized and approved by all requisite corporate, regulatory and other action, and the Issued Shares are validly issued as fully paid common shares of Purchaser.

3.4Survival of Purchaser’s Representations, Warranties and Covenants

The representations, warranties and, to the extent they have not been fully performed at or prior to the Time of Closing, the covenants of Purchaser set forth in this Agreement will survive the Closing for a period of 18 months from and after the Closing Date.

ARTICLE 4 – COVENANTS

The parties hereto covenant and agree as follows:

4.1Governmental Filings

As soon as practicable after the execution of this Agreement, Seller and Purchaser shall cooperate with each other and with their respective Affiliates and shall make any and all filings and submissions to any Governmental Authority which are required to be made in connection with the transactions contemplated hereby.  Seller shall furnish to Purchaser and its Affiliates and Purchaser shall furnish to Seller and its Affiliates such information and assistance as the other parties may reasonably request in connection with the preparation of any such notices, filings or submissions.  Each party hereto agrees to give the other parties hereto prompt written notice of any notification that it receives from any Governmental Authority in connection with the transactions contemplated hereby.

4.2Expenses

The parties to this Agreement shall bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement, including all fees and expenses of agents, representatives, counsel and accountants.  Purchaser shall bear the costs and expenses associated with (a) any sales or use taxes, federal taxes and any other taxes or duties payable by either party as a result of the transactions contemplated hereby (excluding any gains taxes), (b) any recording costs or transfer taxes resulting or arising from the transaction contemplated herein, and (c) any fees, costs, attorneys’ fees or expenses required in connection with filings with Governmental Authorities, in each case relating to the Assets and the transactions contemplated hereby.

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4.3Indemnification for Brokerage Commissions

(a)Seller represents and warrants to Purchaser that there are no brokerage commissions, finder’s fees or similar fees or commissions payable in connection herewith on account of Seller’s actions or the actions of any of its Affiliates.  Seller agrees to indemnify and save Purchaser harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of Seller, Neenah Paper, Inc. or any of their respective Affiliates, and to bear the cost of any legal expenses incurred by Purchaser in defending against any such claim.

(b)Purchaser represents and warrants to Seller that there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection herewith on account of Purchaser’s actions or the actions of its Affiliates.  Purchaser agrees to indemnify and save Seller and its Affiliates harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of Purchaser or any of its Affiliates and to bear the cost of any legal expenses incurred by Seller or any of its Affiliates in defending against any such claim.

4.4Further Assurances

Seller and Purchaser will from time to time execute and deliver all such further documents and instruments and do all acts and things as the other party may, either before or after the Closing Date, reasonably require to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

4.5Use of Seller’s Trade Name

Purchaser shall be entitled to use existing sales literature, inventories, packaging, office supplies, and such other items bearing any of the trade names and trademarks of Seller which are included in the Assets for a period of nine months from and after the Closing Date.  Purchaser agrees to cease using or delete such trade names and trademarks from such items as soon as reasonably practicable after the Closing Date but in any event within such nine-month period.

4.6Money Received After Closing

If, at any time from and after the Closing, Seller receives any payment or other money comprising or relating to the Assets that Seller is not otherwise entitled to hereunder, Seller shall be deemed to be holding such funds in trust for Purchaser and shall promptly upon receipt of such funds deliver the same to Purchaser without deduction, set-off, counterclaim or offset.

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ARTICLE 5 – CLOSING ARRANGEMENTS

5.1Closing

The sale and purchase of the Assets will be completed at the Time of Closing on the Closing Date at:

Stewart McKelvey Stirling Scales

Purdy’s Wharf Tower One

1959 Upper Water Street

Suite 900

Halifax, Nova Scotia B3J 2X2

Canada

ARTICLE 6 – GENERAL

6.1Time of the Essence

Time is of the essence of this Agreement.

6.2Public Announcements

Neither Seller nor Purchaser shall make any publicity release or announcement concerning this Agreement, or make any disclosure with respect to the consideration paid pursuant to this Agreement, or the transactions contemplated hereby without the prior written approval thereof by Purchaser or Seller, as the case may be, except as required by Applicable Law, in which case the party issuing the release or making such disclosure shall so advise the other party in writing in advance of such issuance or disclosure.

6.3Benefit of the Agreement

This Agreement will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and permitted assigns of the parties hereto.

6.4Third Party Beneficiaries

The provisions of this Agreement are solely for the benefit of the parties hereto and their respective Affiliates, successors and permitted assigns and shall not confer upon any third Person any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Agreement.

6.5Entire Agreement

This Agreement (including the Schedules hereto) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto.  There are no representations, warranties, terms, conditions, undertakings or collateral agreements,

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express, implied or statutory, between the parties other than as expressly set forth in this Agreement.

6.6Amendments and Waivers

No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by each of the parties hereto.  No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided, will be limited to the specific breach waived.

6.7Assignment

This Agreement may not be assigned by any party hereto without the written consent of the other parties hereto.

6.8Notices

Any demand, notice or other communication to be given in connection with this Agreement will be given in writing and will be given by personal delivery or by facsimile communication addressed to the recipient as follows:

(i)		to Seller:
		Neenah Paper Company of Canada
		3460 Preston Ridge Road, Suite 600
		Alpharetta, Georgia 30005
		Attention:		Steven S. Heinrichs
				Senior Vice President, General Counsel and Secretary
		Facsimile:		678-518-3283
(ii)		to Purchaser:
		Azure Mountain Capital Financial Corporation
		c/o Blue Wolf Capital Management
		48 Wall Street
		31st Floor
		New York, New York  10005
		Attention:		Josh Wolf-Powers
		Facsimile:		646-349-2280
		and with a copy to:
		Azure Mountain Capital Financial Corporation
		c/o Davies Ward Phillips & Vineberg LLP
		1 First Canadian Place
	100 King Street West
	Suite 4400, Box 63
	Toronto, Ontario  M5X 1B1
	Attention:		Gillian Stacey
	Facsimile:		416-863-0871

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or to such other address, individual or electronic communication number as may be designated by notice given by either party to the other.  Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by facsimile communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the Business Day during which such normal business hours next occur if not given during such hours on any day if receipt of such facsimile communication is confirmed.

6.9Remedies Cumulative

The rights and remedies of the parties hereunder are cumulative and are in addition to, and not in substitution for, any other rights and remedies available at law or in equity or otherwise.  No single or partial exercise by a party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that party may be entitled.

6.10Governing Law

This Agreement is governed by and will be construed in accordance with the laws of the Province of Nova Scotia and the federal laws of Canada applicable therein.

6.11Attornment

For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Nova Scotia and the courts of the Province of Nova Scotia (and all courts competent to hear appeals therefrom) will have exclusive jurisdiction to entertain any action arising under this Agreement.  Seller and Purchaser each hereby attorns to the jurisdiction of the courts of the Province of Nova Scotia and all courts competent to hear appeals therefrom.

6.12Counterparts

This Agreement and any amendment, supplement, restatement or termination of any provision of this Agreement may be executed and delivered in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument.

[The next page is the signature page.]

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IN WITNESS WHEREOF the parties have executed this Agreement.

AS SELLER	NEENAH PAPER COMPANY OF CANADA
	Per:
		Name:Sean Erwin
		Title:President and Chief Executive Officer

AS PURCHASER	AZURE MOUNTAIN CAPITAL FINANCIAL CORPORATION
	Per:
		Name:	Sean Erwin
		Title:	President and Chief Executive Officer

Signature page for Finance Asset Purchase Agreement

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EX-10.4

Exhibit 10.4

ASSET PURCHASE AGREEMENT

AMONG

NEENAH PAPER COMPANY OF CANADA

As Seller

and

NORTHERN PULP NOVA SCOTIA CORPORATION

As Purchaser

MADE AS OF

June 24, 2008

PICTOU PULP MILL AND WOODLANDS OPERATIONS

TABLE OF CONTENTS

Article 1 – INTERPRETATION			1
	1.1	Definitions	1
	1.2	Headings	10
	1.3	Extended Meanings	10
	1.4	Statutory References	10
	1.5	Accounting Principles	10
	1.6	Currency, Prices and Values	10
	1.7	Schedules	10
Article 2 – SALE AND PURCHASE			12
	2.1	Assets to be Sold and Purchased	12
	2.2	Retained Assets	14
	2.3	Liabilities of Seller Assumed by Purchaser	15
	2.4	Retained Liabilities	16
	2.5	Non-Assignable Contracts or Licenses/Shared Contracts	17
	2.6	Purchase Price	19
	2.7	Purchase Price Adjustment	19
	2.8	Allocation of Purchase Price; Taxes	23
	2.9	Section 167 Elections	23
	2.10	Section 85 Elections	23
	2.11	Instruments of Conveyance and Assumption	24
Article 3 – REPRESENTATIONS AND WARRANTIES			24
	3.1	Seller’s Representations and Warranties	24
	3.2	Survival of Seller’s Representations, Warranties and Covenants	40
	3.3	Purchaser’s Representations and Warranties	41
	3.4	Survival of Purchaser’s Representations, Warranties and Covenants	43
Article 4 – COVENANTS			43
	4.1	Governmental Filings	43
	4.2	Expenses	43
	4.3	Indemnification for Brokerage Commissions	43
	4.4	Access to Records	44
	4.5	Affiliation with Seller	44
	4.6	Further Assurances	44
	4.7	Mail and Money Received After Closing	45
	4.8	Delivery of Books and Records	45
	4.9	Use of Seller’s Trade Name	45
Article 5 – EMPLOYMENT AND BENEFIT PLAN ARRANGEMENTS			45
	5.1	Employees	45

	5.2	Pension and Retirement Plans and Benefit Plans	46
Article 6 – CLOSING ARRANGEMENTS			46
	6.1	Closing	46
Article 7 – GENERAL			47
	7.1	Time of the Essence	47
	7.2	Public Announcements	47
	7.3	Benefit of the Agreement	47
	7.4	Third Party Beneficiaries	47
	7.5	Entire Agreement	47
	7.6	Amendments and Waivers	47
	7.7	Assignment	48
	7.8	Notices	48
	7.9	Remedies Cumulative	49
	7.10	Governing Law	49
	7.11	Attornment	49
	7.12	Counterparts	49

ASSET PURCHASE AGREEMENT

THIS AGREEMENT is made as of June       , 2008, between NEENAH PAPER COMPANY OF CANADA, an unlimited company incorporated under the laws of Nova Scotia (“Seller”) and NORTHERN PULP NOVA SCOTIA CORPORATION, an unlimited company incorporated under the laws of Nova Scotia (“Purchaser”).

PRELIMINARY STATEMENT

Seller desires to sell, on a going concern basis, substantially all of the assets and properties owned by Seller, other than the Retained Assets (as defined herein), which are used exclusively by or in connection with (i) the business conducted by Seller at and only with respect to its Pictou County, Nova Scotia pulp mill (the “Pictou Pulp Mill” or the “Pulp Business”) and (ii) the business conducted by Seller in respect of its timberland properties in Nova Scotia (specifically excluding the Woodlands (as defined herein)), including the Debert Nursery (as defined herein) (the “Woodlands Business”, and collectively with the Pulp Business, the “Purchased Businesses”), and Purchaser desires to purchase the Purchased Businesses and assume substantially all of the related liabilities, other than the Retained Liabilities (as defined herein), for the consideration set forth below, subject to the terms and conditions of this Agreement.

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

ARTICLE 1 – INTERPRETATION

1.1Definitions

In this Agreement, unless something in the subject matter or context is inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person, and for these purposes “control” is the power whether by contract or ownership of equity interests or otherwise to select a majority of the board of directors or other supervisory management authority of an Entity, whether directly or indirectly through a chain of Entities that are “controlled” within the foregoing meaning; provided, however, that for purposes of this Agreement, Seller and Purchaser shall be deemed not to be Affiliates of each other;

“Agreement” means this asset purchase agreement including the Preliminary Statement and Schedules to this agreement, as amended, supplemented or restated from time to time;

“Ancillary Agreements” means any written agreement to which Seller is or becomes a party in connection with the execution and delivery by Seller of, and as contemplated in any of, this Agreement, the Finance Purchase Agreement or the Share Purchase Agreement;

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“Applicable Law” means any applicable domestic or foreign, federal, provincial or local law, including any statute or subordinate legislation or treaty and any applicable rule, regulation, ordinance, requirement, order, Permit, judgment, injunction, award or decree or other binding requirement of a Governmental Authority having the force of law;

“Assets” has the meaning set out in Section 2.1;

“Assumed Contracts” has the meaning set forth in Section 2.1(f);

“Assumed Liabilities” has the meaning set forth in Section 2.3;

“Benefit Plans” means all plans, arrangements, agreements, programs, policies, practices or undertakings, whether oral or written, formal or informal, funded or unfunded, insured or uninsured, registered or unregistered, to which Seller is a party or bound or in which the Employees participate or under which Seller has, or will have, any liability or contingent liability or pursuant to which payments are made or benefits are provided, or an entitlement to payments or benefits may arise with respect to any of the Employees, Former Employees, Retired Employees, directors or officers, individuals working on contract with Seller or other individuals providing services to Seller of a kind normally provided by employees (or any spouses, dependants, survivors or beneficiaries of any such Persons), in each case relating to the Purchased Businesses, including the Pension and Retirement Plans but excluding Statutory Plans, Multi-Employer Plans and stock-based compensation plans;

“Boat Harbour Documents” has the meaning set out in Section 2.3(b);

“Business Day” means a day other than a Saturday, Sunday or statutory holiday in New York, New York, Atlanta, Georgia or Halifax, Nova Scotia;

“Capital Projects” means the planned capital expenditures program associated with the annual maintenance down for the Pictou Mill scheduled to occur in April and May 2008, as set forth on Schedule 1.1(f);

“Canso” means Canso Chemicals Limited, a corporation incorporated under the laws of the Province of Nova Scotia;

“Closing” means the closing of the transactions contemplated hereby;

“Closing Date” means the date hereof;

“Collective Agreement” has the meaning set out in Section 3.1(l)(i);

“Contract” means any agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment, whether written or oral;

“Debert Nursery” means the Debert Nursery office, storage buildings, greenhouses and seed orchards located at 381 Plains Road, Debert, Colchester County, Nova Scotia;

“Deeds and Assignments” has the meaning set out in Section 2.11(a)(iv);

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“Distribution Agreement” means the Distribution Agreement dated as of November 30, 2004 between Kimberly-Clark Corporation and NPI;

“Down” means the annual maintenance down at the Pictou Mill scheduled to occur in April and May 2008 as described in Schedule 1.1(g);

“Effluent Treatment System” means all or any portion of any system that transports, mixes, stabilizes, treats (actively or passively), conveys or discharges the effluent from the Pictou Pulp Mill, including (i) the under river pipeline, settling ponds, aerated stabilization basin and Boat Harbour and (ii) all man-made and natural drainage systems and appurtenances that connect or are otherwise related to such systems;

“Employees” means all individuals who immediately prior to the Time of Closing are employed by, or engaged on contract to provide employment services, or sales or other agents or representatives of Seller in connection with the Pulp Business or the Woodlands Business, whether on a regular full-time, part-time, casual or temporary basis (including surge hires) in those operations being sold to Purchaser, including any Inactive Employees, but excluding any employees of Seller in respect of the Terrace Bay, Ontario pulp mill or any other business or operation of Seller who, immediately prior to the Time of Closing, are not employed by Seller in connection with either of the Purchased Businesses;

“Entity” means a Person other than an individual;

“Environmental Law” means any Applicable Law or rule of common law in existence on the date of this Agreement or the Closing Date relating to the environment, the protection of the natural environment, human health or both, including those pertaining to (i) reporting, licensing, permitting, investigating, remediating and cleaning up any Release of Hazardous Substances or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport and handling of Hazardous Substances (provided that only for the purposes of the definition of “Environmental Liabilities” below, “Environmental Law” shall include changes to such Environmental Laws after the Closing Date);

“Environmental Liabilities” means all liabilities, obligations, claims, damages, responsibilities, costs and expenses (including legal costs, engineering, consulting and laboratory fees and expenses, capital expenditures, fines, penalties, financial responsibility for cleanup costs, corrective action, removal, remedial actions and response actions, and any other compliance, corrective, investigative or remedial measures required by any Environmental Law or as a result of any third party claims, judgments or settlements) existing on, or incurred or arising from and after, the Closing Date as a result of or in connection with:

(a)the violation of any Environmental Law resulting from or in connection with the operation, use or ownership of the Assets (A) on or before the Closing Date, by Seller or, to the extent of Seller’s obligations on a several basis under the Distribution Agreement in respect of the Assets, by the predecessor owner thereof, or (B) after the Closing Date, by Purchaser; or

(b)any order, written claim or demand, action, citation, fine or other proceeding by any Governmental Authority or by any non-governmental third party, actual,

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pending or threatened, pursuant to any Environmental Law with respect to or in connection with:

(i)the operation, use or ownership of the Assets (A) on or before the Closing Date by Seller or, to the extent of Seller’s obligations on a several basis under the Distribution Agreement in respect of the Assets, by the predecessor owner thereof, or (B) after the Closing Date, by Purchaser;

(ii)the ownership or operation of the Real Property or the facilities or activities thereon or thereabout (A) on or before the Closing Date by Seller or, to the extent of Seller’s obligations on a several basis under the Distribution Agreement in respect of the Real Property, by the predecessor owner thereof, or (B) after the Closing Date, by Purchaser; or

(iii)the installation, use, operation or closure of, or in any way related to, any Effluent Treatment System, or any part thereof, including any receiving water of the Effluent Treatment System (A) on or before the Closing Date by Seller or, to the extent of Seller’s obligations on a several basis under the Distribution Agreement in respect of the Effluent Treatment System, by the predecessor owner thereof, or (B) after the Closing Date, by Purchaser;

“ETA” has the meaning set out in Section 2.9;

“Excluded Forest Licenses” has the meaning set out in Section 3.1(s)(ii);

“Finance Purchase Agreement” means the asset purchase agreement dated as of the date hereof between Seller and Azure Mountain Capital Financial Corporation;

“Financial Statements” means the Year End Financial Statements and the Interim Financial Statements;

“Forest Licenses” has the meaning set out in Section 3.1(s)(i);

“Former Employees” has the same extended and comprehensive meaning as “Employees” except that it refers to those individuals previously employed or engaged on contract by Seller but not employed or engaged on contract by Seller at the Time of Closing, excluding any former employees of the Terrace Bay, Ontario pulp mill or any other business or operation of Seller;

“GAAP” has the meaning set out in Section 1.5;

“Governmental Authority” means any domestic or foreign, federal, provincial, municipal, local or other governmental, quasi-governmental, legislative, executive, judicial or administrative body or person having jurisdiction in the relevant circumstances, including any governmental ministry, agency, branch, department, commission, board, tribunal, bureau or arbitrator;

“Hazardous Substance” means any substance or material that is prohibited, controlled or regulated by any Governmental Authority pursuant to Environmental Laws including pollutants,

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contaminants, dangerous goods or substances, controlled products, toxic or hazardous substances or materials or hazardous wastes, all as defined in or pursuant to any Environmental Law;

“Inactive Employee” means an Employee who, immediately prior to the Time of Closing, is: (i) receiving WCB disability benefits, (ii) on leave or off work due to disability, whether paid or unpaid, including any such Employee who is receiving weekly indemnity, short-term or long-term disability wage replacement payments, or (iii) on strike, lock-out, lay-off or leave of absence, including pregnancy and parental leave;

“Instruments of Assumption” has the meaning set out in Section 2.11(b)(ii);

“Intellectual Property” means trade or brand names, business names, trade-marks (including logos), trade-mark registrations and applications, service marks, service mark registrations and applications, copyrights, copyright registrations and applications, issued patents and pending applications and other patent rights, industrial design registrations, pending applications and other industrial design rights, trade secrets, proprietary information and know-how, equipment and parts lists and descriptions, instruction manuals, inventions, inventors’ notes, research data, blue prints, drawings and designs, formulae, processes, technology and other intellectual property, together with all rights under licences, registered user agreements, technology transfer agreements and other agreements or instruments relating to any of the foregoing, in each case relating to either of the Purchased Businesses and not comprising a Retained Asset as of the Closing Date or the date hereof and expressly excludes “Neenah Paper Company of Canada”, “NPCC”, “Neenah Paper”, “NP”, “NPI” and any variations thereof;

“Interim Financial Statements” means the financial statements of the Purchased Businesses as of and for the periods ended January 31, 2008, February 29, 2008 and March 31, 2008 presented in accordance with GAAP with the exception of the exclusion of the statement of cash flows, the statement of equity and the notes thereto and the exclusion from the income statement of pulp and currency hedging, miscellaneous transaction charges and corporate overhead allocations, a copy of which is annexed hereto as Schedule 1.1(a);

“Inventory” has the meaning set out in Section 2.1(d)(i);

“Issued Shares” has the meaning set out in Section 2.6(b);

“ITA” has the meaning set out in Section 2.10;

“K-C Global” means Kimberly-Clark Global Sales, Inc. and its successors and assigns;

“knowledge”, with respect to Seller, means the actual knowledge, after due enquiry, of any of the Persons listed on Schedule 1.1(b);

“Landlord Real Property Leases” has the meaning set out in Section 3.1(i)(ii);

“Leased Real Property” means the land, buildings and other improvements covered by the Tenant Real Property Leases;

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“lien or other encumbrance” or “Encumbrance” means any lien, pledge, hypothec, mortgage, security interest of any nature, adverse claim, reservation, easement, title retention agreement, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever, or any Contract to create any of the foregoing;

“Losses” means all fines, losses, liabilities, damages, deficiencies, costs or expenses (including interest, legal fees and disbursements of legal counsel) arising directly or indirectly as a consequence of such matter;

“Material Adverse Change” and “Material Adverse Effect” mean any event, change or effect that, when taken individually or together with all other adverse effects, will or is reasonably likely to have a materially adverse effect on the business, affairs, capitalization, assets, liabilities, results of operations, condition (financial or otherwise) or prospects of the Pulp Business or the Woodlands Business, in each case taken as a whole; provided, however, that effects or changes relating to:

(a)changes in general political and economic conditions and changes affecting generally the industries and markets in which the Pulp Business or the Woodlands Business is conducted that, in any of the foregoing cases, do not affect the Pulp Business or the Woodlands Business, in each case taken as a whole, in a disproportionate manner relative to other participants in the same industry as the Pulp Business or the Woodlands Business;

(b)the effect of any changes in applicable laws, regulations or accounting rules; and

(c)the fact of the pendency of the transactions contemplated by this Agreement and the identity of Purchaser;

are not Material Adverse Changes or Material Adverse Effects and are not to be taken into account in determining whether a Material Adverse Change or a Material Adverse Effect has occurred;

“Mill Accounts Receivables” means the trade receivables of the Pulp Business as reflected in Seller’s general ledger accounts numbers 000-0321 and 000-0321-100;

“Mill Inventories” means the hardwood pulp inventory and the softwood pulp inventory of the Pulp Business as reflected in Seller’s general ledger accounts numbers 000-0631 and 000-0633, respectively;

“MOU” has the meaning set out in Section 2.3(b);

“Multi-Employer Plans” means plans, arrangements, agreements, programs, policies, practices or undertakings whether funded or unfunded, insured or uninsured, registered or unregistered, to which Seller is a party or bound or in which the Employees participate or under which Seller has, or will have, any liability or contingent liability, or pursuant to which payments are made, or benefits are provided to, or an entitlement to payments or benefits may arise with respect to any of its Employees, Former Employees or Retired Employees (or any spouses, dependants,

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survivors or beneficiaries of any such Persons) and to which Seller is required to contribute and which are not maintained or administered by Seller or any of its Affiliates;

“Non-Assigned Contract” has the meaning set out in Section 2.5(b);

“Nova Scotia Forest Acts” means the Crown Lands Act (Nova Scotia), the Forests Act (Nova Scotia) and the Scott Maritimes Limited Agreement (1965) Act (Nova Scotia) in effect on the date hereof and all amendments and supplements thereto and all regulations and rules made pursuant thereto and all policy statements, guidelines, orders and decisions relating thereto;

“NPI” means Neenah Paper, Inc., a corporation incorporated under the laws of Delaware;

“OPEBs” means every benefit plan, program, agreement or arrangement maintained or contributed to or provided by Seller for the benefit of any Retired Employee or their respective dependents or beneficiaries other than Pension Plans or the SERP;

“Owned Real Property” has the meaning set out in Section 3.1(h)(i);

“Pension and Retirement Plans” means, collectively, the Pension Plans, the OPEBs and the SERP;

“Pension Plans” means the Neenah Paper Canada Nova Scotia Hourly Pension Plan and the Neenah Paper Canada Nova Scotia Salaried Pension Plan;

“Permits” means all permits, consents, waivers, licences, certificates, approvals, authorizations, registrations, franchises, rights, privileges and exemptions or any item with a similar effect as the foregoing issued or granted by any Governmental Authority, other than the Forest Licenses;

“Permitted Encumbrances” means:

(a)the reservations in any original grants from the Crown of any Real Property or interest therein which do not materially detract from the value of the Real Property concerned or materially impair its use in the operation of the Purchased Businesses;

(b)undetermined or inchoate liens, charges and privileges incidental to current construction or current operations and statutory liens, charges, adverse claims, security interests or encumbrances of any nature whatsoever claimed or held by any Governmental Authority which have not at the time been filed or registered against the title to an Asset or served upon Seller pursuant to law or which relate to obligations not due or delinquent;

(c)liens for taxes, assessments and governmental charges that are due but are being contested in good faith and diligently by appropriate proceedings and for the payment of which adequate provision has been made in the Interim Financial Statements;

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(d)servitudes, easements, restrictions, rights-of-way and other similar rights in the Real Property or any interest therein, provided the same are not of such nature as to materially adversely affect the use or value of the property subject thereto;

(e)security given in the ordinary course of the Purchased Businesses to any public utility, municipality or Governmental Authority or to any statutory or public authority in connection with the operations of the Purchased Businesses, other than security for borrowed money;

(f)carriers’, mechanics’, warehousemen’s, suppliers’, repairers’, storers’ or similar possessory liens or encumbrances arising in the ordinary course of business of the Purchased Businesses in respect of Assumed Liabilities; and

(g)the Encumbrances described in Schedule 1.1(c);

“Person” means any individual, corporation, company, unlimited company, limited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or other legal or business entity however designated or constituted;

“Pictou Pulp Mill” has the meaning set out in the Preliminary Statement;

“PLFN” means the Pictou Landing First Nation;

“Project Wahoo Data Site” means the online data site for Project Wahoo hosted by Merrill Corporation’s DataSite that contains due diligence materials made available by Seller relating to the Pulp Business;

“Pulp Business” has the meaning set out in the Preliminary Statement;

“Purchase Price” has the meaning set out in Section 2.6;

“Purchased Businesses” has the meaning set out in the Preliminary Statement;

“Purchaser” has the meaning set out on Page 1;

“Purchaser Required Consents” means the consents and approvals listed in Schedule 1.1(d);

“Real Property” means collectively the Owned Real Property and the Leased Real Property;

“Real Property Leases” means the Tenant Real Property Leases and the Landlord Real Property Leases;

“Release” means any release or discharge of any Hazardous Substance into the environment including any discharge, spray injection, inoculation, abandonment, deposit, spillage, leakage, seepage, pouring, emission, emptying, throwing, dumping, placing, exhausting, escape, leach, migration, dispersal, dispensing or disposal;

“Retained Assets” has the meaning set out in Section 2.2;

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“Retained Liabilities” has the meaning set out in Section 2.4;

“Retained Litigation” has the meaning set out in Section 2.2(i);

“Retired Employee” means any Employee who retires at (or who was retired before) the Time of Closing or who has by that time confirmed to Seller, orally or in writing, that he or she intends to retire;

“Seller” has the meaning set out on Page 1;

“SERP” means the Supplemental Retirement Benefit Plan for Neenah Paper Company of Canada, as applicable to the Employees or Retired Employees;

“Share Purchase Agreement” means the amended and restated share purchase agreement dated the date hereof between, among others, Seller, Northern Pulp NS LP and Azure Mountain Capital Financial LP;

“Shared Contract” has the meaning set out in Section 2.5(c);

“Statutory Plans” means statutory benefit plans that Seller is required to participate in or comply with, including the Canada and Québec Pension Plans and plans administered pursuant to applicable health tax, workers’ compensation insurance and employment insurance legislation;

“Taxes” means any federal, provincial, local or foreign, income, capital, branch, goods and services, value added, harmonized sales, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Authority; provided, however, that in no event shall Taxes be deemed to include any transfer tax or capital gains tax payable in connection with the purchase and sale of the Assets;

“Tenant Real Property Leases” has the meaning set out in Section 3.1(i)(i);

“Time of Closing” means 10:00 a.m. in Nova Scotia on the Closing Date, with an effective Time of Closing for accounting purposes of 12:01 a.m. in Nova Scotia on the Closing Date;

“WCB” means the Workers Compensation Board (Nova Scotia);

“Woodlands” has the meaning set out in Section 2.2(g);

“Woodlands Business” has the meaning set out in the Preliminary Statement;

“Working Capital” means the current working capital assets of Seller relating to the Purchased Businesses other than the Mill Accounts Receivables, the Mill Inventories and cash and cash equivalents; and

“Year End Financial Statements” means the financial statements of the Purchased Businesses as of and for the years ended December 31, 2005, 2006 and 2007 presented in accordance with

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GAAP with the exception of the exclusion of the statement of cash flows, the statement of equity and notes thereto and the exclusion from the income statement of pulp and currency hedging, miscellaneous transaction charges and corporate overhead allocations, a copy of which is annexed hereto as Schedule 1.1(e).

1.2Headings

The division of this Agreement into articles and sections and the insertion of a table of contents and headings are for convenience of reference only and are not to affect the construction or interpretation of this Agreement.  The terms “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof.  Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement.

1.3Extended Meanings

In this Agreement words importing the singular number only include the plural and vice versa and words importing any gender include all genders.  Unless something in the subject matter or context is inconsistent therewith, the term “including” means “including without limiting the generality of the foregoing”.

1.4Statutory References

Unless something in the subject matter or context is inconsistent therewith and except with respect to Environmental Laws, each reference to any statute refers to that statute and to the regulations made under that statute, as now enacted or as the same may from time to time be amended, re-enacted or replaced.

1.5Accounting Principles

Wherever in this Agreement reference is made to a calculation to be made or an action to be taken in accordance with generally accepted accounting principles, such reference will be deemed to be to the generally accepted accounting principles in the United States from time to time (“GAAP”), applicable as at the date on which such calculation or action is made or taken or required to be made or taken.

1.6Currency, Prices and Values

All references to currency, prices and values (monetary, accounting, financial or otherwise) herein are to lawful currency of Canada unless otherwise specified.

1.7Schedules

(a)The following Schedules are attached to and form part of this Agreement*:

Schedule		Contents
Schedule 1.1(a)	-	Interim Financial Statements
Schedule 1.1(b)	-	Knowledge of Certain Persons

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Schedule		Contents
Schedule 1.1(c)	-	List of Permitted Encumbrances
Schedule 1.1(d)	-	List of Purchaser Required Consents
Schedule 1.1(e)	-	Year End Financial Statements
Schedule 1.1(f)	-	List of Capital Projects
Schedule 1.1(g)	-	Description of Annual Maintenance Down
Schedule 2.1(d)(ii)	-	Part A: List of Machinery, Equipment and Furniture;
		Part B: List of Owned and Leased Vehicles
Schedule 2.1(f)	-	List of Assumed Contracts
Schedule 2.1(k)	-	List of Permits and Certificates of Approval
Schedule 2.1(m)	-	List of Trademarks, Patents, Industrial Designs,
		Licenses and Agreements
Schedule 2.2(d)	-	List of Retained Contracts
Schedule 2.2(g)	-	Woodlands Parcel Identification Numbers
Schedule 2.2(i)	-	Retained Litigation
Schedule 2.3(b)	-	List of Boat Harbour Documents
Schedule 2.4(b)	-	List of Retained Liabilities in respect of Employees,
		Former Employees and Retired Employees
Schedule 2.5(b)	-	List of Non-Assigned Contracts
Schedule 2.8	-	Allocation of Purchase Price
Schedule 2.10	-	Section 85(1) Tax Election Amounts
Schedule 3.1(c)	-	Ordinary Course; No Material Adverse Change
Schedule 3.1(d)	-	Compliance with Laws; Permits
Schedule 3.1(d)(iii)	-	List of Material Permits
Schedule 3.1(f)	-	Actions and Proceedings
Schedule 3.1(g)	-	List of Consents, Approvals, Actions, Filings and Notices
Schedule 3.1(h)(i)	-	Legal Description of Owned Real Property
Schedule 3.1(i)(i)	-	List of Tenant Real Property Leases
Schedule 3.1(i)(ii)	-	List of Landlord Real Property Leases
Schedule 3.1(i)(iii)	-	Compliance with Real Property Leases
Schedule 3.1(l)	-	List of Collective Agreements
Schedule 3.1(l)(v)	-	List of Employment Contracts ($100,000 or more)
Schedule 3.1(l)(vii)	-	Changes in Workers Compensation Rating Assessment
Schedule 3.1(m)(i)	-	List of Benefit Plans
Schedule 3.1(m)(ii)	-	List of Actions and Claims under Benefit Plans
Schedule 3.1(m)(v)	-	Pension Plan Wind-up Amounts (Distribution of Assets Pending)
Schedule 3.1(m)(ix)	-	List of OPEBs under Benefit Plans
Schedule 3.1(m)(xiii)	-	List of Amendments and Proposed Amendments to Benefit Plans
Schedule 3.1(o)	-	Location of Assets
Schedule 3.1(p)	-	Operations - Exceptions
Schedule 3.1(q)	-	Contracts - Exceptions
Schedule 3.1(s)(i)	-	List of Forest Licenses
Schedule 3.1(s)(ii)	-	List of Excluded Forest Licenses

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Schedule		Contents
Schedule 3.1(u)	-	Insurance Policies
Schedule 3.1(v)	-	Other Boat Harbour and Effluent Treatment System Documents
Schedule 3.1(aa)(i)	-	Changes in Customer Relationships
Schedule 3.1(bb)(i)	-	Compliance with Environmental Laws
Schedule 3.1(bb)(ii)	-	List of Environmental Permits
Schedule 3.1(bb)(iv)	-	Hazardous Substances
Schedule 3.1(bb)(v)	-	Written Notices of Non-Compliance with Environmental Laws

* The schedules listed above have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon supplemental request.

(b)Any matter disclosed on any of the Schedules hereto shall be deemed to be disclosed on each other Schedule hereto relating to such matters.

ARTICLE 2 – SALE AND PURCHASE

2.1Assets to be Sold and Purchased

Seller hereby sells, assigns, transfers, conveys and delivers to Purchaser, as of the Time of Closing, all of the properties, assets and other claims, rights and interests of Seller and its Affiliates relating to the Purchased Businesses, other than the Retained Assets, including:

(a)all of the property and assets owned or used by Seller in connection with or otherwise relating to the Purchased Businesses on the Closing Date, whether real or personal, tangible or intangible, of every kind and description wheresoever situate, as a going concern (subject to transactions and adjustments in the ordinary course of business, consistent with past practice, from the date of this Agreement to the Closing Date);

(b)all of the Owned Real Property;

(c)the shares of Canso owned by Seller;

(d)all of Seller’s tangible personal property relating primarily to the Purchased Businesses on the Closing Date, including:

(i)inventories of the Purchased Businesses consisting of raw materials, work-in-process, chemicals, maintenance and finishing supplies, packaging materials, stores, spare parts and similar items of inventory and, in respect

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of the Woodlands Business (but not the Pulp Business), the other current working capital assets of Seller relating thereto (including finished goods inventories and all accounts receivable, book debts and other debts due or accruing due to Seller in connection with the Woodlands Business) (collectively, the “Inventory”); and

(ii)machinery, equipment, furniture, fixtures, furnishings, parts, tooling molds, dies, jigs or patterns and other fixed assets, including the machinery, equipment and furniture described in Part A of Schedule 2.1(d)(ii) and all trucks, cars and other vehicles (whether owned or leased) described in Part B of Schedule 2.1(d)(ii);

(e)the Working Capital;

(f)subject to Section 2.5, all of Seller’s rights, title and interest under all agreements, Contracts or commitments to which Seller is entitled in connection with the Purchased Businesses, including all unfilled purchase orders received by, and all forward commitments for supplies or materials made to, Seller in the usual and ordinary course of business for the Purchased Businesses, all consultant Contracts or commitments relating to the Collective Agreement, and the Benefit Plans (but excluding any stock-based compensation plans), in each case whether written or oral (collectively, the “Assumed Contracts”), including those described in Schedule 2.1(f);

(g)all books and records (other than accounting, tax or similar records required for Seller’s tax audit purposes, copies of which will be provided to Purchaser) of Seller relating primarily to the Purchased Businesses, including all files, documents, sales and other records, customer and supplier lists, price lists, advertising materials, manufacturing data, production records, inventory records, computer files and programs, operating data, environmental studies and plans (including such studies and plans relating to the Pictou Pulp Mill, the Effluent Treatment System and Boat Harbour), maintenance records, personnel records, WCB files and all other employee or employment records, specifically including those relevant to the administration or wind-up of the Pension and Retirement Plans or Benefit Plans, insurance records, forest management planning records and associated computer records, and operational manuals (subject to the right of Seller to make copies of such books and records to the extent they relate to any business of Seller not being acquired by Purchaser hereunder or which Seller requires for purposes of complying with Applicable Law and to have future reasonable access to said books and records to the extent reasonably necessary);

(h)all rights of Seller under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors in connection with the Assets;

(i)subject to Section 2.5, all of Seller’s right, title and interest under the Real Property Leases;

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(j)subject to Section 2.5, all of Seller’s right, title and interest under the Forest Licenses, other than the Excluded Forest Licenses;

(k)subject to Section 2.5, all Permits and certificates of approval relating to the Purchased Businesses listed in Schedule 2.1(k);

(l)the goodwill of the Purchased Businesses, including the right of Purchaser to represent itself as carrying on the Purchased Businesses in continuation of and in succession to Seller, but excluding any right to use the name “Neenah Paper”, “Neenah Paper Company of Canada”, “NP” and “NPCC” and any variants thereof except as contemplated in Section 4.9 or as otherwise agreed to by the parties in writing; and

(m)the trademarks, patents and patent licence agreements described in Schedule 2.1(m) and any trade secrets, know-how or other Intellectual Property used primarily in the Purchased Businesses, but excluding any right to use the name “Neenah Paper”, “Neenah Paper Company of Canada”, “NP” and “NPCC” and any variants thereof except as contemplated in Section 4.9 or as otherwise agreed to by the parties in writing.

All of the foregoing assets and properties being sold, assigned, transferred, conveyed and delivered to Purchaser hereunder (other than the Retained Assets) are hereinafter referred to as the “Assets”.

2.2Retained Assets

Anything in Section 2.1 to the contrary notwithstanding, there shall be excluded from the Assets being sold, assigned, transferred and conveyed to Purchaser hereunder and not included within the meaning of the term “Assets” (such excluded assets being referred to as the “Retained Assets”):

(a)all rights of Seller under this Agreement, the Finance Purchase Agreement, the Share Purchase Agreement and the Ancillary Agreements;

(b)all rights of Seller to refunds, rebates or credits of any Taxes relating to the Purchased Businesses for all periods (or partial periods) ending on or prior to the Closing Date, all refunds or returns of any overpayment or erroneous payment of Taxes by Seller prior to the Closing Date and all prepayments of Taxes by Seller for any period, whether ending prior to, on or after the Closing Date;

(c)any insurance policies in respect of the Assets and prepayments in respect thereof, and all rights to refunds, rebates or credits under such policies;

(d)the Contracts listed in Schedule 2.2(d) and all rights of Seller thereunder;

(e)all minute books and stock ledgers of Seller;

(f)all indebtedness to Seller of any Affiliate of Seller;

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(g)Seller’s right, title and interest in the timberlands owned by Seller in Nova Scotia, including those that have the parcel identification numbers and descriptions set out on Schedule 2.2(g) (the “Woodlands”);

(h)the Mill Accounts Receivables, the Mill Inventories and cash and cash equivalents of the Purchased Businesses;

(i)proceeds of any litigation in respect of the Pictou Pulp Mill or the functioning, use or condition of the Assets prior to the Closing Date described in Schedule 2.2(i) (the “Retained Litigation”); and

(j)except for the shares of Canso, the shares in the capital of or other equity or proprietary interests in any Person.

2.3Liabilities of Seller Assumed by Purchaser

Purchaser hereby assumes, as of the Time of Closing, and agrees to hereafter perform or satisfy all liabilities and other obligations of Seller arising in respect of the operations of the Purchased Businesses or from the functioning, use and condition of the Assets before, on or after the Closing Date, other than those which constitute Retained Liabilities under this Agreement, including:

(a)all liabilities and obligations of Seller under the Assumed Contracts, the Real Property Leases, the Permitted Encumbrances, the transferable Permits and the Forest Licenses, other than the Excluded Forest Licenses;

(b)all Environmental Liabilities of Seller, including those arising under the Memorandum of Understanding dated September 27, 2001, between the PLFN and Kimberly-Clark Inc., as amended and assigned to Seller (the “MOU”), the Lease Agreement, the License Agreement, the Indemnity Agreement and the Water Supply Agreement in connection with the Memorandum of Understanding dated December 1, 1995 between Her Majesty The Queen in Right of the Province of Nova Scotia and Scott Maritimes Limited (predecessor-in-interest of Seller), and the other material letters and agreements relating to any of the foregoing documents listed in Schedule 2.3(b) (collectively, the “Boat Harbour Documents”);

(c)any liability or obligation with respect to Taxes applicable to the Assets for any period (or partial period) beginning at or after the Closing Date;

(d)the employment and Benefit Plan obligations and liabilities for the Employees of Seller and the Pension and Retirement Plans related obligations and liabilities of the Retired Employees and the Former Employees of Seller as set out in Sections 5.1 and 5.2(b); and

(e)any and all obligations and liabilities of Seller, NPI and their Affiliates arising from and after the Time of Closing under that certain Amended and Restated Pulp

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Supply Agreement dated as of November 30, 2004 by and between NPI and K-C Global.

All of the foregoing liabilities and obligations of Seller being assumed by Purchaser hereunder are hereinafter referred to as the “Assumed Liabilities”.

2.4Retained Liabilities

Notwithstanding anything to the contrary contained herein, Purchaser shall not hereby assume, or in any way be liable or responsible for, and Seller shall perform or satisfy:

(a)any liability or obligation with respect to Taxes applicable to the Assets or the Purchased Businesses for any period (or partial period) ending prior to the Closing Date, whether or not due and payable prior to or after such time;

(b)all liabilities and obligations of Seller to pay any amount to any Employee, Former Employee, Retired Employee or any other Person in connection with the sale of the Terrace Bay, Ontario pulp mill business or the sale or proposed sale of the Woodlands as described in Schedule 2.4(b);

(c)the liabilities referred to in Section 5.2(a) as Retained Liabilities;

(d)any liability or obligation of Seller under the MOU to transfer any real property to or for the benefit of the PLFN;

(e)any liability or obligation of Seller for any amounts or costs paid or payable, including any Benefit Plan costs resulting from an order of a Governmental Authority, as a result of the termination of an employee of either of the Purchased Businesses by Seller during the period beginning on or after the date of the Share Purchase Agreement and ending immediately prior to the Closing;

(f)all liabilities and obligations relating to the Retained Litigation; and

(g)any liability or obligation of Seller:

(i)based upon or arising under this Agreement, the Finance Purchase Agreement, the Share Purchase Agreement or the Ancillary Agreements;

(ii)relating to or arising under or in respect of the Retained Assets, Seller’s operations and businesses (including its Terrace Bay, Ontario pulp mill business) not comprising part of the Purchased Businesses; and

(iii)with respect to any lien or other encumbrance in respect of any of the Assets other than Permitted Encumbrances.

All of the foregoing liabilities and obligations of Seller not being assumed by Purchaser hereunder are hereinafter sometimes collectively referred to as the “Retained Liabilities”.

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2.5Non-Assignable Contracts or Licenses/Shared Contracts

(a)To the extent that:

(i)assignment hereunder by Seller to Purchaser of any Real Property Lease, Assumed Contract, Permit or Forest License (but only to the extent such Forest License is not issued by or entered into with a Governmental Authority whose consent to assignment is required by Applicable Law) or

(ii)transfer hereunder of books and records,

is not permitted or is not permitted without the consent of a third party, this Agreement shall not be deemed to constitute an undertaking to assign or transfer the same, as applicable, if such consent has not been given, is not hereafter given or if such an undertaking otherwise would constitute a breach of or cause a loss of benefits thereunder.  From and after the Closing, Seller shall use all commercially reasonable efforts (other than the payment of money or the deposit of funds by Seller on behalf of Purchaser) to obtain any and all such third party consents, and Purchaser shall reasonably cooperate with Seller in such efforts.

(b)To the extent that Seller has been unable to obtain any required third party consent in respect of a Real Property Lease, Assumed Contract, Permit or Forest License (but only to the extent such Forest License is not issued by or entered into with a Governmental Authority whose consent to assignment is required by Applicable Law) as contemplated by Section 2.5(a) (each such Real Property Lease, Assumed Contract, Permit or Forest License is referred to as a “Non-Assigned Contract”), Seller shall continue to be bound by any such Non-Assigned Contract.  In such event, to the maximum extent permitted by Applicable Law and the terms of the Non-Assigned Contract, from and after the Closing:

(i)Seller shall make the benefit of such Non-Assigned Contract available to Purchaser with the intent that Purchaser will be in the same economic position as if such Non-Assigned Contract had been transferred to it, including holding any such Non-Assigned Contract in trust for Purchaser or acting as agent for Purchaser or entering into back to back arrangements with Purchaser in respect of such Non-Assigned Contract; and

(ii)the assignment provisions contemplated in this Agreement shall operate to the extent permitted by Applicable Law and the applicable Non-Assigned Contract to create a subcontract, sublease or sublicense with Purchaser whereby Purchaser will perform each relevant Non-Assigned Contract and be entitled to receive all related benefits, in accordance with its terms.  To the extent such subcontract, sublease or sublicense is created:

(A)Purchaser shall pay, perform and discharge fully all obligations of Seller under any such Non-Assigned Contract from and after the Closing Date and shall indemnify Seller against any Losses

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incurred by Seller arising from Purchaser’s failure to pay, perform and discharge fully such obligations;

(B)Seller shall, without further consideration therefor, pay and remit to Purchaser promptly any monies, rights and other consideration received by it in respect of the performance of such Non-Assigned Contract; and

(C)Seller shall exercise or exploit its rights and options under all such Non-Assigned Contracts only as directed by Purchaser and at Purchaser’s expense and shall indemnify Purchaser against any Losses incurred by Purchaser arising from Seller’s failure to act in accordance with such directions.

(c)With respect to liabilities pursuant to, arising under or relating to any Contract which is not intended to be assigned to Purchaser but under which Purchaser receives a benefit (a “Shared Contract”), such liabilities shall be allocated between Seller, on the one hand, and Purchaser on the other hand, as follows:

(i)first, if a liability cannot be so allocated in respect of a benefit received by one party, the party receiving such benefit shall be responsible for such liability; and

(ii)second, if a liability cannot be so allocated under Section 2.5(c)(i), such liability shall be allocated between the parties based on the relative proportions of total benefit received (over the term of the Shared Contract, measured as of the date of the allocation) under the relevant Shared Contract.  Notwithstanding the foregoing, each party shall be responsible for any and all liabilities arising out of or resulting from its breach of the relevant Shared Contract.

If Seller, on the one hand, or Purchaser, on the other hand, receives any benefit or payment under any Shared Contract that was intended for the other party, the party receiving such benefit or payment will use commercially reasonable efforts to promptly deliver, transfer or otherwise afford such benefit or payment to the other party.

(d)Seller shall not amend, modify or terminate any Non-Assigned Contract without Purchaser’s prior written consent.  If and when any third party consent contemplated by Section 2.5(a) shall be obtained or any such Non-Assigned Contract shall otherwise become assignable, Seller shall promptly assign all of its rights and obligations thereunder or in connection therewith to Purchaser without payment of further consideration therefor, and Purchaser shall assume such rights and obligations.

(e)To the extent any Permit or Forest License is not assignable, either by its terms or as a matter of law, Purchaser shall prepare and submit, and Seller shall use all reasonable efforts to cooperate with and assist Purchaser in preparing and

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submitting, any information, applications or filings required in connection with the reissuance to Purchaser of any such Permit.

(f)The provisions of this Section 2.5 shall apply to Affiliates of Seller in the same manner as to Seller.

2.6Purchase Price

Subject to the adjustments contemplated in Sections 2.7 and 2.8, the aggregate purchase price (the “Purchase Price”) payable by Purchaser to Seller for the Assets shall be $75,894,503, which shall be satisfied as follows:

(a)Purchaser hereby assumes the Assumed Liabilities in accordance with Section 2.3;

(b)the issuance by Purchaser to Seller of 57,474,073 no par value common shares of Purchaser (the “Issued Shares”) represented by share certificate no. 3 registered in the name of Seller, the receipt of which is hereby acknowledged by Seller; and

(c)all purchase price adjustments pursuant to Section 2.7 shall be satisfied by the payment of cash as specified in Section 2.7.

2.7Purchase Price Adjustment

(a)

(i)The Purchase Price shall be adjusted as set forth in this Section 2.7, provided that if the difference between the Net Working Capital Deficiency and the Final Net Working Capital is equal to or less than $250,000, no adjustment will be made, and adjustments will only be made in respect of the amount of the difference that is greater than $250,000.

(ii)For purposes of this Section 2.7:

(A)net working capital (“Net Working Capital”) shall be the difference between (x) the value of the Working Capital purchased pursuant to Section 2.1(e), and (y) the aggregate value of the Assumed Liabilities which are current liabilities for balance sheet purposes excluding liabilities that are Down Costs;

(B)“Down Non-Capital Costs” are costs of the Down (exclusive of the costs of the Capital Projects) incurred prior to the Closing Date;

(C)the Down Non-Capital Costs that have been paid by Seller prior to the Closing Date are “Paid Down Non-Capital Costs”;

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(D)the costs of the Capital Projects incurred prior to the Closing Date are “Down Capital Costs”;

(E)the Down Capital Costs that have been paid by Seller prior to the Closing Date are “Paid Down Capital Costs”; and

(F)the sum of Down Capital Costs and Down Non-Capital Costs is “Down Costs”.

(b)Immediately following the Closing, Seller shall provide to Purchaser the following estimates, each of which will have been made no earlier than three Business Days prior to the Closing Date, and each of which shall represent Seller’s reasonable and good faith estimate as at the time the estimate is made:

(i)an estimate of the Down Non-Capital Costs (the “Down Non-Capital Costs Estimate”), which costs are estimated for this paragraph to be $8,846,092, and an estimate of the Paid Down Non-Capital Costs (the “Paid Down Non-Capital Costs Estimate”);

(ii)an estimate of the Down Capital Costs (the “Down Capital Costs Estimate”) and an estimate of the Paid Down Capital Costs (the “Paid Down Capital Costs Estimate”); and

(iii)an estimate of the Net Working Capital (the “Estimated Working Capital”).

(c)The Purchase Price shall be adjusted by the amount that is equal to (x) the product of the Down Non-Capital Costs Estimate multiplied by 50% minus (y) the Paid Down Non-Capital Costs Estimate, and:

(i)if the result is a positive number (the “Purchase Price Down Non-Capital Costs Reduction Amount”), Seller shall on the Closing Date remit to Purchaser the Purchase Price Down Non-Capital Costs Reduction Amount in immediately available funds; and

(ii)if the result is a negative number (the “Purchase Price Down Non-Capital Costs Increase Amount”), Purchaser shall on the Closing Date remit to Seller the Purchase Price Down Non-Capital Costs Increase Amount in immediately available funds.

(d)The Purchase Price shall be increased by the amount of the Paid Down Capital Costs Estimate, and Purchaser shall on the Closing Date pay to Seller in immediately available funds the amount of the Paid Down Capital Costs Estimate.

(e)

(i)If the Estimated Working Capital is a working capital deficiency that is greater than $(1,894,000) (the “Net Working Capital Deficiency”), the

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Purchase Price shall be decreased by an amount (the “Purchase Price Net Working Capital Reduction Amount”) equal to (x) the Estimated Working Capital minus (y) the Net Working Capital Deficiency, and Seller shall pay the Purchase Price Net Working Capital Reduction Amount to Purchaser in immediately available funds on the Closing Date.

(ii)If the Estimated Working Capital is not a deficiency or is a deficiency that is smaller than the Net Working Capital Deficiency, the Purchase Price shall be increased by an amount (the “Purchase Price Net Working Capital Increase Amount”) equal to (x) the Estimated Working Capital minus (y) the Net Working Capital Deficiency, and Purchaser shall issue to Seller a non-interest bearing promissory note in the amount of the Purchase Price Net Working Capital Increase Amount, which note shall be payable in immediately available funds on the Closing Date.

(f)Not later than 30 calendar days following the Closing Date, Purchaser shall deliver to Seller a calculation of the Net Working Capital of Purchaser as of the Closing Date, which shall exclude all liabilities that are Down Costs (the “Final Net Working Capital”), prepared in accordance with GAAP applied in a manner consistent with Seller’s historic practices, together with calculations of the final determination of the actual Down Capital Costs, Paid Down Capital Costs, Down Non-Capital Costs and Paid Down Non-Capital Costs.

(i)If the Final Net Working Capital is a working capital deficiency that is more than $250,000 greater than the Estimated Working Capital, the Purchase Price shall be decreased by an amount (the “Purchase Price Reduction Amount”) equal to (x) the Final Net Working Capital minus (y) the Estimated Working Capital minus (z) $250,000, and Seller shall on the Final Determination Date pay to Purchaser in immediately available funds the Purchase Price Reduction Amount.  For greater certainty, the $250,000 amount referred to in this Section 2.7(f)(i) is intended by the parties to function as a deductible against amounts otherwise payable.

(ii)If the Final Net Working Capital is not a deficiency or is a deficiency that is more than $250,000 smaller than the Estimated Working Capital, the Purchase Price shall be increased by an amount (the “Purchase Price Increase Amount”) equal to (x) the Final Net Working Capital minus (y) the Estimated Working Capital minus (z) $250,000, and Purchaser shall pay to Seller in immediately available funds on or before the Final Determination Date the Purchase Price Increase Amount.  For greater certainty, the $250,000 amount referred to in this Section 2.7(f)(ii) is intended by the parties to function as a deductible against amounts otherwise payable.

(iii)If the Down Non-Capital Costs exceed $8,846,092, Seller shall remit 50% of such excess to Purchaser.  If the Down Non-Capital Costs are less than $8,846,092, Purchaser shall remit 50% of such difference to Seller.

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(iv)If the Paid Down Non-Capital Costs finally determined are greater than the Paid Down Non-Capital Costs Estimate, Purchaser shall on the Final Determination Date remit the difference to Seller, and if the Paid Down Non-Capital Costs finally determined are less than the Paid Down Non-Capital Costs Estimate, Seller shall on the Final Determination Date remit the difference to Purchaser and the Purchase Price shall be adjusted accordingly.

(v)If the Paid Down Capital Costs finally determined are greater than the Paid Down Capital Costs Estimate, Purchaser shall on the Final Determination Date remit the difference to Seller and if the Paid Down Capital Costs finally determined are less than the Paid Down Capital Costs Estimate, Seller shall on the Final Determination Date remit the difference to Purchaser and the Purchase Price shall be adjusted accordingly.

(vi)For the purposes of this Section 2.7, “Final Determination Date” means the date that is two Business Days after the Final Net Working Capital calculation is either deemed under Section 2.7(g) to be approved unless the calculation is disputed in accordance with Section 2.7(g), in which case Final Determination Date means within two Business Days of the date that the Final Net Working Capital is finally determined pursuant to Section 2.7(g)(ii).

(g)Seller shall have a period of five calendar days from the date it receives the Final Net Working Capital calculation, the final Down Non-Capital Costs calculation and the final Down Capital Costs calculation in which to review the same.  For the purpose of such review, Purchaser agrees to cause its auditors to permit Seller and its authorized representatives to examine all working papers, schedules and other documentation used or prepared by Seller’s auditors.  If no objection to the final calculations is given by Seller to Purchaser within such five-day period, the calculations shall be deemed to have been approved as of the last day of such five-day period.

(i)If Seller objects to any of the calculations within such five-day period by giving notice to Purchaser setting out in reasonable detail the nature of such objection, the parties agree to attempt to resolve the matters in dispute within 10 days from the date Seller gives such notice to Purchaser.  If all matters in dispute are resolved by the parties, the relevant calculation shall be modified to the extent required to give effect to such resolution and shall be deemed to have been approved as of the date of such resolution.

(ii)If the parties cannot resolve all matters in dispute within such 10-day period, all unresolved matters shall be submitted to the Canadian national office of Ernst & Young (the “Arbitrator”) for resolution, and the Arbitrator shall be given access to all materials and information reasonably requested by it for such purpose.  The rules and procedures to be followed in the arbitration proceedings shall be determined by the

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Arbitrator in its discretion.  The Arbitrator’s determination of all such matters shall be final and binding on both parties and shall not be subject to appeal by either party.  The fees and expenses of the Arbitrator shall be borne equally by the parties unless the Arbitrator determines that the overall position taken by one of the parties was unreasonable and without material merit, in which case the Arbitrator may require such party to pay all of the costs of the arbitration.  The final calculations shall be modified to the extent required to give effect to the Arbitrator’s determination and shall be deemed to have been approved as of the date of such determination.

2.8Allocation of Purchase Price; Taxes

(a)The Purchase Price will be allocated in accordance with Schedule 2.8, which Schedule shall be modified as appropriate to reflect the adjustments to the Purchase Price contemplated in Sections 2.7 and 2.8.

(b)Seller and Purchaser, in filing their respective income tax returns, will use the allocations of the Purchase Price as set forth in Schedule 2.8.

(c)Purchaser and Seller shall file all applicable transfer tax forms and declarations in connection with the transactions contemplated hereby.  All Taxes applicable to the Assets for periods beginning before and ending after the Closing Date, and any other charges which are appropriate subjects for proration, shall be prorated on a daily basis as of 12:01 a.m. (Nova Scotia time) on the Closing Date between Seller and Purchaser; provided, however, that all 2008 property, ad valorem or similar Taxes shall be allocated to Seller for the period (or partial periods) ending on the Closing Date based on a daily proration of the most recent (as of the Closing Date) ascertainable property, ad valorem or similar Taxes to be prorated.  Any amount of 2008 property, ad valorem or similar Taxes not allocated to Seller shall be allocated to Purchaser.  Any refund of 2008 property, ad valorem or similar Taxes (net of costs incurred to recover same) shall be prorated between Seller and Purchaser in the same proportion.

2.9Section 167 Elections

Seller and Purchaser shall jointly make such election or elections, in prescribed form and containing the prescribed information, to have subsection 167(1.1) of the Excise Tax Act (Canada) (the “ETA”) apply to the sale and purchase of the relevant Assets thereunder so that no Tax is payable in respect of such sale and purchase under Part IX of the ETA.  Purchaser shall file each such election in the manner provided and within the time prescribed by the ETA.

2.10Section 85 Elections

Seller and Purchaser shall jointly elect under subsection 85(1) of the Income Tax Act (Canada) (the “ITA”), in prescribed form and within the time provided in subsection 85(6) of the ITA, that Seller’s proceeds of disposition and Purchaser’s cost of each asset transferred be such

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amounts as are set out in Schedule 2.10, which Schedule shall be modified as appropriate to reflect the adjustments to the Purchase Price contemplated in Sections 2.7 and 2.8.

2.11Instruments of Conveyance and Assumption

(a)In order to effectuate the sale, assignment, transfer and conveyance of the Assets, Seller has, or has caused its Affiliates to, execute and deliver to Purchaser at the Time of Closing:

(i)one or more deeds or other instruments of conveyance conveying the right, title and interest of Seller in and to the Real Property;

(ii)transfers and assignments to Purchaser of the transferable Permits and the Forest Licenses, and in the case of the Forest Licenses and Permits (including Crown leases, land use permits or licenses of occupation) which may be incapable of transfer or assignment, Seller shall surrender the same to the Crown (in order to permit Purchaser’s application for similar entitlements) and provide proof of said surrender to Purchaser;

(iii)one or more bills of sale; and

(iv)such other instruments of conveyance and other documents as Purchaser has reasonably deemed necessary or appropriate to vest in, or confirm to, Purchaser title to all of the Assets as contemplated by this Agreement (collectively with clauses (i) - (iii) above, the “Deeds and Assignments”).

(b)In order to effectuate the assumption of the Assumed Liabilities, Purchaser has executed and delivered to Seller at the Time of Closing:

(i)one or more instruments of assumption; and

(ii)such other documents as Seller has reasonably deemed necessary or appropriate to confirm Purchaser’s assumption of the Assumed Liabilities (collectively, with clause (i) above, the “Instruments of Assumption”).

ARTICLE 3 – REPRESENTATIONS AND WARRANTIES

3.1Seller’s Representations and Warranties

Seller represents and warrants to Purchaser as follows and acknowledges that Purchaser is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

Seller is an unlimited company duly incorporated, validly existing and in good standing with respect to filing its annual returns under the laws of the Province of Nova Scotia and has all

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requisite corporate power and capacity to own, lease and operate its assets, properties and business and to carry on its business as currently conducted.

(b)Authority to Execute and Perform Agreement

Seller has all requisite corporate power and capacity to enter into, execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement, the Ancillary Agreements and the other documents and agreements being delivered by Seller and its Affiliates hereunder or thereunder have been duly authorized, executed and delivered by each such party, and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements and the documents and agreements to be delivered by Seller or its Affiliates hereunder or thereunder by the other parties thereto and the validity and binding effect hereof and thereof on such other parties) are valid and binding obligations of Seller or its Affiliates, as applicable, enforceable against such entities in accordance with their terms.

(c)No Material Adverse Change

Except as set forth on Schedule 3.1(c), since December 31, 2007 the Purchased Businesses have been carried on in the usual and ordinary course, there has been no Material Adverse Change, and Seller has no knowledge of any such change which is threatened; nor to the knowledge of Seller has there been any material damage, destruction or loss to any of the Assets.

(d)Compliance with Laws; Permits

(i)Except as set forth on Schedule 3.1(d), there are no current material violations of any Applicable Law relating to the Purchased Businesses or the Assets.

(ii)Except as set forth on Schedule 3.1(d):

(A)all Permits are valid, subsisting and in good standing and Seller is not in default or breach of any Permit that is material to the Pulp Business or the Woodlands Business; and

(B)there are no proceedings pending or other circumstances outside the ordinary course of business, which could reasonably be expected to result in the revocation, cancellation, limitation, amendment or suspension of any Permit that is material to the Pulp Business or the Woodlands Business; and

(iii)the Permits listed in Schedule 3.1(d)(iii) include all of the Permits that are material to each of the Pulp Business and the Woodlands Business for purposes of carrying on such businesses as they are currently carried on or owning or leasing the Assets.

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(e)No Breach

Except for the Purchaser Required Consents, each of which will have been obtained on the Closing Date, the execution, delivery and performance by Seller and its Affiliates of this Agreement, the Ancillary Agreements and the other agreements and documents required to be delivered hereunder or thereunder to which they are parties, and the consummation by Seller and its Affiliates of the transactions contemplated hereby and thereby, will not:

(i)violate or result in the breach of any provision of the constating documents of Seller or such Affiliates or any resolution of the board of directors (or any committee thereof) or shareholders of Seller or such Affiliates;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any Real Property Lease, material Assumed Contract, Permit that is material to the Pulp Business or the Woodlands Business, Collective Agreement or Forest License;

(iii)result in the creation or imposition of any lien or other encumbrance upon the Assets or any of them (other than any liens or encumbrances created by Purchaser); or

(iv)violate any Applicable Law in Canada applicable to Seller or such Affiliates, the Purchased Businesses or the Assets or any of them.

(f)Actions and Proceedings

Except as set forth on Schedule 3.1(f):

(i)there are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or other Governmental Authority against Seller or any of its Affiliates in respect of any of the Assets or the Purchased Businesses; and

(ii)there are no actions, litigation or suits or legal, administrative or arbitral proceedings pending or, to the knowledge of Seller, threatened against or affecting Seller or any of its Affiliates in respect of any of the Assets, the Pulp Business or the Woodlands Business, at law or in equity or before any federal, provincial, municipal or other Governmental Authority, domestic or foreign, which could reasonably be expected to have a Material Adverse Effect on the Pulp Business, the Woodlands Business or the Assets.

(g)Consents and Approvals

The execution and delivery by Seller of this Agreement and the execution and delivery by Seller or its Affiliates of the Ancillary Agreements and the other agreements and documents required to be delivered hereunder or thereunder to which each of them is a party, and the

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performance by Seller or its Affiliates of their respective obligations hereunder and thereunder, do not require Seller or its Affiliates to obtain any consent, approval or action of, or make any filing with or give any notice to, any Governmental Authority or any other Person, except for those consents, approvals, actions, filings and notices described in Schedule 3.1(g) which are required under any Real Property Lease, Assumed Contract, Permit, Collective Agreement or Forest License other than those comprising the Non-Assigned Contracts, each of which material consent, approval, action, filing and notice has been obtained, made or given, as applicable.

(h)Owned Real Property

(i)Owned Real Property

Schedule 3.1(h)(i) contains a legal description of all of the real property used in connection with the Purchased Businesses (specifically excluding any and all timberland real property owned by Seller) and owned by Seller in the Province of Nova Scotia (the “Owned Real Property”).

Seller has the exclusive right to possess, use and occupy, and at the Time of Closing Seller will have good and marketable title in fee simple to, all the Owned Real Property, free and clear of all Encumbrances, easements or other restrictions of any kind other than Permitted Encumbrances.

(ii)The Owned Real Property, the current uses thereof and the conduct of the Purchased Businesses comply in all material respects with all regulations, statutes, enactments, laws and by-laws, including those dealing with zoning, parking, access, loading facilities, landscaped areas, building construction, fire and public health and safety and Environmental Laws.

(iii)Except as may be contemplated by the Capital Projects, no alteration, repair, improvement or other work has been ordered, directed or requested in writing to be done or performed to or in respect of the Owned Real Property or to any of the plumbing, heating, elevating, water, drainage or electrical systems, fixtures or works by any municipal, provincial or other competent Governmental Authority, which alteration, repair, improvement or other work has not been completed, and Seller knows of no written notification having been given to it of any such outstanding work being ordered, directed or requested, other than those which have been complied with.

(iv)As of the Time of Closing, the Permitted Encumbrances will constitute all of the material Encumbrances, agreements, indentures and other matters which affect the Owned Real Property.

(i)Leased Real Property

Seller is not a party to any lease or agreement to lease in respect of any real property, whether as lessor or lessee, other than the Real Property Leases.

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(i)Tenant Real Property Leases

Schedule 3.1(i)(i) sets forth a true and complete list of all leases, subleases, licenses and other similar real estate agreements other than the Forest Licenses under which Seller uses or occupies or has the right to use or occupy, now or in the future, any real property in connection with the Purchased Businesses, and all amendments and modifications thereto (the “Tenant Real Property Leases”).  Seller has the exclusive right to occupy and use the real property to which the Tenant Real Property Leases relate, subject to the terms and conditions of such Tenant Real Property Leases.

(ii)Landlord Real Property Leases

Schedule 3.1(i)(ii) sets forth a true and complete list of all leases, subleases, licenses and other similar agreements other than the Forest Licenses under which Seller has granted rights of possession, use, occupancy or enjoyment of any Owned Real Property or Leased Real Property to any other Person in connection with the Purchased Businesses and all amendments and modifications thereto (the “Landlord Real Property Leases”).

(iii)Compliance with Real Property Leases

Except as set forth in Schedule 3.1(i)(iii), neither Seller nor to Seller’s knowledge any other party to any Real Property Lease, is in default in any material respect under the Real Property Leases and no written claim of any default thereunder has been received or delivered by Seller which has not been cured and all rent and other sums and charges currently due from Seller under each of the Tenant Real Property Leases have been paid.  Except as set forth in Schedule 3.1(i)(iii), the Real Property Leases have not been amended and are in full force and effect.

(iv)The Leased Real Property, the current uses thereof and the conduct of the Purchased Businesses comply in all material respects with all regulations, statutes, enactments, laws and by-laws, including those dealing with zoning, parking, access, loading facilities, landscaped areas, building construction, fire and public health and safety and Environmental Laws.

(v)As of the Time of Closing, the Permitted Encumbrances and the Real Property Leases will constitute all of the material Encumbrances, agreements, indentures and other matters which affect the Leased Real Property.

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(j)Expropriation

No part of the Assets has been taken or expropriated by any Governmental Authority, nor, to Seller’s knowledge, are there any proposals to give any notice of or to commence any proceedings for expropriation or taking.

(k)Title to Tangible Assets

As of the Time of Closing, Seller will have title to all of the owned tangible Assets (other than the Real Property, title to which is described in Section 3.1(h)), free and clear of any lien or other encumbrance except for Permitted Encumbrances.

(l)Employees

(i)Seller is not bound by or a party to any collective bargaining agreement relating to the Purchased Businesses nor has Seller made any material commitments to any labour union or employee association with respect to any future agreements except the collective agreements and related documents, letters of understanding and letters of intent incorporated into and forming part thereof, each of which is listed in Schedule 3.1(l) (collectively, the “Collective Agreement”).

(ii)Except for performance reviews and salary adjustments or other changes in the ordinary course of business, as required by Applicable Law or the Collective Agreement and consistent with Seller’s past practices, there have been no material changes in the terms and conditions of employment of any Employees of the Purchased Businesses.

(iii)Seller has not experienced any work slowdowns, stoppages or strikes (legal or otherwise) since December 1, 2004.

(iv)Seller has provided to Purchaser complete and accurate lists of the Employees as of May 8, 2008, specifying the length of hire for full-time Employees, job title or classification and rate of salary or hourly pay for each such Employee and a list of Inactive Employees stating whether such Inactive Employee is on short-term or long-term disability (if applicable).

(v)Other than as set out in Schedule 3.1(l)(v), Seller has not entered into any employment or consulting Contract or other Contract with any officer, Employee or consultant providing for annual compensation (including salary or hourly pay) of $100,000 or more.

(vi)Seller has provided to Purchaser a complete and accurate list of the Former Employees who terminated employment on or after December 1, 2004.  As of the Time of Closing, none of such Former Employees has any entitlements under the Benefit Plans.  Seller has provided to Purchaser a complete and accurate list of the Retired Employees who have

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entitlements under the Benefit Plans as of the Time of Closing, in each case specifying their entitlements under such Benefit Plans.

(vii)Seller is currently in rate group 2711 (Pulp Industry) for the Employees of the Purchased Businesses other than the Debert Nursery and rate group 0162 (Greenhouse Production Tree Industry Workers) for the Employees of the Debert Nursery for workers’ compensation purposes and during the past five years there has been no change in the rating assessment applicable to rate group 2711 or rate group 0162 under Applicable Laws, except as described in Schedule 3.1(l)(vii).  Seller’s workers’ compensation accounts are in good standing.

(viii)All accruals for unpaid vacation pay, premiums and contributions for Statutory Plans, accrued wages, salaries and commissions and Benefit Plan payments have been reflected in the books and records of Seller.

(ix)Except as set out in Schedule 3.1(f), Seller is in compliance with all Applicable Laws relating to employment, and there are no complaints, claims, charges, levies, assessments or penalties outstanding or, to Seller’s knowledge, anticipated, nor are there any orders, decisions or convictions currently registered or outstanding by any tribunal or agency against or in respect of Seller under any Applicable Laws relating to employment.

(m)Benefit Plans

(i)Schedule 3.1(m)(i) identifies each Benefit Plan.

(ii)Except as set forth on Schedule 3.1(m)(ii) and Schedule 3.1(f), there are no actions, suits, claims (other than routine claims for payment of benefits in the ordinary course), trials, demands, investigations, grievances, arbitrations or other proceedings pending or threatened in respect of any of the Benefit Plans or their assets, and to Seller’s knowledge there exists no state of facts which after notice or lapse of time or both could reasonably be expected to give rise to any such action, suit, claim, trial, demand, investigation, grievance, arbitration or other proceeding.

(iii)Current and complete copies of all written Benefit Plans as amended to date or where oral, written summaries of the terms thereof, and all currently available booklets and communications concerning the Benefit Plans that have been provided to Employees, Retired Employees or Former Employees or other Persons entitled to benefits under the Benefit Plans have been delivered or made available to Purchaser together with current and complete copies of all documents relating to the Benefit Plans, including, as applicable, all trust agreements, funding agreements, insurance contracts and policies, investment management agreements, financial statements, actuarial valuations, subscription and participation agreements and any administration contracts.

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(iv)All of the Benefit Plans are and have been established, registered, amended, invested and administered, in all material respects in accordance with all Applicable Laws, regulations, orders, or other legislative, administrative or judicial proclamations applicable to the Benefit Plans and in accordance with the Collective Agreement, with the terms of such Benefit Plans and the terms of agreements, written or oral, between Seller and its Employees, Retired Employees or Former Employees who continue to have any entitlement under any of the Benefit Plans as of the Time of Closing.

(v)No step has been taken, no event has occurred and no condition or circumstance exists that has resulted in or could be reasonably expected to result in any Benefit Plan being ordered or required to be terminated or wound up in whole or in part or having its registration under Applicable Laws refused or revoked, or being placed under the administration of any trustee or receiver or Governmental Authority or being required to pay any material amount of Taxes, fees, penalties or levies under Applicable Laws.  Where any Pension Plan has been partially or fully terminated or wound up, all assets, including any surplus, attributable to such partial or full termination or wind-up has been fully distributed in accordance with all Applicable Laws or where such distribution of assets is pending, the amount of surplus attributable to such partial or full termination or wind-up together with the date as of which such amount is determined is disclosed in Schedule 3.1(m)(v).

(vi)Each Benefit Plan (other than a Pension Plan) that is subject to insurance or funding requirements is fully insured or funded in accordance with the applicable plan or policy and in good standing with Governmental Authorities and no notice of under funding, non-compliance, failure to be in good standing or otherwise has been received by Seller from any such Governmental Authorities.  Each Pension Plan is funded (both on a going concern and solvency basis) in accordance with the assumptions disclosed in the most recent actuarial reports filed with the Governmental Authorities and all contributions required pursuant to such reports have been made, or will be made, for the period up to the Closing Date, and no notice of under funding, non-compliance, failure to be in good standing or otherwise has been received by Seller from any such Governmental Authorities.

(vii)No insurance policy or any other Contract or agreement affecting any Benefit Plan requires or permits a retroactive increase in premiums or payments due thereunder, or requires additional premiums or payments on termination of the Benefit Plan or any insurance policy, Contract or agreement relating thereto.

(viii)No employment, severance or termination agreement, other compensation arrangement or Benefit Plan provides for payment of any amount or

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benefit, the increase of an amount or benefit, forgiveness of indebtedness, the acceleration of contributions or funding, the payment of a contingent benefit or the acceleration of the payment or vesting of a benefit by reason of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement.

(ix)The only OPEBs under any of the Benefit Plans are set out in Schedule 3.1(m)(ix).

(x)All liabilities of Seller (whether accrued, absolute, contingent or otherwise) related to the Benefit Plans have been reported in accordance with GAAP in the Financial Statements or otherwise disclosed in the most recent actuarial valuation reports for the Pension and Retirement Plans.  No changes have occurred or are expected to occur to any Benefit Plan that would materially affect the most recent actuarial report prepared in respect of the applicable Benefit Plan.

(xi)All employer or employee payments, contributions or premiums required to be remitted or paid in respect of each Benefit Plan, the Collective Agreement, or by Applicable Laws have been made in a timely fashion in accordance with Applicable Laws, the Collective Agreement and the terms of the Benefit Plans.

(xii)      There have been no improper withdrawals, applications or transfers of assets from any Benefit Plan or the trusts or other funding media relating thereto that remain outstanding and unremedied, and neither Seller nor to Seller’s knowledge any of its agents is or since December 1, 2004 has been in breach of any fiduciary obligation with respect to the funding or administration of the Benefit Plans.

(xiii)     Other than as set out in Schedule 3.1(m)(xiii), since December 1, 2004, no material amendments have been made to any Benefit Plan and no commitments to improve or amend or create any Benefit Plan has been made, or promised by Seller, nor has any intention or commitment to do any of the foregoing been communicated to any Employee, Former Employee or Retired Employee.

(xiv)    Seller does not contribute to or participate in a Multi-Employer Plan.

(xv)There is no Entity other than Seller participating in the Benefit Plans.

(xvi)    All Employee, Retired Employee and Former Employee data reasonably necessary to administer each Benefit Plan is in the possession of Seller or its agents and is in a form which is sufficient for the proper administration of the Benefit Plan in accordance with its term and all Applicable Laws and such data is complete and correct in all material respects.

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(n)Taxes

(i)Seller has duly filed on a timely basis all tax returns required to be filed by it, has duly, completely and correctly reported all revenue and other amounts and information required to be reported thereon in all material respects and has paid or remitted (in the case of goods and services tax, harmonized sales tax or other sales tax) all Taxes which are due and payable, and all assessments, reassessments, governmental charges, penalties, interest and fines due and payable by it.  Seller has made adequate provision for Taxes payable for the current period and any previous period for which tax returns are not yet required to be filed.  There are no actions, suits, proceedings, investigations or claims pending or, to the knowledge of Seller, threatened against Seller in respect of Taxes, governmental charges or assessments, nor are any material matters under discussion with any Governmental Authority relating to Taxes, governmental charges or assessments asserted by any such authority.  Seller has withheld from each payment made to any of its past or present employees, officers or directors, and to any non-resident of Canada, the amount of all Taxes and other deductions required to be withheld therefrom, and has paid the same to the proper Tax or other receiving officers within the time required under any applicable legislation.

(ii)Seller is a registrant for purposes of the ETA whose registration number is 856512272RT0002.

(iii)Seller is not a non-resident of Canada for the purposes of the ITA.

(o)Location of Assets

With the exception of inventory in transit and with the exception of certain equipment such as personal computers and vehicles that may be under the physical control of certain of Seller’s Employees, all the tangible assets of the Purchased Businesses comprising the Assets are situate at the locations set out in Schedule 3.1(o).

(p)Operations

Except as disclosed on Schedule 3.1(p), since December 31, 2007, each of the Pulp Business and the Woodlands Business has been carried on only in the ordinary and normal course consistent with past practice and there has not been:

(i)any Material Adverse Change;

(ii)any material damage, destruction or loss (whether or not covered by insurance) affecting the Assets;

(iii)any obligation or liability (whether absolute, accrued, contingent or otherwise, and whether due or to become due) incurred by Seller in connection with the Pulp Business or the Woodlands Business other than

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in the ordinary and normal course of the Pulp Business or the Woodlands Business and consistent with past practice;

(iv)any payment, discharge or satisfaction of any Encumbrance, liability or obligation of Seller in relation to the Pulp Business, the Woodlands Business or the Assets (whether absolute, accrued, contingent or otherwise, and whether due or to become due) other than payment of accounts payable and tax liabilities incurred in the ordinary and normal course of business consistent with past practice;

(v)any strikes, work stoppages or work slowdowns adversely affecting the Pulp Business, the Woodlands Business or the Assets;

(vi)any licence, sale, assignment, transfer, disposition, pledge, mortgage or granting of a security interest or other Encumbrance on or over any Assets, other than sales of inventory to customers in the ordinary and normal course of the Pulp Business or the Woodlands Business;

(vii)     any write-down of the value of any inventory or any write-off as uncollectible of any accounts or notes receivable or any portion thereof relating to the Pulp Business or the Woodlands Business in amounts exceeding $500,000 in each instance or $1,000,000 in the aggregate (excluding any write-down or write-off associated with the MacTara Limited accounts and notes receivable, the material details of which Seller has provided to Purchaser);

(viii)    any cancellation of any debts or claims owing to, or any amendment, termination or waiver of any rights of value to, the Pulp Business or the Woodlands Business in amounts exceeding $500,000 in each instance or $1,000,000 in the aggregate (excluding any cancellation of debts or satisfaction of claims associated with the MacTara Limited accounts and notes receivable, the material details of which Seller has provided to Purchaser);

(ix)       except as contemplated in the Collective Agreement and except for salary adjustments or other changes in the ordinary course of business (as required by law or the Collective Agreements or consistent with Seller’s past practices), (A) any general increase in the compensation of Employees (including any increase pursuant to any Benefit Plan or commitment), or any increase in any such compensation or bonus payable to any officer, Employee, consultant or agent of Seller, or the making of any loan to, or engagement in any transaction with, any Employee, officer or director of Seller in relation to the Pulp Business, the Woodlands Business or any other business of Seller; or (B) any material changes in the terms and conditions of employment of any Employees of the Pulp Business or the Woodlands Business;

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(x)except as contemplated by the Capital Projects, any capital expenditures or capital commitments relating to the Pulp Business, the Woodlands Business or Assets in excess of $500,000 in the aggregate;

(xi)any forward purchase commitments, other than those made in the ordinary and normal course of the Pulp Business or the Woodlands Business pursuant to any Contract or other arrangements in effect as of December 31, 2007;

(xii)any forward sales commitments, other than those made in the ordinary and normal course of the Pulp Business or the Woodlands Business pursuant to any Contract or other arrangements in effect as of December 31, 2007;

(xiii)any change in the accounting or tax practices followed by Seller;

(xiv)any change adopted by Seller in its depreciation or amortization policies or rates; or

(xv)any change in the credit terms offered to customers of, or by suppliers to, the Pulp Business or the Woodlands Business.

(q)Contracts

Except as set forth on Schedule 3.1(q):

(i)each of the Real Property Leases, Assumed Contracts, Collective Agreements, Forest Licenses and Permits is in full force and effect and is binding upon Seller and, to the knowledge of Seller, the other parties thereto;

(ii)neither Seller nor, to the knowledge of Seller, any of the other contracting parties is in breach or default (whether with notice or lapse of time or both) under any such Contract or Permit referred to in clause (i) above;

(iii)Seller has provided to Purchaser or made available to Purchaser on the Project Wahoo Data Site a true, correct and complete copy of each such (A) Contract which involves a price, consideration or financial obligation of more than $50,000 in the aggregate on an annual basis and is for a term of more than one year and (B) Permit that is material to the Pulp Business or the Woodlands Business, in each case including all amendments thereto, waivers thereunder and any material written correspondence with the other parties thereto that clarifies or confirms, or proposes to clarify or confirm, a party’s understanding of the terms thereof, referred to in clause (i) above; and

(iv)Seller has provided to Purchaser a complete list of current purchase orders that are material to either of the Purchased Businesses.

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(r)Intellectual Property

Schedule 2.1(m) sets out all registered or pending patents or trademarks (including certain particulars of registrations or applications for registration) and all patent licence agreements which comprise or relate to Intellectual Property.  Seller is, or at the Time of Closing will be, the beneficial owner of the Intellectual Property, free and clear of all Encumbrances, and is not a party to or bound by any Contract or any other obligation whatsoever that limits or impairs its ability to sell, transfer, assign or convey, or that otherwise affects, the Intellectual Property.  Seller has not granted to any Person any interest in or right to use all or any portion of the Intellectual Property.  Seller’s conduct of the Purchased Businesses does not infringe upon the industrial or intellectual property rights, domestic or foreign, of any other Person.  Seller has no knowledge of any claim of infringement or breach of any industrial or intellectual property rights of any other Person, nor has Seller received any notice that the conduct of the Purchased Businesses, including the use of the Intellectual Property, infringes upon or breaches any industrial or intellectual property rights of any other Person, or the trade secrets, know-how or confidential or proprietary information of any other Person, and Seller has no knowledge of any infringement or violation of any of its rights in the Intellectual Property.  Seller is not aware of any state of facts which casts doubt on the validity or enforceability of any of the Intellectual Property.  Seller has provided to Purchaser a true and complete copy of all Contracts and amendments thereto identified in Schedule 2.1(m).

(s)Forestry Representations

(i)Schedule 3.1(s)(i) sets out all of the registrations, approvals, licenses, permits and Contracts made pursuant to or related to the Nova Scotia Forest Acts, to which Seller is a party or the beneficiary in respect of the Purchased Businesses, issued by or registered or entered into with:

(A)the Department of Natural Resources (Nova Scotia) or the Minister thereof; or

(B)one or more third parties pursuant to directions or directives of the Department of Natural Resources (Nova Scotia) or the Minister thereof

(collectively the “Forest Licenses”).

(ii)Schedule 3.1(s)(ii) sets out those Forest Licenses which by their terms are not transferable to Purchaser and will not be so transferred as part of the transactions contemplated hereby (the “Excluded Forest Licenses”).

(iii)Seller has observed and performed all material covenants, agreements and obligations on its part to be observed or performed under the provisions of each of the Forest Licenses, the Nova Scotia Forest Acts and all other applicable forestry legislation.

(iv)Seller has not received any notice of breach by Seller of any of the Forest Licenses or any of the timber cutting rights or permits or operating or

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development plans issued or filed pursuant to any of the Forest Licenses which has not been remedied by Seller or abandoned by the Person alleging such breach.

(t)Inventories

Since December 31, 2007, the Inventories have been maintained and accounted for in the ordinary course of business consistent with past practice and GAAP.

(u)Insurance

Schedule 3.1(u) sets out all insurance policies (specifying the insurer, the amount of the coverage, the type of insurance and the policy number) maintained by Seller on the Assets as of the date hereof.

(v)Boat Harbour Documents

(i)Each of the Boat Harbour Documents is in full force and effect and is a legal, valid and binding obligation of the parties thereto, enforceable against such parties by the other parties thereto.  Neither Seller nor, to the knowledge of Seller, any other party to a Boat Harbour Document is in default of any of its obligations under any of the Boat Harbour Documents.  All payments required to be made and all actions required to be taken under the Boat Harbour Documents have been made and taken by Seller and, to the knowledge of Seller, the other parties thereto in accordance with the terms thereof.

(ii)Seller has the full benefit of all rights granted to any predecessor or predecessor-in-interest of Seller under the Boat Harbour Documents.  Seller has the right to use the lands of her Majesty the Queen in Right of the Province of Nova Scotia in connection with the operation of the Effluent Treatment System, as currently conducted.

(iii)The MOU is the only material Contract that Seller is party to with the PLFN relating to the use of Boat Harbour or the operation of the Effluent Treatment System in connection with the operation of the Pulp Business.

(iv)Except for the Boat Harbour Documents and the documents listed in Schedule 3.1(v), there are no material documents relating to (A) the past, present or future use of Boat Harbour or the operation of the Effluent Treatment System by or in connection with the Pulp Business and in respect of which Seller continues to have any liabilities or obligations, or (B) engineering and environmental studies and reports relating thereto which have been commissioned by or made available to the Pulp Business with respect to Boat Harbour.  Seller has provided to Purchaser a true, correct and complete copy of all of the Boat Harbour Documents and the material amendments thereto and each of the documents listed on Schedule 3.1(v).

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(w)Financial Statements

The Financial Statements have been prepared in accordance with GAAP (with the exception of the exclusion of the Statement of Cash Flows and the Statement of Equity and the notes thereto and the exclusion from the Income Statement of pulp and currency hedging, miscellaneous transaction charges and corporate overhead allocations) applied on a basis consistent with prior periods and present fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of Seller as at their respective dates and the sales, earnings and results of operations of Seller for the respective periods covered by them.  Seller has provided true and complete copies of the Financial Statements to Purchaser.

(x)Books and Records

The books and records of Seller present fairly, in accordance with GAAP, the financial position of Seller as at the date such books and records were prepared, and all financial transactions of Seller relating to the Purchased Businesses have been accurately recorded in such books and records.

(y)Closing Balance Sheet

When prepared, the Closing Balance Sheet for the Purchased Businesses will be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the Year End Financial Statements and will present fairly the Assets and Assumed Liabilities as at the close of business on the Closing Date.

(z)Non-Arm’s Length Transactions

(i)With respect to the Purchased Businesses, except for Contracts of employment and any Benefit Plan, Pension and Retirement Plan, Statutory Plan or similar plan, Seller is not a party to any Contract with any officer, director, employee, shareholder or any other Person not dealing at arm’s length with Seller or any Affiliate or family member of any of the foregoing.

(ii)No officer, director or shareholder of Seller and no Affiliate or family member of one or more of such individuals, owns, directly or indirectly, in whole or in part, any assets that Seller uses in the operations of the Purchased Businesses, except for any or all of the Retained Assets.

(aa)Customers and Suppliers

(i)Except as set out in Schedule 3.1(aa)(i), there has been no termination or cancellation of, and no material modification or change in, Seller’s business relationship with any major customer (being a customer of the Pulp Business or the Woodlands Business accounting for more than 10% of sales for the year ending December 31, 2007), except as set forth in the Contract related to such customer, true, correct and complete copies of which have been provided to Purchaser.

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(ii)Seller has not been certified by any agent other than the Central Wood Suppliers Division to negotiate for primary forest products from woodlot owners pursuant to the Primary Forest Products Marketing Act (Nova Scotia).   Seller is in compliance with its obligations under such Act.

(bb)Environmental

(i)Except as specifically described in Schedule 3.1(bb)(i), Seller (in respect of the Purchased Businesses and the Assets) and the Owned Real Property and the Leased Real Property and all operations thereon have been and are in material compliance with all applicable Environmental Laws.

(ii)Seller has all Permits required under Environmental Laws that are material to the Purchased Businesses and to own, use and operate the Assets (the “Environmental Permits”), all of which are described in Schedule 3.1(bb)(ii).  Each Environmental Permit is valid, subsisting and in good standing, and Seller is not in default or breach of any Environmental Permit, and, to Seller’s knowledge, no proceeding is pending or threatened and no grounds exist to revoke or limit any Environmental Permit. Seller has provided a copy of each Environmental Permit to Purchaser.

(iii)Seller, in respect of the Purchased Businesses, has not used or permitted to be used, except in material compliance with all Environmental Laws, the Assets, the Owned Real Property or the Leased Real Property in conjunction with the Release, generation, manufacture, process, distribution, use, treatment, storage, transportation or handling of any Hazardous Substance.

(iv)Except as disclosed on Schedule 3.1(bb)(iv) or in material compliance with Environmental Laws, there are no Hazardous Substances located on, in, under or from the Owned Real Property or the Leased Property and all Hazardous Substances relating in any way to the Purchased Businesses (including any Hazardous Substances treated in any manner by or resulting from the Effluent Treatment System) have been disposed of, treated and stored in material compliance with all Environmental Laws and in such manner that there is no actual, alleged, nor (to the knowledge of Seller) potential, material liability of Seller for such Hazardous Substances.

(v)Except as disclosed in Schedule 3.1(bb)(v), Seller (in respect of the Purchased Businesses and the Assets) has not received any written notice of, or has it been prosecuted for, any actual or alleged non-compliance with any Environmental Laws, nor has Seller settled any allegation of non-compliance prior to prosecution, in each case since December 1, 2004.  Except as disclosed in Schedule 3.1(bb)(v), there are no actions, proceedings, notices, orders, written demands or directions relating to environmental matters requiring, or notifying Seller that it is or may be

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responsible for, any investigation, containment, clean-up, remediation or other corrective action or any work, repairs, construction or capital expenditures to be made under Environmental Laws with respect to the Purchased Businesses or the Assets.

(vi)Seller has delivered to Purchaser or made available to Purchaser on the Project Wahoo Data Site true and complete copies of all material environmental reports, audits, evaluations, assessments, studies or tests relating to the Purchased Businesses, the Assets, the Owned Real Property or the Leased Real Property and their use that are under, or with reasonable effort could be brought under, the possession or control of Seller.

(cc)Canso

(i)Seller is the registered and beneficial owner of one-third of the issued and outstanding shares of Canso (the “Canso Shares”), all of which are fully paid and non-assessable and freely transferable except as contemplated in the shareholders’ agreement dated as of January 1, 1985 (the “Canso Shareholders’ Agreement”).

(ii)Other than the Canso Shareholders’ Agreement, there are no other material Contracts to which the holder of the Canso Shares, in such capacity, is bound.

(iii)Canso does not own and does not have any Contract to acquire, directly or indirectly, any shares in the capital or other equity or proprietary interests in any Entity.

(iv)To Seller’s knowledge, there are no current material violations of any Applicable Law relating to Canso’s assets or its business as currently conducted.

(v)To Seller’s knowledge, all material facts relating to the business, assets and liabilities of Canso and to the Canso Shares have been disclosed to Purchaser.

3.2Survival of Seller’s Representations, Warranties and Covenants

The representations and warranties and, to the extent they have not been fully performed at or prior to the Time of Closing, the covenants of Seller contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant hereto, shall survive the Closing for a period of 18 months from and after the Closing Date and, notwithstanding such closing or any investigation made by or on behalf of Purchaser, shall continue in full force and effect for the benefit of Purchaser during such period, except that:

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(i)the representations and warranties set out in Sections 3.1(h)(i) and 3.1(k) shall survive and continue in full force and effect without limitation of time;

(ii)the representations and warranties set out in Section 3.1(n) shall survive and continue in full force and effect until 90 days after the expiration of the period, if any, during which an assessment, reassessment or other form of recognized written demand assessing liability for tax, interest or penalties under applicable tax legislation in respect of any taxation year to which such representations and warranties extend could be issued under such tax legislation;

(iii)the representations and warranties set out in Section 3.1(bb) shall survive and continue in full force and effect until the second anniversary of the Closing Date; and

(iv)a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant hereto involving fraud or fraudulent misrepresentation may be made at any time following the Time of Closing, subject only to applicable limitation periods imposed by law.

3.3Purchaser’s Representations and Warranties

Purchaser represents and warrants to Seller as follows and acknowledges that Seller is relying on such representations and warranties in connection with its consummation of the transactions contemplated hereby:

(a)Due Incorporation and Authority

Purchaser is duly incorporated, validly existing and in good standing with respect to filing its annual returns under the laws of the Province of Nova Scotia and has all requisite corporate power and capacity to own, lease and operate its assets, properties and business and to carry on its business as currently conducted.

(b)Authority to Execute and Perform Agreement

Purchaser has all requisite corporate power and capacity to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder.  This Agreement, the Ancillary Agreements to which Purchaser is a party and the Instruments of Assumption being delivered by Purchaser hereunder have been duly authorized, executed and delivered by Purchaser and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by Seller or its Affiliates and the validity and binding effect hereof and thereof on Seller and its Affiliates) are the valid and binding obligation of Purchaser enforceable against Purchaser in accordance with their terms.

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(c)No Breach

The execution, delivery and performance by Purchaser of this Agreement, the Ancillary Agreements to which Purchaser is a party and the Instruments of Assumption, and the consummation by Purchaser of the transactions contemplated hereby and thereby, will not

(i)violate or result in the breach of any provision of the constating documents of Purchaser;

(ii)violate, result in the breach of, or default (or an event which, with notice or lapse of time or both, would constitute a default) under, any material contract to which Purchaser is a party or to which Purchaser or any of its assets or properties may be bound; or

(iii)to Purchaser’s knowledge, violate any statute, law or regulation of any jurisdiction, which violation, individually or in the aggregate, could have a material adverse effect on Purchaser’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(d)Consents and Approvals

The execution and delivery by Purchaser of this Agreement, the Ancillary Agreements to which Purchaser is a party and the Instruments of Assumption and the performance by Purchaser of its obligations hereunder and thereunder do not require Purchaser to obtain any consents, approvals, authorizations, licenses, permits or other actions of, or make any filings with, any Governmental Authority or any other Person.

(e)Actions and Proceedings

There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or other Governmental Authority against Purchaser, and there are no actions, litigation or suits or legal, administrative or arbitral proceedings of any type whatsoever pending, or to the knowledge of Purchaser, threatened, against Purchaser which individually or in the aggregate could reasonably be expected to adversely affect Purchaser’s ability to consummate the transactions contemplated herein or the performance of its obligations hereunder.

(f)Issued Shares

The issuance of the Issued Shares has been duly authorized and approved by all requisite corporate, regulatory and other action, and the Issued Shares are validly issued as fully paid common shares of Purchaser.

(g)ETA Registration

Purchaser is a registrant for purposes of the ETA whose registration number is 80788 9019 RT0001.

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3.4Survival of Purchaser’s Representations, Warranties and Covenants

The representations, warranties and, to the extent they have not been fully performed at or prior to the Time of Closing, the covenants of Purchaser set forth in this Agreement will survive the Closing for a period of 18 months from and after the Closing Date.

ARTICLE 4 — COVENANTS

The parties hereto covenant and agree as follows:

4.1Governmental Filings

As soon as practicable after the execution of this Agreement, Seller and Purchaser shall cooperate with each other and with their respective Affiliates and shall make any and all filings and submissions to any Governmental Authority which are required to be made in connection with the transactions contemplated hereby (including all notices, filings and submissions required for the transfer of or application for all necessary Permits and Forest Licenses).  Notwithstanding the foregoing, Purchaser (at Purchaser’s cost) shall be responsible for making all filings necessary to transfer and obtain all Permits and Forest Licenses necessary for the operation of the Purchased Businesses on and after the Closing Date.  Seller shall furnish to Purchaser and its Affiliates and Purchaser shall furnish to Seller and its Affiliates such information and assistance as the other parties may reasonably request in connection with the preparation of any such notices, filings or submissions.  Each party hereto agrees to give the other parties hereto prompt written notice of any notification that it receives from any Governmental Authority in connection with the transactions contemplated hereby.

4.2Expenses

The parties to this Agreement shall bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement, including all fees and expenses of agents, representatives, counsel and accountants.  Purchaser shall bear the costs and expenses associated with (a) obtaining any surveys not already in the possession of Seller and any title insurance policies and endorsements, (b) any sales or use taxes, federal taxes and any other taxes or duties payable by either party as a result of the transactions contemplated hereby (excluding any gains taxes), (c) any recording costs or transfer taxes (including real property transfer or documentary stamp taxes) resulting or arising from the transactions contemplated herein, and (d) any fees, costs, legal fees or expenses required in connection with filings with Governmental Authorities, in each case relating to the Assets and the transactions contemplated hereby.

4.3Indemnification for Brokerage Commissions

(a)Seller represents and warrants to Purchaser that there are no brokerage commissions, finder’s fees or similar fees or commissions payable in connection herewith on account of Seller’s actions or the actions of any of its Affiliates.  Seller agrees to indemnify and save Purchaser harmless from any claim or demand for commission or other compensation by any broker, finder, agent or

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similar intermediary claiming to have been employed by or on behalf of Seller, NPI or any of their respective Affiliates, and to bear the cost of any legal expenses incurred by Purchaser in defending against any such claim.

(b)Purchaser represents and warrants to Seller that there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection herewith on account of Purchaser’s actions or the actions of its Affiliates.  Purchaser agrees to indemnify and save Seller and its Affiliates harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of Purchaser or any of its Affiliates and to bear the cost of any legal expenses incurred by Seller or any of its Affiliates in defending against any such claim.

4.4Access to Records

After the Closing Date, Purchaser and Seller shall afford to each other and their respective representatives the opportunity, upon reasonable request, to examine and make copies of the books and records of the Purchased Businesses sold to Purchaser or of the books and records of the Purchased Businesses retained by Seller, as the case may be, relating to periods prior to the Time of Closing and to consult with their respective officers, employees, accountants and other representatives, in connection with any bona fide business purpose, including the preparation of tax and financial reports and the conducting of any audits or disputes with respect thereto, the administration of Seller’s Benefit Plans, the review of any materials, books, records or circumstances relating to such party’s ongoing obligations under this Agreement, the Ancillary Agreements, the Deeds and Assignments or the Instruments of Assumption.  Purchaser and Seller shall each maintain all such books and records and shall not destroy or dispose of any such books and records without the prior written consent of the other for a period of six years following the Closing Date.  Notwithstanding the foregoing, Purchaser or Seller may at any time notify the others that they desire to dispose of identified books and records, in which event the party receiving such notice may, at its own cost and expense, take delivery of some or all of such books and records, failing which the party giving such notice may dispose of such books and records without further liability to the other parties.

4.5Affiliation with Seller

Purchaser and its Affiliates shall not represent to any third party that Purchaser, its Affiliates or the Purchased Businesses are in any way affiliated or associated with, or owned or operated by, Seller or its Affiliates except to the extent required by or permitted under any of the Ancillary Agreements and Section 4.9.

4.6Further Assurances

Seller and Purchaser will from time to time execute and deliver all such further documents and instruments and do all acts and things as the other party may, either before or after the Closing Date, reasonably require to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

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4.7Mail and Money Received After Closing

(a)On or after the Closing Date, Purchaser may receive and open all mail addressed to Seller, the Pulp Business or the Woodlands Business and, to the extent that such mail and the contents thereof relate to the Pulp Business, the Woodlands Business, the Assets or any of the Assumed Liabilities, deal with the contents thereof in its discretion.  Purchaser agrees to deliver or to cause to be delivered promptly to Seller all other mail (including any mail that relates to Retained Assets or Retained Liabilities) received which is addressed to Seller, the Pulp Business or the Woodlands Business.  In the event that Seller receives mail on or after the Closing Date addressed to Seller, the Pulp Business or the Woodlands Business that relates to the operations of the Pulp Business, the Woodlands Business or the Assets, Seller shall deliver or cause to be delivered promptly to Purchaser such mail.

(b)If, at any time from and after the Closing, Seller receives any payment or other money comprising or relating to the Assets that Seller is not otherwise entitled to hereunder, Seller shall be deemed to be holding such funds in trust for Purchaser and shall promptly upon receipt of such funds deliver the same to Purchaser without deduction, set-off, counterclaim or offset.

4.8Delivery of Books and Records

Notwithstanding any provision of this Agreement to the contrary, Purchaser and Seller acknowledge and agree that any books and records constituting Assets which are not physically located at the Pictou Pulp Mill shall be delivered by Seller to Purchaser on the Closing Date or as soon as practicable thereafter, but in no event later than ten days thereafter.

4.9Use of Seller’s Trade Name

Purchaser shall be entitled to use existing sales literature, inventories, packaging, office supplies, and such other items bearing any of the trade names and trademarks of Seller which are included in the Assets for a period of nine months from and after the Closing Date.  Purchaser agrees to cease using or delete such trade names and trademarks from such items as soon as reasonably practicable after the Closing Date but in any event within such nine-month period.

ARTICLE 5 — EMPLOYMENT AND BENEFIT PLAN ARRANGEMENTS

5.1Employees

Purchaser shall, effective as of the Time of Closing:

(a)employ on and after the Closing Date all of the Employees who are employed in the Pulp Business or the Woodlands Business who are not covered by a Collective Agreement on terms and conditions of employment (excluding any stock-based compensation) no less favourable in the aggregate than those in effect immediately prior to the Closing Date, provided that nothing herein shall guarantee continued employment to any particular Employee from and after the Closing Date or prevent the termination of employment of any Employee within such period; and

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(b)employ on and after the Closing Date all of the Employees who are employed by Seller in the Pulp Business or the Woodlands Business and who are covered by a Collective Agreement.

5.2Pension and Retirement Plans and Benefit Plans

(a)Prior to the Time of Closing, Seller shall have (i) transferred from the Benefit Plans to other benefit plans of Seller any obligations, liabilities or funds relating to benefits for employees, inactive employees, former employees and retired employees of Seller in respect of the Terrace Bay, Ontario pulp mill or any other business or operation of Seller other than the Purchased Businesses (all of which shall be Retained Liabilities for all purposes of this Agreement), and (ii) amended the Benefit Plans to reflect any such transfer.

(b)Effective as of the Time of Closing, Seller hereby assigns to Purchaser, and Purchaser hereby assumes from Seller, the Benefit Plans relating to the Employees of the Purchased Businesses and the Pension and Retirement Plans relating to Retired Employees and Former Employees of the Purchased Businesses.

(c)Effective as of the Time of Closing, Purchaser shall execute and file with the appropriate Governmental Authorities an amendment to the Pension Plans which shall provide for Purchaser to become an administrator and sponsor of the Pension Plans.

(d)Written confirmation of any and all regulatory approvals shall be forwarded by each party to the other forthwith upon receipt.

(e)Seller shall provide to Purchaser such information in respect of Employees, Retired Employees and Former Employees of the Purchased Businesses as is reasonably required by Purchaser, as the case may be, or their respective agents to properly administer the Benefit Plans and that is in the possession or control of Seller, as the case may be.

ARTICLE 6 — CLOSING ARRANGEMENTS

6.1Closing

The sale and purchase of the Assets will be completed at the Time of Closing on the Closing Date at:

Stewart McKelvey Stirling Scales
Purdy’s Wharf Tower One
1959 Upper Water Street
Suite 900
Halifax, Nova Scotia  B3J 2X2
Canada

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ARTICLE 7— GENERAL

7.1Time of the Essence

Time is of the essence of this Agreement.

7.2Public Announcements

Neither Seller nor Purchaser shall make any publicity release or announcement concerning this Agreement, or make any disclosure with respect to the consideration paid pursuant to this Agreement, or the transactions contemplated hereby without the prior written approval thereof by Purchaser or Seller, as the case may be, except as required by Applicable Law, in which case the party issuing the release or making such disclosure shall so advise the other party in writing in advance of such issuance or disclosure.

7.3Benefit of the Agreement

This Agreement will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and permitted assigns of the parties hereto.

7.4Third Party Beneficiaries

The provisions of this Agreement are solely for the benefit of the parties hereto and their respective Affiliates, successors and permitted assigns and shall not confer upon any third Person any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Agreement.  Nothing in this Agreement shall obligate Seller or its Affiliates or Purchaser to assist any Employee, Retired Employee or Former Employee to enforce any rights such Employee, Retired Employee or Former Employee may have with respect to any of the Benefit Plans or other employment-related benefits referred to in this Agreement.

7.5Entire Agreement

This Agreement and the Ancillary Agreements referred to herein (including the Schedules hereto) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and cancel and supersede any prior understandings and agreements between the parties hereto with respect thereto.  There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the parties other than as expressly set forth in this Agreement and the Ancillary Agreements.

7.6Amendments and Waivers

No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by each of the parties hereto.  No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided, will be limited to the specific breach waived.

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7.7Assignment

This Agreement may not be assigned by any party hereto without the written consent of the other parties hereto.

7.8Notices

Any demand, notice or other communication to be given in connection with this Agreement will be given in writing and will be given by personal delivery or by facsimile communication addressed to the recipient as follows:

(i)to Seller:

Neenah Paper Company of Canada
3460 Preston Ridge Road, Suite 600
Alpharetta, Georgia  30005

Attention:Steven S. Heinrichs

Senior Vice President, General Counsel and Secretary

Facsimile:678-518-3283

(ii)to Purchaser:

Northern Pulp Nova Scotia Corporation
260 Granton Abercrombie Branch Road
Abercrombie, Nova Scotia  B2H 5C6

or by mail to

Northern Pulp Nova Scotia Corporation
P.O. Box 549, Station Main
New Glasgow, Pictou County, Nova Scotia  B2H 5E8

Attention:General Manager
Fax:(902) 752-5404

in either case with a copy to:

Atlas Holdings, LLC
One Sound Shore Drive
Suite 302
Greenwich, Connecticut  06830

Attention:Tim Fazio

Facsimile:203-622-0151

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or to such other address, individual or electronic communication number as may be designated by notice given by either party to the other.  Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by facsimile communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the Business Day during which such normal business hours next occur if not given during such hours on any day if receipt of such facsimile communication is confirmed.

7.9Remedies Cumulative

The rights and remedies of the parties hereunder are cumulative and are in addition to, and not in substitution for, any other rights and remedies available at law or in equity or otherwise.  No single or partial exercise by a party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that party may be entitled.

7.10Governing Law

This Agreement is governed by and will be construed in accordance with the laws of the Province of Nova Scotia and the federal laws of Canada applicable therein.

7.11Attornment

For the purpose of all legal proceedings, this Agreement will be deemed to have been performed in the Province of Nova Scotia and the courts of the Province of Nova Scotia (and all courts competent to hear appeals therefrom) will have exclusive jurisdiction to entertain any action arising under this Agreement.  Seller and Purchaser each hereby attorns to the jurisdiction of the courts of the Province of Nova Scotia and all courts competent to hear appeals therefrom.

7.12Counterparts

This Agreement and any amendment, supplement, restatement or termination of any provision of this Agreement may be executed and delivered in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument.

[The next page is the signature page.]

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IN WITNESS WHEREOF the parties have executed this Agreement.

AS SELLER	NEENAH PAPER COMPANY OF CANADA
	Per:
		Name:Sean Erwin
		Title:President and Chief Executive Officer

AS PURCHASER	NORTHERN PULP NOVA SCOTIA CORPORATION
	Per:
		Name:Sean Erwin
		Title:President and Chief Executive Officer

Signature page for Mill and Woodlands Asset Purchase Agreement

EX-10.5

Exhibit 10.5

STUMPAGE AGREEMENT

Between

NEENAH PAPER COMPANY OF CANADA

and

NORTHERN PULP NOVA SCOTIA CORPORATION

STUMPAGE AGREEMENT

This Agreement is made as of June 24, 2008 (the “Effective Date”) by and between Neenah Paper Company of Canada, a Nova Scotia unlimited liability company, located at 3460 Preston Ridge Road, Suite 600, Alpharetta, GA 30005 (“Neenah”) and Northern Pulp Nova Scotia Corporation, a Nova Scotia unlimited liability company, located at 260 Abercrombie Granton Branch Road, New Glasgow, Nova Scotia  B2H 5E8 (“NPNS”).

Recitals

A.Neenah desires to sell and NPNS desires to purchase, on the terms and conditions hereinafter set forth, certain quantities and types of wood fibre located on the timberlands owned by Neenah in Nova Scotia, Canada.

Therefore, in consideration of the mutual covenants and agreements set forth herein, the parties hereto agree as follows:

Agreement

1.Definitions.  For the purposes of this Agreement the capitalized terms set forth below shall have the meanings set forth after them:

1.1“AAC” or “Annual Allowable Cut”  [REDACTED]

1.2“Actual Designated Tracts” shall have the meaning set forth in Section 3.1(b)(ii).

1.3“Affected Party” shall have the meaning set forth in Section 7.5.

1.4“Affiliate” shall mean with respect to any Person, any Person Controlling, Controlled by, or under common Control with, such Person.

1.5“Agreement” means this stumpage agreement, including all of the Exhibits attached hereto which are hereby specifically incorporated herein, as this Agreement may be amended, supplemented or restated from time to time;

1.6“Annual Harvest Notice” shall mean the annual notice provided by NPNS to Neenah in accordance with the provisions of Section 3.1(c)(i).

1.7“Annual Purchase Amount” shall mean (a) for each of 2008 and 2009, the Softwood Volume and the associated Residual Qualifying Stumpage Volume set out in Exhibit C; and (b) for each Harvesting Year beginning January 1, 2010 through the remainder of the Term, the Softwood Volume and the associated

1

Residual Qualifying Stumpage Volume (prorated for any partial year during the Term).

1.8“Applicable Laws” shall mean, with respect to any Person, all laws, ordinances, judgments, decrees, injunctions, writs, orders, rules, regulations, determinations, licences, requirements and permits of any Governmental Authority applicable to or binding upon such Person or any of its property.

1.9“Base Price” shall mean the initial price for Qualifying Stumpage as more particularly described in Exhibit B attached hereto, as annually adjusted pursuant to the terms and conditions described in Exhibit B.

1.10“Business Day” shall mean any day other than a Saturday, Sunday, or other day on which banks are authorized to be closed in the Province of Nova Scotia, Canada or the State of New York, United States of America.

1.11[REDACTED]

1.12“Control” shall mean, with respect to any Person, the power to direct or cause the direction of the management of such Person, directly or indirectly, whether through the ownership of voting securities or otherwise.

1.13“Dispute” shall have the meaning set forth in Section 10(b)(i).

1.14“Effective Date” has the meaning set forth on page 1.

1.15“Event of Default” shall have the meaning set forth in Section 8.2.

1.16“Force Majeure Event” shall mean any act, omission or circumstance occasioned by or resulting from any acts of God, acts of the public enemy, wars, blockades, insurrections, riots, parasitic infestation, hurricanes, epidemics, landslides, lightning, earthquakes, tornadoes, windstorms, volcanoes, fires, storms, floods, disasters, civil disturbances, explosions, sabotage, endangered species habitation, change in Applicable Laws that materially impairs the ability of either party to comply with the terms of the Agreement, as well as disasters, explosions, strikes, energy supply failures or organized labour disputes that materially disrupt any of NPNS’s operations that results in a temporary or permanent shutdown of the Mill; provided, however, that “Force Majeure Event” shall not include (i) a party’s financial inability to perform other than as specifically described in this Agreement, or (ii) an act, omission or circumstance arising from the gross negligence or willful misconduct of the party claiming that a Force Majeure Event has occurred.

1.17“Governmental Authority” shall mean any federal, provincial, local or foreign government, political subdivision, agency, board, court, regulatory body or commission, any arbitrator with authority to bind a party at law, or any Person

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acting lawfully on behalf of any of the foregoing.

1.18“Hardwood Pulpwood” shall mean hardwood trees meeting the applicable specifications set forth in Exhibit A attached hereto.

1.19“Hardwood Pulpwood Price” shall initially mean the price set forth on Exhibit B, as such price will be reset every January 1 during the Term as described in Exhibit B.

1.20“Hardwood Qualifying Stumpage” shall mean standing Timber which meets or exceeds the specifications for Hardwood Pulpwood or Hardwood Sawlogs set forth in Exhibit A to this Agreement.

1.21“Hardwood Sawlogs” shall mean hardwood trees meeting the applicable specifications set forth in Exhibit A attached hereto.

1.22“Hardwood Sawlogs Price” shall mean the price set forth on Exhibit B attached hereto (as such price will be reset every January 1 during the Term) as described in Exhibit B, the “Hardwood Sawlog Base Price” adjusted up or down on a quarterly basis on each Price Adjustment Date by the Stumpage Price Index.

1.23“Harvest Plan” shall have the meaning set forth in Section 3.1(c)(ii).

1.24“Harvesting Year” shall mean the period from January 1 through December 31 of each year during the Term.

1.25“Initiating Party” shall have the meaning set forth in Section 10(b)(iv).

1.26“Mediation Notice” shall have the meaning set forth in Section 10(b)(iv).

1.27“Mill” shall mean NPNS’s pulp mill located in Pictou County in the Province of Nova Scotia, Canada.

1.28“Person” means any individual, corporation, partnership, limited partnership, limited liability company, unlimited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or Governmental Authority.

1.29“Price Adjustment Date” shall mean the first day of each April, July and September during the Term.

1.30“Province” has the meaning set out in the definition in Section 1.11.

1.31“Qualifying Stumpage” shall mean collectively Hardwood Qualifying Stumpage and Softwood Qualifying Stumpage.

1.32“Qualifying Stumpage Price” shall mean, as applicable, the Hardwood Pulpwood Price for all Hardwood Pulpwood; the Hardwood Sawlogs Price for all

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Hardwood Sawlogs; the Softwood Pulpwood Price for all Softwood Pulpwood; the Softwood Sawlog Price for all Softwood Sawlogs; and the Softwood Studwood Price for all Softwood Studwood.

1.33“Recipient Party” shall have the meaning set forth in Section 10(b)(iv).

1.34“Reduction Amount” shall have the meaning set forth in Section 7.5.

1.35“Residual Qualifying Stumpage Volume” means the Hardwood Sawlog and Hardwood Pulpwood volumes to be harvested from the Actual Designated Tracts that are within the Actual Allowable Cut.

1.36“SFI® Certification” means the Sustainable Forestry Initiative Certification received by Neenah for the Timberlands in October of 2007.

1.37“SMZ’s” shall mean Special Management Zones, environmentally protected zones designated as such by the mutual consent of Neenah and NPNS during the Term and in compliance with all Applicable Laws or as necessary to maintain SFI® Certification.

1.38“Short Harvesting Year” shall mean the period from the Effective Date through December 31, 2008.

1.39“Softwood Pulpwood” shall mean softwood trees meeting the applicable specifications set forth in Exhibit A attached hereto.

1.40“Softwood Pulpwood Price” shall mean the price set forth on Exhibit B attached hereto (the “Softwood Pulpwood Base Price”) adjusted up or down on a quarterly basis on each Price Adjustment Date by the Stumpage Price Index. The Softwood Pulpwood Base Price shall be reset every January 1 during the Term of the Agreement in accordance with the terms of Exhibit B.

1.41“Softwood Qualifying Stumpage” shall mean standing Timber which meets or exceeds the specifications for Softwood Sawlogs, Softwood Studwood and Softwood Pulpwood set forth in Exhibit A to this Agreement.

1.42“Softwood Sawables” means, collectively, the Softwood Sawlogs and Softwood Studwood.

1.43“Softwood Sawlogs” shall mean softwood trees meeting the applicable specifications set forth in Exhibit A attached hereto.

1.44“Softwood Sawlogs Price” shall mean the price set forth on Exhibit B attached hereto (the “Softwood Sawlogs Base Price”) adjusted up or down on a quarterly basis on each Price Adjustment Date by the Stumpage Price Index. The Softwood Sawlog Base Price shall be reset every January 1 during the Term of the Agreement in accordance with the terms of Exhibit B.

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1.45“Softwood Studwood” shall mean softwood trees meeting the applicable specifications set forth in Exhibit A attached hereto.

1.46“Softwood Studwood Price” shall mean the price set forth on Exhibit B attached hereto (the “Softwood Studwood Base Price”) adjusted up or down on a quarterly basis on each Price Adjustment Date by the Stumpage Price Index, as such price will be reset every January 1 during the Term in accordance with the terms of Exhibit B.

1.47“Softwood Volume” shall mean the AAC measured in metric tons per year of Softwood Sawables and Softwood Pulpwood during the Term, as further described in Exhibit D.

1.48“Stumpage Price Index” [REDACTED]

1.49“Term” shall mean the term of this Agreement, namely the period from the Effective Date through May 15, 2018, unless sooner terminated in accordance with the provisions of Section 8.2 or 8.3 or extended in accordance with Section 8.4.

1.50“Timber” shall mean the following types of standing timber now or hereafter located on the Timberlands: Hardwood Pulpwood, Hardwood Sawlogs, Softwood Pulpwood, Softwood Sawlogs and Softwood Studwood.

1.51“Timberlands” shall mean those certain tracts of real property as described in Exhibit F.

1.52“Tracts” shall have the meaning set forth in Section 3.1.

1.53“Valuation Consultant” shall mean J.W. Sewall Company or a mutually agreed to alternative.

2.Agreement to Sell and Purchase.

2.1Quantities to be Harvested.  Subject to and in accordance with  the terms of this Agreement, Neenah agrees to sell to NPNS and NPNS agrees to purchase from Neenah for each Harvesting Year during the Term the Annual Purchase Amount applicable to such Harvesting Year.

3.Designation of Tracts and Determination of Volumes.

3.1Designation of Tracts to Be Harvested.  During the Term, NPNS shall designate the portions of the Timberlands (the “Tracts”) which NPNS shall harvest during each Harvesting Year.  A sufficient number of Tracts shall be identified so as to satisfy the Annual Purchase Amount.  NPNS shall follow the procedure for designating such Tracts hereinafter set forth in this Section 3.

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(a)Certification of Tracts.  NPNS and Neenah  hereby acknowledge and agree that the Timberlands will, at all times during the Term, be owned, managed and operated in a manner consistent with and necessary to maintain the Timberlands’ SFI® Certification and that both parties will have responsibilities for maintaining such certification.  Notwithstanding the foregoing, NPNS shall be fully and solely responsible for maintaining the Timberlands’ SFI® Certification, provided that Neenah shall reasonably cooperate with NPNS with respect to the registration and maintenance of such certification.  Failure to perform its obligations under this Section 3.1 relating to the maintenance of  the Timberlands’ SFI® Certification shall be deemed a material breach of this Agreement.

(b)Designation of Tracts to be Harvested in 2008 and Estimated Volumes for 2009.  Exhibit C attached hereto sets forth the portions of the Timberlands which NPNS shall harvest for the Short Harvesting Year and for the Harvesting Year commencing January 1, 2009 for the Annual Purchase Amount situated thereon in accordance with the terms of this Agreement.

(c)Subsequent Designation of Tracts to be Harvested.  For the Harvesting Year commencing January 1, 2010, and for all subsequent Harvesting Years during the Term, the portions of the Timberlands which NPNS shall harvest shall be determined in accordance with the following procedure:

(i)Designation of Potential Harvesting Areas.  On or before the first Business Day following October 1 prior to each applicable Harvesting Year except the Short Harvesting Year, NPNS shall designate in a written notice (the “Annual Harvest Notice”) to Neenah all of those portions of the Timberlands which it proposes to harvest during the subsequent Harvesting Year  including the estimated Qualifying Stumpage volumes thereon sufficient to satisfy the Annual Purchase Amount and the proposed route of access from a public road to the property boundary of each Tract.

(ii)Selection of Actual Harvesting Areas.  During the 45-day period following receipt by Neenah of the applicable Annual Harvest Notice, Neenah shall review and provide to NPNS in writing, its consent or reasonable objection (including reasons therefor) to the proposed harvest plan.  To the extent there is a dispute regarding the volumes or the Tracts included in the proposed harvest plan, such dispute shall be subject to the dispute resolution process described in Article 10 of this Agreement.  The approved harvest plan (the “Harvest Plan”) shall identify each of the Tracts designated for harvest during the following year (the “Actual Designated Tracts”).  NPNS shall be entitled to amend a Harvest Plan to take into account market conditions arising or occurring after such Harvest Plan has been initially approved, or the occurrence of events other than Force Majeure Events, from time to time upon written notice to Neenah, subject to Neenah’s consent thereto, such consent not to be unreasonably withheld.

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3.2Boundary and Timber Markings.  Prior to the scheduled commencement of harvesting activities on each applicable Actual Designated Tract as set forth in the harvesting schedule described below in Section 4.1, NPNS shall designate on the ground (using accepted local practices for marking boundary and cut lines) the boundary lines of such Actual Designated Tract.  The boundary lines shall clearly delineate the boundaries of the Actual Designated Tract from the boundaries of adjacent land not owned by Neenah, and from the boundaries of other Timberlands not constituting Actual Designated Tracts for such Harvesting Year.  Subject to Neenah’s reasonable acceptance and approval, NPNS, or NPNS’s third party contractor, shall designate on the ground (using accepted local practices for marking boundary and cut lines) all SMZ’s within the Actual Designated Tracts and any Qualifying Stumpage to be removed from such designated SMZ’s.

3.3Harvesting of Hardwood Qualifying Stumpage.  During the Term, NPNS shall have the right, but not the obligation, as determined in its sole discretion, to harvest the annual AAC for Hardwood Qualifying Stumpage as set out in the Wood Stock Model.  This right is in addition to the Residual Qualifying Stumpage NPNS is committing to harvest pursuant to the harvesting procedures detailed in Article 4 of this Agreement.  All additional Hardwood Qualifying Stumpage shall be identified pursuant to Article 3 hereof.

4.Harvesting Procedures.

4.1Harvesting Schedule.  Following determination of the Actual Designated Tracts, NPNS shall provide a harvesting schedule to Neenah setting forth approximate start and completion dates relating to harvesting Qualifying Stumpage within each of the Actual Designated Tracts.  Neenah shall modify said harvesting schedule based upon any reasonable objections raised by Neenah with respect to any of said harvesting dates.  Notwithstanding the foregoing, NPNS shall harvest the Actual Designated Tracts on the basis of the quarterly harvesting notices provided by NPNS to Neenah every three (3) months during the Term of this Agreement, subject to the occurrence of a Force Majeure Event, and subject to the provisions of Section 4.3 below.

4.2Timber Roads.  NPNS shall construct, or cause to be constructed, at NPNS’s sole cost and expense, haul roads to the Actual Designated Tracts necessary to provide NPNS with proper access to such Actual Designated Tracts for its harvesting operations.  Construction of such roads shall be accomplished in a good and workmanlike manner in compliance with the specifications set forth in Exhibit E.  Following the construction of said roads and continuing until the completion of harvesting operations on the Actual Designated Tract associated with such roads and the removal of all equipment and vehicles associated with such harvesting operations, NPNS shall at its sole cost and expense maintain and repair said roads.  Neenah shall be responsible for all haul roads which are not necessary for NPNS’s harvesting or access to tracts for silviculture, long-term placing or other related harvesting operations, and shall maintain and repair such roads at its sole cost and expense.  All such road construction, maintenance and repair shall be performed in a manner so as:

(i)not to violate any Applicable Laws;

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(ii)to maintain SFI® Certification; and

(iii)so as not to interfere with NPNS’s operations.

Any Timber damaged or destroyed during the course of NPNS’ road construction shall be treated for purpose of this Agreement as if harvested by NPNS as part of harvesting operations on the associated Actual Designated Tract.

4.3Timber Harvesting.  Subject to any amendment to the Harvest Plan, NPNS shall harvest (i.e., cut and remove) within each Harvesting Year all Qualifying Stumpage located on the Actual Designated Tracts for such Harvesting Year, or such smaller volume of Qualifying Stumpage as mutually agreed upon by Neenah and NPNS in writing, subject to the occurrence of a Force Majeure Event.  NPNS may identify in writing to Neenah prior to harvesting activities predominately hardwood stands or Tracts that contain in excess of 50% hardwood stands within any of the Actual Designated Tracts and “walk around” such stands.  All harvesting operations shall be conducted in accordance with all Applicable Laws, in a manner consistent with established industry logging practices or as necessary for the Timberlands to maintain SFI® Certification.  Upon severance of any portion of the Timber on the Timberlands by NPNS or its logging contractors, risk of loss, title to and ownership of such Timber shall pass to NPNS.  NPNS shall repair all fences or structures damaged by its harvesting operations and shall leave all roads, fire breaks, property lines, lakes, streams, and drainage ditches clear of logs, timber, limbs or other debris deposited there as a result of NPNS’s operations (as opposed to third party actions or naturally occurring events).  All oil drums, cans, bottles, cartons, delimbing bars, loading decks, abandoned equipment and other debris resulting from NPNS’ operations shall be removed from the applicable portions of the Timberlands upon completion of the harvesting operations at NPNS’s expense in accordance with Applicable Laws.  NPNS shall not bury any material underground or discharge, release or otherwise cause the Timberlands or any portion thereof to be affected by hazardous wastes or hazardous substances.  NPNS shall use normal and customary care while conducting its harvesting operations so as not to materially damage the Timberlands.  NPNS acknowledges that under SFI Standards a higher degree of care is required when the site is abnormally wet and that such circumstances may require NPNS to alter harvesting activities to accommodate the ground conditions; however, NPNS shall not be liable for any damage to the Timberlands caused by anyone other than NPNS or NPNS’s contractors engaged in harvesting, trucking or road construction on the portion of the Timberlands impacted by such damage.  In addition, Neenah shall retain all Carbon Credits related to or in any way associated with the Qualifying Stumpage pursuant to this Agreement.  For purposes of this Agreement “Carbon Credits” shall mean any calculable carbon offset or credit that could be generated from the Timberlands as such credits are available through the Chicago Climate Exchange or a similar market for carbon reduction or sequestration.

4.4Unauthorized Cutting.  Neenah shall be entitled to seek all remedies available at law for timber trespass if NPNS or its contractors harvest or destroy any Timber that is outside an Actual Designated Tract; however, NPNS shall not be liable for any such damage to the Timberlands caused by anyone other than NPNS or contractors acting on NPNS’s behalf.

4.5Access Rights.  Neenah hereby grants to NPNS the rights to ingress and egress over (i) the Tracts designated on Exhibit D during the Term for the sole purposes of

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harvesting Qualifying Stumpage on the Actual Designated Tracts for a given Harvesting Year and all reasonable activities associated therewith, (ii) on all such other portions of the Timberlands as required to conduct its silviculture and SFI Certification obligations hereunder, and (iii) on all other Tracts comprising the Timberlands in order for NPNS to inspect and monitor existing timber plantations and continue collecting data for ongoing research and analysis.  If Neenah has provided NPNS with access to an Actual Designated Tract (through easement or otherwise), but NPNS prefers to enter upon lands not owned or subject to easement by Neenah, NPNS shall be solely responsible for securing permission to do so.

4.6Silviculture.  NPNS shall carry out and pay for all silviculture work necessary to produce sufficient Silviculture Credits (as that term is referenced in the Forest Sustainability Regulations under the Forests Act (Nova Scotia)) to satisfy its operational requirements (including maintaining the AAC as detailed in Exhibit D).  NPNS shall have the right to all the “Silviculture Credits” created by the silviculture activities carried out on the Timberlands by NPNS during the Term and those Silviculture Credits created by the silviculture activities carried out on the Timberlands by Neenah in 2008, which credits Neenah shall assign to NPNS on the Effective Date.  NPNS shall provide Neenah with a silviculture plan (the “Silviculture Plan”) on an annual basis during the Term and copies of all silviculture activities filed with Nova Scotia Department of Natural Resources.  The annual Silviculture Plans shall be subject to Owner’s approval, which shall not be unreasonably withheld or delayed if the Silviculture Plan produces sufficient Silviculture Credits (as that term is referenced in the Forest Sustainability Regulations under the Forests Act (Nova Scotia) to satisfy its operational requirements (including maintaining the AAC as detailed in Exhibit D.  If NPNS fails to conduct silviculture work then Neenah shall have the right to include the per ton cost of Silviculture Credits in the calculation of the price for Qualifying Stumpage.

4.7Timberland Management.  The parties shall enter into an administrative services agreement pursuant to which NPNS shall provide day-to-day administrative services for the Timberlands, including the ongoing migration of the Timberlands to convert title to Nova Scotia’s registration system.

5.Prices and Payments.

5.1Time of Payment.  All Qualifying Stumpage harvested and removed by NPNS from the Timberlands shall have an accompanying trip ticket.  All Qualifying Stumpage shall be weighed after harvest in a manner consistent with established industry logging practices.  Volumes will be based on volumes by product class shown on mill scale or load tickets. NPNS shall cause all logging contractors to maintain written log books of all loads or partial loads of Qualifying Stumpage cut and removed from the Timberlands and to (i) identify in such log books each load removed from the Timberlands; (ii) record in such log books the load ticket numbers for each load delivered to the Mill; (iii) deliver such log book for inspection by Neenah, as requested; and (iv) clearly tag, by adhering to guidelines reasonably required by Neenah, each load coming from the Timberlands before such load is removed from the Timberlands.  NPNS shall provide Neenah on a weekly basis with a list of scale tickets, a settlement statements, and any other supporting documentation reasonably requested by Neenah and shall remit payment to the Neenah within thirty (30) days of delivery of said settlement statement the total Qualifying

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Stumpage Price for all Qualifying Stumpage weighed-in during such week, except as otherwise detailed in Section 5.3 below.

5.2Price Changes and Stumpage True-up.

Beginning in 2010, on each Price Adjustment Date, the Qualifying Stumpage Price for any product class of Qualifying Stumpage shall be adjusted upward or downward, as the case may be, as described in Article 1 of this Agreement.

5.3[REDACTED]

6.Indemnity.

6.1Indemnification by Neenah.  Neenah shall defend, indemnify and hold NPNS harmless from and against any and all claims, liabilities, costs or damages (including without limitation reasonable attorneys’ fees and expenses and court costs through all appeals):

(i)arising out of the performance or non-performance by Neenah of its covenants and obligations hereunder; or

(ii)relating to the Timberlands, except for those claims, liabilities, costs or damages in respect of which NPNS has pursuant to Section 6.2 indemnified Neenah.

6.2Indemnification by NPNS .  NPNS shall defend, indemnify and hold Neenah harmless from and against any and all claims, liabilities, costs or damages (including without limitation reasonable attorneys’ fees and expenses and court costs through all appeals) arising out of:

(i)personal injury, death or property damage resulting from NPNS’ harvesting and silviculture operations, or NPNS’ access rights pursuant to Section 4.5, on the Timberlands or the presence of employees, agents or other invitees of NPNS on the Timberlands; and

(ii)the performance or non-performance by NPNS of its covenants and obligations hereunder.

7.Force Majeure.

7.1Effect of Force Majeure.  Notwithstanding anything to the contrary contained in this Agreement, except for the obligation of a party to make payments accrued, due and owing hereunder at the time of the occurrence of a Force Majeure Event, the parties shall be excused from performing any of their respective obligations under this Agreement and shall not be liable in damages or otherwise on account of the non-performance of any such obligation, for so long as and to the extent that such party is unable to perform such obligation as a result of any Force Majeure Event.

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7.2Mitigation and Notice.  The occurrence of a Force Majeure Event shall not relieve a party of its obligations and liability hereunder to the extent such party fails to use commercially reasonable efforts to

remove the cause and remedy or mitigate the effects of the Force Majeure Event if, with commercially reasonable efforts, such party could have removed such cause or remedied or mitigated such effects.  In addition, no Force Majeure Event shall relieve a party of its obligations or liability hereunder unless such party shall give notice (including a reasonable description of such Force Majeure Event) to the other party as soon as reasonably possible and in any event within twenty (20) days of the occurrence of such Force Majeure Event. Upon request, the party whose obligations were suspended shall provide the other party with a plan for remedying the effects of such Force Majeure Event.

7.3Failure to Give Notice.  A failure to give notice under Section 7.2 above “as soon as reasonably possible” will not affect the rights and obligations of the party whose obligations are suspended except if, and only to the extent that, the party which was entitled to receive such notice was actually prejudiced as a result of such failure.

7.4Force Majeure Event Affecting Actual Designated Tracts.  If a Force Majeure Event makes a portion of any Actual Designated Tract unavailable or commercially impracticable for harvesting by NPNS in accordance with the harvesting schedule contemplated by the parties or if the Qualifying Stumpage is materially damaged by the Force Majeure Event, then NPNS shall promptly designate and Neenah shall approve and make available for harvesting such other portions of the Timberlands as shall be necessary to satisfy its obligations under this Agreement.

7.5Volume Reduction Based on Force Majeure Event.  If the party that becomes subject to a Force Majeure Event (the “Affected Party”) reduces the volume of Qualifying Stumpage to be purchased or sold due to a Force Majeure Event (the amount of such reduction, the “Reduction Amount”), the Affected Party shall give written notice to the Non-Affected Party of such reduction and the effective date thereof.  If such reduction continues in effect for a period of sixty (60) days or more, the Non-Affected Party shall then have the right, in the case of Neenah, to sell all or part of the Reduction Amount of such Qualifying Stumpage not purchased by NPNS to another buyer or buyers, and in the case of NPNS, to purchase all or part of the Reduction Amount of Qualifying Stumpage not sold by Neenah from another seller or sellers, subject to the following:

(a)the Non-Affected Party shall not enter into any contract for any such sale or purchase for a term longer than 12 consecutive months;

(b)the Non-Affected Party shall give the Affected Party written notice of each such contract, including the volume sold or purchased hereunder and the term thereof;

(c)the annual volume commitment of the Non-Affected Party for Qualifying Stumpage as specified herein shall be reduced by such volume sold or purchased under such contract for the duration thereof; and

(d)any other plan of action  mutually agreed to by both parties.

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8.Term and Termination.

8.1Term.  This Agreement shall expire on June 24, 2018, unless (i) this Agreement is terminated prior to such date for cause pursuant to Section 8.2 hereof or pursuant to Section 8.3 [REDACTED], or (ii) the term of this Agreement is extended by NPNS in accordance with Section 8.4.

8.2Termination for Cause.  This Agreement shall immediately terminate if any one of the following events (each, a “default”) has occurred and is continuing on the tenth (10th) day after receipt of notice of an intent to cancel by reason of such default (each, an “Event of Default”);

(a)failure to make any payment required hereunder when due which failure is not cured within ten (10) Business Days after receipt of written notice thereof; or

(b)breach of any other material term of this Agreement, which breach is not cured within thirty (30) Business Days after receipt of written notice thereof; or

(c)insolvency or the filing by or against NPNS or Neenah of a petition in bankruptcy (which, in the event of an involuntary bankruptcy, is not dismissed within ninety (90) days from the date of its commencement), or appointment by a court of a temporary or permanent receiver, trustee or custodian, but only if NPNS or Neenah, as applicable, is in breach of its obligations hereunder.

Termination shall not relieve a defaulting party of any liability to the nondefaulting party for breach of its obligations hereunder.

8.3[REDACTED]

8.4Extension of Term.  NPNS shall have the option to extend the Term an additional period to expire on July 31, 2021 (the “Renewal Term”) by providing written notice thereof to Neenah not later than November 30, 2017.  The Renewal Term shall be upon the same terms and conditions as the last five years of the original Term.

9.Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the Province of Nova Scotia, Canada and the federal laws of Canada applicable therein as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies (without giving effect to any choice or conflict of law provision or rule).

10.Dispute Resolution.

(a)Consultation by Responsible Executives.

If there is any dispute, controversy or claim arising out of or relating to this Agreement, that the personnel designated by Neenah and NPNS respectively, with

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operational responsibility for implementing this Agreement are unable to resolve, each of the parties will cause its chief officer in charge of managing the Timberlands (or the chief operating officer of any manager of the Timberlands, as the case may be), to consult with each other promptly and in good faith to endeavor to resolve such dispute, controversy or claim before seeking mediation as provided in Section 10(b), but failure to do so shall not limit the right of either party to submit the issue to such.

(b)Mediation.

(i)In the event of any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof, except for disputes in respect of which equitable relief is sought and except for any matter in respect of which this Agreement specifies a resolution mechanism, (a “Dispute”), the parties shall make a good faith attempt to settle the Dispute by mediation pursuant to the provisions of this Section 10(b).

(ii)Unless the parties agree otherwise, the mediation shall be conducted in Halifax, Nova Scotia, in accordance with the National Mediation Rules of the ADR Institute of Canada, Inc. by a mediator who has the qualifications and experience set forth in paragraph (iv) of this Section 10(b) and is selected as provided in paragraph (iv) of this Section 10(b).

(iii)Unless the parties agree otherwise, the mediator shall be an individual of recognized expertise and experience in the timber market in the general operating range of the Timberlands who has mediated cases involving similar transactions for the federal or provincial courts or for a reputable commercial alternative dispute resolution (“ADR”) firm or not-for-profit ADR organization.

(iv)Either party (the “Initiating Party”) may initiate mediation of the Dispute by giving the other party (the “Recipient Party”) written notice (a “Mediation Notice”) setting forth a list of the names and resumes of qualifications and experience of three (3) impartial persons who the Initiating Party believes would be qualified as a mediator pursuant to the provisions of paragraph (iii) hereof.  Within seven (7) days after the delivery of the Mediation Notice, the Recipient Party shall give a counter-notice (the “Counter-Notice”) to the Initiating Party in which the Recipient Party may designate a person to serve as the mediator from among the three (3) persons listed by the Initiating Party in the Mediation Notice (in which event such designated person shall be the mediator).  If none of the persons listed in the Mediation Notice is designated by the Recipient Party to serve as the mediator, the Counter-Notice shall set forth a list of the names and resumes of three (3) impartial persons who the Recipient Party believes would be qualified as a mediator pursuant to the provisions of paragraph (iii) hereof.  Within seven (7) days after the delivery of the Counter-Notice, the Initiating Party may designate a person to serve as the mediator from among the three (3) persons listed by the Recipient Party in the Counter-Notice (in which event such designated person shall be the mediator).  If the parties cannot agree

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on a mediator from the three (3) impartial nominees submitted by each party, each party shall strike two (2) names from the other party’s list, and the two (2) remaining persons on both lists will jointly select as the mediator any person who has the qualifications and experience set forth in paragraph (iii) hereof.  If they are unable to agree, then the mediator will be selected by the ADR Institute of Canada, Inc.

(v)If the Dispute cannot be settled within thirty (30) days after the mediator has been selected as provided above, either party may give the other and the mediator a written notice declaring the mediation process at an end, in which event either party may pursue any remedies available at law or in equity to resolve the Dispute.

(vi)All conferences and discussions which occur in connection with mediation conducted pursuant to this Agreement shall be deemed settlement discussions, and nothing said or disclosed, nor any document produced which is not otherwise independently discoverable, shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration or litigation.

(vii)Each party shall bear its own costs and expenses with respect to mediation; provided that the costs of the mediator shall be shared equally between the parties.

11.Assignment.

11.1Assignment by Neenah.

(a)Except as provided in this Section 11.1, this Agreement may not be assigned by Neenah in whole or in part.  Notwithstanding the foregoing, at any time during the Term, Neenah may assign this Agreement (i) to any lender or lenders as security for obligations to such lender or lenders in respect of the financing arrangements of Neenah or any Affiliate thereof with such lender or lenders, or (ii) upon prior written notice to NPNS, to any Person that is and at all times remains an Affiliate of Neenah or that merges, amalgamations or consolidates with or into Neenah or that acquires all or substantially all of the Timberlands.

(b)Notwithstanding any other provision of this Agreement to the contrary, NPNS and Neenah acknowledge and agree that Neenah shall not be prohibited from selling all or any portion of the Timberlands; provided, however, that each such purchaser thereof shall agree to be bound by the terms of hereof with respect to the relevant Timberlands and the applicable portion of Qualifying Stumpage volumes required hereunder pursuant to a written instrument in form and in substance reasonably acceptable to NPNS, and no such sale shall give rise to any additional obligations on the part of NPNS to any such purchaser, or all of them in the aggregate, with respect to the subject matter of this Agreement or otherwise reduce NPNS’s rights as contemplated by

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this Agreement.  At the request of Neenah, upon any such sale, NPNS shall execute an amendment to this Agreement acknowledging the foregoing.

11.2Assignment by NPNS .  Except as provided in this Section 11.2, this Agreement may not be assigned by NPNS in whole or in part.  Notwithstanding the foregoing, upon prior written notice to Neenah, NPNS may assign this Agreement (i) to any Person that is and at all times remains an Affiliate of NPNS or that merges or consolidates with or into NPNS or that acquires all or substantially all of the assets or stock of  NPNS, (ii) to any Person that purchases or leases the Mill or assumes responsibility for operating the Mill and assumes NPNS’s liabilities and obligations hereunder, or (iii) to any lender or lenders as security for obligations to such lender or lenders in respect of the financing arrangements of NPNS or any Affiliate thereof with such lender or lenders.

12.Publicity.  This Agreement is confidential and neither party shall issue a press release or engage in other types of publicity of any nature dealing with the commercial and legal details of this Agreement without the other party’s prior written approval.  However, approval of such disclosure shall be deemed to be given to the extent such disclosure is required to comply with Applicable Laws. In such event, the publishing party shall furnish, in advance, a copy of such proposed disclosure, to the other party.

13.Headings.  The headings contained in this Agreement are for convenience only and should not be construed to limit or expand any terms otherwise provided.

14.Notices.  All notices, requests, demands and other communications provided for hereunder shall be in writing and personally delivered or sent by regular U.S.P.S. or Canada Post certified mail, facsimile or similar type of overnight courier to the applicable party at the address indicated below:

If to Neenah, to:

If to NPNS:

or by mail to

or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section.  Notice shall be deemed received when (i) hand delivered; (ii) sent, after receipt of confirmation if sent by facsimile; (iii) five Business Days after deposit with the U.S.P.S. or Canada Post, postage prepaid, for certified mail; and (iv) one Business Day after delivery to overnight courier, properly addressed to the applicable party.

15.Partial Illegality.  If any provision, or part of a provision, of this Agreement is held to be invalid or unenforceable under any Applicable Law, then the parties shall use all commercially reasonable efforts to replace the invalid or unenforceable provision by a provision that, to the extent permitted by Applicable Law, achieves the purposes intended under the original provision and to allow the parties to have the intended benefit of their bargain.  If it

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cannot be so reformed, it shall be omitted.  The balance of this Agreement shall remain valid and unchanged and in full force and effect.

16.Waiver of Compliance.  Any delay or omission on the part of either party to this Agreement in requiring performance by the other party hereunder or in exercising any right hereunder shall not operate as a waiver of any provision of this Agreement or of any right or rights hereunder.  Further, any failure by either party to enforce at any time any term or condition under this Agreement shall not be considered a waiver of that party’s right thereafter to enforce each and every term and condition of this Agreement.

17.Amendments and Waivers.  This Agreement may not be terminated, amended, supplemented, waived or modified orally, but only by a document in writing signed by the party against which the enforcement of such termination, amendment, supplement, waiver or modification is sought.  No waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any such prior or subsequent occurrence.

18.Counterparts.  This Agreement may be executed by the parties hereto in separate counterparts, including by facsimile each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same document.  All signatures need not be on the same counterpart.

19.Estoppel Certificates.  Either party shall, at no cost to the requesting party, from time to time, upon twenty (20) days prior request by the other party acting reasonably, execute, acknowledge and deliver to the requesting party a certificate signed by an officer of the certifying party stating that this Agreement is unmodified and in full force and effect (or, if there have been modifications, that this Agreement is in full force and effect as modified, and setting forth such modifications) and the dates through which payments have been made, and either stating that to the knowledge of the signer of such certificate no default exists under this Agreement or specifying each such default to which the signer has knowledge.

20.Submission To Jurisdiction.  Without limiting the parties’ agreement to submit any and all disputes to mediation and arbitration as herein provided, if, notwithstanding said section, any party shall have the right to seek recourse to a court with respect to any dispute arising out of or related to this Agreement or the transactions contained in or contemplated by this Agreement, whether in tort or contract or at law or in equity, then any action or proceeding in respect of any such dispute shall be brought exclusively in any Superior Court in the Province of Nova Scotia (the “chosen courts”) and with respect to any such action each party (i) irrevocably submits to the exclusive jurisdiction of the chosen courts for such purposes, (ii) waives any objection to laying venue in any such action or proceeding in the chosen courts, (iii) waives any objection that the chosen courts are an inconvenient forum or do not have jurisdiction over any party hereto, and (iv) agrees that service of process upon such party in any such action or proceeding shall be effective if notice is given in accordance with Section 14 of this Agreement.  Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by

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law or at equity.  Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court.

21.Prevailing Party.  If either party brings any proceeding for the judicial or other interpretation, enforcement, termination, cancellation or rescission of this Agreement, or for damages for the breach thereof, the prevailing party in any such proceeding or appeal thereon shall be entitled to its reasonable attorneys’ fees and expenses and court and other reasonable costs incurred, to be paid by the losing party as fixed by the court in the same or a separate proceeding, and whether or not such proceeding is pursued to decision or judgment.

22.Entire Agreement.  This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and merges all prior discussions and negotiations between the parties related to this matter.  None of the parties shall be bound by any conditions, definitions, representations, or warranties with respect to the subject matter of this Agreement other than as expressly set forth above.

23.Third-Party Beneficiaries.  Except as otherwise provided hereinafter,, this Agreement is intended to be solely for the benefit of the parties thereto and their permitted assigns and is not intended to and shall not confer any rights or benefits on any third party not a signatory hereto.

24.Insurance. NPNS, or in the event that NPNS retains any third-party contractor to conduct harvesting operations on the Timberlands, NPNS or said third-party contractor shall, before conducting any operations, obtain and maintain the following types of insurance and be duly registered with the Nova Scotia Workers Compensation Board, in addition to any other insurance required by law:  (a) Worker’s Compensation and Employer’s Liability Insurance fully covering all operations; (b) Comprehensive Vehicle Liability Insurance, including owned, hired and non-owned vehicles, with limits of not less than $2,000,000 single occurrence and $2,000,000 cumulative bodily injury liability; and (c) Comprehensive or Commercial General Liability Insurance, including all contractual liability hereunder, with limits of not less than $2,000,000 single occurrence and $2,000,000 cumulative bodily injury liability.  Prior to the beginning of any harvesting operations hereunder, evidence of all such insurance and registration shall be furnished to Neenah if requested in writing.

25.Construction and Enforcement.  In construing and enforcing this Agreement, the following rules shall be followed:

25.1Control of Drafting.  Each provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any party to this Agreement.  No consideration shall be given to the fact or presumption that any party to this Agreement had a greater or lesser hand in drafting this Agreement.

25.2Captions.  Except for the boldfaced defined terms used in Section 1, in construing and enforcing this Agreement, no consideration shall be given to the captions of the articles, sections, subsections, and clauses of this Agreement, which are inserted for convenience in organizing and locating the provisions of this Agreement, not as an aid in its construction.

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25.3Plural and Singular Forms.  Plural words shall be understood to include their singular forms and vice versa.

25.4Including.  The word “include” and its syntactical forms mean “include, but are not limited to,” and corresponding syntactical forms.  The principle of ejusdem generis shall not be used to limit the scope of the category of things illustrated by the items mentioned in a clause introduced by the word “including.”

25.5Definitions.  A defined term has its defined meaning throughout this Agreement, regardless of where in this Agreement the term is defined.

25.6Internal Cross-References.  Except as otherwise provided in this Agreement, a reference to an Article, Section, or clause means an article, section, or clause of this Agreement and may be understood to mean, for example, “Section 5.1 of this Agreement” or “Section 5.1 hereof.”  The term “Section” is used variously to identify entire Sections (as in “Section 3.1”), subsections (as in “Section 3.1(b)”), and clauses (as in “Section 3.1(b)(i)”).

25.7Currency.  Unless otherwise specifically indicated herein all dollar amounts listed or described in this Agreement are expressed in lawful currency of Canada.. 

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Executed as of the date first set forth above.

NEENAH:
	NEENAH PAPER COMPANY OF CANADA
	By:
	Name: Sean Erwin
	Title: President and Chief Executive Officer
	Signature page for Stumpage Agreement

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NPNS:
	NORTHERN PULP NOVA SCOTIA CORPORATION
	By:
	Name:  Sean Erwin
	Title:   President and Chief Executive Officer
	Signature page for Stumpage Agreement

EXHIBIT A

Qualifying Stumpage Specifications

“Softwood Sawlogs” shall mean:
(a)	Length	12,14, and 16 foot
(b)	Trim	2” to 8”
(c)	Minimum top diameter	4” outside bark
(d)	Maximum diameter	28” outside bark
(e)	Acceptable species	All Spruces & Jack Pine
(f)	Dead wood	White, sound, dead wood is acceptable – provided no sap rot
(g)	Burned wood	No burned or charred wood
(h)	Rot	Not acceptable
(i)	Stain	Solid hard red stain acceptable (growth rings must be visible)
(j)	Sweep (& other)	1/2 top diameter maximum sweep (e.g., less than 3” sweep on a 6” diameter bolt); no seams or forked pieces
(k)	Limbs	Must be cut flush with bole.
(l)	Butt Flare	No excessive butt flare
“Softwood Studwood” shall mean:
(a)	Length	8, 9 or 10 foot
(b)	Trim	2” to 8”
(c)	Minimum top diameter	3.6 inches outside bark
(d)	Maximum top diameter	12.0” outside bark
(e)	Acceptable species	All Spruces, Balsam Fir & Jack Pine
(f)	Loads	Mixed species loads
(g)	Dead wood	White, sound, dead wood is acceptable – provided no sap rot
(h)	Burned wood	No burned or charred wood
(i)	Rot	Not Acceptable
(j)	Stain	Solid hard red Stain acceptable (growth rings must be visible)
(k)	Sweep (& other)	1/2 top diameter maximum sweep (e.g., less than 3” sweep on a 6” diameter bolt); no seams or forked pieces
(l)	Limbs	Must be cut flush with bole.
(m)	Butt Flare	No excessive butt flare
“Softwood Pulpwood” shall mean :
(a)	Length	8 foot
(b)	Trim	2 to 8 inches
(c)	Minimum top diameter	2.5” outside bark for sawmill delivered timber or 1” outside bark for full tree roadside flail chipper timber
(d)	Maximum top diameter	13.0” outside bark
(e)	Acceptable species	All softwood species
(f)	Loads	Mixed species loads permitted unless notified in writing that species segregation is required (spruce/fir segregated from other softwood species)
(g)	Dead wood	White, sound, dead wood is acceptable

(h)	Rot	Maximum ½ diameter (60% of end area) is acceptable
(j)	Burn/charred wood	Unacceptable
(j)	Sweep (& other)	12” maximum sweep; no forked pieces
(k)	Limbs	Must be cut flush with bole.
“Hardwood Sawlogs” shall mean:
(a)	Length	7 or 8 foot
(b)	Trim	2 to 8 inches
(c)	Minimum top diameter	7.0 inches outside bark
(d)	Maximum diameter	36.0 inches outside bark
(e)	Acceptable species	sugar maple, red maple, yellow birch, white birch, oak, ash, beech
(f)	Clear faces	minimum 2 clear faces
(g)	Heart	sugar & red maple – ½
(h)	Stain	no stain
(i)	Rot	red maple, beech no rot; all other species over 10 inches top diameter with 3 clear faces up to 30% rot
(j)	Burn/charred wood	Unacceptable
(k)	Sweep (& other)	less 10 inches top diameter straight; less than 3 inches over 10 inch top; no forks
(l)	Limbs	Must be cut flush with bole.
(m)	Loads	Mixed species loads acceptable
“Hardwood Pulpwood” shall mean:
(a)	Length	8 foot or 12 to 18 feet
(b)	Minimum top diameter	3.0 inches outside bark
(c)	Maximum diameter	18.0 inches outside bark
(d)	Acceptable species	All hardwood species except poplar
(e)	Rot	Sound and cut from living trees unless specific market has tolerance for rot.
(f)	Burn/charred wood	Unacceptable
(g)	Sweep (& other)	Less than 6 inches; no forks; cut square at ends
(h)	Limbs	Must be cut flush with bole.
(i)	Butt Flare	Butt flare and scarf removed

EXHIBIT B

Base Stumpage Prices

2008:As described in Section 5.3 of the Agreement.

2009:As described in Section 5.3 of the Agreement.

Remainder Of Term:[REDACTED]

EXHIBIT C

2008 AND 2009 HARVEST PLANS

[REDACTED]

EXHIBIT D

AAC FOR SOFTWOOD VOLUME AND SILVICULTURE

[REDACTED]

EXHIBIT E

Road Specification

NPNS will improve or build temporary haul roads for the removal of Qualifying Stumpage as set forth in Section 4.2 under the following conditions:

1.To the extent possible NPNS will use or improve existing haul roads.

2.It is NPNS’s intent that construction of new haul roads will be held to the minimum necessary to remove the Qualifying Stumpage.

3.Haul roads will be improved or designed for one lane traffic capable of accommodating standard 18 wheel tractor-trailer log trucks.  The road width will normally be 5.0 to 5.5 meters or less, unless terrain features require additional width.

4.Roads will be designed to minimize the number of stream crossings.

5.NPNS will be responsible for road construction cost.  However, if changes are made in the roads location or design solely for the benefit of Neenah, than the additional cost of those changes will be the responsibility of Neenah.

6.The construction, maintenance, and use of haul roads will comply with all Applicable Laws and requirements necessary to maintain SFI ® Certification for the Timberlands.

7.Following the completion of harvesting operations roads will be left in as good or better condition as existed prior to the harvesting.  Temporary stream crossing will be removed, and where necessary water control structures will be constructed.

8.NPNS will notify Neenah of completion of the harvest operation and final road maintenance, after which responsibility for the road reverts to Neenah.

EXHIBIT F

Timberland Properties

EX-10.6

Exhibit 10.6

SUBSCRIPTION AGREEMENT

THIS AGREEMENT is made as of the 24^th day of June, 2008.

BETWEEN:

Neenah Paper Company of Canada, an unlimited company incorporated under the laws of the Province of Nova Scotia (the “Subscriber”)

- and -

Azure Mountain Capital Financial Corporation, an unlimited company incorporated under the laws of the Province of Nova Scotia (the “Company”)

WHEREAS:

A.Pursuant to the terms of a Share Purchase Agreement (the “Share Purchase Agreement”) made as of May 15, 2008, among the Subscriber, NPCC Holding Company, LLC, a limited liability company organized under the laws of Delaware, Neenah Paper Inc., a corporation incorporated under the laws of Delaware, Azure Mountain Holdings LP, a limited partnership formed under the laws of Ontario, Northern Pulp NS LP, a limited partnership formed under the laws of Ontario and Azure Mountain Capital Financial LP, a limited partnership formed under the laws of Ontario, it is a condition of closing that the Company have issued the Common Shares (as defined below) to the Subscriber and that the amount paid up thereon be the Amount Paid at Closing (as defined below).

B.The Company is a wholly-owned subsidiary of the Subscriber, and the Company and the Subscriber desire to enter into this Subscription Agreement to facilitate the satisfaction of the conditions of the Share Purchase Agreement.

NOW THEREFORE, the parties agree as follows:

ARTICLE 1DEFINITIONS AND PRINCIPLES OF INTERPRETATION

1.1Definitions

Whenever used in this Agreement, unless there is something inconsistent in the subject matter or context, the following words and terms shall have the meanings set out below:

“Agreement” means this subscription agreement and all instruments supplementing, amending or confirming this Agreement;

“Amount Paid at Closing” means the Canadian dollar equivalent of US$9,964,654.81; and

“Common Shares” means 25,000 common shares in the capital of the Company having a par value of $1,000 each.

1.2Certain Rules of Interpretation

In this Agreement:

(a)time is of the essence in the performance of the parties’ respective obligations;

(b)unless otherwise specified, all references to money amounts are to currency of Canada;

(c)the descriptive headings of Articles and Sections are inserted solely for convenience of reference and are not intended as complete or accurate descriptions of content; and

(d)the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such person or persons or circumstances as the context otherwise permits.

1.3Applicable Law

This Agreement shall be construed in accordance with the laws of the Province of Nova Scotia and the laws of Canada applicable therein.

ARTICLE 2
PURCHASE OF COMMON STOCK

2.1Subscription

(a)The Subscriber hereby subscribes for the Common Shares.

(b)On the date hereof, being the date of issuance of the Common Shares, the Subscriber shall pay the Amount Paid at Closing upon all of the issued Common Shares.  The Amount Paid at Closing divided by the number of issued Common

2

Shares shall be the paid up capital of each Common Share, and the balance of the amount of each such Common Share shall continue to be assessable.

(c)The consideration for the Common Shares shall be paid in cash and may be paid in United States’ dollars.

(d)The Company hereby allots and agrees to issue the Common Shares to the Subscriber.

(e)Upon receipt by the Company of the subscription price payable on the date hereof as aforesaid, the Company shall record on the books of the Company the number of partly paid Common Shares issued to the Subscriber and issue a share certificate therefor to the Subscriber.

2.2Payment of Calls

The Company agrees to accept payment of any call in the United States dollars equivalent (as determined by the Company acting reasonably) of any call on the Common Shares.  For greater certainty, each of the Company and the Subscriber acknowledges that: (i) the maximum amount which the Company may call upon the Common Shares at law (the “Unpaid Capital Call”) is the par value of the Common Shares minus the Amount Paid at Closing, and (ii) a capital call in the amount of the Canadian dollar equivalent of US$10,000,000 will be made by the Company on August 29, 2008 in respect of the Unpaid Capital Call.

ARTICLE 3REPRESENTATIONS OF THE COMPANY

The Company hereby represents and warrants to the Subscriber the matters set out below.

3.1Incorporation

The Company is duly incorporated and validly existing under the laws of the Province of Nova Scotia and has all necessary corporate power and capacity to own its property and assets and to carry on the business as now conducted.

3.2Due Authorization

The Company has all the necessary corporate power and capacity to enter into this Agreement, to allot and issue the Common Shares to be issued to the Subscriber pursuant to this Agreement, and the execution and delivery of this Agreement and the allotment and issuance of such Common Shares to the Subscriber have been duly authorized by all necessary corporate action on the part of the Company.

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3.3Enforceability of Obligations

This Agreement constitutes a valid and binding obligation of the Company enforceable against it in accordance with its terms.

3.4Securities Act

The Company is a “private issuer” under the Securities Act (Nova Scotia).

ARTICLE 4REPRESENTATIONS OF THE SUBSCRIBER

The Subscriber hereby represents and warrants to the Company the matters set out below.

4.1Incorporation

The Subscriber is duly incorporated and validly existing under the laws of the Province of Nova Scotia and has all necessary corporate power and capacity to own its property and assets and to carry on the business as now conducted.

4.2Due Authorization

The Subscriber has all the necessary corporate power and capacity to enter into this Agreement, and the execution and delivery of this Agreement have been duly authorized by all necessary corporate action on the part of the Subscriber.

4.3Enforceability

This Agreement constitutes a valid and binding obligation of the Subscriber enforceable against it in accordance with its terms.

ARTICLE 5
GENERAL

5.1Survival

All representations and warranties set forth in Articles 3 and 4 shall survive the execution, delivery and performance of this Agreement, notwithstanding any investigation at any time made by or on behalf of the party to which it has been given.

5.2Further Assurances

Each of the parties covenants and agrees to take all such action and to execute all such documents as may be necessary or advisable to implement the provisions of this Agreement fully and effectively and to make them binding on the parties hereto.

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5.3Enurement

This Agreement shall enure to the benefit of and be binding upon the parties to this Agreement and their respective heirs, executors, administrators and successors.

5.4Counterparts and Acknowledgements

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

[Remainder of page left intentionally blank.]

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IN WITNESS OF WHICH the Parties have duly executed this Agreement.

NEENAH PAPER COMPANY OF CANADA
By:
	Name:	Sean Erwin
	Title:	President and Chief Executive Officer
AZURE MOUNTAIN CAPITAL FINANCIAL CORPORATION
By:
	Name:	Sean Erwin
	Title:	President and Chief Executive
		Officer

Signature page for Subscription Agreement

EX-10.7

Exhibit 10.7

CONSENT AND GUARANTEE AGREEMENT

CONCERNING AMENDED AND RESTATED PULP SUPPLY AGREEMENT

This Consent and Guarantee Agreement (“Agreement”) is effective as of June 19, 2008 and is by and between Neenah Paper, Inc., a Delaware corporation (“NPI”) and Kimberly-Clark Global Sales, LLC, a limited liability company (“K-C”).

WITNESSETH

WHEREAS NPI and K-C are parties to the Amended and Restated Pulp Supply Agreement by and between Neenah Paper, Inc. and Kimberly-Clark Global Sales, LLC (as successor in interest to Kimberly-Clark Global Sales, Inc.) dated as of August 29, 2006 as amended to and including the date hereof (the “August 29 Agreement”);

WHEREAS NPI desires to assign, delegate and transfer (the “Assignment”) all of its rights, obligations and interests under the August 29 Agreement relating to the Pictou, Nova Scotia Mill (the “Pictou R&O”) to Northern Pulp Nova Scotia Corporation, a Nova Scotia unlimited company (“Northern Pulp”);

WHEREAS K-C is willing to grant its consent to the Assignment if NPI guarantees the performance of Northern Pulp under the August 29 Agreement for a certain period;

NOW THEREFORE in consideration of the foregoing premises, the mutual covenants herein contained and intended to be legally bound hereby, NPI and K-C agree as follows:

1.Consent.  K-C hereby consents to NPI’s Assignment of the Pictou R&O to Northern Pulp.  For greater certainty, from the date hereof through June 30, 2008 NPI retains all rights, obligations and interests of the August 29 Agreement as concerns the Terrace Bay Mill.

2.Guarantee.  From the date hereof until the date that a Guarantee Ending Event (as defined below) occurs, NPI unconditionally and irrevocably guarantees the performance when due by Northern Pulp of the Pictou R&O.

For the purposes of this Agreement “Guarantee Ending Event” means the occurrence of any one of (i) December 31, 2010 but provided that any unfulfilled obligations arising before December 31, 2010 shall survive under this Agreement until they are performed, (ii) Northern Pulp has delivered to K-C 384,000 ADMT of Pulp under the August 29 Agreement, (iii) Northern Pulp and K-C have entered into a new contract which replaces the August 29 Agreement, or (iv) the August 29 Agreement is amended by K-C and Northern Pulp to establish (a) a new volume of Pulp in excess of 384,000 ADMT or (b) a new length of the contract beyond December 31, 2010 or (c) a new discount for Pulp in excess of the current Discount.  Further, in the event that the August 29 Agreement is amended in a way other than a Guarantee Ending Event, and such amendment is without the consent of NPI, then such amendment shall not serve to increase the liability of NPI under this Agreement.

This guaranty is a guaranty of performance, provided that K-C shall be obligated before enforcing this guarantee to have made written demand (including by, e-mail, fax or postal letter) for performance from Northern Pulp and the Northern Pulp failure of performance shall have continued for three (3) business days after such written demand has been made, but further provided that K-C shall not be obligated to have exhausted all rights and remedies K-C may have against Northern Pulp or commence any suit or other proceeding

1

against Northern Pulp in any court or other tribunal or to make any claim in a liquidation or bankruptcy of Northern Pulp.

The liability of NPI under this guaranty shall be absolute and unconditional and shall not be released, suspended, discharged, terminated or otherwise affected by any circumstance or occurrence whatsoever, except as set forth herein.

NPI hereby represents and warrants to K-C that NPI is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has all requisite corporate power and authority to conduct its business as presently conducted and to enter into and perform its obligations under this guarantee.

Except as expressly set forth herein, NPI hereby waives promptness, diligence, notice of acceptance and any other notice with respect to this guarantee, and covenants that this Agreement will not be discharged, except by complete performance of the Pictou R&O contained herein.

NPI assumes all responsibility for being, and keeping itself, informed of Northern Pulp’s financial condition and assets, and of all other circumstances bearing upon the risk of non-performance of the Pictou R&O and the nature, scope and extent of the risks that NPI assumes and incurs hereunder, and agrees that K-C will not have any duty to advise NPI of information known to it regarding such circumstances or risks, provided that K-C will promptly provide to NPI a copy of any K-C written demand for performance by Northern Pulp of the Pictou R&O.

3.Miscellaneous.

Parties Bound/Assignment.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors, and permitted assigns.  Northern Pulp shall be a third party beneficiary of this Agreement with respect to the consent of K-C to the Assignment.  Neither party shall assign or transfer any right, obligation or interest, under this Agreement without the prior written consent of the other.

Notices.  All notices and communications in connection with this Agreement shall be in writing and shall be deemed complete upon transmittal by a recognized international courier or by facsimile, with a confirmation of receipt, addressed to the parties hereto at their respective addresses or facsimile numbers set forth below:

if to Seller:

Neenah Paper, Inc.
Preston Ridge III, Suite 600

3460 Preston Ridge Road
Alpharetta, Georgia 30005
Attn: Chief Executive Officer
Phone: (678) 566-6500
Fax:  (678)  518-3283

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with copy to:

Neenah Paper, Inc.

Preston Ridge III, Suite 600

3460 Preston Ridge Road
Alpharetta, Georgia 30005
Attn: General Counsel
Phone: (678) 566-6500
Fax:  (678)  518-3283

if to K-C:

Kimberly-Clark Global Sales, LLC
2300 Winchester Road
Neenah, WI  54956
Attn: Director Virgin Fiber Procurement
Phone: (920) 721-4116
Fax:  (920)  721-4976

with copy to:

Chief Counsel, NACP Operations
Kimberly-Clark Corporation
401 N. Lake Street
Neenah, WI 54957 – 0349
Phone:  (920) 721-2000
Fax:  (920) 721-8446

or any other address or fax number and to the attention of any other person as either of the parties may specify hereafter by written notice to the other.

Severability of Provisions.  If any provision of this Agreement shall be determined to be invalid, illegal or unenforceable under law, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Construction.  Should any part or provision of this Agreement require judicial interpretation, the parties agree that the court interpreting such part or provision shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be more strictly construed against the party that itself or through its agent prepared the same, it being agreed that the parties have both participated in the preparation of this Agreement.

No Release.  The rights, powers and remedies provided to K-C herein are cumulative and not exclusive of any right, power or remedy provided at law or equity.  Failure or forbearance of K-C to exercise any right hereunder or otherwise granted at law or equity shall not affect or release NPI from its liability hereunder and shall not constitute a waiver of such right unless so stated by K-C in writing, and then only in the specific instance and for the specific purpose given.

Governing law.  This Agreement shall be governed by and construed in accordance with the law of the state of Wisconsin, excluding its choice of law provisions.

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Consent to Jurisdiction.  NPI agrees that any and all actions arising under or in respect of this Agreement may be litigated in any federal or state court of competent jurisdiction located in the State of Wisconsin.  NPI irrevocably submits to the personal and non-exclusive jurisdiction of such courts for itself and in respect of its property with respect to such action.  NPI agrees that venue would be proper in any of such courts, and hereby waives any objection that any such court is an improper or inconvenient forum for the resolution of any such action.  NPI further agrees that the mailing by certified or registered mail, return receipt requested, to the addresses specified for notice in this Agreement of any process or summons required by any such court shall constitute valid and lawful service of process against it, without the necessity for service by any other means provided by statute or rule of court.

Entire Agreement.  This Agreement, including documents referenced herein, constitutes the entire agreement between the parties related to the subject matter hereof, and cancels and supersedes all prior or contemporaneous agreements, whether oral or written, relating to the subject matter of this Agreement and all prior agreements, negotiations, dealings and understandings, whether written or oral, regarding the subject matter hereof are hereby superseded and merged into this Agreement.  No conditions, usage of trade, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or supplement the terms or conditions of this Agreement shall be binding unless hereafter made in writing and signed by the party to be bound, and no modification shall be effected by the acknowledgement or acceptance of purchase order or shipping instruction, invoice or other forms containing terms or conditions at variance with or in addition to those set forth in this Agreement.

Counterparts.  This Agreement may be executed by the parties in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same agreement.

IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized representatives of the parties as of the date first written above.

NEENAH PAPER, INC.			KIMBERLY-CLARK GLOBAL SALES, LLC
BY:	/s/ STEVEN S. HEINRICHS	BY:	/s/ DAVID J. FADDIS
Name:	Steven S. Heinrichs	Name:	David J. Faddis
Title:	Senior Vice President,	Title:	Vice President, Family Care Product Supply
	General Counsel and Secretary
Date:	June 20, 2008	Date:	June 19, 2008

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Sean T. Erwin, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Neenah Paper, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: August 11, 2008

/s/ Sean T. Erwin

Sean T. Erwin

Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Bonnie C. Lind, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Neenah Paper, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: August 11, 2008

/s/ Bonnie C. Lind

Bonnie C. Lind

Senior Vice President, Chief Financial Officer

and Treasurer (Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neenah Paper, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Sean T. Erwin

 Sean T. Erwin
 Chairman of the Board, President and Chief Executive Officer
 (Principal Executive Officer)
 Date: August 11, 2008

/s/ Bonnie C. Lind

 Bonnie C. Lind
 Senior Vice President, Chief Financial Officer and Treasurer
 (Principal Financial Officer)
 Date: August 11, 2008