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

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

Yes    X          No ___

Material included in this Form 40-F:

1. Notice of Annual Meeting of Shareholders, Management Proxy Circular dated March 1, 2006 and Proxy Forms;

2. The Audited Financial Statements of Norbord Inc. for the Twelve Months ended December 31, 2005;

3. The Management's Discussion and Analysis of Norbord Inc. for the Twelve Months ended December 31, 2005; and

4. The Annual Information Form of Norbord Inc. for the Twelve Months ended December 31, 2005.

Disclosure, controls and procedures are defined by the Securities and Exchange Commission as those controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have determined that such disclosure controls and procedures are effective as of the date of this Annual Return on Form 40-F.

Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regards to significant deficiencies and material weaknesses.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

designation of Mr. Wells as an audit committee financial expert does not make Mr. Wells an "expert" for any purpose, impose any duties, obligations or liability on Mr. Wells that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee.

The Board of Directors of the Corporation has approved, and acts in accordance with, the Corporation's Code of Business Conduct (the "Code"). All employees with supervisory responsibilities, members of the management team, and each Director have signed the Code. A copy of this Code can be found on the Corporation's web site at www.norbord.com.

From time to time Ernst & Young LLP provides non-audit services to the Corporation and its subsidiaries. It is the Corporation's policy not to engage its auditors to provide services in connection with financial information systems design and implementation or other services that may impair the objectivity of the auditors. The Corporation has implemented a procedure to ensure that any engagement of the auditors for non-audit services receives prior clearance by the Audit Committee. In approving any such engagement, the Audit Committee will consider whether the provision of such non-audit services is compatible with maintaining Ernst & Young LLP's independence.

The table below summarizes the fees paid to Ernst & Young LLP in 2004 and 2005:

Details of the services performed by Ernst & Young LLP are provided below:

Audit services include the annual financial statement audit of the Corporation and certain of its subsidiaries. The fees include the review of the Corporation's unaudited interim financial statements.

Audit-related services include audits of the Corporation's pension plans, special purpose nonstatutory audits of divisions of the Corporation, comfort letters associated with regulatory filings and internal control reviews. Non-recurring work related to the distribution of Fraser Papers and the secondary offering of Norbord common shares by Brookfield, accounted for $410,000 of the audit-related services fees in 2004.

Taxation services include tax advisory and compliance services.

Other services include expatriate consulting and other business advisory services.

Ernst & Young LLP has advised the Audit Committee that it considers itself to be independent of the Corporation, and the Audit Committee has confirmed that it considers Ernst & Young LLP to be independent.

Tabular disclosure of contractual obligations is made on page 18 of our "Management Discussion and Analysis" for the year ended December 31, 2005 contained herein.

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

Notice of Annual Meeting of Shareholders

1. To receive reports and financial statements;
2. To elect Directors;
3. To appoint auditors and to authorize the directors to fix their remuneration;
4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

The Management Proxy Circular accompanying this Notice provides additional information relating to the matters to be dealt with at the meeting and is incorporated into and forms part of this Notice.

Only holders of common shares of record at the close of business on March 1, 2006 are entitled to notice of and to vote at the meeting and any adjournment or postponement thereof.

Shareholders are entitled to vote at the meeting either in person or by proxy. Registered shareholders who are unable to attend the meeting in person are asked to complete and return the enclosed proxy form so that their vote is represented. Proxies to be used at the meeting must be deposited with Norbord Inc. c/o CIBC Mellon Trust Company, 200 Queen's Quay East, Unit 6, Toronto, Ontario M5A 4K9, at least 24 hours prior to the time of the meeting. Shareholders may also vote by telephone or via the Internet. Instructions for telephone and Internet voting are located on the proxy form. Non-registered shareholders will be provided with voting instructions by the intermediaries who hold the shares on their behalf.

By order of the Board of Directors,

MANAGEMENT PROXY CIRCULAR
LETTER TO SHAREHOLDERS
 

1. To receive reports and financial statements;
2. To elect Directors;
3. To appoint auditors and to authorize the Directors to fix their remuneration;
4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

MANAGEMENT PROXY CIRCULAR
TABLE OF CONTENTS
2

TABLE OF CONTENTS

MANAGEMENT PROXY CIRCULAR
PART TWO - VOTING INFORMATION
3
 

Part Two - Voting Information

MANAGEMENT PROXY CIRCULAR
PART TWO - VOTING INFORMATION
4

MANAGEMENT PROXY CIRCULAR
PART TWO - VOTING INFORMATION
5

MANAGEMENT PROXY CIRCULAR
PART THREE - BUSINESS OF THE MEETING
11

DIRECTOR ATTENDANCE FOR MEETINGS HELD IN 2005

The Corporation has excellent attendance at all of its Board and Committee meetings. The attendance of each Board member for all Board and Committee meetings in 2005 is detailed below.

DIRECTOR SHARE OWNERSHIP REQUIREMENTS AND COMPENSATION

Norbord believes that Directors can better represent shareholder interests if they are shareholders themselves. As such, in January 2004, Norbord's Board passed a resolution requiring all Directors to directly or indirectly own at least three times the annual retainer fee (approximately CAD $120,000) worth of Norbord common shares or deferred share units, based on the cost of the common shares or deferred share units acquired. For new Directors, this minimum share ownership position must be achieved within five years of joining the Norbord Board. Existing Directors will have five years from the passage of the resolution to accumulate the minimum share ownership requirement. Directors are encouraged to accumulate the minimum share ownership in a systematic manner over the five-year accumulation period. As discussed in greater detail on page 12, non-employee Directors may elect to take part or all of their annual compensation in deferred share units.

        Direct share holdings and deferred share units of Directors and Named Executive Officers in the Corporation totalled 734,286 shares at March 1, 2006.

        Each Director who is not an employee of the Corporation is entitled to an annual retainer fee of CAD $40,000. The Chair of the Board receives a fee of CAD $100,000. The Chair of the Audit Committee receives an additional annual retainer of CAD $5,000. The Chair of other Board committees receives an additional annual retainer of CAD $3,000. No fees are payable for committee membership or meeting attendance.

MANAGEMENT PROXY CIRCULAR
PART THREE - BUSINESS OF THE MEETING
12

        Non-employee Directors can, at their option, elect to receive all or part of their compensation in Norbord deferred share units. Deferred share units are credited at the fair market value of Norbord common shares and receive dividend equivalents.

        Norbord's Stock Option Plan prohibits the granting of stock options to non-employee Directors.

2005 - ACTUAL FEES PAID TO DIRECTORS AND PERCENTAGE TAKEN IN DEFERRED SHARE UNITS (DSUs)

APPOINTMENT OF AUDITORS

The Audit Committee has reviewed and discussed the Corporation's audited consolidated financial statements with management, which has primary responsibility for the preparation of the consolidated financial statements. Ernst & Young LLP, the Corporation's independent auditor for 2005, is responsible for expressing an opinion on the Corporation's consolidated financial statements. The Audit Committee has reviewed with Ernst & Young LLP the matters that are required to be discussed, including financial statement disclosures, the quality of the Corporation's financial reporting and significant accounting policies.

        Based on the reviews, considerations and discussions outlined above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the audited financial statements of the Corporation and authorized their inclusion in the Corporation's annual report for the year ended December 31, 2005. The Audit Committee also recommended to the Board, subject to shareholder approval, that Ernst & Young LLP be appointed independent auditors for the Corporation in 2006.

        The Audit Committee's responsibilities are described in Appendix C of this document. The Audit Committee held five meetings during 2005. A written copy of its terms of reference is Appendix D to this Circular.

        The people named in the proxy form enclosed with the Notice of Meeting intend to vote for the appointment of Ernst & Young LLP, Toronto, as auditors of the Corporation at remuneration to be fixed by the Directors.

MANAGEMENT PROXY CIRCULAR
PART THREE - BUSINESS OF THE MEETING
13

PRINCIPAL ACCOUNTING FIRM FEES

From time to time Ernst & Young LLP provides non-audit services to the Corporation and its subsidiaries. It is the Corporation's policy not to engage its auditors to provide services in connection with financial information systems design and implementation or other services that may impair the objectivity of the auditors. The Corporation has implemented a procedure to ensure that any engagement of the auditors for non-audit services receives prior clearance by the Audit Committee. In approving any such engagement, the Audit Committee will consider whether the provision of such non-audit services is compatible with maintaining Ernst & Young LLP's independence.

The table below summarizes the fees paid to Ernst & Young LLP in 2004 and 2005:

(1) 2004 amounts have been reclassified to conform to current year presentation.

Details of the services performed by Ernst & Young LLP are provided below:

        Audit services include the annual financial statement audit of the Corporation and certain of its subsidiaries. The fees include the review of the Corporation's unaudited interim financial statements.

        Audit-related services include audits of the Corporation's pension plans, special purpose non-statutory audits of divisions of the Corporation, comfort letters associated with regulatory filings and internal control reviews. Non-recurring work related to the distribution of Fraser Papers and the secondary offering of Norbord common shares by Brookfield, accounted for $410,000 of the audit-related services fees in 2004.

        Taxation services include tax advisory and compliance services.

        Other services include expatriate consulting and other business advisory services.

AUDITOR INDEPENDENCE

Ernst & Young LLP has advised the Audit Committee that it considers itself to be independent of the Corporation, and the Audit Committee has confirmed that it considers Ernst & Young LLP to be independent.

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
14

Part Four - Executive Compensation

The Corporation's executive compensation program is administered by its Human Resources Committee. As part of its mandate, the Human Resources Committee administers the appointment and remuneration of the Corporation's officers, including the Named Executive Officers. For the President and CEO, the Human Resources Committee makes compensation recommendations to be approved by the Board; for all other officers, the Human Resources Committee approves the compensation levels. The Human Resources Committee is also responsible for reviewing the design and general competitiveness of the Corporation's compensation and benefit programs. The Human Resources Committee met once in 2005.

        Mr. Shineton, the President and CEO of the Corporation, makes recommendations to the Human Resources Committee with respect to executive compensation policy and with respect to the compensation paid to senior officers of the Corporation, other than himself. Mr. Shineton did not participate in the Human Resources Committee meeting when his compensation was discussed or determined.
Members of the Human Resources Committee during 2005 were Mr. Cockwell (Chair), Ms. Cohen, Mr. Dupuis, Mr. Flatt, Mr. Forward, Mr. Harding, Dr. Northey and Mr. Wells.

Through its total compensation program for executives, the Corporation aims to attract, retain and motivate top quality people at the executive level. Performance incentives that are tied directly to increases in shareholder value are essential components of the program.         With respect to general philosophy, the Human Resources Committee believes that senior executive incentive compensation should be driven primarily by performance relative to the established plans and strategy of the business. The Human Resources Committee focuses on rewarding performance, and not on entitlement or seniority.

        The Corporation's compensation policies are designed to motivate management to maximize the long-term value of the Corporation's assets and business operations. In addition, the compensation policy is designed to provide an overall competitive compensation package with a high proportion for the most senior executives weighted to variable compensation tied to the Corporation's performance. In the case of the Corporation's CEO, this is achieved by maintaining base salary and cash bonus awards below the median base salary level in the industry in return for an opportunity to participate at a higher level in the growth in value of the Corporation's shares.

EXECUTIVE SHARE OWNERSHIP GUIDELINES

In January 2005, the Corporation's Board of Directors established guidelines for the minimum common share ownership of the Corporation, including for this purpose deferred share units, to be held by Named Executive Officers. This amount is an investment of two times base salary for the President and CEO and one times base salary for the other Named Executive Officers, based on the cost of the common shares or deferred share units acquired, to be attained over a five-year period from being designated as a Named Executive Officer. Named Executive Officers are encouraged to accumulate the minimum share ownership in a systematic manner over the five-year accumulation period.

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
15
 

        The following table sets forth for each Named Executive Officer the total number of common shares and deferred share units of the Corporation held by the executive as at March 1, 2006:

Management has retained Towers Perrin Inc., an external compensation consultant, in the most recent fiscal year to assist with preparing information and providing advice on executive compensation arrangements.

        The scope of services includes competitive reviews of senior executive compensation levels, assisting management with changes to the design of compensation programs, and other miscellaneous executive compensation assistance. In addition to the aforementioned services, retirement consulting services were also provided to Norbord.

        The individual components of executive compensation and the Human Resources Committee's approach to each are as follows:

BASE SALARIES

Base salaries of the Corporation's executives are reviewed annually to ensure that they are competitive and reflect the contribution of each executive. The Corporation believes that base salaries should reflect the median level of salaries paid to similar positions at comparable Canadian forest products companies, adjusted for size based on sales volumes. The base salary for the Corporation's CEO is also adjusted to reflect a higher weighting to variable compensation as described below.

ANNUAL INCENTIVE PLAN

The Corporation has an annual incentive plan that generates cash incentives for company officers (including the Named Executive Officers) based on corporate and individual performance. Target awards, expressed as a percentage of base salary, have been established for each officer position at approximately the median level of annual incentive compensation plans administered by other Canadian forest products companies.

        The incentive plan for all senior officers, including the President and CEO, is based on two factors:

1.	Two-thirds on corporate performance based on Return on Capital Employed ("ROCE") calculation; and
2.	One-third on individual performance measured against established objectives and including contribution to overall results.

        ROCE targets and CEO and corporate objectives are reviewed with the Human Resources Committee at the beginning of each year and awards are approved by the Human Resources Committee based on the performance of each individual senior officer.

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
16

The Corporation's Long-Term Incentive plan consists of the following components:

STOCK OPTION PLAN

The Corporation has had a stock option plan since 1991 (the "Plan"). The Plan is designed to focus executive attention on the long-term interests of the Corporation and growth in shareholder value.

        Options are granted periodically to executives and senior managers and may be exercised at the option price for a period of up to 10 years. The number of options granted to any one person cannot exceed 5% of the outstanding shares of the Corporation. To determine the size of grants, the Human Resources Committee takes into consideration data provided by external consultants on competitive market practices within the Canadian forest products industry and a wider grouping of industrial companies. The option price is determined by the simple average of the daily averages of the high and low prices at which a board lot of the Corporation's common shares traded on the Toronto Stock Exchange on each of the five trading days immediately preceding the date of the option grant. Options are subject to vesting at the annual rate of 20% per year, beginning on the first anniversary from the date of grant. Options are not transferable under the Plan. At the discretion of the Board, option entitlements may cease upon termination of employment, as a result of resignation, or six months after the death of a participant. The Board may from time to time, subject to the rules and regulations of the stock exchange on which the shares are listed, amend the Plan and options granted. The maximum common shares issuable under the Plan are not to exceed 10,000,000.

        Except in certain circumstances, stock options granted to Named Executive Officers after January 29, 2003 include a requirement to hold, for a minimum of one year, Norbord common shares having a value equivalent to the after-tax gain realized through the exercise of the options.

        In January 2005, options to purchase a total of 456,700 shares were granted to 19 executives and 25 senior managers at a market price of CAD $11.77.

        On April 18, 2005, option exercise prices were reduced by CAD $1.00 to coincide with the CAD $1.00 special dividend paid to common shareholders on May 20, 2005. On January 31, 2006, options to purchase a total of 415,300 shares were granted to 12 executives (including the CEO) at the market price of CAD $12.13.

DEFERRED COMMON SHARE UNIT PLAN

The Corporation has a deferred common share unit plan designed to focus executive attention on the long-term interests of the Corporation and growth in shareholder value. Deferred common share units ("DSUs") are issued based on the closing price of the Corporation's common shares on the award date. Holders of DSUs will be allotted additional DSUs as dividends are declared on the Corporation's common shares. This is done on the same basis as if the dividends were reinvested pursuant to the Corporation's dividend reinvestment plan. The redemption value of DSUs will be equivalent to the market value of an equivalent number of the Corporation's common shares on the date the Notice of Redemption is received by the Corporation. No common shares are issued in connection with this plan.

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
17

Mr. Shineton was appointed President and CEO of the Corporation on June 30, 2004. Mr. Shineton's base salary is reviewed annually and is set below the median level for comparable companies within the Canadian forest products industry based on data provided by the Corporation's external compensation consultants. Mr. Shineton's below-market base salary was offset by an opportunity to participate at a higher level in the growth in value of the Corporation's common shares.

        Mr. Shineton participated in the Annual Incentive Plan for Company officers. The Human Resources Committee has established a target award of 50% of annual base salary payable based two-thirds on a ROCE calculation and one-third on the fulfillment of established individual performance criteria. These individual performance criteria include:

        In January 2006, Mr. Shineton was awarded an incentive payment of $462,334 commensurate with the achievement of corporate and individual objectives. The Committee's assessment of Mr. Shineton's performance included the following:

In January 2006, Mr. Shineton was granted an option on 150,000 common shares at the market price of CAD $12.13 Per share. The awards to Mr. Shineton under the Norbord Stock Option Plan and Deferred Share Unit Plan are consistent with the philosophy of the Corporation, which is to tie a significant portion of the CEO's compensation to corporate performance and the achievement of growth in shareholder value.

 

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
18
 

The following table sets forth all compensation paid or payable in respect of each of the executive officers named (collectively, the "Named Executive Officers") for services rendered during the financial years ended December 31, 2005, 2004, and 2003.

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
19

The following table sets forth individual grants of stock options during the financial year ended December 31,2005 to the Named Executive Officers.

OPTION GRANTS DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 2005

The following table sets forth details of each exercise of stock options during the financial year ended December 31, 2005 by the Named Executive Officers and the financial year-end value of unexercised options on an aggregate basis.

AGGREGATE OPTION EXERCISES DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 2005 AND
FINANCIAL YEAR-END OPTION VALUES

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
20

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2005

Messrs. Shineton, Tremayne, Kinnear and Wijnbergen participate in the defined benefit Retirement Annuity Plan for Canadian salaried employees. The following table shows the total annual retirement benefits payable under such retirement plan to participants in the specified compensation and years of service categories assuming retirement at age 65.

PENSION PLAN TABLE

Remuneration for the purposes of such pension plan includes base salary only. The pension benefit is based on 1.75% per year of service of the average of the best five years' salary minus an adjustment for Canada Pension Plan benefits. Pension benefits are reduced for retirement earlier than age 65. These pension benefits are payable for life, guaranteed for five years. Upon death, payments continue to the surviving spouse reducing to 662/3% (basic option) at the end of the five-year guarantee.

        Pension values that exceed the Canada Revenue Agency allowable limits are paid from a Supplementary Employee Retirement Plan. To limit the Corporation's retirement benefit liability to employees under the plan, a remuneration level of CAD $225,000 has been established as the maximum average remuneration eligible for pension calculations. This maximum is to be reviewed periodically in both general application and application to individuals.

MANAGEMENT PROXY CIRCULAR
PART FOUR - EXECUTIVE COMPENSATION
21

        The following table shows the service cost and accrued liability for 2005 as well as the estimated annual benefit payable at normal retirement date for each of the Named Executive Officers participating in the defined benefit Retirement Annuity Plan.

The calculation of reported amounts use actuarial assumptions and methods that are consistent with those used for calculating pension liabilities and annual expense as disclosed in the Corporation's 2004 and 2005 consolidated financial statements. As the assumptions reflect the Corporation's best estimate of future events, the values shown in the above table may not be directly comparable to similar estimates of pension liabilities that may be disclosed by other corporations.

        Mr. Tremayne has elected to participate in the Company's defined contribution pension plan for Canadian salaried employees beginning in January 2006. In this plan, the Company provides a basic allocation of 4% of salary and bonus up to a cap of $225,000. Mr. Tremayne also receives a matching allocation based on his own contributions of 3%. The 7% company allocation represents $15,750 in 2006. Pension allocations that exceed the Canadian Revenue Agency allowable limits are paid from a Supplementary Employee Retirement Plan. Mr. Tremayne's service in the Company's defined benefit plan is frozen at year-end 2005.

        Mr. Morris participates in the UK defined contribution pension plan. Members are required to pay a contribution of 5% of the periodic payment of gross earnings up to Inland Revenue prescribed limits. The company allocates 15% of earnings where the employee makes the minimum contribution. In 2005 the Company allocated £26,674 to Mr. Morris' defined contribution pension plan.

MANAGEMENT PROXY CIRCULAR
PART FIVE - PERFORMANCE GRAPH
22

Part Five - Performance Graph

The following graph assumes that CAD $100 was invested on December 31, 2000 in Norbord's common shares, the S&P/TSX Composite Index and the S&P/TSX Canadian Materials Index respectively. The computations assume that all dividends are reinvested on the dividend payment date. In the case of the distribution of Fraser Papers, the computation assumes that Fraser Papers shares are sold at the closing price on the first day of trading and that Norbord common shares are purchased coincidently.

FIVE-YEAR CUMULATIVE TOTAL RETURN ON CAD $100 INVESTMENT
Assuming Reinvestment of Dividends
December 31, 2000-December 31, 2005
 

MANAGEMENT PROXY CIRCULAR
PART SIX - CORPORATE GOVERNANCE
23

Part Six - Corporate Governance

The Board of Directors of Norbord recognizes that in order to attain its objective of enhancing shareholder value in a manner that recognizes the concerns of other stakeholders in the Corporation, including its employees, suppliers, customers and the communities in which it operates, the Corporation must have sound corporate governance structures and policies. The Board and the Corporate Governance and Nominating Committee regularly review the terms of reference of the Board and each of the Committees of the Board (the "Committees"), and the role of the Chair, Chief Executive Officer ("CEO") and chairs of each committee, to ensure that the Corporation complies with, or exceeds, all applicable corporate governance rules and standards. The Corporation's corporate governance practices are Appendix A to this Circular and can be viewed on the Corporation's web site at www.norbord.com.

       Pursuant to its terms of reference, the Board is responsible for supervising the business and affairs of the Corporation, which are conducted by its officers and employees under the direction of the CEO. The Board discharges this responsibility directly at regularly scheduled and special meetings of the Board and indirectly through Committees composed of independent Directors. The Board's full terms of reference are Appendix B to this Circular. The terms of reference of the Board and each of its Committees can be viewed on the Corporation's web site at www.norbord.com.

       The Norbord Board has approved, and acts in accordance with, the Corporation's Code of Business Conduct (the "Code"). All employees with supervisory responsibilities, members of the management team, and each Director have signed the Code. A copy of this Code can be found on the Corporation's web site at www.norbord.com.
 

The Corporate Governance and Nominating Committee has examined the size of the Board and has concluded that a reduction in the number of Directors elected by the shareholders from 10 to nine is appropriate. A nine-member Board allows for an appropriate mix of experience and skill and ensures that the majority of Directors will be "independent" within the meaning of section 1.4 of Multilateral Instrument 52-110.

The Board reviewed the relationships between each of its Director nominees and the Corporation and has determined that the proposed list of Director nominees fairly represents the share ownership interests in the Corporation and the requirements for Director independence of both Canadian and U S securities regulators.

       Messrs. Shineton and Gammiero, the former CEO of the Corporation, are considered to be non-independent Directors and the remaining Directors are independent Directors. Two of the remaining seven Director nominees, Messrs. Cockwell and Harding (the "Brookfield Directors") are officers of Brookfield. The Board believes that neither Brookfield Director has a relationship which could be reasonably expected to interfere with the exercise of his independent judgement. The Board also considers that two Directors fairly reflect the relative investment of Brookfield and other shareholders in the Corporation.

MANAGEMENT PROXY CIRCULAR
PART SIX - CORPORATE GOVERNANCE
24

       Two other Director nominees, Ms. Cohen and Mr. Dupuis, are trustees of Great Lakes Hydro Income Fund, in which Brookfield owns approximately a 50% indirect interest. The Board does not consider Ms. Cohen and Mr. Dupuis to have any relationship that could be reasonably expected to interfere with their exercise of independent judgement. The remaining Director nominees, Dr. Forward, Dr. Northey and Mr. Wells have, in the view of the Board, no relationships that could be reasonably expected to interfere with their exercise of independent judgement.

       All members of the Audit Committee are "independent" within the meaning of sections 1.4 and 1.5 of Multilateral Instrument 52-110.

The Board of Directors of Norbord conducts much of its business through committees established by the Board. There are currently four standing Committees of the Board. These are the Audit, Corporate Governance and Nominating, Environment, Health and Safety and Human Resources Committees. In addition, from time to time, the Board has established special committees to assist the Board in respect of certain issues.

       A summary of responsibilities for each Committee is Appendix C to this Circular. The terms of reference of the Audit Committee is Appendix D. The terms of reference of all Committees and the Board are available on the Corporation's web site at www.norbord.com. For additional information on the Audit Committee, see "Audit Committee" in the Annual Information Form of the Corporation dated March 1, 2006.

       It is the policy of the Board that all Board meetings and Committee meetings should include a session without the presence of non-independent Directors. In the case of the Audit Committee, each meeting also includes a session with only the external auditors and the Committee.

       All Board members may attend any committee meeting, with the exception of Mr. Shineton in respect of the Human Resources Committee.

       The Chair of the Board, Robert Harding, is an independent Director. He is responsible for:

1.   Managing the business of the Board and ensuring that the functions identified in the terms of reference of the Board are being effectively carried out by the Board and its Committees;
2.   Ensuring that all Directors receive the information required for the proper performance of their duties;
3.   Ensuring that the appropriate committee structure is in place and recommending appointments to such committees;
4.   Leading the annual review of Director and Board performance and making recommendations for changes when appropriate; and
5.   Working with the CEO and senior management to monitor progress on strategic planning, policy implementation and succession planning.   

MANAGEMENT PROXY CIRCULAR
PART SIX - CORPORATE GOVERNANCE
25

The Board evaluates itself annually to ensure it is functioning effectively and in the best interests of shareholders. The evaluation includes a detailed questionnaire completed by each Director and one-on-one interviews with the Chair. The Chair reviews the results of the evaluation with the Corporate Governance and Nominating Committee and the Board. These evaluations assess the Board in four specific areas:

•     Overall Board governance
•     Managing management
•     Strategy and corporate performance
•     Board effectiveness

       In 2005, this evaluation determined that the Board operates effectively.

       In addition to the Board, each Committee of the Board evaluates its performance annually. These evaluations focus on each Committee's successes in meeting its terms of reference as well as its overall effectiveness as a committee. In 2005, each of the Committees of the Board evaluated its performance as effective.

       The Board has developed written position descriptions for the Chair of the Board, the Chair of each Committee and the CEO.

       The performance of individual Board members is also reviewed by his or her peers bi-annually. This review is conducted by the Chair and presented to the Corporate Governance and Nominating Committee for its consideration.

       As part of the Board, Committee and individual Director evaluation processes, opportunities to improve are implemented as identified.
 

In January 2005, the Board adopted a policy that requires any Director to offer his or her resignation if there has been a relevant change in his or her personal circumstances, or if he or she has not attended at least 75% of the regularly scheduled Board and relevant committee meetings in the most recent 12-month period. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as appropriate.
 

MANAGEMENT PROXY CIRCULAR
PART SIX - CORPORATE GOVERNANCE
26

Part Seven - Other Information

The Corporation maintains Directors' and Officers' Liability Insurance under policies arranged by Brookfield with a combined annual limit of CAD $50 million subject to a corporate deductible of CAD $1 million per loss. The limit is not exclusive to each corporation insured under the policies. Under this insurance coverage, the Corporation is reimbursed for indemnity payments made to Directors or officers as required or permitted by law or under provisions of its by-laws as indemnity for losses, including legal costs, arising from acts, errors or omissions committed by Directors and officers during the course of their duties as such. This insurance also provides coverage to individual Directors and officers without any deductible if they are not indemnified by the Corporation. The insurance coverage for Directors and officers has certain exclusions including, but not limited to, those acts determined to be deliberately fraudulent or dishonest or which have resulted in personal profit or advantage. The cost of such insurance is borne by the Corporation and is currently CAD $43,000 annually.

The Corporation has received all necessary approvals to make a normal course issuer bid enabling it to purchase up to 9,046,203 common shares of Norbord. The notice provides that the Corporation may purchase these shares between November 2, 2005 and November 1, 2006, at prevailing market prices in amounts and at times to be determined by the Corporation. The purchases will be made through the facilities of the TSX. Shares purchased under the bid will be cancelled. A copy of the notice may be obtained from the Assistant Corporate Secretary, Norbord Inc., One Toronto Street, Suite 600, Toronto, Ontario M5C 2W4.

Proposals of shareholders intended to be presented at the Corporation's annual meeting of shareholders in 2007 and which such shareholders are entitled to request be included in the Management Proxy Circular for the meeting, must be received at the Corporation's principal executive offices not later than December 14,2006.
 

MANAGEMENT PROXY CIRCULAR
PART SIX - CORPORATE GOVERNANCE
27

Additional information relating to the Company can be found on SEDAR at www.sedar.com. Shareholders may contact the Company at One Toronto Street, Suite 600, Toronto, Ontario, M5C 2W4 by mail, fax (416-365-3292), telephone (416-365-0705) or e-mail (info@norbord.com) to request copies of the Corporation's audited consolidated financial statements and Management's Discussion and Analysis ("MD&A").

       Financial information for the Corporation's most recently completed financial year is provided in its audited consolidated financial statements and MD&A which are filed with SEDAR.
 

The contents and the sending of this Circular have been approved by the Directors of Norbord.


Lynne C. Taylor
Assistant Corporate Secretary
Toronto, Ontario
March 1, 2006

MANAGEMENT PROXY CIRCULAR
APPENDIX A - CORPORATE GOVERNANCE PRACTICES
28

Norbord Inc. ("Norbord") is committed to following sound corporate governance policies and practices to ensure that the interests of our shareholders, employees and the communities in which we operate are continuously maintained.

ROLE OF BOARD OF DIRECTORS

The Board of Directors is responsible for overseeing the management of Norbord's affairs directly and through its committees. At all times, the Board intends to act on behalf of the best interests of the shareholders of Norbord.

MANAGEMENT PROXY CIRCULAR
APPENDIX A - CORPORATE GOVERNANCE PRACTICES
29

MEETINGS OF THE BOARD

The Board of Directors meets at least quarterly, with additional meetings scheduled when required. While most Board meetings are held at the Norbord corporate office in Toronto, meetings are periodically held at an operating location. This gives the Directors an opportunity to improve their understanding of the operations of Norbord.

COMPOSITION AND SIZE OF THE BOARD

The Corporate Governance and Nominating Committee has examined the size of the Board and has concluded that a reduction in the number of Directors elected by the shareholders from 10 to nine is an appropriate number of Directors to be elected by the shareholders. The nominees for the Board of Directors comprises nine Directors, including seven independent Directors, two of whom are associated with the Corporation's major shareholder, Brookfield Asset Management Inc., and two non-independent Directors including the CEO. The Board considers that this combination leads to a constructive exchange of views in Board deliberations resulting in objective, balanced and informed decision-making.

        The Corporation's Directors represent a diverse base of business skills and experiences to ensure effective oversight and reporting.

It is the policy and practice of the Board that at each regular meeting, the Directors meet and discuss the Corporation's affairs without management Directors present.

COMMITTEES OF THE BOARD

Board committees assist in the effective functioning of the Corporation's Board of Directors. The composition of the Board committees should ensure that the views of independent Directors are effectively represented.

        Norbord's Board of Directors has four standing Committees: the Audit Committee, the Corporate Governance and Nominating Committee, the Environment, Health and Safety Committee and the Human Resources Committee. It is the Board's policy that each Committee meets without management Directors present at each of its meetings.

        Special committees may be formed from time to time as required to review particular matters or transactions.

        Full terms of reference for each of the standing Committees are available on the Corporation's web site at www.norbord.com.

MANAGEMENT PROXY CIRCULAR
APPENDIX A - CORPORATE GOVERNANCE PRACTICES
30

ROLE OF COMMITTEE CHAIR

The Board of Directors has adopted the following written description for all Board committee chairs. The chair of each committee of the Board is appointed by the Board at the first Board meeting held after the annual shareholders meeting. The role of each committee chair is as follows:

AUDIT COMMITTEE

The Audit Committee, composed entirely of independent Directors, assists the Board in meeting its fiduciary responsibilities relating to corporate accounting and reporting practices. Its duties include overseeing internal controls, reviewing risk management practices, and approving quarterly and annual financial filings.

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

The Corporate Governance and Nominating Committee, composed entirely of independent Directors, is responsible for the development and monitoring of the Corporation's corporate governance practices. Its duties include the identification and recommendation of potential nominees or appointees to the Board, and the assessment of the effectiveness of the Board, its size and composition, its committee structure and the individual performance of its Directors. The Committee also has responsibility for the review of the Corporation's communications policy and its Code of Business Conduct.

        In considering and seeking potential nominees to the Board, the Committee assesses the skills and expertise of its current Board to determine the skills and experience that any potential candidates should possess. The Committee seeks candidates through recommendations sought from the current Board and Committee members and, when necessary, through recruitment firms. Once candidates have been identified, they are contacted to confirm their interest, credentials and availability to serve on the Board. Interviews of candidates are then conducted by members of the Committee and a recommendation is made to the Board.

        In carrying out its role, the Corporate Governance and Nominating Committee has the following authority and responsibility:

1.	Director Qualification and Nomination:
	(a)	to consider and make recommendations to the Board from time to time on the appropriate size, composition and profile of the Board;
	(b)	to establish criteria for the selection of Directors, to review and assess the competencies and skills of persons proposed for appointment or election to the Board and to submit to the Board the names of persons to be nominated for election as Directors at the annual meeting of shareholders, or to be appointed to fill vacancies between annual meetings;
	(c)	to retain search firms for the recruitment of Director nominees as necessary;
	(d)	to ensure that there is an orientation and education program for new Directors and continuing education for all Directors including making recommendations on methods to improve Directors' knowledge of the Corporation's activities and their responsibilities as Directors; and
	(e)	to recommend qualified directors for membership on the various committees of the Board;

 

MANAGEMENT PROXY CIRCULAR
APPENDIX A- CORPORATE GOVERNANCE PRACTICES
31

ENVIRONMENT, HEALTH AND SAFETY COMMITTEE

The mandate of the Environment, Health and Safety Committee is to assist the Board in carrying out its responsibilities with respect to health, safety and environmental issues. The Committee reviews compliance with relevant Board resolutions and with the Corporation's environmental and health and safety policies, and assesses the effectiveness of the Corporation's environmental management processes and health and safety programs including the review of internal audits of these processes and programs.

HUMAN RESOURCES COMMITTEE

The Human Resources Committee approves the Corporation's compensation and benefits policy and monitors its implementation. It reviews management succession plans and considers appointments of officers of the Corporation. The Committee annually assesses the performance of the CEO against agreed targets and recommends the CEO's compensation to the Board. For all other officers, the Committee approves the compensation levels. Together with the CEO, the Committee reviews the performance of senior officers of the Corporation and makes compensation recommendations to the Board. The Human Resources Committee is responsible for over-seeing the funding, investment management and administration of Norbord Inc.'s employee retirement plans. The Committee also recommends compensation for Directors.

NORBORD MANAGEMENT

The primary responsibility of management is to create value for its shareholders based on an approved business strategy and action plan. The Board of Directors is responsible for ensuring the performance of management is adequate and to bring about any management change that will enable Norbord to perform satisfactorily. Norbord's corporate governance principles are intended to encourage autonomy and effective decision-making by management while ensuring scrutiny by Norbord's Board of Directors and its committees.

 

MANAGEMENT PROXY CIRCULAR
APPENDIX A - CORPORATE GOVERNANCE PRACTICES
32

ROLE OF CHAIR

The Board of Directors has adopted the following written description for the Chair of the Board. The Chair is appointed by the Board of Directors. The role of the Chair is as follows:

1.	Manage the business of the Board and ensure that the functions identified in the terms of reference of the Board are being effectively carried out by the Board and its committees;
2.	Ensure that all Directors receive the information required for the proper performance of their duties;
3.	Ensure that the appropriate committee structure is in place and recommend appointments to such committees;
4.	Lead in the annual review of Director and Board performance and make recommendations for changes when appropriate; and
5.	Work with the CEO and senior management to monitor progress on strategic planning, policy implementation and succession planning.

ROLE OF PRESIDENT AND CEO

The Board of Directors has adopted the following written description for the President and CEO. The President and CEO reports to and is accountable to the Board of Directors. The President and CEO's role is as follows:

1.	Provide leadership of the Corporation and, subject to approved policies and direction by the Board, manage the operation, organization and administration of the Corporation;
2.	Present to the Board for approval a long-term vision for the Corporation together with strategies to achieve that vision, the risks and alternatives to these strategies and specific steps and performance indicators, that will enable the Board to evaluate progress on implementing such strategies;
3.	Propose to the Board for approval annual capital and operating plans that implement the Corporation's strategies together with key financial and other performance goals for the Corporation's activities and report regularly to the Board on the progress against these goals;
4.	Act as the primary spokesperson for the Corporation to all its stakeholders;
5.	Present to the Board for approval annually an assessment of the Corporation's management resources together with a succession plan that provides for the orderly succession of senior management including the recruitment, training and development required;
6.	Recommend to the Board the appointment or termination of any officer of the Corporation other than the Chair; and
7.	Develop and implement the systems and processes to support the policies established by the Board.

BOARD INFORMATION

The information provided by Norbord management to the Board of Directors is critical to the Board's effectiveness. In addition to reports presented to the Board at regular and special meetings, the Board is also informed on a timely basis by management of corporate developments and key decisions by management in pursuing Norbord's strategic plan.

        New Directors are provided with comprehensive information about Norbord.

        All Directors have the opportunity to meet and participate in work sessions with management to obtain insight into the operations and business of the Corporation. Directors are also free to consult with members of management, whenever they so require, and to engage outside advisors with the Chair's authorization.

MANAGEMENT PROXY CIRCULAR
APPENDIX A - CORPORATE GOVERNANCE PRACTICES
33

ORIENTATION AND CONTINUING EDUCATION

The Chief Executive Officer and the Chief Financial Officer are responsible for providing an orientation and education program for new Directors. Each new Director is provided with information outlining the role of the Board, Committees and Directors. New Directors must, within three months of becoming a Director, spend one day at the head office of the Corporation for briefings by senior management on the Corporation's strategic plan, major risks and other key business matters.

        The Corporation periodically holds off-site Board meetings at one of its mill locations, to provide the Directors with ongoing information on the Corporation's operations. Directors are advised on an ongoing basis of changes in applicable laws and regulations.

MANAGEMENT REMUNERATION

Norbord's remuneration policies are intended to provide a direct link between competitive industry compensation and Corporation and individual performance. Bonus compensation is reviewed annually by the CEO and Human Resources Committee and approved by the Board of Directors. Periodic reviews of compensation practices are carried out to ensure management is fairly rewarded, based on performance.

COMMUNICATIONS POLICY

Norbord keeps shareholders informed of its activities and progress through a comprehensive annual report, quarterly reports and news releases. A regularly updated web site (www.norbord.com) provides additional information about the Corporation, including statutory filings and supplemental information provided to financial analysts and investors.

        Directors and management meet with Norbord shareholders at the annual meeting, held in Toronto, and are available to respond to shareholder questions.

        Norbord's investor relations program seeks to ensure that shareholder inquiries are responded to in a timely manner. Management meets on a regular basis with investment analysts and financial advisors to ensure that accurate information is available to investors, including quarterly conference calls and web casts to discuss Norbord's performance. Norbord also endeavours to ensure news media is kept apprised of developments as they occur. All Norbord communications are carried out in accordance with the Corporation's Disclosure Policy, which is posted on Norbord's web site at www.norbord.com. This ensures fairness, accuracy and timeliness in reporting material information that is likely to affect the price of Norbord's publicly-traded securities.

CODE OF BUSINESS CONDUCT

The Board of Directors has adopted a written code of business conduct prescribing the minimum moral and ethical standards of conduct required of all Directors, officers and employees of the Corporation and its wholly-owned subsidiaries. A copy of the Code is available on the Company's web site at www.norbord.com.

        The Corporate Governance and Nominating Committee is charged with reviewing the Code on an annual basis and recommending proposed changes to the Board for approval.

        The Corporation provides, on an annual basis, a copy of the Code to designated employees, requiring them to sign an acknowledgment that they have received, read and understand the contents of the Code and agree to adhere to same.

        All employees are required to disclose in writing to their supervisors, all activities, investments or businesses that might create an actual or potential conflict of interest with their duties for Norbord. Directors are to consult with the Chair of the Board with respect to potential conflicts and abstain from voting when such matter is before the Board for approval.

        All violations of law or of the Code must be reported. The Corporation has implemented a whistle blowing policy, allowing Directors, officers and employees to report, in confidence, a violation of law or with the Code to the CEO or the Chair of the Audit Committee, whose contact information can be found on the Corporation's web site at www.norbord.com.

MANAGEMENT PROXY CIRCULAR
APPENDIX B - BOARD OF DIRECTORS - TERMS OF REFERENCE
34

ROLE OF BOARD

The role of the Board of Directors is to supervise the business and affairs of the Corporation, which are conducted by its officers and employees under the direction of the chief executive officer ("CEO"), to enhance the long-term value of the Corporation for its shareholders. The Board is elected by the shareholders to oversee management to ensure that the best interests of the shareholders are advanced by enhancing shareholder value in a manner that recognizes the concerns of other stakeholders in the Corporation including its employees, suppliers, customers and the communities in which it operates.

AUTHORITY AND RESPONSIBILITIES

        In addition to those matters that must, by law, be approved by the Board, specific board approval must be obtained for:

MANAGEMENT PROXY CIRCULAR
APPENDIX B - BOARD OF DIRECTORS - TERMS OF REFERENCE
35

COMPOSITION AND PROCEDURES

1.	Size of Board and Selection Process - The Directors of the Corporation are elected each year by the shareholders at the annual meeting of shareholders. The Corporate Governance and Nominating Committee proposes to the full Board the nominees for election to the Board and the Board proposes a slate of nominees to the shareholders for election. Any shareholder may propose a nominee for election to the board either by means of a shareholder proposal upon compliance with the requirements prescribed by the Canada Business Corporations Act or at the annual meeting. The Board also determines the number of Directors on the Board, subject to a minimum of eight and a maximum of 20. Between annual meetings, the board may appoint Directors to serve until the next annual meeting.
2.	Qualifications - Directors should have the highest personal and professional ethics and values and be committed to advancing the best interests of the shareholders of the Corporation. They should possess skills and competencies in areas that are relevant to the Corporation's activities. A majority of the Directors will be "independent" Directors within the meaning of Section 1.4 Multilateral Instrument 52-110.
3.	Election of Directors - The Board requires any Director to offer his or her resignation if he or she has not received at least 5 0% of the votes cast at the Annual Shareholders Meeting in favour of his or her election to the Board. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as appropriate.
4.	Change in Personal Circumstances - The Board requires any Director to offer his or her resignation if there has been a relevant change in his or her personal circumstances, or if he or she has not attended at least 75% of the regularly scheduled Board and relevant committee meetings in the most recent 12-month period. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as appropriate.
5.	Orientation and Continuing Education - The Chief Executive Officer and the Chief Financial Officer are responsible for providing an orientation and education program for new Directors. Each new Director must, within three months of becoming a Director, spend one day at the head office of the Corporation for personal briefings by senior management on the Corporation's strategic plan, major risks and other key business matters. The Directors are provided with information on an ongoing basis relating to the operations of the Corporation and changes in applicable law and tour the different facilities of the Corporation.
6.	Meetings - The Board has at least four scheduled meetings a year. The Board is responsible for its agenda. Prior to each Board meeting, the CEO will discuss agenda items for the meeting with the Chair of the Board. Materials for each meeting will be distributed to the Directors in advance and Directors are expected to review such materials prior to the meeting. The independent Directors have at least four scheduled meetings a year without management present.
7.	Committees - The Board has established the following standing committees to assist the Board in discharging its responsibilities - audit, corporate governance and nominating, environment, health and safety and human resources. Special committees are established from time to time to assist the Board in connection with specific matters. The chair of each committee reports to the Board following meetings of the committee. The terms of reference of the Board and each standing committee are reviewed annually by the Board.
8.	Evaluation - The Corporate Governance and Nominating Committee performs an annual evaluation of the effectiveness of the Board as a whole, the committees of the Board and the contributions of individual Directors.
9.	Compensation - The Human Resources Committee recommends to the Board the compensation and benefits for non-management Directors. In reviewing the adequacy and form of compensation and benefits, the Committee seeks to ensure that the compensation and benefits reflect the responsibilities and risks involved in being a Director of the Corporation and align the interests of the Directors with the best interests of the shareholders.
10.	Access to Independent Advisors - The Board and any committee may at any time retain outside financial, legal or other advisors at the expense of the Corporation. Any Director may, subject to the approval of the Chair of the Board, retain an independent advisor at the expense of the Corporation.

MANAGEMENT PROXY CIRCULAR
APPENDIX C - BOARD COMMITTEES
36

The Board has four standing committees with specific mandates to assist the Board in carrying out its responsibilities. These are the Audit Committee, the Corporate Governance and Nominating Committee, the Environment, Health and Safety Committee, and the Human Resources Committee. In addition, from time to time, the Board has established special committees to assist the Board in respect of certain issues.

        All Board members have a standing invitation to attend all committee meetings with the exception of the President and CEO, who is not permitted at Human Resources Committee meetings when his compensation is discussed or determined.

AUDIT COMMITTEE

The role of the Audit Committee is to assist the Board in its oversight of the integrity of the financial and related information of the Corporation including its financial statements, the internal controls and procedures for financial reporting and the processes for monitoring compliance with legal and regulatory requirements and to review the independence, qualifications and performance of the external auditor of the Corporation. Management is responsible for establishing and maintaining those controls, procedures and processes and the Audit Committee is appointed by the Board to review and monitor them.

The current members of the Committee are:

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

The role of the Corporate Governance and Nominating Committee is to assist the Board on matters related to the effective governance of the Corporation, to propose new nominees to the Board and to assess the effectiveness of the Board, its Committees and individual Directors on an annual basis.

The current members of the Committee are:

MANAGEMENT PROXY CIRCULAR
APPENDIX C - BOARD COMMITTEES
37

ENVIRONMENT, HEALTH AND SAFETY COMMITTEE

Sustainable economic development is the principal operating philosophy of the Corporation. All employees, including all levels of management and the Board, must actively participate in making this philosophy part of daily decisions. The role of the Environment, Health and Safety Committee is to assist the Board in overseeing the commitment of the Corporation to environmental, health and safety matters and to ensure that policies and procedures are in place so that the Corporation manages its responsibilities in these areas effectively.

The current members of the Committee are:

Jack L. Cockwell	Dominic Gammiero
Dian Cohen	Robert J. Harding
Pierre Dupuis	Margot Northey (Chair)
J. Bruce Flatt	Don S. Wells
Gordon E. Forward

HUMAN RESOURCES COMMITTEE

The role of the Human Resources Committee is to assist the Board in its oversight of the selection, development, evaluation and compensation of senior management of the Corporation and succession planning and, in particular, to monitor the performance of the CEO and to recommend compensation for the CEO, senior officers and Directors of the Corporation.

        In addition to the above, the Committee is also to assist the Board in its oversight of the funding, investment management and related administration for all of the defined benefit and defined contribution employee retirement plans of the Corporation and its wholly-owned subsidiaries.

The current members of the Committee are:

MANAGEMENT PROXY CIRCULAR
APPENDIX D - AUDIT COMMITTEE - TERMS OF REFERENCE
38

APPENDIX  D

Norbord Inc.

The Corporation's Code of Business Conduct prohibits any Director, officer or employee of the Corporation from retaliating or taking any adverse action against anyone for raising or helping to resolve a complaint.

www.norbord.com

The accompanying consolidated financial statements and all information in this annual report are the responsibility of management and have been approved by the Board of Directors.

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. Financial statements are not precise since they include certain amounts based upon estimates and judgements. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances in order to ensure that the consolidated financial statements are presented fairly, in all material respects, in accordance with Canadian generally accepted accounting principles. The financial information presented elsewhere in this annual report is consistent with that in the consolidated financial statements.

The Company maintains systems of internal controls, which are designed to provide reasonable assurance that accounting records are reliable and to safeguard the Company's assets.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee.

The Audit Committee is appointed by the Board and reviews the consolidated financial statements and management's discussion and analysis; considers the report of the external auditors; assesses the adequacy of the internal controls of the Company; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors for consideration when approving the consolidated financial statements for issuance to the shareholders.

January 24, 2006

J. Barrie Shineton	JohnTremayne
President and Chief Executive Officer	Executive Vice President and
	Chief Financial Officer

---

NORBORD ANNUAL REPORT 2005
AUDITORS' REPORT

35

 

As at December 31
(US $ millions)			2005				2004
Assets
Current assets:
Cash and cash equivalents	$		155		$		215
Accounts receivable			145				150
Inventory (note 3)			99				90
Future income taxes (note 9)			4				4
			403				459
Property, plant and equipment (note 4)			921				927
Other assets			4				5
	$		1,328		$		1,391
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$		225		$		238
Current portion of long-term debt (note 5)							1
			225				239
Long-term debt (note 5)			440				450
Other liabilities (notes 6 and 13)			31				52
Future income taxes (note 9)			110				102
Shareholders' equity (note 7)			522				548
	$		1,328		$		1,391
(See accompanying notes)

On behalf of the Board:

Robert J. Harding	J. Barrie Shineton
Chair	President and Chief Executive Officer

---

NORBORD ANNUAL REPORT 2005
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39

NORBORD ANNUAL REPORT 2005
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42

NOTE 3. INVENTORY

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Included in property, plant and equipment is construction in progress of $51 (2004 - $36). During the year, $1 (2004 - nil) of interest was capitalized.

NOTE 5. LONG TERM DEBT

Maturities of long-term debt at December 31, 2005 are: 2006 - nil; 2007 - nil; 2008 - $200; 2009 - nil; 2010 - nil; and subsequent - $240.

During the year, the Company repurchased and cancelled $10 of the 7 1/4% debentures due 2012 and unwound a corresponding amount of interest rate swaps. The premium paid on repurchase was offset by the recognition of gains on the interest rate swaps. At December 31, 2005, the Company had $365 (2004 - $375) of interest rate swaps outstanding. The terms of these swaps correspond to the terms of the underlying debentures.

In 2004, the Company redeemed its outstanding 6 7/8% debentures due 2005 and unwound $50 of interest rate swaps. The premium paid on repurchase, net of the recognition of gains on interest rate swaps, was $9.

Norbord has committed unsecured revolving bank lines of $200. These bank lines mature in 2009, bear interest at money market rates plus a margin that varies with the Company's credit rating, and contain certain financial covenants which the Company must comply with on a quarterly basis. At December 31, 2005, $6 of these lines were utilized for letters of credit, with the balance available to support short-term liquidity requirements.

The effective interest rate on Norbord's debt-related obligations including the impact of the interest rate swaps is 7.2% at December 31, 2005 (2004 - 5.6%). The aggregate fair value of Norbord's debt is $454, consisting of debt of $462 and gains on interest rate swaps of $8.

NORBORD ANNUAL REPORT 2005
NOTES TO BE CONSOLIDATED FINANCIAL STATEMENTS
43

Interest expense on long-term debt for the year, including the impact of interest rate swaps, was $30 (2004 - $31). Total interest paid during the year was $36 (2004 - $49) including $1 (2004 - $12) of call premiums paid on the repurchase of the debentures.

NOTE 6. OTHER LIABILITIES

The unrealized net investment hedge losses are offset by unrealized gains on the underlying exposures being hedged.

NOTE 7. SHAREHOLDERS' EQUITY

As at December 31, 2005, the authorized capital stock of the Company is as follows:
- Class A preferred shares, an unlimited number.
- Class B preferred shares, an unlimited number.
- Non-voting participating shares, an unlimited number.
- Common shares, an unlimited number.

Summary of common share transactions:

The Company declared a special dividend of CAD $1.00 per common share, which was paid on May 20, 2005. In 2004, the Company declared a special dividend of CAD $1.00 per common share, which was paid on September 30,2004.

NORBORD ANNUAL REPORT 2005
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
44

The Company redeemed all of the outstanding Class A Series I preferred shares at par value (CAD $60). On redemption, a foreign exchange loss of $9 was recorded as a charge to retained earnings.

The distribution of the Company's interest in Fraser Papers in 2004 reduced shareholders' equity by $503 by way of a reduction of common stock. The distribution was accounted for as a return of capital (note 11).

Under the Company's stock option plan, the Board of Directors of the Company may issue stock options to certain directors and employees of Norbord. These options vest over a 5-year period and expire 10 years from the date of issue. Included in cost of sales is $1 (2004 - $1) related to these options. During the year, the exercise price on all outstanding options was decreased by CAD $1.00 to reflect the payment of the special dividend. In 2004, the exercise price on all outstanding options was decreased by CAD $5.41 to reflect the distribution of Fraser Papers (CAD $4.41) and the payment of the special dividend (CAD $1.00). All options exercised were settled through the issuance of common shares.

The following table summarizes the changes in options outstanding during the year:

The following table summarizes the weighted average exercise prices and the weighted average remaining contractual life of the options outstanding at December 31,2005:

NORBORD ANNUAL REPORT 2005
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
45

NOTE 8. EARNINGS PER COMMON SHARE

Earnings per common share is calculated as follows:

Stock options issued under the Company's stock option plan (note 7) were included in the calculation of diluted number of common shares to the extent the exercise price of those options was less than the average market price of the Company's common shares during the year.

NOTE 9. INCOME TAX

Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts used for income tax purposes.

Income tax expense comprises the following:

NORBORD ANNUAL REPORT 2005
NOTES TO BE CONSOLIDATED FINANCIAL STATEMENTS
46

The differences between income taxes computed using statutory tax rates and income tax as recorded are as follows:

The income tax effects of temporary differences that give rise to future income taxes are as follows:

Income and income-related taxes of $123 (2004 - $72) were paid during the year.

NOTE 10. CHANGE IN NON-CASH WORKING CAPITAL

The net change in non-cash working capital balances comprises:

NORBORD ANNUAL REPORT 2005
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
47

NOTE II. DISCONTINUED OPERATIONS

On June 30, 2004, the Company completed the distribution of its paper and timberlands business (Fraser Papers) to its common shareholders. Results of Fraser Papers have been included in discontinued operations in the consolidated statements of earnings and cash flows up to the date of distribution.

Following the distribution, Norbord held an $83 note payable from Fraser Papers. On September 30, 2004, the note was repaid.

Norbord continues to provide certain administrative services on an interim basis to Fraser Papers for a fee. During the year, the fee for these administrative services is less than $1 (2004 - less than $1). In addition, Norbord continues to guarantee certain obligations of Fraser Papers under operating lease commitments, purchase commitments, landfill closure commitments, and commodity hedging contracts. The maximum potential amount of future payments that Norbord could be required to make under these obligations is estimated to be $13 (2004 - $84). This estimate excludes the amount of potential future payments related to guarantees of derivative contracts that cannot be quantified due to their nature. No amounts have been recorded in the consolidated balance sheet with respect to these guarantees.

Norbord extended the requirement for Fraser Papers to cash collateralize the remaining guarantees for an additional year in exchange for a fee based on the total guarantees outstanding. Fraser Papers has committed to use its best efforts to remove Norbord from these guarantees and has agreed to provide letters of credit or other acceptable collateral to secure any guarantees which remain outstanding on December 27, 2006. As security for these ongoing financial commitments to Fraser Papers, Norbord has the right, at any time, to require Fraser Papers to provide a fixed first charge security interest over Fraser Papers' manufacturing facilities. The Company's share of the estimated proceeds from liquidation of this security would be sufficient to cover the maximum potential amount of future payments under the guarantees. In addition, Fraser Papers has indemnified Norbord against any future obligations arising from released or previously unidentified guarantees.

Earnings from discontinued operations in 2004 included net sales of $478, pre-tax loss of $9 and a loss of $6.

NOTE 12. ACQUISITIONS

In September 2004, Norbord acquired OSB and particleboard assets at Genk, Belgium at a cost of $64. The full purchase price was allocated to property, plant and equipment.

In March 2004, Norbord acquired a 50% interest in an oriented strand board plant at Bemidji, Minnesota, bringing Norbord's ownership interest to 100%. The purchase price, net of cash acquired of $2, was allocated $28 to property, plant and equipment, and $6 to working capital.

NORBORD ANNUAL REPORT 2005
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
48

NOTE 13. EMPLOYEE BENEFIT PLANS

Pension Plans
Norbord has a number of pension plans, participation in which is available to substantially all employees. Norbord's obligations under its defined benefit pension plans are determined periodically through the preparation of actuarial valuations, which are generally required every three years. The most recent actuarial valuation was conducted as of December 31, 2004. The date of the next required valuation is December 31, 2007, and Norbord may choose to perform an actuarial valuation at an earlier date. Information about these plans is as follows: