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Tembec Industries Inc.

Annual Information Form

December 15, 2005

For the fiscal year ended September 24, 2005

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TABLE OF CONTENTS

|DOCUMENTS INCORPORATED BY
    REFERENCE               | 3                                                                    
|----------------------------------------------------- | ---------------------------------------------------------------------
|GLOSSARY                                              |                                                                      
|SPECIAL NOTE REGARDING
    FORWARD-LOOKING STATEMENTS | 3                                                                    
|ITEM 1 -                                              | DATE OF ANNUAL INFORMATION FORM                                      
|ITEM 2 -                                              | CORPORATE STRUCTURE                                                  
|ITEM 3 -                                              | GENERAL DEVELOPMENT OF THE
    BUSINESS                              
|                                                      | 3.1                                                                  
|                                                      | 3.2                                                                  
|                                                      | 3.3                                                                  
|ITEM 4 -                                              | NARRATIVE DESCRIPTION OF THE
    BUSINESS                            
|                                                      | 4.1                                                                  
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      | 4.2                                                                  
|                                                      | 4.3                                                                  
|                                                      | 4.4                                                                  
|                                                      | 4.5                                                                  
|ITEM 5 -                                              | DIVIDEND POLICY                                                      
|ITEM 6 -                                              | GENERAL DESCRIPTION OF CAPITAL
    STRUCTURE                         
|                                                      | 6.1                                                                  
|                                                      | 6.2                                                                  
|ITEM 7 -                                              | DIRECTORS AND OFFICERS                                               
|                                                      | 7.1                                                                  
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      |                                                                      
|                                                      | 7.2                                                                  
|                                                      | 7.3                                                                  
|                                                      | 7.4                                                                  
|ITEM 8 -                                              | EXECUTIVE AND OTHER COMPENSATION                                     
|ITEM 9 -                                              | INDEBTEDNESS                                                         
|                                                      | 9.1                                                                  
|ITEM 10 -                                             | AUDITORS                                                             
|                                                      | POLICIES AND PROCEDURES FOR THE
    ENGAGEMENT OF AUDIT AND NON-AUDIT
|                                                      |                                                                      
|ITEM 11 -                                             | LEGAL PROCEEDINGS                                                    
|                                                      | 11.1                                                                 
|                                                      | 11.2                                                                 
|ITEM 12 -                                             | MATERIAL CONTRACTS                                                   
|ITEM 13 -                                             | INTERESTS OF EXPERTS                                                 
|ITEM 14 -                                             | ADDITIONAL INFORMATION                                               
|GLOSSARY                                              |                                                                      
|SCHEDULE A                                            |                                                                      
|SCHEDULE B                                            |                                                                      

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DOCUMENTS INCORPORATED BY REFERENCE

Certain specifically identified pages of the audited
consolidated financial statements for the fiscal year ended September 24, 2005
(the "2005 Financial Statements"), the report of the auditors thereon dated
November 8, 2005 and the management's discussion and analysis thereof
(collectively the "2005 Annual Report") filed with the securities commission or
similar authority in each of the provinces of Canada are incorporated by
reference into and form an integral part of this Annual Information Form.

GLOSSARY

Unless otherwise noted or the context otherwise indicates,
references to the "Corporation" in this Annual Information Form are to Tembec
Industries Inc. References to "Tembec" are to, as the context may require,
either the Corporation or the Corporation together with one or more of its
subsidiaries, associates and its interests in joint ventures and other entities.
In addition, unless otherwise defined herein, certain terms are defined in the
glossary included on page 45 of this Annual Information Form.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Information Form,
including statements which may contain words such as "anticipate", "could",
"expect", " seek", "may", " likely", "intend", "will" , "believe" and similar
expressions, statements that are based on current expectations and estimates
about the markets in which Tembec operates and statements of Tembec's belief,
intentions and expectations about developments, results and events which will or
may occur in the future, statements relating to trends, expected operating cost
savings and expected capital expenditures, constitute "forward-looking
statements". These statements are based on certain assumptions and analyses made
by Tembec derived from its experience and perceptions. In addition, other
written or oral statements that would constitute forward-looking statements may
be made from time to time by or on behalf of Tembec.

The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions that may cause actual results to differ materially
from those projected, including, but not limited to:

- 

In addition, other risks could adversely affect Tembec and it
is not possible to predict or assess all risks. Tembec's actual results,
performance or achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do so, what benefits, including the
amount of proceeds, Tembec will derive therefrom. Tembec disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

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TEMBEC INDUSTRIES INC. 
ANNUAL INFORMATION FORM

ITEM 1 - DATE OF ANNUAL INFORMATION FORM

This Annual Information Form (the "Form") is dated as of December 15, 2005.
Except as otherwise indicated, the information contained in this Form is stated
as at September 24, 2005.

ITEM 2 - CORPORATE STRUCTURE

Tembec Industries Inc. (the "Corporation") was formed under
the Business Corporation Act (Ontario) on August 29, 1995, by the amalgamation
of Malette Inc. and Tembec Finance Corp. and continued under the Canada Business
Corporations Act on February 18, 1999, under the name of "Tembec Industries
Inc.". On October 1, 2000, it amalgamated with Crestbrook Forest Corporation
Ltd, on September 30, 2001, with Pine Falls Paper Corporation Limited, and
subsequently, on September 26, 2004, with 4189931 Canada Inc.

There are 536,807,704 Class A shares of the Corporation, all of which are
held by Tembec Investments Inc., a wholly-owned subsidiary of Tembec Inc. The
Class A shares of the Corporation are the only voting securities of the
Corporation.

The Corporation's head office is located at Suite 1050, 800 René-Lévesque
Blvd. West, Montreal, Quebec, H3B 1X9, telephone: 514-871-0137.

The chart below shows Tembec's principal facilities by industry segment and,
where appropriate, the subsidiaries or affiliates which operate them. Where the
percentage of ownership is less than 100%, it is indicated.

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CORPORATE ORGANIZATION CHART



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Investments

SPF Lumber

Tembec holds a 50% interest in Temrex Forest Products, Limited Partnership
which owns and operates two sawmills in the Gaspé region of the province of
Québec, respectively located in Nouvelle and St-Alphonse, Québec.

Engineered Wood

Tembec holds a 50% interest in Temlam Inc. ("Temlam") which
owns and operates an engineered wood products business comprised of laminated
veneer lumber ("LVL") plants in Ville Marie and in Amos, Québec, 3 wood I-beam
plants located in Blainville, Québec, Bolton, Ontario and Calgary, Alberta as
well as a metal plate and web facility located in Bolton, Ontario.



Tembec holds a 50% interest in AV Cell Inc. which owns and operates a
dissolving pulp mill located in Atholville, New Brunswick.

Northern Bleached Softwood Kraft

Tembec holds a 50% interest in Marathon Pulp Inc. which owns and operates a
softwood kraft pulp mill in Marathon, Ontario.

ITEM 3 - GENERAL DEVELOPMENT OF THE BUSINESS

3.1 BUSINESS OVERVIEW

Tembec is a large, diversified and integrated forest products
corporation with operations principally located in North America and in France.
Its business segments are forest products, pulp, paper and chemicals. As the
chemical business represents less than 10% of the Corporation's consolidated
sales and consolidated assets, it is not discussed in this annual information
form.

Tembec produces approximately 1.7 billion board feet of
lumber, 2.2 million tonnes of pulp and 1.1 million tonnes of newsprint and
papers. For the fiscal year ended September 24, 2005, Tembec had sales of $3.6
billion, EBITDA of $28.1 million, and net losses of $308.8 million. Tembec's
total assets at that date were $3.4 billion and it employed approximately 10,000
people. The segmented results and the breakdown of sales of the Corporation's
products by geographic areas are shown on pages 38 and 39 of the 2005 Annual
Report.

Tembec's strategy is to (i) be diversified into forest
products, pulp products and paper products; (ii) strive to maintain low cost,
efficient operations; and (iii) utilize its technical and operating expertise to
develop niche products and markets within its business segments.

3.2 THREE YEAR HISTORY

In the last three fiscal years, Tembec was active in consolidating its
presence in the forest products sector, securing its fibre supply, modernizing
and expanding in the pulp sector, raising capital and renewing its operating
lines of credit.

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Pulp Group

In the pulp group, a high-yield pulp mill located in Chetwynd,
British Columbia was added to Tembec's existing Temiscaming and Matane, Québec,
high-yield pulp mills to make Tembec the preeminent Canadian supplier of
high-yield pulps. This increased its total manufacturing capacity to 2.2 million
tonnes.

The Temiscaming specialty cellulose mill modernization was
completed during the last fiscal year. The $140 million project increased the
production capacity of the mill by 10,000 tonnes and consisted in upgrading the
pulp screening and washing, bleach stock washing and screening, dry machine and
finishing, chip screening and digester areas of the mill.

Forest Products Group

As part of its strategy to contribute to much needed
consolidation in the softwood lumber industry in North America, and to further
secure its long-term fibre base for its pulp and paper manufacturing operations
in Ontario and Québec, Tembec acquired two sawmills located in La Sarre and
Senneterre, Québec for $59.1 million, including working capital, as well as a
sawmill from Weyerhaeuser located at Chapleau, Ontario for $25.4 million,
including working capital.

In the last fiscal year, Temlam completed the construction of
a 5.0 million cubic feet LVL plant at Amos, Québec at a cost of $130 million.
The plant is currently in its start-up phase which is progressing well. It is
expected to be fully commissioned by the end of the calendar year. Temlam
already owns and operates a LVL plant at Ville-Marie, Québec.

Consolidation

In the last fiscal year, Tembec announced the shutdown of
five sawmills and one remanufacturing facility in the forest products group and
one mill and one paper machine in the paper group. These closures were necessary
in light of the stronger Canadian dollar and other fundamental issues affecting
their long-term competitiveness.

Financing

In the spring of 2003, the Corporation issued US $100 million
of 8.625% Senior Notes due 2009 by way of a private placement, which were
unconditionally guaranteed on a senior unsecured basis by Tembec Inc. These
notes were subsequently registered.

In the spring of 2005, Tembec put in place a three-year
committed revolving line of $150 million with CIT Business Credit Canada Inc.,
and a three-year committed revolving line of $200 million with a syndicate of
banks, both of which replaced existing operating facilities.

3.3 TRENDS

Reference is made to the Outlook section on pp. 30 and 31 of the 2005 Annual
Report.

ITEM 4 - NARRATIVE DESCRIPTION OF THE BUSINESS

4.1 PRINCIPAL OPERATIONS

Tembec's business is centered around the production and sale
of forest, pulp and paper products. The manufacturing assets of the Corporation
are located primarily in Canada, with a large presence in the eastern part of
the country, namely, Northeastern Ontario and Northwestern Québec.

Tembec has approximately 10,000 employees of which
approximately 6,600 are covered by collective bargaining agreements. At the end
of September 2005, there were 7 agreements covering 1,388 employees that had
expired. During fiscal 2006, a total of 17 agreements covering 2,053 employees
will expire.

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One of the more significant production sites owned by Tembec
is located in the town of Temiscaming, Québec. It represents approximately 16%
of total consolidated sales. The Temiscaming complex, as the site is referred
to, includes 3 pulp lines which produce specialty cellulose and high-yield
pulps, a 3-ply coated paperboard machine, an ethyl alcohol production facility,
a liquid resin plant, a lignosulfonate spray drying operation, a biomass boiler,
which generates steam and electricity, burns wood waste and sludge as well as
primary and secondary effluent treatment facilities.

The lumber and paper businesses are more North American in
nature and the Corporation's assets are located in this market. The pulp
business is global in nature, with Europe being the largest consumer. Three of
the eleven pulp mills, which represent approximately 50% of its kraft pulp
production and 40% of its specialty pulp production, are located in Europe. The
other eight pulp mills are located in Canada. The following sections provide
specifics in relation to each of the Corporation's principal business segments.

4.1.1 Forest Products Group

The Forest Products Group produces an extensive range of
commodity and value-added forest products focusing on three main product groups:
(i) Spruce, Pine, Fir Lumber ("SPF") and OSB Panels, (ii) Specialty Wood
products and (iii) Engineered Wood products. For the fiscal year ended September
24, 2005, the Forest Products Group generated external sales of approximately
$1.2 billion and EBITDA of $55 million. The Forest Products Group's annual sales
accounted for approximately 32% of Tembec's total consolidated sales in fiscal
2005.

The following table summarizes the annual operating levels of each facility
by product group:

|SPRUCE, PINE, FIR LUMBER AND PANELS              |          
|------------------------------------------------ | ---------
|                                                 |          
|Location and Product                             | MFBM     
|                                                 |          
|Stud Lumber                                      |          
|Taschereau/La Sarre,
    QC(1)                   | 200,000  
|Senneterre, QC                                   | 150,000  
|Cochrane, ON                                     | 170,000  
|Kapuskasing, ON                                  | 105,000  
|                                                 |          
|Random Length Lumber                             |          
|Elko, BC (2)                                     | 270,000  
|Canal Flats, BC (2)                              | 180,000  
|Hearst, ON                                       | 160,000  
|Timmins, ON                                      | 100,000  
|Chapleau, ON                                     | 135,000  
|Bearn, QC                                        | 110,000  
|Nouvelle/St-Alphonse, QC(3)                      | 75,000   
|                                                 |          
|Finger Joint Lumber                              |          
|Cranbrook, BC                                    | 25,000   
|                                                 | 1,680,000
|                                                 | MSF      
|Saint-Georges, QC 
    OSB                      | 1,700,000
|                                                 |          
|SPECIALTY WOOD                                   |          
|Location and Product                             | MFBM     
|Mattawa, ON - Pine
    and Hardwood Lumber       | 30,000   
|Huntsville, ON -
    Hardwood Lumber             | 30,000   
|Huntsville, ON -
    Hardwood Flooring           | 18,000   
|Toronto, ON -
    Pre-Finished Hardwood Flooring | 10,000   

|                               
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|Brassac, France -
    Pine Lumber                 | 15,000             
|------------------------------------------------- | -------------------
|                                                  | 103,000            
|ENGINEERED WOOD                                   |                    
|Location and Product                              | Thousand ft. 3     
|Ville-Marie, QC(4) Laminated Veneer Lumber       | 450                
|Amos, QC (4)(5)
    Laminated Veneer Lumber      | 2, 500             
|                                                  | 2,950              
|                                                  |                    
|                                                  | MFBM               
|La Sarre, QC 
    Engineered Finger Joint Lumber | 60,000             
|                                                  |                    
|                                                  | Thousand linear ft.
|Bolton, ON(4)
     Wood I-Beams                  | 30,000             
|Calgary, AB(4)
     Wood I-Beams                 | 10,000             
|Blainville, QC(4) Wood I-Beams                   | 3,000              
|                                                  | 43,000             
|                                                  |                    
|                                                  | Million lbs        
|Bolton, ON(4)
     Metal Plates and Webs         | 10.0               

> (1) Sites are operated as a combined entity.
>   (2) The Elko and Canal Flats sawmills rely on the
>   Cranbrook planing mill to dry and dress 80,000 Mfbm of lumber.
>   (3) Volumes
>   reflect 50% of the actual capacity as the units are part of the Temrex joint
>   venture.
>   (4) Volumes reflect 50% of the actual plant capacity as the units are
>   part of the Temlam joint venture.
>   (5) Projected capacity as mill is in start-up
>   phase.

Products and Markets

The SPF lumber sawmills produce various types, species and
grades of lumber which are used primarily for residential and commercial
construction. Higher value SPF lumber products include J-Grade, TemPlusTM
and TemSelectTM and machine stress rated ("MSR") grades.

OSB panels are used in residential construction and industrial applications.

Pine and hardwood lumber are used in a wide variety of applications,
including furniture, flooring and specialty residential and commercial
applications.

Hardwood flooring products are targeted for residential, commercial and
recreational applications.

The engineered wood products business manufactures LVL and I-beams which are
used in specialized residential and commercial construction applications such as
roof and floor truss systems as well as beam and header applications.

In addition, the Forest Products Group produces and ships approximately 2.0
million tonnes of wood chips, approximately 85% of which are directed to
Tembec's pulp and paper facilities.

The SPF lumber industry is subject to both cyclical and
seasonal fluctuations in demand, which can lead to volatility in prices. North
American solid wood products demand is influenced by the general level of
economic activity, consumer confidence and interest rates. All of the above
impact on housing construction starts, which is generally regarded as the best
indicator of lumber demand. The total North American lumber demand is
approximately 68 billion board feet, with U.S. demand of approximately 56
billion board feet and the balance being consumed in Canada. U.S. producers
currently

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supply 35 billion board feet, leaving a U.S. domestic
shortfall of approximately 21 billion board feet. Canadian producers annually
sell a total of 33 billion board feet, shipping 19 billion board feet to the
U.S. and exporting 2 billion board feet outside North America. The remaining 12
billion board feet is consumed domestically in Canada. The Corporation's
geographic sales activity is generally aligned with this breakdown. In fiscal
2005, 38% of the consolidated sales occurred in Canada and 56% in the United
States of America. As a result of the significant dependence on the U.S. market, Tembec's forest products competitiveness is heavily influenced by the relative
strength of the Canadian dollar versus the U.S. dollar. Tembec's production
capacity represents less than 2.5% of the North American SPF lumber capacity.

The Forest Products Group business is highly commoditized and
fosters a highly diversified customer base. Products are sold by Tembec's own
internal sales force to wholesalers and distributors as well as directly to
large retailers and end-users.

The Corporation competes directly with other Canadian and
U.S. producers of SPF lumber. While selling prices, product quality and customer
service are important factors affecting competition, other factors such as fibre
costs, foreign exchange rates and the ongoing trade dispute between the U.S. and
Canada also have an impact on the Corporation's competitive position. The
Canada/U.S. Softwood Lumber Agreement, which imposed quotas on the duty-free
volumes sold by mills in British Columbia, Alberta, Ontario and Québec, expired
on March 31, 2001. Litigation with respect to antidumping and countervailing
duties on softwood lumber imposed by the U.S. Department of Commerce ("USDOC")
and the U.S. International Trade Commission ("USITC") on softwood lumber
products sold by Canadian Producers into the United States has ensued and is
still outstanding. Reference is made to the caption "Legal Proceedings". Tembec
has deposited US$220.6 million with the U.S. Department of Commerce on account
of these duties as of September 24, 2005.

Fibre Supply

Tembec's forestry operations are managed by the Forest
Resources Management Group. This includes the harvesting of timber, either
directly or through contractors, and all silviculture and regeneration work
required to ensure a sustainable supply of wood fibre to the manufacturing
units. The Forest Resources Management Group is also responsible for third-party
timber purchases and wood chip production from whole log chippers which are
required to supplement total requirements. Its main objective is the
optimization of the flow of timber to the various manufacturing units.

Tembec seeks to maximize the utilization of timberlands for
which it is responsible through efficient management and by following
sustainable forest management practices so that the timberlands provide a
continuous supply of wood for future needs. Site preparation, planting and
harvesting techniques are continually improved through a variety of methods,
including genetic research and computerization.

As Tembec's forestry activity in Canada is conducted
primarily on Crown land, the Forest Resources Management Group works closely
with provincial governments to ensure harvesting plans and operations comply
with established regulations.

Québec

Tembec has timber supply and forest management agreements
(commonly known as "CAAFs") with the Ministry of Natural Resources (Québec) for
the supply of its Québec sawmills. Each CAAF has a term of 25 years and is
subject to review and renewal every five years. Renewal at the end of each
five-year period remains at the discretion of the Ministry of Natural Resources
(Québec) and is subject to its determination that Tembec has satisfied the
obligations specified under the relevant CAAF.

The Coulombe Commission, appointed by the Québec government
to study and report on the management of Crown land on its territory, made its
report public on December 14, 2004. It recommended that the Québec government
reduce timber cutting rights by 20% for fir, spruce, jack pine and tamarack
(SPF). During the spring of 2005, the Québec

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government announced a 20% reduction in annual allowable cut for SPF, and 5%
on other species. Cutting rights for Tembec were reduced by 19.2% in SPF, for a
total reduction of 11.6% all species combined.

Ontario

Tembec's cutting rights are provided principally through
several Sustainable Forest Licenses on Crown land issued by the Ministry of
Natural Resources. These licenses expire at different dates and have 20 year
terms and are renewable every five years. Their renewal is based on satisfactory
performance determined by independent audits and approval of the Ministry of
Natural Resources (Ontario).

Manitoba

In Manitoba, Forest Management License Agreements ("FMLs")
enable holders to harvest to sustainable levels. The FMLs are for 20 year terms
and are renewable every 10 years upon approval of a ten year forest management
plan. An environmental licensing process accompanies the submission of the
long-term forest management plan resulting in the issuing of a ten-year
environmental license. The Province of Manitoba has notified Tembec that a new
twenty-year forest management plan must be submitted for the Tembec Forest
Management License Agreement by January 1, 2008. The Province has also provided
Tembec notice that the current FML will not be extended when the new plan is
approved and that a new FML will be required by December 31, 2008.

British Columbia

Approximately 95% of all timberlands in the Province of
British Columbia are Crown lands. Rights to harvest Crown timber may be granted
on behalf of the Crown in the form of forest tenures regulated under the British
Columbia Forest Act, the Forest Practices Code of British Columbia Act and the
Forest and Range Practices Act and associated regulations.

The forms of forest tenures held by Tembec are one tree farm
license (25-year term replaced every 5 to 10 years) and three forest licenses
(15-year term also replaced every 5 to 10 years). Such licenses typically confer
to their holder the right to harvest a specific volume of timber on Crown lands.
In harvesting these tenures, the Corporation is required to satisfy specific
government objectives which include forest management, protection of non-timber
resources, harvesting, reforestation and protection of archaeology and cultural
heritage sites.

As a result of the Forest Revitalization Act, license holders
across the province are required to surrender a certain portion of existing
harvesting rights (roughly 20% for tenure with annual allowable cuts greater
than 200,000 m3). This surrendered volume shall be reallocated to the
British Columbia Timber Sales Program, First Nations and small tenures (for
example woodlots). While some volume of harvesting rights is lost from forest
tenures (in Tembec's case 189,310 m3, effective March 1, 2005,
through March 1, 2006), it remains available on the open market through a
competitive purchase program.

Stumpage and Other Charges

Provincial authorities impose stumpage fees on volumes of
wood cut on Crown land. These fees are determined under specific mechanisms in
each province. Part of the mandate of the Forest Resources Management Group is
to ensure that stumpage charged by the provincial governments reflects the fair
value of the timber being harvested.

Due to the mountain pine beetle infestation in British
Columbia and the resultant deterioration in log quality, provincial authorities
have committed to changing the method of scaling and pricing logs in the
province. These legislative changes are intended to be effective on April 1,
2006.

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4.1.2 Pulp Group

The Pulp Group currently consists of eleven manufacturing
facilities operating at ten sites.The facilities are divided into two main
categories: paper pulps (softwood kraft, hardwood kraft and high-yield pulps)
and specialty pulps (specialty cellulose, fluff and dissolving pulps). Nine of
the pulp mills are wholly-owned and Tembec has a 50% joint venture position in
the Marathon, Ontario, softwood kraft pulp mill and in the Atholville, New
Brunswick dissolving pulp mill. In the fiscal year ended September 24, 2005, the
Pulp Group generated external sales of $1.3 billion and negative EBITDA of $24.7
million.

The following table summarizes the products and operating levels of each
facility by main type:

|Location and Product                      |          
|----------------------------------------- | ---------
|Paper Pulps                               | Tonnes   
|Softwood Kraft                            |          
|Skookumchuck, BC                          | 270,000  
|Tarascon, France                          | 260,000  
|Smooth Rock Falls, ON                     | 200,000  
|Marathon, ON(1)                           | 95,000   
|                                          | 825,000  
|Hardwood Kraft                            |          
|Saint-Gaudens, France                     | 305,000  
|                                          |          
|Hardwood
    High-Yield                   |          
|Temiscaming, QC                           | 300,000  
|Matane, QC                                | 230,000  
|Chetwynd, BC                              | 200,000  
|                                          | 730,000  
|Specialty Pulps                           |          
|Temiscaming, QC 
    Specialty Cellulose | 165,000  
|Tartas, France 
    Fluff                | 155,000  
|Atholville, NB(1)
     Dissolving        | 60,000   
|                                          | 380,000  
|                                          |          
|Total                                     | 2,240,000

> (1) 50% of current annual capacity.

Products and Markets

Most paper grade market pulps, primarily kraft, are produced
by chemical processes, although high-yield pulps are made by mechanical methods.
Kraft paper pulps are used to produce a variety of high-quality paper products
with specific brightness and strength characteristics. Softwood kraft normally
sells for a premium over hardwood kraft as its longer fibres provide required
strength properties for paper producers. High-yield market pulps have been
produced in North America since the mid-1980's. Initially, most high-yield pulps
were manufactured with softwood and utilized in tissue and towel applications,
where their superior bulk and absorbency are desired characteristics. However, Tembec had always maintained a strategy of targeting the use of high-yield pulps
in paper production. The strategy led to the development of hardwood high-yield
grades made from birch, aspen and maple. Although high-yield pulps are lower
than kraft pulps in tensile and tear strength, they offer advantages in bulk and
opacity.

Specialty pulps are used in a wide variety of applications.
The specialty cellulose pulp mill in Temiscaming, Québec, produces high purity
cellulose, which is used in textiles, pharmaceuticals, food additives and
industrial chemicals. The pulp mill in Tartas, France, also produces fluff pulp
using the sulphite process and it is sold to manufacturers of disposable
sanitary products who then break down the pulp rolls into individual fibres to
give their products bulk, softness and absorbency. Disposable baby diapers
account for a large percentage of fluff pulp consumption. Feminine napkins,

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adult incontinence diapers and nursery pads
are other important end-uses. The dissolving pulp grades produced in Atholville,
New Brunswick, are also highly purified grades of cellulose pulp. They are used
in the manufacture of rayon staple textile fibre by affiliates of the Aditya
Birla Group, Tembec's joint venture partner in AV Cell Inc.

The pulp market is international in nature,
with large volumes of pulp moving duty-free between net-producing regions and
net-consuming regions. Global market pulp demand is approximately 46 million
tonnes. Canada is the largest net exporter of market pulp at 9 million tonnes
per year, followed by the Nordic countries at 6 million tonnes and South America
at 5 million tonnes. Europe is the largest net consuming region at 11 million
tonnes per year, followed closely by Asia at 10 million tonnes. In fiscal 2005,
these two markets accounted for approximately 80% of Pulp Group external sales.

Tembec markets its pulp on a world-wide basis,
primarily through its own sales force, with a network of offices in Canada,
Switzerland, China, Japan, South Korea and Spain. This is consistent with
Tembec's strategy of selling directly to customers and establishing long-term
strategic relationships. Tembec's sales force also markets pulp and paperboard
produced by third parties. In fiscal 2005, agency pulp sales totaled 4,400
tonnes compared to 12,000 tonnes in fiscal 2004. Sales from the Pulp Group
represented approximately 36% of Tembec's total consolidated sales in fiscal
2005.

Fibre Supply

Tembec's North American pulp mills consumed
approximately 2.3 million bone dry tonnes of wood chips in fiscal 2005. Of this
amount, approximately 49% was supplied by the Forest Products Group. The
remainder is purchased from third parties under contracts and agreements of
various duration. The three pulp mills located in southern France purchase their
fibre requirements from many private landowners.

4.1.3 Paper Group

The Paper Group currently consists of four
facilities with a total of tenpaper machines producing newsprint, coated paper
and specialty paper products. For the fiscal year ended September 24, 2005, the
Paper Group generated sales of $942.8 million and negative EBITDA of $13.1
million.

The following table summarizes the products and operating
levels of each facility by main type:

|Location and Product                                  |          
|----------------------------------------------------- | ---------
|Newsprint                                             | Tonnes(1)
|Kapuskasing, ON 
    Newsprint(3)                    | 330,000  
|Pine Falls, MB 
    Newsprint                        | 185,000  
|                                                      | 515,000  
|                                                      |          
|Coated Paper                                          |          
|St. Francisville, LA
     Coated No 4 & 5            | 280,000  
|                                                      |          
|                                                      |          
|Specialty Paper                                       |          
|St. Francisville, LA
     Uncoated Bleached Board(2) | 80,000   
|St. Francisville, LA
     Specialty Kraft Paper      | 30,000   
|                                                      | 110,000  
|Paperboard                                            |          
|Temiscaming, QC -
    Coated                          | 170,000  
|                                                      |          
|Total                                                 | 1,075,000

(1) Although the above table shows all capacities in metric tonnes,coated
paper and certain specialty paper are sold primarily in short tonnes. 
(2) This machine is currently in the process of being permanently shutdown 
(3) One of the four paper machines has recently been shutdown permanently.

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Products and Markets

Newsprint is used primarily for the publication of daily
newspapers. It is generally considered to be a commodity product, having a
uniform definition and few distinct differences. Newsprint demand is driven
primarily by the requirements of daily newspapers. Canadian manufacturers of
newsprint are very dependent on export markets, particularly the U.S. market.
The total North American newsprint demand is approximately 11 million tonnes
with the U.S. market consuming 10 million tonnes. U.S. producers currently
supply 5 million tonnes of this requirement. Canadian newsprint producers
annually sell a total of 8 million tonnes, shipping 5 million tonnes to the U.S.
and exporting 2 million tonnes outside of North America. As a result of this
large dependence on the U.S. market, Tembec's newsprint competitiveness is
heavily influenced by the relative strength of the Canadian dollar versus the
U.S. dollar. The Corporation's newsprint capacity represents approximately 5% of
total North American production capacity.

The St-Francisville, Louisiana, paper facility produces
coated and specialty papers. The end-use markets are magazines and catalogs.
Demand factors for magazines and catalogs are related to advertising and retail
sales. The general economy strongly influences both. The coated paper capacity
of Tembec represents approximately 5% of the North American market. The
specialty paper products segment, which is divided further into lightweight and
heavyweight papers, encompasses the food and medical papers markets and typical
end uses are coffee filters, medical papers, cup stock for drinking cups, file
folders and magazine reply cards. The lightweight segment of the specialty
market is made up of small non-pulp integrated producers. Tembec is the leading
producer of paper for the coffee filter market and also benefits from being
fully integrated with its pulp supply with respect to this segment of the
market.

The paperboard markets targeted by Tembec are the coated
lightweight, bleached linerboard and folding carton board packaging markets for
food, pharmaceuticals, cosmetics and cigarettes. Graphic printing applications
include postcards, calendars, greeting cards, book covers and report covers. In
addition, the mill produces bleached liner board for high-quality packaging and
display applications. The paperboard group's major market is in the U.S. with
the balance split between Canada and offshore markets.

The focus of the Paper Group is the North American market which accounted for
98% of sales in fiscal 2005, with the U.S. representing 87% of such sales. For
fiscal 2005, the Paper Group represented 26% of consolidated sales.

Fibre Supply

The Paper Group receives approximately one-third of its
virgin fibre requirements through internal sources with the remainder purchased
from sawmills and third-party suppliers. The paper mills consumed 1.0 million
tonnes of wood chips and round wood in the last fiscal year. All of the wood
fibre required by the St. Francisville facility is purchased from industrial and
privately owned land.

The pulp group provides the high yield pulp and a portion of the NBSK pulp
required by the Temiscaming paperboard operation. Other purchases of kraft pulp
are made on the open market.

The Kapuskasing and Pine Falls mills both produce newsprint
that contains recycled fibre. They utilize de-inked recycled pulp produced from
old newspapers ("ONP") and old magazines ("OMG"). Their consumption of ONP and
OMG was 92,800 tonnes in the last fiscal year. ONP and OMG are purchased from
various merchants and collection groups.

4.2 ENVIRONMENTAL AND SOCIAL POLICIES

Tembec shares with the community important responsibilities
towards the environment in which we live and work. The Corporation supports the
responsible stewardship of resources, including forest, fish and aquatic
habitat, wildlife, air, land and water. Responsible stewardship, combined with a
continuous improvement process, makes possible sustained economic development
and an improved quality of life.

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Environmental Management

Tembec maintains two Environmental Management Programs ("EMPs")

Pulp and Paper

Impact Zero® provides for the development of environmental
objectives, targets and action plans that are based on specific performance
criteria. It also includes the implementation and maintenance of an
environmental management system ("EMS"), in compliance with the ISO 14001-1996
standards.

Impact Zero® objectives and targets are established in six
key areas at each Tembec manufacturing site. The sites are responsible for
establishing and maintaining programs and action plans required to achieve the
environmental objectives and targets within scheduled timeframes, as well as for
allocating the human, technical and financial resources required for their
implementation. All but one of Tembec's pulp and paper operations are currently
certified to the ISO-14001 standard. The Chetwynd plant, a zero-effluent mill,
is expected to obtain its certification by the end of 2006.

As part of Impact Zero®, Tembec has implemented the
Environmental Profile Data Sheet

Environmental Infractions

Recently, Tembec reached a settlement with the Government of
Quebec regarding a total of 36 charges related to exceedences of allowable
limits for effluent from the Temiscaming Complex in Temiscaming, Quebec which
occurred between January 2001 and February 2003.

The infractions occurred around the time the Corporation was
reviewing options for additional capital expenditures focused on effluent
treatment facilities and process modifications that would have a further
positive environmental effect with the goal being to ensure that the Temiscaming
Complex would meet the environmental standards. A capital plan providing for
expenditures in excess of $50 million has almost been fully executed with
completion and commissioning scheduled for early calendar 2006. These
investments will ensure that, barring unforeseen events, the Temiscaming site
operates in full compliance with all regulations.

Forest Resource Management

The Forever Green® Program includes the implementation and
maintenance of an EMS, in compliance with the ISO 14001-1996 standards, which
aims to promote environmental protection, sustainable forest management and
conformance with the Tembec environmental policy for forest operations. Tembec
has developed the "Forever Green® Guiding Principles" to direct forest managers
in the establishment of environmental objectives and targets which are reviewed
annually. As part of the Forever Green® Program, Tembec has also made a
commitment to certify all of its forest operations to the Forest Stewardship
Council ("FSC") standards.

Certification

The Corporation was awarded Forest Stewardship Council (FSC) certification in
La Sarre, Québec as well as with respect to the Romeo Malette and Smooth Rock
Falls Forests in northeastern Ontario in the past year. The La Sarre operation
is

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the first public forest in Québec to be awarded certification
under the rigorous Forest Stewardship Council Standards for Canadian boreal
forests. These certifications, when added to previously certified forests, bring
the total area of FSC certified forest under license to Tembec to 5.4 million
hectares. As of September 2005, an additional 4 million hectares of forest have
been audited of which one million hectares are scheduled to be certified prior
to the end of the 2005 calendar year.

In keeping with its philosophy to promote environmental
protection, Tembec entered into an agreement in December 2004 with Nature
Conservancy of Canada ("NCC ) to protect over 400 square kilometers (99,366
acres) of important wildlife habitat in southeastern British Columbia. It is the
largest agreement of its kind ever negotiated by NCC, and one of the biggest
private conservation agreements in North American history. The agreement commits
Tembec to a 10-year no-development moratorium on 370 square kilometers (91,405
acres) of its land.

The Rain Forest Alliance, a leading international conservation organization,
recognized Tembec as a corporate sustainable standards setter to highlight its
significant contribution to environmental conservation and sustainability.

First Nations Policy

In protecting and enhancing the resources in its care, Tembec
is also cognisant of and recognizes its presence in territories to which
aboriginal people have interests. The Corporation has adopted a First Nations
policy, the purpose of which is to build relationships with Aboriginal People
located in the vicinity of the Corporation's operations. The Tembec policy
covers areas such as capacity building, employment opportunities,
information-sharing, business relations and forest certification.

In British Columbia, Tembec has agreements in place with the
Ktunaxa Nation Tribal Council representing 5 communities and 3 communities in
northeastern BC. Tembec has entered into the agreements to promote a positive
long-term working relationship between the parties, and to identify the means to
accommodate community interests.

In August 2005, Tembec entered into an agreement with
Missanabie Cree First Nation and the Ontario Ministry of Natural Resources to
recognize the interest of the community in participating in forest management
activities, creation of economic opportunities and consultation initiatives.
Similar agreements are in place with three other Ontario First Nations
communities.

In Quebec, Tembec has agreements in place with four First
Nations communities. With Timiskaming First Nation an agreement is in place to
accommodate the traditional activities of the community during forestry planning
through the identification of areas of concern and development of measures to
harmonize. Financial support to assist the community in engaging in resource
management is also provided.

4.3 RESEARCH AND DEVELOPMENT

Tembec considers research and development ("R&D") essential
to its growth and to its long-term ability to compete successfully on world
markets. Tembec's mission of minimizing costs and encouraging innovation while
protecting the environment is backed by its objective to invest the equivalent
of a minimum of 1% of sales in R&D each year. Some R&D is carried out with
specialized research centres, Canadian and foreign universities and strategic
equipment and technology suppliers. The R&D thrust is a crucial aspect of
Tembec's activities, enabling Tembec to continue meeting its customers'
ever-growing expectations and to develop new customer relationships. Research
projects target environmentally sound forest operations, lower cost fibre
transformation processes and new higher value-added product development.

Tembec's research and development expenditures exceeded $100 million in
fiscal 2004.

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4.4 COMPETITION

The lumber, pulp and paper sectors are essentially commodity
markets in which producers compete primarily on the basis of price. In addition,
since the majority of Tembec's lumber, pulp and paper production is directed to
export markets, it competes on a worldwide basis against many producers of
approximately the same or larger capacity. In export markets, Tembec generally
competes with U.S., Latin American, Asian and Scandinavian producers, some of
whom have greater financial resources and operate mills which may have lower
production costs than the mills operated by Tembec.

4.5 RISK FACTORS

The following information is a summary of certain risk factors relating to
the business of Tembec and is qualified in its entirety by reference to, and
must be read in conjunction with, information appearing elsewhere in this Form.

Product Prices

Tembec's financial performance is dependent on the selling
prices of its products. The markets for most lumber, pulp and paper products are
cyclical and are influenced by a variety of factors. These factors include
periods of excess product supply due to industry capacity additions, periods of
decreased demand due to weak general economic activity, inventory de-stocking by
customers and fluctuations in currency exchange rates. During periods of low
prices, the Corporation is subject to reduced revenues and margins, resulting in
substantial declines in profitability and possibly net losses.

Tembec is not able to predict with certainty market
conditions and selling prices for its products. There can be no assurance that
prices for Tembec's products will not decline from current levels, or when such
prices may increase. Tembec has, in the past, and may, in the future, decide to
schedule market-related production downtime as a result. Any prolonged or severe
market weakness for any of Tembec's principal products may adversely affect
Tembec's revenues, results of operations, cash flow and its ability to satisfy
its obligations under its indebtedness and its capital expenditure requirements.

Foreign Exchange

Revenues for most of Tembec's products are affected by
fluctuations in the relative exchange rates of the Canadian dollar, the US
dollar and the Euro. The prices for many of Tembec's products, including those
Tembec sells in Canada and Europe, are generally driven by US dollar reference
prices. As a result, any decrease in the value of the US dollar relative to the
Canadian dollar and the Euro reduces the amount of revenues Tembec realizes on
its sales. In addition, since Tembec's business units purchase the majority of
their production inputs in local currency, fluctuations in foreign exchange
rates can significantly affect a unit's relative profitability when compared to
competing manufacturing sites in other currency jurisdictions. This could result
in a business unit's inability to maintain its operations during periods of low
prices and/or demand.

Operational Risks

Tembec's manufacturing activities are subject to a number of
risks, including availability and price of fibre, competitive prices for
purchased energy, a productive and reliable workforce, compliance with
environmental regulations, maintenance and replacement/upgrade of process
equipment to manufacture competitive quality products and the requirement to
operate the manufacturing facilities at high rates of utilization and efficiency
to maintain a competitive cost structure.

Fibre represents Tembec's major raw material in the production of wood
products, pulp and paper. In Canada, virgin fibre or timber is sourced primarily
by agreements with provincial governments. The agreements grant timber tenure
for

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terms varying from 5 to 25 years and are generally subject to
regular renewals every 5 years. Aboriginal groups have claimed substantial
portions of land in various provinces over which they claim aboriginal title or
in which they have a traditional interest and for which they are seeking
compensation from various levels of government. Tembec cannot predict the extent
to which aboriginal land claims or other rights will affect Tembec's existing
Crown tenures or Tembec's private timberlands or its ability to harvest timber
from these sources in the future, or its ability to renew or secure other
sources in the future.

There can also be no assurance that Tembec's agreements with
provincial governments will continue to be renewed or extended by the provincial
governments on acceptable terms or that the amount of timber that is allowed to
be harvested will not be decreased. Further changes in legislation or regulatory
regimes in provinces in which Tembec operates may change fee structures payable
in relation to the harvesting of timber, may reduce the availability of fibre
and may increase the costs through the imposition of additional and more
stringent harvesting, rehabilitation and silvicultural standards. These changes
could have a material adverse effect on Tembec's business, financial condition
and results of operations.

The forest products industry is periodically subject to
natural events such as forest fires, adverse weather conditions, insect
infestation, tree disease, prolonged drought and other natural disasters. The
occurrence of any of these events could have a material adverse effect on
Tembec's business, financial condition and results of operations. The Mountain
Pine Beetle continues to pose a significant threat to the lodge pole pine forest
in the interior regions of British Columbia. While impacts in the southeastern
region of the interior, where Tembec operates two sawmills, are less than in the
central region, infestation levels continue to be significant in Tembec's
operating areas. Lodge pole pine accounts for 55% of the total timber volume
harvested in British Columbia and more than 65% of the total timber volume
harvested by Tembec in the province. If the outbreak continues to spread, the
potential implications for Tembec include reduced fibre supply availability, a
change in lumber product mix, increased costs and a decrease in the qualityof lumber produced.

Energy is an important component of mill costs, especially
for high-yield pulp mills, newsprint and paper mills. The majority of the energy
purchased is in the form of electricity. Higher fossil fuel prices, mainly
natural gas, impact on Tembec's energy costs. In 2002, the power market in the
province of Ontario was deregulated. The impact of deregulation has meant more
volatile production costs for Tembec's Ontario operations.

At many of Tembec's facilities, as well as those of the North
American industry as a whole, reductions in employment levels due to
technological and process improvements have resulted in a workforce with longer
average years of service. This increases the cost of pensions and benefits.

The maintenance of a productive and efficient labour
environment cannot be assured. Approximately 70% of Tembec's workforce is
unionized. Collective agreements governing almost 52% of Tembec's unionized
employees will be under negotiation in the next fiscal year. Tembec may not be
able to negotiate acceptable new collective agreements upon expiration of the
existing agreements. This could result in a strike or work stoppage by the
affected workers. Renewal of agreements could result in higher wages or benefits
paid to union members. Therefore, Tembec could experience a disruption of its
operations or higher ongoing labour costs, which could have a material adverse
effect on its business, financial condition, results of operations and cash
flow.

Tembec's operations are subject to industry specific
environmental regulations relating to air emissions, wastewater (effluent)
discharges, solid waste, landfill operations, forestry practices, and site
remediation. Tembec incurs, and expects to continue to incur, significant
capital and operating expenditures in order to comply with applicable
environmental laws and regulations. Charges by the provincial regulator in
connection with effluent discharges from the Temiscaming Complex have been
recently settled. No assurance can be given that changes in environmental laws
and regulations or their application or the discovery of previously unknown
contamination or other liabilities will not have a material adverse effect on
Tembec's business, financial condition and results of operations. Similarly, no
assurance can be given that any capital expenditures necessary for future
compliance with such environmental laws and regulations could be financed from
Tembec's available cash flow.

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The production of lumber, pulp and paper is capital
intensive. Although Tembec maintains its production equipment with regular
periodic and scheduled maintenance, there can be no assurance that key pieces of
equipment in Tembec's various production processes will not need to be repaired
or replaced. The costs of repairing or replacing such equipment and the
associated downtime of the affected production line could have a material
adverse effect on Tembec's business, financial condition and results of
operations.

Because of the relatively high fixed cost component of
certain manufacturing processes, especially in pulp and paper, the operations
are run 24 hours a day seven days a week with target uptime in the 80-85% range.
Failure to operate at these levels jeopardizes the continued existence of a
mill. Producers are forced to operate the facilities at "full" rate even when
demand is not sufficient to absorb all of the output. This can increase the
quantity of products offered in the market and therefore have a negative impact
on product prices, further increasing the inherent cyclicality of the industry.

Trade Restrictions/Lumber Export Duties

Tembec's manufacturing operations are located primarily in
Canada. However, a significant portion of Tembec's sales are conducted in
international markets. Tariffs and trade barriers that reduce or prohibit the
movement of our products across international borders constitute an ongoing
risk. The imposition of duties by any country to which Tembec exports its
products could have a material adverse effect on its business, financial
condition and cash flow.

Financial Risks/Debt Service

There is no assurance that Tembec's business will generate
sufficient cash flow from operations in the future to service Tembec's debt and
make necessary capital expenditures, in which case Tembec may seek additional
financing, dispose of certain assets or seek to refinance some or all of its
debt. Of the total long-term debt of $1.6 billion, 90% relates to US$
denominated high yield "Senior Notes". The annual interest coupon on the high
yield debt ranges between 7.75% and 8.625%, generating an annual expense of
US$100 million. The Senior Notes do not require periodic payments for principal
amortization. Since the entire principal amount becomes due on the maturity
dates of the Senior Notes, it is unlikely that the Corporation will have the
required funds to repay the principal due. The Corporation will require access
to the public or private debt markets to issue new notes or debt instruments to
replace or partially replace the Senior Notes prior to their stated maturity
dates. The nearest maturity relates to the 8.625% US $350 million Senior Notes
maturing in June 2009. In addition, Tembec's two principal bank credit
facilities, aggregating CDN$ 350 million, are committed until 2008. There is no
assurance that the renewal of the credit facilities or that additional
financing, refinancing or asset disposals could be effected, if at all, on
satisfactory terms, the failure of which would materially adversely affect
Tembec's financial position

The indentures covering Tembec's Senior Notes contain
covenants that may limit management's ability to act in certain circumstances.
This may place restrictions on Tembec's ability to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
and investments and to sell or otherwise dispose of assets and merge or
consolidate with other entities. A failure to comply with the obligations
contained in the indentures governing Tembec's debt instruments could permit
acceleration of the related debt and acceleration of debt under other
instruments that contain cross acceleration or cross default provisions.

Growth Strategy/Acquisitions

Tembec has a publicly-stated objective of growing its
operations. Based on past experience, a significant portion of this growth will
likely occur through acquisitions and other forms of business combinations.
While Tembec continues to evaluate strategic acquisition opportunities, there
can be no assurance that Tembec will be able to make further acquisitions on
acceptable terms, establish, maintain or increase the profitability of acquired
businesses or integrate such businesses successfully into Tembec's operations.
In addition, there can be no assurance that Tembec will be able to realize
long-term cost savings or synergetic benefits from the acquisitions of such
businesses.

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ITEM 5 - DIVIDEND POLICY

The Corporation has not paid dividends on any of its Class A
shares in the last three years. The indentures relating to the Corporation's
Senior Notes (the "Indentures") prohibit it from declaring or paying any
dividends unless, at the time of declaring and paying such dividend: (i)
Corporation is not in default under the Indentures (ii) after giving pro forma
effect to the payment of the dividend, the dividend, together with the aggregate
amount of all other Restricted Payments (as defined in the Indentures) made by
Corporation after the date of the Indentures is less than the sum of (a) 50% of
Tembec's cumulative consolidated net income since the date of the Indentures and
(b) 100% of the aggregate net proceeds received by Corporation after the date of
the Indentures from the issue and sale of equity and debt securities that have
been converted into equity of Corporation. The Corporation is currently
precluded from paying dividends based on the foregoing test.

ITEM 6 - GENERAL DESCRIPTION OF CAPITAL STRUCTURE

6.1 GENERAL DESCRIPTION OF CAPITAL STRUCTURE

The articles of the Corporation provide for five classes of shares: the Class
A, B, C, D and E shares.

The Class A shares, of which there are an unlimited number
authorized, provide for the right to vote at all meetings of shareholders and to
receive dividends after dividends on Class B shares. They are subordinated to
the Class B shares in their participation in the event of liquidation,
dissolution, winding-up of the Corporation or other distribution of its assets.

The Class B shares, of which there are an unlimited number
authorized, are issuable in series. There are currently two series of the Class
B shares authorized, namely Series 2 shares and Series 4 shares, both of which
are non-voting and participate in priority to the Class A shares in the event of
liquidation, dissolution, winding-up of the Corporation or other distribution of
its assets.

The Series 2 Class B shares, of which there are 16,627,500
issued and an unlimited number authorized, are retractable at the option of the
holder starting on June 26, 2011, at their issue price plus declared and unpaid
dividends. They may be retracted at any time in the event of a change of control
of the Corporation or if more than half of the assets of the Corporation are
held by third-party interests residing outside of the province of Québec. They
may also be redeemed by the Corporation at any time at their issue price plus
any unpaid dividends. The right to receive dividends is set as a function of the
amount of dividends paid on the Class A shares of the Corporation.

The Series 4 Class B shares, of which 9,103,710 are
authorized and issued, can be redeemed at any time by the Corporation by the
issuance of shares or payment in cash of an amount equal to their issue price
and any declared and unpaid dividends. They are retractable starting after
September 30, 2009. These shares carry a non-cumulative monthly dividend of
$0.005 per share.

The Class C shares, of which there are an unlimited number authorized, are
non-voting, participating and redeemable at the issue price plus the increase in
the book value per share since the issue date.

The Class D shares, of which there are an unlimited number
authorized, are redeemable at the option of the Corporation and the holders at
the fair market value of the consideration received by the Corporation upon
issue of such shares. They are entitled to a preferential and non-cumulative
annual dividend at the rate of 6% of the redemption price.

The Class E shares, of which there are an unlimited number
authorized, are redeemable at the option of the Corporation and the holders at
the fair market value of the consideration received by the Corporation upon
issue of such shares. They are entitled to a preferential and non-cumulative
annual dividend at the rate of 6% of the redemption price.

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6.2 RATINGS

The following credit rating agencies have assigned the following
non-investment grade ratings to the Senior Notes issued by the Corporation:

|Dominion Bond Rating Service Ltd.,                                                                                                                                     |         |                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | --------------------------------------------------
|a division of the McGraw-Hill Companies Inc. ("DBRS"):                                                                                                                 | B (low) | (the seventh ranking category out of ten granted  
|                                                                                                                                                                       |         | by DBRS for long-term debt.)                      
|Moody's Investors Service ("Moodys"):                                                                                                                                  | B3      | (the sixth ranking category out of nine granted by
|                                                                                                                                                                       |         | Moodys for long term debt.)                       
|Standard & Poor's Rating Services ("S&P"):                                                                                                                             | CCC +   | (the seventh ranking category out of ten granted  
|                                                                                                                                                                       |         | by S&P for long-term debt.)                       
|                                                                                                                                                                       |         |                                                   
|A security rating is not a recommendation to buy,
    sell or hold securities and may be subject to revision or withdrawal at any
    time by the rating organization.
|                                                                                                                                                                       |         |                                                   

DBRS credit ratings are on a long-term debt rating scale that ranges from AAA
to D, which represents the range from highest to lowest quality of such
securities rated. According to the DBRS rating system, an obligation rated B is
defined as speculative and non-investment grade, where the degree of protection
afforded interest and principal is uncertain, particularly during periods of
economic recession. In many cases, deficiencies in critical mass,
diversification, and competitive strength are additional negative
considerations. The ratings from AA to CCC may be modified by the addition of a
high or low modifier to show relative standing within the major rating
categories. The lack of one of these designations indicates a rating which is
essentially in the middle of the category.

Moody's credit ratings are on a
long-term debt rating scale that ranges from AAA to C, which represents the
range from highest to lower quality of such securities rated. According to the
Moody's rating system, an obligation rated B is judged to be a speculative
investment with a high credit risk. Moody applies numerical modifiers 1, 2 and 3
in each generic rating classification from AA through CAA in its corporate bond
rating system. The modifier 1 indicates that the issue ranks in the higher end
of its generic rating category, the modifier 2 indicates a mid-range ranking and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

Standard & Poor's credit ratings are on a long-term debt
rating scale that ranges from AAA to D, which represents the range from highest
to lowest qualities of such securities rated. According to the Standard & Poor's
rating system, an obligation rated CCC is vulnerable to non-payment and is
dependent upon favourable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation. The
ratings from AA to CCC may be modified by the addition of a + or  sign to show
relative standing within the major rating categories.

ITEM 7 - DIRECTORS AND OFFICERS

The directors of Tembec are elected annually to hold office until the next
annual meeting or until a successor is elected or appointed.

7.1 INFORMATION CONCERNING DIRECTORS

The board of directors of the Corporation is composed of
fourteen members. The Chairman of the Board and the majority of directors and
members of Board committees are independent. Mr. Frank A. Dottori (the President
and Chief Executive Officer of the Corporation) and Mr. Luc Rossignol (employee
and President, Local 233 of the Communications, Energy

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and Paperworkers Union of Canada) are the two board members who are
considered to be related and inside directors. Set forth below is information
pertaining to the directors of the Corporation based on data furnished by the
directors.

NORMAN BETTS, New Brunswick (Canada). Mr. Betts is Associate
Professor at the Faculty of Business Administration, University of New
Brunswick. Mr. Betts serves as a director and audit committee Chair of Minacs
Worldwide Inc, Tan Range Exploration Corporation and Slam Exploration Ltd. He
also serves on the board and audit committee of the New Brunswick Power
Corporation, as co-Chair of the board of trustees of the University of New
Brunswick Pension Plan for Academic Employees and is a director of The Nature
Conservancy of Canada for the Atlantic region. He has been a director of the
Corporation since January 2005 and serves as a member of its Audit and Human
Resources committees.

CLAUDE BOIVIN, Quebec (Canada). Mr. Boivin is the former
President and Chief Operating Officer of Hydro-Quebec and has been a director of
the Corporation since 1999 and serves as a member of its Corporate Governance
Committee. Mr. Boivin also serves as a director of CGI Group Inc., Héroux-Devtek
Inc., Groupe Laperriçre & Verreault Inc. and of Boralex Power Income Fund.

JAMES E. BRUMM, New York (United States). Mr. Brumm is the
Executive Vice-President, General Counsel and director of Mitsubishi
International Corporation, the North American subsidiary of Mitsubishi
Corporation, an international trade, finance and investment company
headquartered in Japan. Mr. Brumm also served as a director of Mitsubishi
Corporation from 1995  2002 and is a director of Brunei LNG S.B. He is a member
of the Boards of Visitors of Columbia University Law School and California State
University, Fresno and a board member of Forest Trends, Sanctuary for Families
and of the American Bird Conservancy. He is also President of the Mitsubishi
International Corporation Foundation and a member of the Corporate Council of
the New York Botanical Garden. Mr. Brumm has been a director of the Corporation
since April 1999 and chairs its Corporate Governance Committee, as well as
serves as a member of its Audit Committee.

FRAN3⁄4OIS BUJON DE L'ESTANG, Paris (France). Mr. Bujon de
l'Estang serves as Chairman of Citigroup France and is a member of Citigroup's
International Advisory Board. He has enjoyed a distinguished public career where
he has served his country by occupying several positions such as Senior Advisor
for Diplomatic Affairs & Defense to the Prime Minister, Ambassador of France to
Canada and to the United States of America. He is an Officer of the Order of the
Legion of Honour and Officer of the National Order of Merit, and was elevated by
the French Government to the rank of Ambassador of France. Mr. Bujon de l'Estang
also serves as a director of Thales, S.A., of the French Space Agency (Centre
National d'Études Spatiales), of the Institut français des relations
internationales (IFRI) and of the International Advisory Board of Total S.A. He
is also Vice-Chairman of the French-American Foundation, New York, and of the
Atlantic Partnership. Mr. Bujon de l'Estang has been a director of the
Corporation since January 2005 and serves as a member of its Human Resources
Committee.

GILLES CHEVALIER, Québec (Canada). Mr. Chevalier was, until
July 2005, a Professor of auditing at HEC, the Business School at University of
Montreal. Mr. Chevalier also acts as a consultant to the Canadian Public
Accountability Board, an organization that oversees auditors of reporting
issuers in Canada. He retired as a Senior Partner at Samson Bélair/Deloitte &
Touche LLP in 2002, and was President of the Order of Chartered Accountants of
Québec in 1987. Mr. Chevalier was appointed to the board of directors of the
Corporation in July 2005 and serves as a member of its Audit Committee.

FRANK A. DOTTORI, O.C., Quebec (Canada). Mr. Dottori, is the
President and Chief Executive Officer of the Corporation, has been a director of
the Corporation since 1995 and serves as a member of its Environmental and
Health & Safety Committee. Mr. Dottori is Chairman of the Pulp and Paper
Research Institute of Canada, and co-chair of the Free Trade Lumber Council. He
is also a director of Saputo Inc., Bell Nordiq Group Inc. and the Canadian
Forest Innovation Council.

GUY G. DUFRESNE, Québec (Canada). Mr. Dufresne is President
and CEO of La Compagnie Miniçre Québec Cartier, a producer of iron ore products.
Mr. Dufresne is Chairman of the board of directors of Cambior Inc. and serves on
its audit, corporate governance and human resources committees. He is also
Chairman of the Conseil du Patronat du Québec and serves as a director of the
Royal & Sun Alliance Insurance Company of Canada. Mr. Dufresne is also Chairman
of the

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Chamber of Maritime Commerce. Mr. Dufresne has been a director of the
Corporation since January 2005 and serves as a member of its Human Resources and
Environmental and Health & Safety committees.

PIERRE GOYETTE, Quebec (Canada). Mr. Goyette has been a director of the
Corporation since 1999 and chairs its Audit Committee. Mr. Goyette is also a
director of Groupe St-Hubert Inc.

PETER S. JANSON, Ontario (Canada). Mr. Janson is the former
Chief Executive Officer of AMEC Inc. and of ABB Inc. USA. He currently serves as
a director of ATS Automation Tooling Systems Inc., Terra Industries Inc. and
Teekay Shipping Corporation and is Vice-Chair of the Royal Ontario Museum. Mr.
Janson was appointed to the board of directors of the Corporation in July 2004
and serves as a member of its Corporate Governance committee and chairs its
Environmental and Health & Safety committee.

GORDON S. LACKENBAUER, Alberta (Canada). Mr. Lackenbauer was
Deputy Chairman of BMO Nesbitt Burns until December 2004 and is currently a
director of TransAlta Corporation. Mr. Lackenbauer has been a director of the
Corporation since 1999 and Chairman of the board of directors of the Corporation
since January 20, 2005. Mr. Lackenbauer serves as a member of the Corporation's
Corporate Governance and Human Resources committees.

MARY THERESA McLEOD, Ontario (Canada). Ms. McLeod is a
part-time commissioner of the Ontario Securities Commission, member of its Audit
and Adjudicative committees and a member of its board of directors. Ms. McLeod
has held senior investment banking positions with Scotia McLeod Inc., Merrill
Lynch Canada Inc., and Pitfield, MacKay, Ross & Company Ltd. She is currently a
director and member of the Audit Committee and of the Corporate Governance
Committee of Wescast Industries Inc. Ms. McLeod has been a director of the
Corporation since January 2003 and serves as a member of its Audit and Corporate
Governance committees.

The Hon. ROBERT K. RAE, P.C., O.C., Q.C., Ontario (Canada).
Mr. Rae is a partner of the law firm Goodmans LLP. Mr. Rae, former Premier of
the Province of Ontario, is a board member of Hydro One Inc., Husky Injection
Moulding Systems Limited, Niigon Technologies Ltd. and Retrocom Mid-Market Real
Estate Investment Trust. He is a director of a number of non-profit
organizations, including the Canadian Ditchley Foundation and the Pierre Elliott
Trudeau Foundation. Mr. Rae is Chairman of the Institute for Research in Public
Policy and a fellow of the Forum of Federations. Mr. Rae has been a director of
the Corporation since 1999, chairs its Human Resources Committee and serves as a
member of its Corporate Governance Committee.

LUC ROSSIGNOL, Québec (Canada). Mr. Rossignol is the
President of Local 233 of the Communications, Energy and Paper Workers Union and
was elected to the board of directors of the Corporation in January 2000. He
serves as a member of the Corporation's Environmental and Health & Safety
Committee.

FRAN3⁄4OIS TREMBLAY, Québec (Canada). Mr. Tremblay is a partner
of the law firm Cain Lamarre Casgrain Wells and has been a director of the
Corporation since 1999. He serves as a member of its Environmental and Health &
Safety Committee.

The following tables summarize for each of the directors the number of board
and committee meetings they attended since September 25, 2004.

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|                                            |                |                   
|------------------------------------------- | -------------- | ------------------
|Director                                    | Board Meetings | Committee Meetings
|                                            |                |                   
|Norman M. Betts (1)                         | 9 of 9         | 7 of 8            
|Claude Boivin                               | 13 of 13       | 10 of 10          
|James E. Brumm                              | 12 of 13       | 16 of 17          
|François Bujon de L'Estang (1)              | 7 of 9         | 2 of 3            
|Gilles Chevalier (2)                        | 3 of 3         | 2 of 2            
|Frank A. Dottori                            | 13 of 13       | 5 of 5            
|Guy G. Dufresne (1)                         | 9 of 9         | 5 of 5            
|Pierre Goyette                              | 11 of 13       | 9 of 10           
|Peter Janson                                | 12 of 13       | 10 of 13          
|Gordon S. Lackenbauer                       | 12 of 13       | 12 of 13          
|Mary Theresa McLeod                         | 13 of 13       | 9 of 12           
|The Hon. Robert K. Rae, P.C                 | 11 of 13       | 12 of 13          
|Luc Rossignol                               | 13 of 13       | 2 of 2            
|François Tremblay                           | 13 of 13       | 5 of 5            
|___________                                 |                |                   
|(1) Became a director in January 2005.      |                |                   
|(2) Became a director in July
    2005.     |                |                   
|                                            |                |                   
|                                            |                |                   
|Meeting Type                                |                | Totals            
|                                            |                |                   
|Board                                       | .              | 13                
|Audit                                       | .              | 7                 
|Corporate Governance                        | .              | 8                 
|Human Resources                             | .              | 5                 
|Environmental and Health & Safety Committee | .              | 5                 
|                                            |                |                   
|Total number of meetings held               | .              | 38                

7.1.1 Other Directorships

The following directors of the Corporation also serve as directors of the
reporting issuers (or equivalent) indicated beside their name:

- 

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7.1.2 Independence

The Corporation considers that all directors, except Messrs.
Dottori and Rossignol, qualify as independent within the meaning of National
Instrument 58-101  Disclosure of Corporate Governance Practices and all
Audit Committee members qualify as independent within the meaning of
Multilateral Instrument 52-110  Audit Committees. Messrs. Rae and
Tremblay are partners of law firms that provide occasional legal services to the
Corporation, the fees for which are not material to the Corporation. The board
of directors has determined that the services provided do not cause these
directors to have a "direct or indirect material relationship" with the
Corporation for the purposes of National Instrument 58-101, and therefore these
directors are considered independent. Mr. Frank A. Dottori, President and Chief
Executive Officer of the Corporation and Luc Rossignol, an employee of the
Corporation and the President of Local 233 of the Communications, Energy and
Paperworkers Union (Temiscaming Complex), are not considered independent.

7.1.3 Mandate of the Board

The Corporation's board of directors and management consider
good corporate governance to be central to the effective and efficient operation
of the Corporation. The Corporate Governance Policy of the Corporation (the
"Policy") adopted by the board of directors defines the functions and the
mandate of the board of directors in respect of corporate governance. The formal
written mandate which describes the principal functions of the board of
directors may be found at www.tembec.com and is annexed hereto as Schedule "A".
The mandate provides that the board will consider recommendations made by the
officers of the Corporation who are responsible for the general day to day
management of the Corporation and with respect to long term strategic,
financial, organizational and related objectives. The mandate of the board also
establishes a requirement that the board implement structures and procedures to
ensure that it functions independently of management.

In accordance with its mandate, the board ensures that it
excludes management from its meetings, from time to time, as appropriate.
Although the board of directors did not, in the past fiscal year, schedule
separate meetings to be held without certain members of management being
present, it did conduct in camera sessions as part of each regularly scheduled
meeting and regularly excluded management from parts of certain of the in-camera
sessions. In addition to the President and Chief Executive Officer, the General
Counsel and Secretary and the Chief Financial Officer of the Corporation were
present at all regularly scheduled meetings of the board of directors. At the
invitation of the board, certain members of senior management attend board
meetings and provide reports to the board on the financial and operating
performance of the various business groups of the Corporation.

The Chairman of the board of directors is appointed by the
full board and may not be a member of management. The Chairman of the board,
Gordon Lackenbauer, was chosen by the full board, is an independent director and
serves as board leader. The board has developed a written position description
for the Chairman of the board. The Chairman's role is to be primarily
responsible for the proper functioning of the board, for its balance of
membership subject to shareholder's approval, for ensuring that all relevant
issues are on the agenda, and for ensuring that all directors are enabled and
encouraged to play their full part in its activities. The Chairman must make
certain that the directors receive timely, relevant information tailored to
their needs, and that they make an effective contribution as board members in
practice. The Chairman is responsible for ensuring that the board evaluates the
performance of management objectively and that the board understands the
boundaries between board and management responsibilities. The Chairman also
ensures that the board is in full control of the Corporation's affairs and alert
to its obligations to the shareholder.

The functions of the board include the review and approval of
(a) annual audited financial statements, quarterly financial statements and
related management discussion and analysis disclosure following review by the
Audit Committee and, as applicable, the Corporate Governance Committee, (b)
transactions out of the ordinary course of business, and (c) any capital
expenditures or other financial commitments in excess of $2,500,000.

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7.1.4 Selection of Candidates to the Board of Directors, Orientation and
Continuing Education

Pursuant to its mandate, the board of directors has developed
a profile to define the skills and competence required from the members of the
board. The profile is used to determine annually which additional skills and
competence will be helpful to the board as well as to evaluate specific
candidates submitted for consideration for board membership. The identification
of candidates is the responsibility of the Corporate Governance Committee, which
is guided by the profile developed by the board of directors. When recommending
suitable candidates for nominees for election, the Corporate Governance
Committee specifies which of the criteria established by the board form the
basis of each recommendation. At least three directors must be or have been
directly or indirectly involved in the development, operation or management of a
forest products company. The majority of the board must be independent within
the meaning of Multilateral Instrument 52-110  Audit Committees and National
Instrument 58-101. The mandate of the board of directors is currently being
amended in order to reflect this requirement in light of the coming into force
in 2005 of National Instrument 58-101.

The board, through its Corporate Governance Committee, is
also responsible for providing prospective directors with sufficient information
to permit them to fully understand the role of the board, the role of its
committees, and the contribution that individual directors are expected to make,
including the commitment of time and energy that the Corporation expects from
directors, as well as the nature and operations of the Corporation's business.
In this respect, the Corporate Governance Committee approves and implements an
appropriate orientation and education program for new members of the board and a
continuing education program for all board members. The Corporate Governance
Committee has produced a directors manual which is used in the orientation
program for new Directors. As part of the continuing education program, the
Committee arranges presentations by experts on relevant topics, where
appropriate. The board of directors also holds budget and strategy meetings and
holds at least one board meeting yearly at an operating site in order to permit
directors to familiarize themselves with the Corporation's operations and meet
local management.

7.1.5 Assessments

Every year, a detailed questionnaire is addressed to each
director, in his capacity as director and, as the case may be, as a member of
one or more of the committees of the board of directors, aimed at obtaining
their views on the effectiveness of the board and contribution of its members.
The results of the questionnaires are compiled by the Corporate Secretary and
those that are relevant to a particular committee are sent to its Chairman and
to the Chairman of the board of directors, while the results dealing with the
board itself are sent to the Chairman of the board only. The committee Chairmen
and the Chairman of the board, at the meeting following the receipt of the
results, share these with the members of the committee and of the board where
any and all issues are discussed.

The Corporate Governance Committee reports to the board on
the performance of the board and its committees and the contribution of members
of the board and its committees. The board of directors reviews annually the
assessment of the board's and committees' performance and recommendations
provided by the Corporate Governance Committee and evaluates its own
effectiveness, the whole in accordance with the Corporation's corporate
governance policy. The board of directors takes appropriate action based upon
the results of the review process.

7.1.6 Committees of the Board of Directors

The board of directors has established four committees and
delegated certain of its authority and responsibilities to each of these
committees and has also instructed each of them to perform certain advisory
functions and make recommendations and report to the board. All committees of
the board of directors are composed of a majority of independent directors.

The Corporation's Corporate Governance Policy includes a
short description of the roles and responsibilities of the Chair of each of the
board's standing committees. The Corporation is in the process of updating its
Policy to expand the position descriptions. Each Chair must be an independent
director and is primarily responsible for the proper functioning of his/her
respective committee, for ensuring that all relevant issues are on the agenda,
and for ensuring that all members

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are enabled and encouraged to play their full part in its activities. The
Chair must make certain that the directors receive timely, relevant information
tailored to their needs.

Corporate Governance Committee

The Corporate Governance Committee is responsible for
developing the Corporation's approach to board governance issues and its
disclosure of same. The Corporate Governance Committee reviews and reports to
the board annually on the size, composition, profile and compensation of the
board of directors, recommends candidates for nominees for election or
appointment as directors and evaluates and reports to the board on the
performance of the board and its committees and the contribution of members of
the board and its committees. The Corporate Governance Committee also reviews,
on an annual basis, the board/management relationship and recommends to the
board structures and procedures to ensure that the board functions independently
of management. The Corporation's Corporate Governance Committee has a written
mandate which may be found at www.tembec.com.

Human Resources Committee

The Human Resources Committee is responsible for reviewing
matters of remuneration for senior executive positions, including the Chief
Executive Officer, and making recommendations to the board thereon. The Human
Resources Committee is also responsible for reviewing and making recommendations
to the board for the appointment of persons to senior executive positions,
considering terms of employment, including succession planning, recommending
awards under the Corporation's long-term and short-term incentive plans,
employee profit sharing plans and for certain matters relating to the design and
funding of the Corporation's pension plans. It assumes the role of administrator
for the corporate-sponsored registered pension plans supervising the
administration of the retirement plans and monitoring the investment performance
of the trust funds for the Corporation's retirement plans as well as compliance
with applicable legislation and investment policies. The Human Resources
Committee annually reviews and approves the remuneration of corporate officers
and the remuneration of all other employees on an aggregate basis. The
Corporation's Human Resources Committee has a written mandate which may be found
at www.tembec.com.

Environmental and Health & Safety Committee

The Environmental and Health & Safety Committee is
responsible for reviewing and making recommendations and reports to the board of
directors relating to the policies, standards, practices and programs of the
Corporation on matters relating to the environment. The Environmental and Health
& Safety Committee is also responsible for reviewing the adequacy of the
occupational health and safety policies and assessing the performance of the
Corporation under such programs. Where appropriate, the Environmental and Health
& Safety Committee reports or makes recommendations on significant issues to the
board of directors. The Environmental and Health & Safety Committee's
responsibilities include: (a) reviewing the Corporation's occupational health
and safety policies; (b) reviewing compliance reports and the plan and timetable
to correct deficiencies; (c) monitoring the Corporation's performance in
relation to applicable occupational health and safety legislation and standards;
and (d) reviewing and reporting to the board of directors on the appropriateness
of the policy guidelines and on the state of readiness to respond to crisis
situations. The Environmental and Health & Safety Committee has a written
mandate which may be found at www.tembec.com.

Audit Committee

The Corporation has an Audit Committee which currently
consists of Messrs. Pierre Goyette (Chairman), James E. Brumm, Norman M. Betts,
Gilles Chevalier and Ms. Mary Theresa McLeod. All the members of the Audit
Committee are considered "independent" and "financially literate" within the
meaning of Multilateral Instrument 52-110  Audit Committees with Mr. Goyette,
Mr. Betts and Mr. Chevalier possessing the professional designation of Chartered
Accountant and considered "financial experts" within the meaning of Section 407
of the Sarbanes-Oxley Act of 2002.

The mandate of the Audit Committee is to assist the board of directors of the
Corporation in fulfilling its oversight responsibilities and as such reviews the
financial reporting process, the system of internal control and management of

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financial risks, the audit process and the Corporation's
process for monitoring compliance with laws and regulations and its own
corporate policies. In performing its duties, the committee maintains effective
working relationships with the board of directors, management and internal and
external auditors. The charter of the Audit Committee is attached hereto as
Schedule "B" and is also posted at www.tembec.com.

The Audit Committee meets on a regular basis with the
financial officers of the Corporation and the independent auditors to review and
inquire into: (a) matters affecting financial reporting; (b) the system of
internal accounting and financial controls and procedures; (c) independence of
the external auditors; (d) the audit procedures and audit plans; and (e) the
financial and business risks or exposures of the Corporation and the steps that
management has taken to control such risks. It also recommends, to the board of
directors, the external auditors to be appointed and their remuneration.

The Audit Committee reviews and recommends to the board, for
approval: (a) the financial statements in the annual report; (b) the audited
annual financial statements and the management discussion and analysis contained
therein; (c) prospectuses and other offering memoranda; and (d) financial
statements and other documents required by regulatory authorities. The Audit
Committee also reviews the Corporation's process for monitoring compliance with
laws and regulations and its own corporate policies. The responsibilities of the
Audit Committee, including those responsibilities described above, are reviewed
by the board of directors annually.

The following is a brief summary of the education and
experience of each member of the Audit Committee that is relevant to the
performance of his or her responsibilities as a member of the Audit Committee,
including any education or experience that has provided the member with an
understanding of the accounting principles used by the Corporation to prepare
its annual and interim financial statements.

|Name of Audit       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Committee Member    | Relevant Education and
    Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Pierre Goyette      | Mr. Goyette is a Chartered
    Accountant. He has been Chief Financial Officer of a large pulp and paper
    Corporation and Chief Executive Officer of a savings bank. He has chaired 15
    audit committees (including Tembec).                                                                                                                                                                                                                                                                                             
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Gilles Chevalier    | Mr. Chevalier is a Fellow
    Chartered Accountant and holds a PhD degree in accountancy from the
    University of Illinois. He has been a Professor in auditing at Laval
    University and the University of Montreal. He was made a Fellow of the
    Quebec Order of Chartered Accountants in 1986 and was president of the Order
    of Chartered Accountants of Québec in 1987. He was a senior partner with
    Deloitte Touche until 2002. Mr. Chevalier presently chairs the audit
    committees of two foundations.
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Norman M. Betts     | Mr. Betts is a Fellow Chartered
    Accountant and holds a Ph.D. in Management with a concentration in
    accounting and finance. He is an Associate Professor in the Faculty of
    Business Administration at the University of New Brunswick. Mr. Betts also
    serves as director and chair of the audit committee member of Minacs
    Worldwide Inc., Tan Range Exploration Corporation and Slam Exploration Ltd.
    and is a director and audit committee member of New Brunswick Power
    Corporation.             
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|James E. Brumm      | Mr. Brumm, as Executive
    Vice-President, General Counsel and director of Mitsubishi International
    Corporation, has acquired financial experience and is familiar with
    financial statements.                                                                                                                                                                                                                                                                                                                         
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Mary Theresa McLeod | Ms. McLeod is a Chartered
    Financial Analyst and earned her MBA from the University of Western Ontario.She held senior positions with major investment banks. Ms. McLeod sits
    on the Audit Committee of the Ontario Securities Commission and of Wescast
    Industries Inc.                                                                                                                                                                                                                                            

7.2 COMPENSATION OF DIRECTORS

The Corporate Governance Committee annually conducts a review of directors'
compensation for board and committee service and recommends changes to the board
where appropriate. The board considers and approves the adequacy and

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form of the compensation of directors upon recommendation of
the Corporate Governance Committee and ensures the compensation realistically
reflects the responsibilities and time involved in being an effective director.
For the purpose of conducting its annual review of directors' compensation, the
Corporate Governance Committee refers to a report provided by Towers Perrin and
other information regarding compensation practices in the forest products
industry. Towers Perrin also provides reports to the Human Resources Committee
on pension-related matters.

Only directors who are not full-time executives of the
Corporation receive compensation for acting as members of the board of directors
of the Corporation and as members of board committees. Directors are paid an
annual fee of $25,000 plus $1,500 per meeting attended. Meetings scheduled to be
held via telephone conference are remunerated on the basis of $1,000 per
meeting. The Chairman of the board is paid an annual fee of $75,000.

Non-chair members of the Corporate Governance and Audit
committees are paid an annual retainer fee of $5,000 and non-chair members of
the Human Resources and Environmental committees are paid annual retainers of
$3,000 and meeting fees of $1,500. Committee Chairs for the Corporate Governance
and Audit committees are paid an annual fee of $7,500 and $5,000 is paid to the
Chair for the other committees.

Directors may, twice-yearly, elect to subscribe to common
shares of Tembec Inc. ("Shares") up to an amount equal to their retainer and
attendance fees. In January and July of each year, directors are awarded options
to purchase that number of shares equal to their semi-annual retainer and
attendance fees divided by the market price of the shares multiplied by two
which vest according to a vesting schedule. Directors who elect not to subscribe
for the full amount of their semi-annual retainer and attendance fees will lose
a pro rata portion of the options granted.

7.3 LIABILITY PROTECTION FOR DIRECTORS AND OFFICERS

Tembec has entered into indemnification agreements with each
of its directors. It also maintains directors' and officers' liability insurance
which provides coverage against claims made against them during their term of
office. The aggregate protection under the policy is for an amount of $50
million with no deductible for non-indemnifiable losses and a deductible of
$250,000 for all other claims.

7.4 CODE OF ETHICS

The Corporation has adopted a written Code of Ethics and
Business Conduct which provides guidelines to ensure that all directors,
officers and employees of the Corporation and its subsidiaries and all
consultants, suppliers and other persons working on behalf of the Corporation
respect its commitment to conduct business relationships with respect, openness
and integrity. The Corporation believes that its success is possible because of
its values, which include integrity, accountability, trust, transparency, and
teamwork. The Corporation is committed to conducting its business in compliance
with applicable laws, statutes and regulations and expects its employees,
directors, consultants, suppliers and other individuals working with or on
behalf of the Corporation to do likewise. In addition, business dealings among
employees and by employees with shareholders, customers, suppliers, community
organizations and governmental and regulatory authorities must be based on the
highest ethical standards.

The board monitors compliance with the Corporation's Code of
Ethics and Business Conduct and is responsible for granting any waivers from
compliance. Compliance with the Corporation's Code of Ethics and Business
Conduct is also reviewed by the Audit Committee as part of the Corporation's
internal audit process. Employees of the Corporation are requested to provide a
written acknowledgement confirming that they have received a copy of the Code of
Ethics and Business Conduct and that they will comply with it. In addition, the
Code of Ethics and Business Conduct provides a procedure for individuals working
with the Corporation to confidentially communicate concerns or complaints to the
Corporation, including to the Chairman of the Audit Committee, where
appropriate. The Corporation has not filed any material change report that
pertains to a conduct of a director or officer that constitutes a departure from
the Code of Ethics and Business Conduct since the beginning of its most recently
completed financial year. The Corporation's written Code of Ethics and Business
Conduct is available at www.tembec.com and at www.sedar.com.

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ITEM 8 - EXECUTIVE AND OTHER COMPENSATION

The Human Resources Committee oversees the application of the policies, plans
and compensation for all employees. The Corporation's general philosophy is to
pay for performance at all levels of the Corporation.

Compensation  Unionized Employees

The majority of Tembec's employees
are covered under contractual agreements with unions representing the employees.
The agreements define rates of pay for specific responsibilities as well as
fringe benefits. The Corporation encourages flexibility and commitment, and in
return, where applicable, provides enhanced job security, performance based
incentive programs, and Tembec's Profit Sharing Plan. The Corporation also
provides an opportunity to employees to become shareholders via its Employee
Stock Purchase Plan.



The majority of Tembec's non-unionized employees are
paid a base salary plus an annual performance bonus determined by meeting
objectives set out under the Short-Term Incentive Plan.

Executives and key employees may also
participate in the Corporation's Long-Term Incentive Plan. This plan is geared
to reward employees if Tembec's relative financial performance exceeds the
performance of a group of predetermined forest products industry companies.
Members of the board of directors are also eligible to participate in the
Long-Term Incentive Plan but are not eligible for participating awards,
participating bonuses or the Long-Term Bonus (see "Long-Term Incentive Plan"
below).

In establishing the compensation of
senior executives, the Committee refers to the average compensation levels from
Hay Group Limited's All Industrial market. This market covers most sectors of
the economy with the exception of All Financial Organizations, Governments (at
all levels), Government Agencies, Health and Education Institutions and
Not-for-Profit Organizations and is felt to be the most representative for the
Corporation's activities. As of May 2005, this survey included 324
organizations.

Base Salary

The base salary midpoint is set at
95% of the applicable All Industrial Average (AIA) for positions of similar
responsibility as determined from time to time by various surveys conducted by
independent professional compensation consultants. Annual salaries are then
adjusted on the basis of the individual's performance, experience and position
relative to peers in Tembec. Salary scales vary from 80% to 120% of the above
mid-point. The salary of employees who do not qualify under the Corporation's
incentive plans is set at the applicable median for total compensation and
adjusted as noted above.

In establishing the compensation of
senior executive positions, the Committee refers to the AIA data provided by Hay
Group Limited (the "Hay Group"), which is considered to be the most
representative for Tembec's activities and which surveys a total of 382
companies.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan is
aimed at enabling employees to acquire an ownership interest in Tembec Inc., the
parent company of the Corporation, and to participate in its future growth.
Employees can purchase Shares up to 10% of their base salary or wage. All
contributions made by the employees to the Employee Stock Purchase Plan shall
constitute a trust fund which shall be held by a trustee. The trustee is
responsible for purchasing shares on the market. Under certain conditions and if
the shares are held for a minimum period of twelve months, participating
employees will receive a bonus in shares bought on their behalf by the trustee
on the open market equal to 25% of their total contributions.

|30ANNUAL
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|Annual Information Form
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Short-Term Incentive Plan

The Short-Term Incentive Plan (STIP) is
designed to relate a portion of the individual's compensation to the
Corporation's performance via an objective-based incentive program. The
participants are compensated on corporate, business unit and individual
objectives. A bonus target established for each position is expressed as a
percentage of Salary Midpoint (AIA) and varies according to the position of the
individual, with the target being 70% of Salary Midpoint for the Chief Executive
Officer and senior executives and ranging down to 15% of Salary Midpoint for
front-line supervision level. Satisfactory performance of the individual should
result in an annual STIP pay-out equivalent to 100% of the target. For
outstanding performance, an employee could attain a maximum potential of 200% of
his target. The objectives and achievements for senior executives under the STIP
are reviewed by the Human Resources Committee on an annual basis. Members of the
board participate in the Corporation's annual strategic planning meeting where
corporate objectives to be used under this plan are set.

Ad Hoc Bonus Program

An amount is set aside each year, as
determined by the Committee upon recommendation of the Chief Executive Officer
and senior executives, to recognize special efforts, accomplishments or
performance that are not part of specific annual objectives. The intent is to
support and encourage Tembec's entrepreneurial spirit.

Long-Term Incentive Plan

The Long-Term Incentive Plan (LTIP) is designed to:

1. align the interests of key employees with those of
shareholders of Tembec Inc. by participation in a stock purchase program and
through the granting of options in order to ensure that key employees own at
least 50% of their base salary in shares on an ongoing basis;

2. reward key employees if the Corporation's relative
performance is superior to its competition; and

3. retain key employees.

Under the stock purchase program,
participants in the LTIP are granted an annual entitlement to purchase Shares,
without any financial assistance from the Corporation, determined by multiplying
the individual's base salary by a factor applicable to the position. The factor
ranges from 0.50 for the Chief Executive Officer, down to 0.10 depending on the
level of the position. On the date of the grant of the entitlement, a key
employee is awarded options to purchase that number of Shares which is equal to
the entitlement divided by the market price of the Shares multiplied by two. The
Committee may award additional options. An option granted under the LTIP expires
no later than ten years after the date on which the option was granted. An
option becomes vested and may be exercised after 24 months following the date of
grant for up to 40% of the number of Shares to which the participant is
entitled, after 36 months following the date of grant, up to another 20% of the
number of Shares to which the participant is entitled, after 48 months following
the date of grant, up to another 20% of the number of Shares to which the
participant is entitled and, after 60 months following the date of grant, up to
the last 20% of the number of Shares to which the participant is entitled. If an
optionholder retires at normal age, the holder's options vest immediately and
may be exercised within five years. If an optionholder retires earlier than
normal retirement age, all of the holder's vested options may be exercised
within five years and all of the holder's unvested options, at the discretion of
the Committee, vest immediately and may be exercised within five years. In case
of a change of control of Tembec Inc. leading to termination of an
optionholder's employment, such holder's options will vest immediately and may
be exercised within five years.

Options are exercisable at a price per share equal to
the weighted average closing price of the Shares on the Toronto Stock Exchange
(the "TSX") during the five trading days preceding the date of the option grant.

As of December 5, 2005, the total number of Shares
which may be issued pursuant to the exercise of options granted under the LTIP
is 5,159,966, or approximately 6.0% of the issued and outstanding Shares.
4,740,094 options to purchase

|31ANNUAL
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|Annual Information Form
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4,740,094 Shares representing approximately 5.5% of the
issued and outstanding Shares are outstanding under the LTIP and predecessor
plans as of December 5, 2005.



Key employees who commit to purchase
shares under an annual entitlement will receive a participating award and a
participating bonus and will be eligible to receive a Long-Term Bonus based on
the Corporation's performance compared with a sample of the return on capital
invested of companies in the Canadian forest products industry at the end of a
measurement period (the "Cycle") and based on the number of Shares committed in
the subscription. The participating award is equal to 25% of the subscription
amount committed to by the key employee and will be used by the trustee to
purchase Shares under the stock purchase program on behalf of the key employee.
The participating bonus is a cash bonus paid to the key employee equal to 25% of
the subscription amount committed to by the key employee.

The Long-Term Bonus is designed to
reward key employees if the Corporation outperforms a designated sample of its
peers over three four-year cycles:

> Cycle 1: from the beginning of
>       the fiscal year in which a commitment to a subscription was made to four
>       years thereafter;
>       Cycle 2: from the beginning of
>       the second fiscal year to five years after the fiscal year in which a
>       commitment to a subscription was made; and
>       Cycle 3: from the beginning of
>       the third fiscal year to six years after the fiscal year in which a
>       commitment to a subscription was made.

A third of the
Long-Term Bonus can be earned in Cycle 1, a maximum cumulative amount of 67% in
Cycle 2, and a maximum cumulative amount of 100% at the end of Cycle 3. The
proportion of the bonus paid is based on the Corporation's relative average ROCE
performance against the above pre-selected group of peers.

The bonus hurdles are as follows:

<50
      percentile
      0% of
      bonus applicable50-74
      percentile
      50% of
      bonus applicable75-89
      percentile
      75% of
      bonus applicable90-100
      percentile
      100%
      of bonus applicable


The Long-Term Bonus is equivalent to
the participant's investment in Shares purchased pursuant to the stock purchase
program (on an after-tax basis) under the Long-Term Incentive Plan, provided
that the Shares are held at the end of the Cycle. The Committee may change the
components of the peer group or the performance measure when grants are awarded
to reflect evolving market dynamics.

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Shares under the stock purchase
program are purchased by a trustee on behalf of key employees on the market. Key
employees who fail to subscribe for the full amount of an annual entitlement
will lose a pro-rata portion of the options granted and of the Long-Term Bonus.

The rights of a participant pursuant to the
provisions of the LTIP are non-assignable.

The board of directors of the
Corporation may, subject to approval of the TSX, amend or terminate the LTIP at
any time but, in such event, the rights of employees will be preserved and
maintained. The terms of the LTIP do not require that shareholder approval be
obtained in order for the LTIP to be amended.

With the enactment of the
Sarbanes-Oxley legislation, the board of directors amended the LTIP to (i)
introduce the stock purchase program described above, (ii) eliminate any
financial assistance to employees, (iii) eliminate the grant of rights, and (iv)
consolidate the shares previously reserved for issuance pursuant to the exercise
of rights and options.

The following table describes the Long-Term Incentive
Awards made to each of the Named Executive Officers (as defined under Executive
Compensation below) during the financial year ended September 24, 2005:

|                                 | Securities,           | Performance or           
|-------------------------------- | --------------------- | -------------------------
|Name and                         | Units or Other Rights | Other(1) Period
    Until
|Principal Position               | (#)                   | Maturation or Payout     
|                                 |                       |                          
|Frank A. Dottori                 | 265,791 options       | 10 years                 
|President and Chief              |                       |                          
|Executive Officer                |                       |                          
|                                 |                       |                          
|Terrence P. Kavanagh             | 146,492 options       | 10 years                 
|Executive Vice-President,        |                       |                          
|Chief Operating Officer          |                       |                          
|                                 |                       |                          
|Michel Dumas                     | 95,030 options        | 10 years                 
|Executive Vice-President,        |                       |                          
|Finance and Chief                |                       |                          
|Financial Officer                |                       |                          
|                                 |                       |                          
|James Lopez                      | 88,598 options        | 10 years                 
|Executive Vice-President,        |                       |                          
|President Forest Products Group  |                       |                          
|                                 |                       |                          
|Mel Zangwill                     |                       |                          
|Senior Vice-President, President |                       |                          
|Paperboard Group                 |                       |                          

___________________
(1)

CEO Compensation

The total annual cash compensation
package of the Chief Executive Officer consists of the two following elements:
the annual base salary and a target bonus of 70% of the Hay Midpoint which is
based on the anticipated level of performance of the Corporation. The practice
of the Committee when establishing the amount for each element of the
compensation is to align them to the median of a pertinent reference market. The
median of a pertinent reference market, reported by the Hay Group, is based on
an analysis of compensation practices for positions similar to that of Mr.
Dottori, performed in a selected group of 29 organizations found in the Canadian
industrial sector. This approach is considered to be the most appropriate based
on the Corporation's size and activities.

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Mr. Frank A. Dottori currently
receives an annual base salary of $965,000 as President and Chief Executive
Officer of the Corporation. Mr. Dottori's annual base salary was determined as
described above and represents 0.94 of industry midpoint. Effective January 26,
2006, Mr. Dottori will retire as Chief Executive Officer and Mr. James Lopez
will become the Corporation's new Chief Executive Officer on January 27, 2006.

The Short-Term Incentive Plan
provides a target bonus for the CEO position of 70% of salary midpoint for the
position with a maximum potential of 140% for outstanding performance. The Human
Resources Committee awarded Mr. Dottori an incentive bonus of $502,066 following
an evaluation against the following objectives:

- Corporation
      financial performance:
      1.25%
      on
      50%- Individual
      performance:
      10%
      on
      25%- Discretionary:
      25%
      on
      25%36.25%
      on
      100%


Mr.
Dottori's total compensation package of $1,467,066 for fiscal 2005 places him
below the average of $1,758,329 for Total Cash Compensation design, based on 29
sample organizations found in the Hay Group analysis.

The Human Resources Committee has
also decided to award Mr. Dottori a special ad hoc bonus of $85,000 to recognize
his leadership and his efforts in defending the Corporation's and the industry's
interests in the softwood lumber dispute with the United States of America.

The Chief Executive Officer of the
Corporation is required to own a minimum amount of Shares of the Corporation
equivalent to 50% of his or her base salary or to acquire such amount of Shares
within two years after he or she has been appointed as CEO. Mr. Dottori owns
directly or indirectly approximately 240% of his base salary in Shares.

The above report is submitted by the Human Resources
Committee which is composed of the following members:

ROBERT K. RAE NORMAN M. BETTS FRAN3⁄4OIS BUJON DE L'ESTANG GUY G. DUFRESNE GORDON S. LACKENBAUER

Executive Compensation

The following summary compensation
table shows certain compensation components earned under the above programs by
the Chief Executive Officer, Chief Financial Officer and the three other most
highly compensated executive officers of the Corporation ("Named Executive
Officers") for services rendered during the financial years ended September 24,
2005, September 25, 2004 and September 27, 2003. This information includes the
dollar value of base salaries and bonus awards, the number of shares covered by
options and certain other compensation.

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SUMMARY COMPENSATION TABLE

|                                     |      |         |         |              | Long-Term
    Compensation
|------------------------------------ | ---- | ------- | ------- | ------------ | --------------------------
|                                     |      |         |         |              | Awards                    
|                                     |      |         |         |              | Securities                
|                                     |      |         |         | Other annual | Under Options             
|                                     |      | Salary  | Bonus   | Compensation | Granted                   
|Name and Principal Position          | Year | ($)     | ($)     | ($)(1)       | (#)                       
|                                     |      |         |         |              |                           
|Frank A. Dottori                     | 2005 | 948,750 | 587,066 | 65,030       | 265,791                   
|President and Chief                  | 2004 | 885,000 | 322,387 | 77,811       | 107,889                   
|Executive Officer                    | 2003 | 840,000 | 321,422 | 98,978       | 38,950                    
|                                     |      |         |         |              |                           
|Terrence P. Kavanagh                 | 2005 | 500,000 | 187,525 | 17,077       | 146,492                   
|Executive Vice-President,            | 2004 | 487,500 | 179,779 | 16,855       | 28,899                    
|Chief Operating Officer              | 2003 | 425,000 | 219,273 | 21,981       | 20,800                    
|                                     |      |         |         |              |                           
|Michel Dumas                         | 2005 | 365,000 | 127,388 | 7,987        | 95,030                    
|Executive Vice-President,            | 2004 | 350,000 | 154,786 | 7,452        | 22,477                    
|Finance and Chief                    | 2003 | 337,500 | 173,909 | 8,962        | 13,900                    
|Financial Officer                    |      |         |         |              |                           
|                                     |      |         |         |              |                           
|James Lopez                          | 2005 | 337,500 | 127,140 | 5,389        | 88,598                    
|Executive Vice-President,            | 2004 | 287,500 | 166,427 | 5,978        | 8,027                     
|President Forest Products Group      | 2003 | 237,500 | 111,241 | 8,275        | 9,200                     
|                                     |      |         |         |              |                           
|Mel Zangwill                         | 2005 | 282,500 | 121,306 | 3,316        |                          
|Senior Vice-President,
    President | 2004 | 275,000 | 105,961 | 3,365        |                          
|Paperboard Group                     | 2003 | 268,750 | 110,868 | 3,977        | 11,500                    

_____________

> (1)

(2)

(3)

(4)

(5)

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY
COMPENSATION PLANS

The following table sets out information
as of September 24, 2005 with respect to the LTIP.

|              | Number of securities to be | Weighted-average     | Number of securities
    remaining           
|------------- | -------------------------- | -------------------- | ---------------------------------------------
|              | issued upon exercise of    | exercise price of    | available for future
    issuance under      
|              | outstanding options,       | outstanding options, | equity compensation plans
    (excluding     
|Plan Category | warrants and rights        | warrants and rights  | securities reflected in
    the first column)
|              |                            |                      |                                              
|LTIP          | 4,129,253                  | $9.00                | 1,030,713                                    

OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR

The following table summarizes the option grants made
to the Named Executive Officers during the financial year ended September 24,
2005.

|                     |            |                |                  | Market Value of   |                  
|-------------------- | ---------- | -------------- | ---------------- | ----------------- | -----------------
|                     | Securities | % of Total     |                  | Securities        |                  
|                     | Under      | Options        |                  | Underlying Option |                  
|                     | Options    | Granted to     | Exercise or Base | on the Date of    |                  
|                     | Granted    | Employees in   | Price            | Grant             |                  
|Name                 | (#)        | Financial Year | ($/Security)     | ($/Security)      | Expiration Date  
|                     |            |                |                  |                   |                  
|Frank A. Dottori     | 115,791    | 6.8%           | 7.7726           | 7.7726            | November 24, 2015
|                     | 150,000    | 8.9%           | 3.4600           | 3.4600            | May 25, 2015     
|Terrence P. Kavanagh | 48,246     | 2.8%           | 7.7726           | 7.7726            | November 24, 2015
|                     | 48,246     | 2.8%           | 7.3500           | 7.3500            | January 19, 2015 
|                     | 50,000     | 3.0%           | 3.4600           | 3.4600            | May 25, 2015     
|Michel Dumas         | 22,515     | 1.3%           | 7.7726           | 7.7726            | November 24, 2015
|                     | 22,515     | 1.3%           | 7.3500           | 7.3500            | January 19, 2015 
|                     | 50,000     | 3.0%           | 3.4600           | 3.4600            | May 25, 2015     
|James Lopez          | 19,299     | 1.1%           | 7.7726           | 7.7726            | November 24, 2015
|                     | 19,299     | 1.1%           | 7.3500           | 7.3500            | January 19, 2015 
|                     | 50,000     | 3.0%           | 3.4600           | 3.4600            | May 25, 2015     
|Mel Zangwill         | -          | -              | -                | -                 | -                

The securities under options granted are Shares.

The options are granted under the LTIP.

The following table summarizes for
each of the Named Executive Officers, the number of options exercised in the
financial year ended September 24, 2005, the aggregate value realized upon
exercise and the total number of unexercised options held at September 24, 2005.
The value realized upon exercise is the difference between the market value of
the Share on the exercise date and the exercise or base price of the options.
The value of unexercised in-the-money options at financial year-end is the
difference between its exercise price and $2.38 per Share, which was the market
value of the Share on September 24, 2005. These options have not been and, in
some cases, may not be exercised. Actual gains on exercise, if any, will depend
on the value of the Shares on the date of exercise.

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AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY 
COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION VALUES

|                     |             |                 |                         |                          | Value of
    Unexercised
|-------------------- | ----------- | --------------- | ----------------------- | ------------------------ | ------------------------
|                     | Securities  |                 | Unexercised
    Options | in-the-Money
    Options
|                     | Acquired On | Aggregate Value | at FY-End               | at FY-End               
|                     | Exercise    | Realized        | (#)                     | ($)                     
|                     | (#)         | ($)             | Exercisable             | Unexercisable            | Exercisable             
|                     |             |                 |                         |                          |                         
|Frank A. Dottori     | 0           | 0               | 474,780                 | 431,850                  | 0                       
|Terrence P. Kavanagh | 0           | 0               | 96,200                  | 156,592                  | 0                       
|Michel Dumas         | 0           | 0               | 89,560                  | 133,847                  | 0                       
|James Lopez          | 0           | 0               | 58,080                  | 107,545                  | 0                       
|Mel Zangwill         | 0           | 0               | 121,800                 | 11,700                   | 0                       

Retirement Plans

Retirement Plans  Unionized Employees

The purpose of retirement plans is to
provide an adequate income replacement upon retirement. Tembec provides certain
benefits through basic pension plans. The basic plans for unionized employees
will vary from defined benefit plans to defined contribution plans to RRSP's,
pursuant to the various labour agreements.

Retirement Plans  Management Employees and Executives

Tembec provides certain benefits through basic
pension plans, as well as supplemental pension benefits for certain individuals.

Base Plan

For services prior to January 1,
2000, the basic plan for management employees and executives is a defined
benefit plan which provides for a benefit of 1.0% of the average of the best
consecutive five years of earnings (base salary and bonus) of the last ten
years, multiplied by the years of credited service up to December 31, 1999.

For services after January 1, 2000,
the basic plan for management employees and executives is a defined contribution
plan which provides for a contribution by Tembec of 6% of the employee's base
salary and bonus. Individual accounts are set up for each employee who can
direct their investments amongst a selection of mutual funds and a 5-year GIC. A
group RRSP is also available to allow employees to save additional amounts for
their retirement.

Earnings under this plan are limited to $100,000 for
executives participating in the Supplementary Pension Plan. The cap of $100,000
in the base plan for Mr. Dottori and Mr. Kavanagh was introduced in 1990.

Supplementary Pension Plan

A Supplementary Pension Plan is in place
for the executives who participated in this plan prior to January 1, 2000. The
plan provides coverage for earnings in excess of $100,000 per year. The benefit
of the Supplementary Pension Plan is fixed at 1.6% of the average of the best
consecutive five years of earnings (base salary plus bonus earned) of the last
ten years, in excess of the base salary as defined in the basic plan above,
multiplied by the years of credited service.

The following tables show the estimated annual
benefits payable to participants under the retirement plans (base plan) and the
Tembec Supplementary Pension Plan upon retirement after a certain number of
credited years of service.

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|PLAN TABLE             |          |          |          |                     |         
|---------------------- | -------- | -------- | -------- | ------------------- | --------
|                       |          |          |          |                     |         
|Remuneration           |          |          |          | Years of Service(1) |         
|($)                    | 15       | 20       | 25       | 30                  | 35      
|                       |          |          |          |                     |         
|Base Plan              |          |          |          |                     |         
|$100,000+              | $15,000  | $20,000  | $25,000  | $30,000             | $35,000 
|Supplementary
    Plan |          |          |          |                     |         
|$150,000               | $12,000  | $16,000  | $20,000  | $24,000             | $28,000 
|$175,000               | $18,000  | $24,000  | $30,000  | $36,000             | $42,000 
|$200,000               | $24,000  | $32,000  | $40,000  | $48,000             | $56,000 
|$250,000               | $36,000  | $48,000  | $60,000  | $72,000             | $84,000 
|$300,000               | $48,000  | $64,000  | $80,000  | $96,000             | $112,000
|$400,000               | $72,000  | $96,000  | $120,000 | $144,000            | $168,000
|$500,000               | $96,000  | $128,000 | $160,000 | $192,000            | $224,000
|$600,000               | $120,000 | $160,000 | $200,000 | $240,000            | $280,000
|$700,000               | $144,000 | $192,000 | $240,000 | $288,000            | $336,000
|$800,000               | $168,000 | $224,000 | $280,000 | $336,000            | $392,000
|$900,000               | $192,000 | $256,000 | $320,000 | $384,000            | $448,000
|$1,000,000             | $216,000 | $288,000 | $360,000 | $432,000            | $504,000
|$1,100,000             | $240,000 | $320,000 | $400,000 | $480,000            | $560,000
|$1,200,000             | $264,000 | $352,000 | $440,000 | $528,000            | $616,000
|$1,300,000             | $288,000 | $384,000 | $480,000 | $576,000            | $672,000
|$1,400,000             | $312,000 | $416,000 | $520,000 | $624,000            | $728,000
|$1,500,000             | $336,000 | $448,000 | $560,000 | $672,000            | $784,000

___________

> (1)

The benefits listed in the table above are not subject to any deduction for
  social security or other offset amounts such as Canadian Pension Plan or
  Québec Pension Plan amounts.

|              | Supplementary Plan Years | Basic Plan Years
|------------- | ------------------------ | ----------------
|              |                          |                 
|F.A. DOTTORI  |                          |                 
|              | 32.4                     | 26.1            
|T.P. KAVANAGH |                          |                 
|              | 31.2                     | 25.4            
|M. DUMAS*     |                          |                 
|              | 20.1                     | 14.3            
|J. LOPEZ      |                          |                 
|              | 15.8                     | 10.0            
|M. ZANGWILL   |                          |                 
|              | 9.1                      | 3.3             

___________

> * Mr. Dumas' service includes years with a subsidiary of the Corporation in
>   a similar plan.

ITEM 9 - INDEBTEDNESS

The aggregate indebtedness to the Corporation as at November
18, 2005 of all executive officers, directors, employees and former executive
officers, directors and employees entered into regarding the purchase of
securities of the Corporation and all other indebtedness, excluding routine
indebtedness (as defined under applicable securities laws), was $8,100,000. The
table below represents the approximate aggregate indebtedness, excluding routine
indebtedness, outstanding as at November 18, 2005 entered into in connection
with a purchase of securities and all other indebtedness.

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|Annual Information Form
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|AGGREGATE INDEBTEDNESS (millions $)
|-----------------------------------
|                                   
|Purpose                            
|                                   
|Share
    Purchase                 
|Other                              

The table below represents amounts outstanding on loans made prior to July
2002. Directors, executive officers and senior officers are no longer entitled
to be granted loans in connection with the purchase of Shares.

TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
UNDER SECURITIES PURCHASE AND OTHER PROGRAMS

|                            |             | Largest      |                 | Financially |               |            
|--------------------------- | ----------- | ------------ | --------------- | ----------- | ------------- | -----------
|                            | Involvement | Amount       | Amount          | Assisted    |               | Amount     
|                            | of          | Outstanding  | Outstanding as  | Securities  |               | Forgiven   
|                            | Corporation | During 2005  | at November 18, | Purchases   | Security for  | During     
|Name and Principal          | or          | Fiscal Year  | 2005            | During 2005 | Indebtedness  | 2005 Fiscal
|Position                    | Subsidiary  | ($)          | ($)             | Fiscal Year | (# of Shares) | Year       
|                            |             |              |                 |             |               |            
|Securities Purchase         |             |              |                 |             |               |            
|Programs                    |             |              |                 |             |               |            
|FRANK A. DOTTORI            | Lender      | 2,167,650.00 | 2,167,650.00    | N/A         | 197,000       | N/A        
|President and Chief         |             |              |                 |             |               |            
|Executive Officer           |             |              |                 |             |               |            
|MICHEL DUMAS                | Lender      | 266,238.00   | 261,502.00      | N/A         | 21,000        | N/A        
|Executive Vice-President,   |             |              |                 |             |               |            
|Finance                     |             |              |                 |             |               |            
|and Chief Financial Officer |             |              |                 |             |               |            
|CHARLES GAGNON              | Lender      | 97,267.80    | 88,995.60       | N/A         | 6,950         | N/A        
|Vice-President, Corporate   |             |              |                 |             |               |            
|Culture and Social          |             |              |                 |             |               |            
|Responsibility              |             |              |                 |             |               |            
|THOMAS GALE                 | Lender      | 42,120.00    | 42,120.00       | N/A         | 4,000         | N/A        
|Executive Vice-President,   |             |              |                 |             |               |            
|President Chemical Group    |             |              |                 |             |               |            
|TERRENCE P. KAVANAGH        | Lender      | 357,175.00   | 350,071.00      | N/A         | 28,150        | N/A        
|Executive Vice-President,   |             |              |                 |             |               |            
|Chief Operating Officer     |             |              |                 |             |               |            
|JAMES LOPEZ                 | Lender      | 205,302.00   | 169,861.00      | N/A         | 12,900        | N/A        
|Executive Vice-President,   |             |              |                 |             |               |            
|President Forest Products   |             |              |                 |             |               |            
|Group                       |             |              |                 |             |               |            
|STEPHEN NORRIS              | Lender      | 55,124.90    | 52,813.10       | N/A         | 4,925         | N/A        
|Treasurer                   |             |              |                 |             |               |            
|YVES OUELLET                | Lender      | 88,361.00    | 86,286.00       | N/A         | 7,450         | N/A        
|Vice-President, Human       |             |              |                 |             |               |            
|Resources                   |             |              |                 |             |               |            

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|                                |             | Largest     |                     | Financially |                   |                
|------------------------------- | ----------- | ----------- | ------------------- | ----------- | ----------------- | ---------------
|                                | Involvement | Amount      | Amount              | Assisted    |                   | Amount         
|                                | of          | Outstanding | Outstanding as      | Securities  |                   | Forgiven       
|                                | Corporation | During 2005 | at
    November 18, | Purchases   | Security for      | During         
|Name and Principal              | or          | Fiscal Year | 2005                | During 2005 | Indebtedness      | 2005
    Fiscal
|Position                        | Subsidiary  | ($)         | ($)                 | Fiscal Year | (# of
    Shares) | Year           
|                                |             |             |                     |             |                   |                
|Securities Purchase             |             |             |                     |             |                   |                
|Programs                        |             |             |                     |             |                   |                
|MAHENDRA A. PATEL               | Lender      | 123,837.00  | 89,580.00           | N/A         | 6,750             | N/A            
|Vice-President,                 |             |             |                     |             |                   |                
|Engineering,
    Purchasing     |             |             |                     |             |                   |                
|and Logistics                   |             |             |                     |             |                   |                
|JACQUES ROCHON                  | Lender      | 49,413.00   | 47,637.00           | N/A         | 3,750             | N/A            
|Vice-President,
    Information |             |             |                     |             |                   |                
|Technology                      |             |             |                     |             |                   |                
|JACQUES ROCRAY                  | Lender      | 101,162.52  | 94,260.60           | N/A         | 7,450             | N/A            
|Vice-President,                 |             |             |                     |             |                   |                
|Environment and                 |             |             |                     |             |                   |                
|Technology                      |             |             |                     |             |                   |                
|JEAN-LOUIS TÉTRAULT             | Lender      | 83,778.00   | 82,002.00           | N/A         | 7,000             | N/A            
|Vice-President,                 |             |             |                     |             |                   |                
|Administration and
    Legal    |             |             |                     |             |                   |                
|Affairs                         |             |             |                     |             |                   |                
|RICHARD TREMBLAY                | Lender      | 111,446.00  | 61,370.00           | N/A         | 5,175             | N/A            
|Corporate Controller            |             |             |                     |             |                   |                
|MEL ZANGWILL                    | Lender      | 110,540.00  | 104,620.00          | N/A         | 11,000            | N/A            
|Senior Vice-President,          |             |             |                     |             |                   |                
|Paperboard Group                |             |             |                     |             |                   |                
|                                |             |             |                     |             |                   |                
|Other Programs                  |             |             |                     |             |                   |                
|TERRENCE P. KAVANAGH            | Lender      | 219,167.00  | 213,750.00          | N/A         | N/A               | N/A            
|Executive
    Vice-President,   |             |             |                     |             |                   |                
|Chief Operating
    Officer     |             |             |                     |             |                   |                
|YVES OUELLET                    | Lender      | 2,749.00    | 1,666.00            | N/A         | N/A               | N/A            
|Vice-President, Human           |             |             |                     |             |                   |                
|Resources                       |             |             |                     |             |                   |                
|RICHARD TREMBLAY                | Lender      | 2,581.00    | 279.00              | N/A         | N/A               | N/A            
|Corporate Controller            |             |             |                     |             |                   |                

The loans granted by Tembec to the persons named above to
purchase Shares were made for a term of ten years bearing an interest rate
determined by the Human Resources Committee. The loans granted by Tembec under
other programs relate to home purchases. All loans were made prior to July 2002.

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9.1 INFORMATION CONCERNING NON-DIRECTOR OFFICERS

|                      |                                                                          | Province of Residence
|--------------------- | ------------------------------------------------------------------------ | ---------------------
|Non-director Officers | Office with the Corporation                                              | and Country          
|Pierre Brien          | Vice-President, Communications
    and Public Affairs                    | Québec, Canada       
|Michel Dumas          | Executive Vice-President,
    Finance and Chief Financial Officer        | Ontario, Canada      
|Charles Gagnon        | Vice-President, Corporate
    Culture and Social Responsibility          | Québec, Canada       
|Thomas Gale           | Executive Vice-President,
    President Chemical Group                   | Québec, Canada       
|Antonio Fratianni     | General Counsel and Secretary                                            | Québec, Canada       
|Terrence P. Kavanagh  | Executive Vice-President, Chief
    Operating Officer                    | Québec, Canada       
|Shawn Koshowski       | Vice-President, Corporate
    Development                                | Ontario, Canada      
|James Lopez1          | Executive Vice-President,
    President Forest Products                  | Ontario, Canada      
|Stephen J. Norris     | Treasurer                                                                | Québec, Canada       
|Yves Ouellet          | Vice-President, Human Resources                                          | Québec, Canada       
|Mahendra Patel        | Vice-President, Engineering,
    Purchasing and Logistics                | Ontario, Canada      
|Jacques Rochon        | Vice-President, Information
    Technology                               | Québec, Canada       
|Jacques Rocray        | Vice-President, Environment and
    Technology                           | Québec, Canada       
|Dennis Rounsville2    | Acting Executive
    Vice-President, President, Forest Products Group    | B.C., Canada         
|Jean-Louis Tétrault   | Vice-President, Administration
    and Legal Affairs                     | Québec, Canada       
|Richard Tremblay      | Corporate Controller                                                     | Québec, Canada       
|John Valley           | Executive Vice-President,
    Business Development and Corporate Affairs | Ontario, Canada      
|Mel Zangwill          | Senior Vice-President,
    President Paperboard Group                    | Québec, Canada       

During the past five years, each of the non-director officers
of the Corporation have been engaged in their present principal occupations or
in other executive capacities of the Corporation or with related or affiliated
companies indicated opposite their name, except for Pierre Brien who, from
October 1993 to February 2003, was a Member of Parliament for the riding of
Temiscamingue, Antonio Fratianni who, from May 1999 to December 2004, was Senior
Counsel with Royal Bank of Canada, and John Valley who from April 1994 to
January 2001 acted as a Managing Director of Chase Manhattan Bank of Canada and
from May 2001 to October 2005 acted as Managing Partner and Principal of the
Biscayne Group and most recently also served as Chief Negotiator for the
Province of Ontario in the softwood lumber dispute.

____________
1

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ITEM 10 - AUDITORS

The auditors of the Corporation are KPMG LLP.

The following table shows fees paid to KPMG LLP in Canadian dollars in the
past two fiscal years for various services provided to the Corporation and its
subsidiaries:

Year
      Ended
      Year
      EndedSeptember 25, 2004
      September 24, 2005KPMGAudit Fees
      $1,076,000
      $1,100,000Audit-Related Fees
      239,000
      335,000Tax Fees
      363,000
      223,000Other Fees
      137,000
      37,000Total
      $1,815,000
      $1,695,000


Audit Fees

These fees include professional services rendered by the external auditors
for statutory audits of the annual financial statements and for other audits.

Audit-Related Fees

These fees include professional services that reasonably relate to the
performance of the audit or review of Tembec's financial statements, including
audit of the pension plans.

Tax Fees

These fees include professional services for tax compliance, tax advice and
tax planning.

Other Fees

The fees include the total fees paid to the auditors for all
services other than those presented in the categories of audit fees, audit
related fees and tax fees, including the consultation services for the diligent
audit for the purposes of acquisition, expatriates fees and certain filings.

POLICIES AND PROCEDURES FOR THE ENGAGEMENT OF AUDIT AND NON-AUDIT SERVICES

The Corporation's Audit Committee has adopted the
Pre-approval Policy and Procedures for Services Provided by External Auditors
which sets forth the procedures and the conditions pursuant to which permissible
services proposed to be performed by external auditors are pre-approved. Under
the terms of the policy, the Audit Committee has delegated to the Chairman of
the Audit Committee pre-approval authority for any services not previously
approved by the Audit Committee which involve the payment of unbudgeted fees not
in excess of $50,000. Any service approved by the Chairman is reported to the
audit committee at its next meeting.

ITEM 11 - LEGAL PROCEEDINGS

11.1     COUNTERVAILING AND ANTIDUMPING DUTIES

On April 2, 2001, petitions for the imposition of punitive
antidumping and countervailing duties on softwood lumber from Canada were filed
with the USDOC and the USITC, by certain U.S. industry and trade groups (the
"Petitioners"). On May 22, 2002, USDOC published antidumping and countervailing
duty orders in which the rates applicable to Tembec were set at 10.21 and 18.79%
respectively on the basis of which it has since deposited estimates of duties
payable.

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The results of an administrative review process for the first
year of shipments under the orders were published on December 20, 2004. The
antidumping results were subsequently amended on January 24, 2005 and the
countervailing duty results on February 24, 2005. Those results changed the
estimated deposit rates to 16.37% (countervailing duties) and 9.10% (antidumping
duties). The results of an administrative review process for the second year of
shipments under the orders were published on December 12, 2005. Those results
changed the estimated deposit rates to 8.70% (countervailing duties) and 4.02%
(antidumping duties).

The countervailing duty and anti-dumping orders were imposed
on the basis of a USITC threat of injury finding which was reversed as a result
of proceedings before a NAFTA panel. The United States launched an extraordinary
challenge to the decision rendered by the NAFTA panel. The Extraordinary
Challenge Committee ("ECC") upheld the NAFTA Panel's decision on August 10,
2005. The EEC decision normally would bring an end to these duties but the U.S.
government refused to refund and continues to collect deposits of estimated
duties in defiance of these NAFTA decisions. Tembec and other Canadian parties
have sued the U.S. Government in the U.S. Court of International Trade ("CIT")
seeking a court order mandating the revocation of the countervailing duty and
anti-dumping orders and full refund of all deposits of estimated duties. The
final amount and the effective date of countervailing and antidumping duties
that may be assessed on Canadian softwood lumber exports to the U.S. cannot be
determined at this time and will depend on the outcome of the CIT case and,
depending on its outcome, the administrative reviews.

11.2 GENERAL

Tembec is involved in various legal proceedings relating to
contracts, commercial disputes, taxes, environmental issues, employments and
workers' compensation claims and other matters. The Corporation periodically
reviews the status of these proceedings with both inside and outside counsel.
The Corporation believes that the ultimate disposition of these matters will not
have a material adverse effect on its financial position.

ITEM 12 - MATERIAL CONTRACTS

The Corporation entered into a credit agreement dated March
24, 2005 with CIT Business Credit Canada Inc. providing for a $150 million
revolving operating line of credit. This new facility is a three-year committed
facility to March 2008, which is automatically extended for additional one year
periods, unless notice is given by either party to the agreement and provides
for floating rates of interest.

Spruce Falls Inc., a wholly owned subsidiary of Tembec,
entered into a credit agreement dated June 29, 2005 with the Toronto-Dominion
Bank and other institutional lenders providing for a three-year committed $200
million revolving operating line of credit with an initial 364-day revolving
period ending June 2006, which is extendable annually and provides for floating
rates of interest. The loans of individual lenders who decline to extend the
364-day facility are automatically converted to a two-year term.

The Corporation entered into three trust indentures dated
respectively April 6, 1999, January 19, 2001 and March 13, 2002 with HSBC Bank
USA which govern Senior Notes issued by it in an aggregate amount of US $1.2
billion. The Senior Notes are guaranteed by Tembec Inc., are unsecured but
require compliance with certain covenants that could in certain circumstances
restrict the ability of Tembec or its subsidiaries to incur additional
indebtedness, to encumber or dispose of their assets, or to make certain
payments or distributions.

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ITEM 13 - INTERESTS OF EXPERTS

KPMG LLP are the external auditors of the Corporation who
prepared the Auditors' Report to the shareholder dated November 8, 2005, with
respect to the consolidated annual financial statements of the Corporation for
the year ended September 24, 2005 consisting of consolidated balance sheets and
consolidated statement of operations, retained earnings and cash flows. As of
November 8, 2005, the partners of KPMG LLP, as a group, did not own, directly or
indirectly, any of the issued and outstanding shares of the Corporation.

ITEM 14 - ADDITIONAL INFORMATION

Additional information relating to the Corporation may be found on SEDAR at
www.sedar.com.

Additional financial information is provided in the Corporation's 2005 Annual
Report.



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GLOSSARY

Biomass

Board feet  The plural of board foot; a board foot is calculated by
multiplying 1" x 12" x 12" = 1 foot board measure gross count. Lumber is then
finished (planed/sanded) to a smaller size and sold based on the original gross
count. The difference between gross size and net size is approximately 72%.

Capacity  the number of units which can be produced in a year based on
operating with the normal number of shifts and maintenance interruptions.

Coated paper  paper which is coated with clay and treated to impart a
smooth glossy surface.

Cogeneration  Generation of power in an industrial power plant to
produce both steam and electricity for in-plant use, as well as electricity for
sale to outside utility companies.

EBITDA  Operating earnings (losses) before unusual items, interest,
income taxes, depreciation and amortization and other non-operating income and
expenses.

Effluent  outflowing waste discharge from a pulp and paper mill.

Hectare  2.471 acres

ISO 14001  is an independent third party certification that confirms
that Tembec's internal Environmental Management system meets internationally
accepted standards for protecting environmental values, and that the system is
properly maintained and applied by Tembec.

Measurements

> Tonne  metric ton  1,000 kilograms or 2,204 pounds (1.1023 tons).
>   Mfbm  One thousand board feet measure (see board feet).
>   Msf (MMsf)  Measurement for panel products equal to a thousand
>   (million) square feet, 1/16-inch thick.

NAFTA  The North American Free Trade Agreement.

Newsprint  A printing paper whose major use is in newspapers. It is made
largely from groundwood or mechanical pulp.

OSB  Oriented strand board. An engineered structural wood panel produced
by chemically bonding wood strands in a uniform direction under heat and
pressure.

Pulp  the generic term describing the fibres derived from wood. Pulp can
result from a variety of pulping processes including cooking, refining, grinding
or the processing and cleaning (de-inking) of waste paper. Pulp can be either in
a wet or dry state. Types of pulp include

> Kraft pulp

High yield pulp  pulp produced by a combined chemical, thermal and
  refining process.

Specialty cellulose pulp  chemical pulp produced by an acid cooking
  process which can be either ammonia, sodium or calcium based.

Sludge  Solid waste material produced in mill effluent treatment systems
disposed of by burning or landfilling.

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Wood chips - Small pieces of wood used to make pulp. The
wood chips are produced either from wood waste in a sawmill or a log
merchandiser or from pulp wood cut specifically for this purpose. Wood chips are
generally uniform in size and are larger and coarser than sawdust.





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SCHEDULE A

MANDATE OF THE BOARD OF DIRECTORS

> I.    OVERALL PURPOSE / OBJECTIVES

The Board of Directors (the "Board") is responsible for the
  overall stewardship of the Corporation. It operates by delegating certain of
  its authority and responsibilities to committees and management and reserving
  certain powers to itself. It will retain full effective control over the
  Corporation and will monitor senior management.

II.   COMPOSITION

The Board should be constituted of a majority of Unrelated
  Directors, at least three of whom shall be independent directors, as defined
  under applicable securities legislation, to comply with the independence
  requirement of the Corporation's Audit Committee. The Corporation expects and
  requires directors to be and remain free of conflictual interests or
  relationships and to refrain from acting in ways which are actually or
  potentially harmful, conflictual or detrimental to the Corporation's best
  interests.

The Board is responsible for evaluating its size and determining the
  appropriate number of directors for the Board.

The membership of the Board shall consist of at least three
  directors that are or have been directly or indirectly involved in the
  development, operation or management of a forest products Corporation. The
  membership of the Board will also include (i) at least one audit committee
  financial expert, as required in applicable U.S. securities laws, and (ii) a
  sufficient number of individuals who are Financially Literate, as defined in
  applicable securities legislation, to ensure that the members of the Audit
  Committee fulfill the requirements described at section V(8) hereof.

Normal retirement age is 70.

III.  MEETINGS

The Board will meet at least five times per year. It will
  ensure that it excludes management from its meetings, from time to time, as
  appropriate. The Board will implement structures and procedures to ensure that
  it functions independently of management. Minutes of all meetings of the Board
  shall be maintained.

IV.  INTERPRETATION

"Outside director" means a director who is not a member of management.

"Unrelated director" means a director who is
  independent of management and is free from any interest and any business or
  other relationship which could or could reasonably be perceived to materially
  interfere with the director's ability to act with a view to the best interests
  of the Corporation, other than interests and relationships arising from
  shareholding;

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> V.  RESPONSIBILITIES AND DUTIES
>   The principal functions of the Board are as follows:
>   Selection of Directors

> (1) The Board is responsible for approving new
>     nominees to the Board and for assessing directors based upon the
>     recommendations of the Corporate Governance Committee.
>     (2) The Board will annually
>     consider the skills and competencies of the members of the Board from the
>     perspective of determining what additional skills and competencies would be
>     helpful to the Board. The Board will convey its findings to the Corporate
>     Governance Committee to be used to identify specific candidates.
>     (3) The Board will ensure that
>     prospective candidates for Board membership have received the appropriate
>     information to permit them to fully understand the role of the Board and its
>     committees and the contributions expected from individual directors.
>     (4) The Board will annually
>     review the assessment of the Board's performance and recommendations
>     provided by the Corporate Governance Committee and evaluate its own
>     effectiveness, the whole in accordance with the Corporation's corporate
>     governance policy. The Board will take appropriate action based upon the
>     results of the review process.
>     Committees
>     
>     (5) The Board shall appoint committees to assist
>     it in performing its duties and processing the quantity of information it
>     receives.
>     (6) The Board shall name members
>     of committees after considering the recommendations of the Corporate
>     Governance Committee as well as the skills and desires of individual Board
>     members, all in accordance with the mandates of such committees approved by
>     the Board.
>     (7) The Corporate Governance Committee and the
>     Human Resources Committee should be composed of Outside Directors, a
>     majority of whom are Unrelated Directors.
>     (8) The Audit Committee will be
>     composed only of independent directors, as defined in applicable securities
>     legislation. All members of the Audit Committee will be Financially
>     Literate, as defined in applicable securities legislation and at least one
>     member shall be an audit committee financial expert, as defined in
>     applicable U.S. securities laws.
>     (9) The Environmental Committee
>     will be composed of a majority of Outside, Unrelated Directors. All members
>     of the Environmental Committee will be environmentally knowledgeable and at
>     least one will have an engineering or scientific background.
>     (10) The Board will receive
>     reports from each committee as to the work undertaken by the committee and,
>     in each case, the committee's recommendations, if any, for change with
>     respect to its responsibilities. The Board will evaluate and approve, if
>     appropriate, such recommendations. The Board will also receive minutes of
>     all committee meetings.
>     (11) The Board will annually evaluate the
>     performance and review the work of its committees, including their
>     respective mandates and the sufficiency of such mandates.

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> (12) The Board will annually appoint a member of
>     each of its committees to act as Chairman of the committee.
>     Senior Management
>     
>     (13) The Board will oversee management through
>     an ongoing review process.
>     (14) The Board will appoint and
>     determine the remuneration of the Chief Executive Officer and other senior
>     executives of the Corporation, upon recommendation of the Human Resources
>     Committee.
>     (15) The Board will, together
>     with the Chief Executive Officer, and with the assistance of the Human
>     Resources Committee, develop a position description for the Chief Executive
>     Officer. The Board will review and approve the objectives developed for the
>     Chief Executive Officer by the Human Resources Committee and review the
>     assessment of the Chief Executive Officer's performance in relation to such
>     objectives made by the Human Resources Committee.
>     (16) The Board will annually
>     receive and consider a report from its Human Resources Committee on
>     succession planning, including appointing, training and monitoring of senior
>     management and the Chief Executive Officer.
>     General Responsibilities of the Board of
>     Directors
>     
>     (17) The Board will oversee the
>     management of the Corporation. In doing so, the Board will establish a
>     productive working relationship with the Chief Executive Officer and other
>     members of senior management.
>     (18) The Board will oversee the formulation of
>     long-term strategic, financial and organizational goals for the Corporation.
>     (19) As part of the
>     responsibility of the Board to oversee management of the Corporation, the
>     Board will engage in active monitoring of the Corporation and its affairs in
>     its stewardship capacity.
>     (20) The Board will, through its Audit
>     Committee, review the integrity of the Corporation's internal control and
>     management information systems.
>     (21) The Board will engage in a review of short
>     and long-term performance of the Corporation in accordance with approved
>     plans.
>     (22) The officers of the
>     Corporation, headed by the Chief Executive Officer, shall be responsible for
>     general day to day management of the Corporation and for making
>     recommendations to the Board with respect to long term strategic, financial,
>     organization and related objectives.
>     (23) The Board will annually
>     review the significant risks and opportunities affecting the Corporation and
>     its businesses and the systems and controls in place to manage and monitor
>     risks and opportunities. The Board may impose such limits as may be in the
>     interests of the Corporation and its shareholder.
>     (24) The Board will oversee an annual strategic
>     planning process within the Corporation and will approve the Corporation's
>     strategic plan. This plan will take into account the

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> opportunity and risks of the Corporation's business. The
>     Board will also, from time to time, approve annual business plans and
>     multi-year business plans for the Corporation and its businesses.
>     (25) The Board will approve capital
>     expenditures or other financial commitments in excess of $2,500,000.
>     (26) The Board will adopt prudent
>     financial standards with respect to the businesses of the Corporation and
>     prudent levels of debt in relation to the Corporation's consolidated
>     capitalization.
>     (27) The Board will monitor
>     compliance with the ethics policies or codes of the Corporation and will be
>     responsible for granting any waivers from compliance with such policies or
>     codes for directors and officers.
>     (28) The Board will also consider
>     and approve:
>     (i)    
>       transactions out of the ordinary course of business;
>       (ii)    special
>       employment contracts, upon recommendation of the Human Resources
>       Committee;
>       (iii)   all matters
>       that would be expected to have a major impact on shareholders;
>       (iv)  the appointment of any
>       person to any position that would qualify such person as an officer of the
>       Corporation;
>       (v)   any amendments to
>       the Corporation's pension plans relating to governance structure and
>       design of benefits.
>     (29) The Board will also receive
>     reports and consider:
>     (i)     The
>       quality of relationships between the Corporation and its key customers;
>       (ii) Periodic reports from Board
>       committees with respect to matters considered by such committees;
>       (iii) Health, safety and
>       environmental matters as they affect the Corporation and its businesses.
>     (30) The Board will oversee how the
>     Corporation communicates its goals and objectives to its relevant
>     constituencies, including the approval of policies relating to: (i) how the
>     Corporation interacts with analysts, investors, other key stakeholders and
>     the public; and (ii) continuous disclosure obligations and selective
>     disclosure. Such policies shall be reviewed annually.
>     (31) The Board will review and
>     approve the Corporation's annual information form following review by the
>     Corporate Governance Committee.
>     (32) The Board will review and
>     approve annual audited financial statements, quarterly financial statements
>     and related management discussion and analysis disclosure following review
>     by the Audit Committee.
>     (33) The Board has the
>     responsibility for monitoring compliance by the Corporation with the
>     corporate governance guidelines of the Toronto Stock Exchange. The Board
>     will approve the disclosure of (i) the Corporation's system of governance
>     and (ii) the

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> operation of its system of governance prepared by the Corporate
>     Governance Committee.
>   Remuneration of the Directors
>   
>   (34) The Board of Directors will
>     consider and approve the adequacy and form of the compensation of directors,
>     upon recommendation of the Corporate Governance Committee, and ensure the
>     compensation realistically reflects the responsibilities and time involved
>     in being an effective director.
>   General
>   
>   (35) The Board will consider and approve such
>     other matters as the Board may, from time to time, determine.







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SCHEDULE B

AUDIT COMMITTEE CHARTER

> I.    OVERALL PURPOSE / OBJECTIVES

The Audit Committee will assist the Board in fulfilling its
  oversight responsibilities. The Audit Committee will review the financial
  reporting process, the system of internal control and management of financial
  risks, the audit process, the auditor attestation process regarding internal
  controls and the Corporation's process for monitoring compliance with laws and
  regulations and its own corporate policies. In performing its duties, the
  committee will maintain effective working relationships with the Board of
  Directors, management, and the internal and external auditors. The Corporation
  shall ensure that appropriate funding is provided to the Audit Committee to
  compensate the auditors and any other advisors engaged by the Audit Committee,
  as well as for ordinary administrative expenses.

II.   COMPOSITION

The Audit Committee shall consist of not fewer than three
  directors, each of whom shall be "independent", as defined in applicable
  securities legislation. All members of the Committee shall be financially
  literate, as defined in applicable securities legislation, and at least one
  member of the Committee shall satisfy the definition of "financial expert", as
  set forth in the applicable U.S. securities legislation. Members of the
  Committee shall be appointed by the Board and shall serve at the pleasure of
  the Board. Unless a Chairman is appointed by the Board, the members of the
  Committee will select its Chairman.

III.  MEETINGS

The Committee shall meet at least four times annually, or
  more frequently as circumstances dictate. The Committee shall meet at least
  annually with the internal auditors and the external auditors to discuss any
  matters that the Committee believes should be discussed privately. Meetings of
  the Committee may be called by its Chairman or the Chairman of the Board, the
  external auditors or the internal auditors. Minutes of all meetings of the
  Committee shall be maintained and submitted as soon as practicable to the
  Board. In addition, the Committee will report to the Board on the Committee's
  activities at the Board meeting following each Committee meeting.

A majority of Committee members shall constitute a quorum.

The members of the Committee shall have the right, for the
  purposes of discharging the powers and responsibilities of the Committee, to
  inspect any relevant records of the Corporation and its subsidiaries. The
  Committee shall also have the authority to hire independent counsel and other
  advisors at the Corporation's expense, if necessary to carry out its duties
  and the authority to set and pay the compensation for any independent counsel
  or advisor employed by the Audit Committee.

IV.  RESPONSIBILITIES AND DUTIES

The Audit Committee shall:

Documents/Reports Review

> (1) Review and reassess the
>     adequacy of this Charter annually, report to the Board thereon and ensure
>     that it is either published in the annual report or proxy circular once
>     every three years or posted in an up-to-date format on the Corporation's
>     website.

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> (2) Review and recommend for
>     approval by the Board prior to any disclosure:
>     (i) interim unaudited
>       financial statements;
>       (ii) audited annual financial
>       statements, in conjunction with the report of the external auditors; and
>       (iii) all public disclosure
>       documents containing audited or unaudited financial information, including
>       management's discussion and analysis of financial condition and results of
>       operations, any prospectus.
>       This review shall include,
>       where appropriate, an examination of:
>     (i) the existence and substance
>     of significant accruals, estimates, or accounting judgments, and the level
>     of conservatism;
>     (ii) transactions with related
>     parties and adequacy of disclosures; and
>     (iii) qualifications, if any,
>     contained in letters of representation and the contents of review or audit
>     reports from the Corporation's external auditors, with respect to the
>     Corporation's financial statements. (3) Review any report which accompanies
>     published financial statements (to the extent such a report discusses
>     financial condition or operating results) for consistency of disclosure with
>     the financial statements themselves.
>     (4) Obtain an explanation from
>     management of all significant variances between comparative reporting
>     periods and an explanation from management for items which vary from
>     expected or budgeted amounts as well as from previous reporting periods.
>     (5) Review uncertainties,
>     commitments, and contingent liabilities material to financial reporting.
>     External Audit
>     
>     (6) Recommend to the Board of
>     Directors the appointment or reappointment of the external auditors and
>     recommend the fees to be paid to the external auditors. The external
>     auditors are accountable to the Board of Directors and the Audit Committee,
>     as representatives of the Corporation's shareholder. The external auditors
>     must report directly to the Audit Committee.
>     (7) Pre-approve all services to
>     be provided by the external auditors.
>     (8) On an annual basis, review
>     and discuss a written report by the external auditors detailing all factors
>     that might have an impact on the auditors' independence, including all
>     services provided and fees charged by the external auditors.
>     (9) Oversee the work, review the
>     performance of the external auditors and approve any proposed change of the
>     external auditors. In such a case, approve the information required to be
>     disclosed by regulations.
>     (10) Approve the scope and plan
>     of the annual audit, of the attest services and require the external
>     auditors to review the quarterly financial statements and related documents.
>     (11) Review the audit findings
>     and recommendations and management's response thereto.

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> (12) Review annually with the
>     external auditors the acceptability and the quality of the implementation of
>     generally accepted accounting principles focused on the accounting estimates
>     and judgments made by management and their selection of accounting
>     principles.
>     (13) Review any significant disagreement between
>     management and the external auditors regarding the financial reporting.
>     (14) At least annually consult
>     with the external auditors out of the presence of management about internal
>     controls, the fullness and accuracy of the financial statements, any
>     significant difficulties encountered during the course of the audit
>     including any restrictions on the scope of work or access to required
>     information.
>     (15) Consider and if appropriate require the
>     rotation of the lead audit partner, concurring partner and other audit
>     partners.
>     (16) Review and approve hiring policies for
>     partners, employees and former partners and employees of its present
>     external auditors and of its former external auditors.
>     Internal Audit and Internal Control
>     
>     (17) Review any decisions
>     related to the need for internal auditing, including whether this function
>     should be outsourced and in that case, approve the supplier which shall not
>     be the external auditors.
>     (18) Review and approve the appointment or
>     removal of the director of internal auditing who shall be reporting to a
>     senior officer other than the Corporate Controller.
>     (19) Approve the mandate of the internal audit
>     function, and review annually the internal audit plan and the corresponding
>     budgets.
>     (20) Ensure that management has
>     established and maintained adequate internal controls and procedures for
>     financial reporting and accounting, with particular emphasis on controls
>     over computerized systems, and review annually a management assessment of
>     the effectiveness of internal controls.
>     (21) Review significant internal audit findings,
>     recommendations and management's response.
>     (22) Ensure the coordination of the work between
>     internal and external auditors.
>     (23) Ensure the internal auditor
>     has ongoing access to the Chairman of the Committee as well as all officers
>     of the Corporation, particularly the Chairman of the Board and the
>     President.
>     (24) At least annually,
>     undertake private discussions with staff of the internal audit function to
>     establish internal audit independence, the level of co-operation received
>     from management, the degree of interaction with the external auditor, and
>     any unresolved material differences of opinion or disputes.

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> Risk Management

(25) Review periodically and
    inquire of management, the internal auditors and the external auditors
    concerning the financial and business risks or exposures of the Corporation
    and assess the steps management has taken to control such risks. Business
    risks include, but are not limited to, risks in the nature of
    treasury-related risks (including foreign exchange risks), information
    systems-related risks, disclosure quality and standards relating to
    financial reporting.

Financial Reporting Processes

(26) In consultation with the external auditors
    and the internal auditors, review the integrity of the financial reporting
    processes, both internal and external.

(27) Consider and approve, if appropriate,
    changes to the accounting principles and practices as recommended by the
    external auditors, management or the internal auditors.

Legal compliance and other responsibilities

(28) Ensure that management has
    the proper review system in place to ensure that financial statements,
    reports and other financial information disseminated to governmental
    organizations and the public satisfies legal and regulatory requirements.

(29) Review incidents of fraud, illegal acts,
    conflicts of interest and related-party transactions.

(30) Establish procedures for
    the receipt, retention and treatment of complaints received by the
    Corporation regarding accounting, internal accounting controls, or auditing
    matters, and the confidential, anonymous submission by employees of the
    Corporation of concerns regarding questionable accounting or auditing
    matters.

(31) Review claims or potential claims and any
    other legal matters as reported to the Committee that could have an impact
    on the financial statements.

(32) Review the expenses of, including the use
    of the Corporation's assets by officers.

(33) Review material matters relating to audits
    of subsidiaries.

(34) Perform any other activities consistent
    with this Charter, the Corporation's by-laws and governing laws, as the
    Committee or the Board deems necessary or appropriate.

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