|**Exhibit
99.1**
|----------------





Tembec Inc.Annual Information
Form



December 18, 2006

For the fiscal year ended September 30,
2006

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|DOCUMENTS INCORPORATED BY REFERENCE                    
|GLOSSARY                                               
|SPECIAL NOTE REGARDING FORWARD-LOOKING
      STATEMENTS
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|DEFINITIONS                                            
|SCHEDULE A                                             

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| | Annual Information
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DOCUMENTS INCORPORATED BY
REFERENCE

Certain specifically identified pages
of the audited consolidated financial statements for the fiscal year ended
September 30, 2006 (the 2006 Financial
Statements), the report of the auditors thereon dated November 15, 2006, except as to note 22(b) which is as
of December 5, 2006, the managements discussion and analysis dated December 5,
2006 (the 2006 MD&A), and certain
specifically identified pages of the Management Information Circular dated December 12, 2006 prepared in connection with the February 1, 2007 annual and special meeting of the
shareholders of Tembec Inc. (the 2007 Proxy
Circular) 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 Company in this Annual Information Form are to Tembec Inc.
References to Tembec are to, as the
context may require, either the Company or the Company together with one or more
of its subsidiaries (the Subsidiaries),
affiliates and its interests in joint ventures and other entities. Reference to
Tembec Industries is to Tembec
Industries Inc., a wholly-owned subsidiary of the Company. In addition, unless
otherwise defined herein, certain terms are defined in the Definitions section
included on page 35 of this Annual Information
Form. All dollar figures are in Canadian dollars unless stated
otherwise.

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. Unless otherwise indicated, forward-looking
statements in this Annual Information Form describe Tembecs expectations as at
December 18, 2006. 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:

|· | The demand and prices for the products that Tembec
      sells;                                          
|- | ---------------------------------------------------------------------------------------------------------
|· | Fluctuations in the exchange rate of the Canadian dollar
      to the US dollar and to the Euro;         
|· | Fluctuations in duties or export taxes imposed on lumber
      exported to the United States;            
|· | The effect of general economic conditions, including the
      level of interest rates;                  
|· | Raw material availability and prices;                                                                    
|· | The risk of loss from fires, floods and other natural
      disasters;                                   
|· | The availability and retention of qualified personnel or
      management;                               
|· | Labour unrest;                                                                                           
|· | Levels of capital expenditures required to maintain and
      upgrade processes;                         
|· | The effect and enforcement of forestry, land use,
      environmental and other governmental regulations;
|· | Transportation costs;                                                                                    
|· | Competitive actions by other companies;                                                                  
|· | Performance of pension fund
  investments;                                                               

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 from them.
Except as otherwise indicated, forward-looking statements do not take into
account the effect that transactions or non-recurring or other special items
announced or occurring after the statements are made may have on

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Tembecs business. Such statements do
not, unless otherwise specified by Tembec, reflect the impact of dispositions,
sales of assets, monetizations, mergers, acquisitions, combinations or
transactions, asset write-downs or other charges announced or occurring after
forward-looking statements are made. The financial impact of these transactions
and non-recurring and other special items can be complex and depends on the
facts particular to each of them, and cannot be expressed in a meaningful way or
in the same way Tembec presents known risks affecting its business. 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.

TEMBEC INC.ANNUAL INFORMATION FORM

ITEM 1 - DATE OF ANNUAL
INFORMATION FORM

This Annual Information Form (the
AIF) is dated as of December 18, 2006. Except as otherwise indicated,
the information contained in this AIF is stated as at September 30,
2006.

ITEM 2 - CORPORATE
STRUCTURE

The Company was incorporated under Part
1 of the Companies Act (Québec) on July 12, 1972 and continued under Part
1A of the Companies Act (Québec) by Certificate of Continuance dated
March 18, 1983. Amendments to the Companys articles were made at various times
for the main purpose of modifying the authorized share capital.

The Companys head office is located at
Suite 1050, 800 René-Lévesque Blvd. West, Montreal, Québec, H3B 1X9, telephone:
514-871-0137. Its website address is www.tembec.com.

The chart below depicts Tembecs
principal operating facilities by industry segment as at the date of this AIF
and, where appropriate, the subsidiaries or affiliates that 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
LumberTembec Industries 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
WoodTembec Industries 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, and 3 wood I-beam plants located in
Blainville, Québec, Bolton, Ontario and Calgary, Alberta.

Specialty
Cellulose

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

Since November 9, 2005, the Company has
held a 25% interest in AV Nackawic Inc. which owns a hardwood kraft pulp mill
located in Nackawic, New Brunswick which was restarted in early calendar 2006
and is expected to be converted to a specialty cellulose mill in
2007.

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.

Radiata
Pine Lumber

The Company holds a 34% economic and
50% voting interest in Foraction Chile Inc. which owns and operates a sawmill in
Curanilahue, Chile.

ITEM 3 - GENERAL DEVELOPMENT OF
THE BUSINESS3.1     BUSINESS
OVERVIEWTembec is a large,
diversified and integrated forest products company 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 Companys consolidated sales and consolidated assets, it is not
discussed in this AIF.

Tembec produces approximately 1.7
billion board feet of lumber, 2.2 million tonnes of pulp and 1.1 million tonnes
of paper. A breakdown of production capacities by operating facility is included
in the Segment Review section of the 2006 MD&A. For the fiscal year ended
September 30, 2006, Tembec had sales of $3.3 billion, EBITDA of $23 million, an
operating loss of $374 million and a net loss of $304 million. Tembecs total
assets at that date were $3 billion and it employed approximately 9000 people.
The segmented results and the breakdown of sales of the Companys products by
geographic areas are shown on pages 4 to 5 of the Companys 2006 Financial
Statements.

Tembecs strategy is to (i) diversify
its business among the forest products, pulp products and paper products
sectors; (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
HISTORYThe following summarizes major
events that have occurred over the past three years:





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Forest Products
GroupAs 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, in fiscal year 2004 Tembec
acquired two sawmills located in La Sarre and Senneterre, Québec for $49 million
plus working capital of $15 million as well as a sawmill from Weyerhaeuser
located at Chapleau, Ontario for $26 million, including working capital. The
three sawmills increased the companys SPF lumber capacity by 350 million board
feet or 24%.

In August 2004, Tembec also exercised
its option to acquire the remaining 50% interest in Excel Forest Products Inc.,
which owned and operated an SPF sawmill located in Opasatika, Ontario, for cash
consideration of $7 million. The initial 50% interest had been acquired in March
2001. The purchase increased the Companys lumber capacity by 47.5 million board
feet or 3%.

In January 2005, Tembec announced the
permanent closure of its Opasatika, Ontario and Kirkland Lake, Ontario SPF
sawmills. The two sawmills had a combined annual capacity of 130 million board
feet or 7% of the Companys total SPF capacity. The Company was able to mitigate
the loss of capacity by reallocating timber to its other regional
sawmills.

In June 2005, the Company idled several
facilities. These included an SPF sawmill in LaSarre, Quebec: a specialty
hardwood and pine sawmill in Davidson, Quebec: a specialty hardwood sawmill in
Temiscaming, Quebec and a lumber remanufacturing facility in Brantford, Ontario.
The SPF sawmill had a capacity of 100 million board feet, representing 6% of the
Companys total capacity. The Company was able to mitigate the loss of capacity
by reallocating timber to its other regional sawmills. The two specialty
sawmills had a capacity of 70 million board feet, representing 38% of the
Companys annual capacity. The closure of the lumber remanufacturing facility
represented an exit from this particular activity, as the Company did not own
any other similar facility.

In 2005,
Temlam completed the construction of a 4.6 million cubic feet LVL plant at Amos,
Québec at a cost of $130 million. The plant was started in early calendar 2006
and reached acceptable operating levels in September 2006.

In September 2005, Tembec was awarded
Forest Stewardship Council (FSC)
certification for its forest resource management practices related to four
Forest Management Units in the Abitibi-Témiscamingue region of Québec. Tembec
now has 8.5 million hectares of Canadian forest that is FSC
certified.

In February 2006, Tembec completed the
sale of its oriented strandboard (OSB)
business located in Saint-Georges-de-Champlain, Quebec to Jolina Capital Inc.
for a total consideration of $98 million, of which $88 million were payable at
closing, and the balance payable in the form of a $10 million interest-bearing
note, repayable in equal annual installments over a five-year period. As a
result of this transaction, the financial results of the OSB operation have been
reclassified as discontinued operations. Comparative figures shown in the AIF
have also been reclassified to exclude the OSB mills results.

In fiscal 2006, Tembec announced a
series of temporary shutdowns, ranging from a few weeks to indefinite periods of
time, at various sawmills located in Ontario and Quebec. These shutdowns were
due to several factors including overall market conditions, product pricing and
the high value of the Canadian dollar. In October 2006, three sawmills located
in Québec were shut down for an indefinite period of time.

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In April, 2006, Tembec announced that
its market pulp mill in Smooth Rock Falls, Ontario would be idled indefinitely,
effective July 31, 2006, affecting 230 employees. The Smooth Rock Falls mill
produced 200,000 tonnes of Northern Bleached Softwood Kraft (NBSK) pulp annually, representing 9% of the
Companys total annual capacity. On December 5, 2006, the Company announced the
permanent closure of the pulp mill. This closure was necessary in light of the
high value of the Canadian dollar and high manufacturing costs at this site
relative to global competition.

Paper GroupIn the March 2004 quarter, the Company recorded a charge
of $37 million relating to the write-down of its investment in Gaspesia Papers
Limited Partnership (Gaspesia). The
Company owned a 25% interest in Gaspesia, which was in the process of converting
a newsprint operation, located in Chandler, Quebec, to a coated paper facility.
The charge was as a result of a decision made by the Gaspesia partners to halt
work on the modernization project and seek creditor protection.

In the September 2004 quarter, the
Company recorded a charge of $10 million relating to the write-down of a
newsprint machine at the Kapuskasing, Ontario papermill. The machine had been
idle since February 2004 and based on relatively difficult market conditions it
was deemed unlikely to restart. The 70,000 tonnes per year newsprint machine
remains idle. The closure reduced the Companys total newsprint capacity by
12%.

In May 2005, Tembec announced the
closure of the Saint Raymond, Quebec paper mill. The facility had the capacity
to produce 65,000 tonnes of coated and uncoated groundwood papers. The closure
reduced Tembecs total paper capacity by 6%.

In the March 2006 quarter, Tembec
permanently idled a pressurized groundwood pulp line and an unbleached board
machine at the St.Francisville, Louisiana paper mill. The unbleached board
machine had a capacity of 80,000 tonnes, representing 7% of Tembecs paper
capacity.

Governmental
ActivityDuring the last fiscal year,
Tembec received a compensation payment of $5 million from the Province of
British Columbia associated with reductions in Tembecs allowable annual cut
(AAC) related to its operations in
Southeastern British Columbia. This AAC reduction was part of the governments
province-wide timber reallocation process. There was also an additional payment
in recognition of road and other infrastructure investments in areas affected by
the reduction

In February, 2006, the Province of
Ontario confirmed it would commence funding 100% of the cost of primary road
building and 50% of the cost of building secondary roads. This was in addition
to support for maintenance costs on primary roads announced during fiscal year
2005. The combined effect of the foregoing road building and maintenance funding
measures and those announced last summer should result in a cost reduction in
the range of $2.90 per cubic meter on volumes harvested in Ontario.

FinancingIn 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 $190 million with a syndicate of
banks, subsequently increased to $200 million, both of which replaced existing
operating facilities. In June 2006, the lenders declined the extension of the
operating line of credit. It became a non-revolving line of $136 million
expiring in June 2008.

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3.3     TRENDSReference is made to the Segment Review section of the
2006 MD&A.

ITEM 4 - NARRATIVE DESCRIPTION
OF THE BUSINESS4.1     PRINCIPAL OPERATIONSTembecs business is centered around the production and sale of
forest, pulp and paper products. The manufacturing assets of Tembec are located
primarily in Canada, with a fairly large presence in the eastern part of the
country, namely, Northeastern Ontario and Northwestern Québec.

Tembec has approximately 9,000
employees of which approximately 6,000 are covered by collective bargaining
agreements. At the end of September 2006, there were 17 agreements covering
1,300 employees that had expired. During fiscal
2007, a total of 4 agreements covering 450 employees will expire.

The birthplace of the Company is the
town of Temiscaming, Québec. It is one of the more significant production sites
owned by Tembec, representing approximately 18% of 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 Tembecs assets in these segments are located
in this market. The pulp business is global in nature, with Europe and China
being the largest consumers. Three of the eleven pulp mills, which represent 30%
of Tembecs paper pulp production and 41% 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 Company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), (ii) Specialty
Wood products and (iii) Engineered Wood products. For the fiscal year ended
September 30, 2006, the Forest Products Group generated external sales of $905
million, EBITDA of $22 million and an operating loss of $31 million. The Forest
Products Groups annual sales accounted for approximately 27% of Tembecs total
consolidated sales in fiscal 2006.

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

SPRUCE, PINE,
      FIR LUMBERLocation and
      Product
    
    MFBMStud
      LumberTaschereau/La Sarre,
      QC(1)
    
    200,000Senneterre,
      QC
    
    150,000Cochrane,
      ON
    
    170,000Kapuskasing,
      ON
    
    105,000




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Random LumberElko,
      BC(2)
    
    270,000Canal
      Flats, BC(2)
    
    180,000Hearst,
      ON
    
    160,000Timmins, ON
    
    100,000Chapleau, ON
    
    135,000Bearn,
      QC
    
    110,000Nouvelle/St-Alphonse, QC(3)
    
    75,000Finger Joint LumberCranbrook, BC
    
    25,0001,680,000SPECIALTY
      WOODLocation and Product
    
    MFBMDavidson, QC(4) Pine and Hardwood Lumber
    
    55,000Mattawa, ON - Pine and Hardwood Lumber
    
    30,000Huntsville, ON - Hardwood Lumber
    
    30,000Huntsville, ON - Hardwood Flooring
    
    18,000Toronto, ON - Pre-Finished Hardwood Flooring
    
    10,000Brassac, France  Pine Lumber
    
    15,000Curanilahue, Chile(5)- Radiata Pine Lumber
    
    22,000180,000ENGINEERED
      WOODLocation and Product
    
    Thousand ft.3Ville-Marie, QC(6) Laminated Veneer
    
    475Lumber(6)Amos,
      QC(6)
      (7)
      Laminated Veneer Lumber
    
    2,3002,775MFBMLa
      Sarre, QC - Engineered Finger Joint Lumber
    
    60,000Kirkland Lake, Ont(7) Engineered Finger Joint
    
    60,000Lumber120,000


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Thousand linear
      ft.Bolton,
      ON(6) Wood
      I-Beams
    
    40,000Calgary,
      AB(6) Wood
      I-Beams
    
    18,000Blainville,
      QC(6) Wood
      I-Beams
    
    5,00063,000Million
      lbsBolton,
      ON(6)
      (8)-
      Metal Plates and Webs
    
    10.0




|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(1)      Sites
      are operated as a combined entity.(2)      The
      Elko and Canal Flats Sawmills rely on 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)      The
      Davidson facility was shut down temporarily for an indefinite period in
      the September 2005 quarter. (5)      Volume
      reflects 34.31% of the actual plant capacity as the unit is part of the
      Foraction joint venture whose financial results are not consolidated with
      those of the Company. (6)      Volumes reflect 50% of the actual plant capacity as the units are
      part of the Temlam joint venture. (7)      Projected capacity as mill is in start-up phase.
      (8)     
      The Temlam joint venture sold its metal plates and
      webs business in the June 2006 quarter.

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.

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 approximately1.9million tonnes of wood chips, approximately86% 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 approximately73billion board feet, with U.S. demand of approximately63billion board feet and the
balance being consumed in Canada. U.S. producers currently supply38billion board feet, leaving
a U.S. domestic shortfall of approximately25billion board feet. Canadian producers annually
sell a total of35billion board feet, shipping22billion board feet to the U.S. and exporting2billion board
feet outside North America. The remaining11billion board feet is consumed domestically in
Canada. Tembecs production capacity represents approximately2% of the North American SPF
lumber capacity.

In fiscal 2006,43% of Tembecs consolidated sales
occurred in Canada and52% 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. The Forest Products Group business fosters a highly diversified
customer base. Products are sold by Tembecs own internal sales force directly
to large retailers, industrial end-users and distributors. Tembec markets most
of its solid wood products in North America. The Company competes directly with
other Canadian and U.S. producers of SPF lumber. While selling prices, product
quality and customer

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service are important factors affecting
competition, other factors such as fibre costs, foreign exchange rates and the
recently signed Canada/USA Softwood Lumber Agreement (the 2006 Softwood Lumber Agreement) also have an impact on the
Companys competitive position. The new agreement, which came into force on
October 12, 2006, requires Canadian exporters to the U.S to pay an export tax
which varies inversely with the price of lumber. Beginning on January 1, 2007,
Tembecs Québec and Ontario sawmills will also be subject to an export quota,
but the export tax rate in effect since October 12, 2006 will be reduced. Prior
to the settling of the softwood lumber dispute, Canadian lumber producers were
forced to pay in excess of $US 5 billion of countervailing and antidumping
duties to U.S. Customs since May 2002. On October 30, 2006, Tembec received
payment of US $242 million pertaining to softwood lumber duty deposits made by
Tembec to US Customs since May 2002. The funds were advanced by Export
Development Corporation (EDC) as part of
a financing transaction made possible by the 2006 Softwood Lumber Agreement. The
Agreement provides for the return of approximately 82% of the US$ value of
duties deposited by the Company, including accrued interest. The $242 million
received represented substantially all of the moneys that Tembec expects to
recover.

Fibre SupplyTembecs Canadian 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.

QuébecTembec 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 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.

OntarioTembecs cutting rights are provided principally through
several Sustainable Forest Licenses on Crown land issued by the Ministry of
Natural Resources (Ontario). 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).



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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

(FMP). An environmental licensing process accompanies the
submission of the long-term forest management plan resulting in the issuing of a
ten-year environmental license. Tembecs 20 year FMP expired on January 1, 1998.
Due to extenuating circumstances, a new FMP was not produced and Tembec
operations have been approved based upon annual operating plans since that time.
The Province of Manitoba has notified Tembec that a new twenty-year FMP must be
submitted for Tembecs FML by January 1, 2008. The Province has also provided
Tembec notice that the current FML will not be extended when the new FMP is
approved and that a new FML will be required by December 31, 2008. Discussions
regarding the new FML between the Province of Manitoba and Tembec should
commence in 2007 in order to be fully prepared with a new agreement prior to the
expiry date of the current FML on December 31, 2008.

British ColumbiaApproximately 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 Company 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 were 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 was reallocated to the British
Columbia Timber Sales Program, First Nations and small tenures (for example
woodlots). While some volume of harvesting rights was lost from forest tenures
(in Tembecs case: 189,310m3, by March
1, 2006), it remains available on the open market through a competitive purchase
program.

Stumpage and Other
ChargesProvincial 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 came into effect in
spring 2006. More particularly, on April 1, 2006 new log grades were established
for the interior of the province and on July 1, 2006 a market based pricing
system for the interior of the province also came into force.

4.1.2    
Pulp GroupThe 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 30, 2006, the Pulp Group generated external sales of $1.4 billion, EBITDA of $6 million, and an operating loss of $269 million.



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

Location and
      ProductPaper
Pulps
    
    TonnesSoftwood
      KraftSkookumchuck,
      BC
    
    270,000Tarascon,
      France
    
    260,000Smooth Rock Falls,
      ON(1)
    
    200,000Marathon,
      ON(2)
    
    95,000825,000Hardwood
      KraftSaint-Gaudens,
      France
    
    305,000Hardwood
      High-YieldTemiscaming,
      QC
    
    300,000Matane,
      QC
    
    230,000Chetwynd,
      BC
    
    200,000730,000Specialty
      PulpsTemiscaming, QC  Specialty
    Cellulose
    
    165,000Tartas, France  Fluff
    
    155,000Atholville, NB(2) Dissolving
    
    60,000380,000Total
    
    2,240,000


|(1) | Idled indefinitely
      since July 2006. On December 5, 2006, Tembec announced the permanent
      closure of the pulp mill.
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(2) | 50% of current
      annual capacity.                                                                                        
|   

Products and
MarketsMost 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, 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.

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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 49
million tonnes. Western Europe, including Nordic countries, is the largest
producing region of market pulp at 12 million tonnes per year followed by Canada
at 11 million tonnes and South America at 9
million tonnes. Europe is the largest consuming region at 19 million tonnes per year, followed by North America at 9 million
tonnes and China at 7 million tonnes.

Tembec markets its pulp on a world-wide
basis, primarily through its own sales force, with a network of offices in
Canada, Switzerland, China, Taiwan, 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 2006, agency
pulp sales totaled 2,000 tonnes compared to 4,400
tonnes in fiscal 2005. Sales from the Pulp Group represented approximately 41%
of Tembecs total consolidated sales in fiscal 2006.

Fibre SupplyTembecs North American pulp mills consumed approximately
2.3 million bone dry tonnes of wood chips in fiscal 2006. Of this amount,
approximately 47% was supplied by the Forest Products Group. The remainder is
purchased from third parties under contracts and agreements of various
durations. The three pulp mills located in southern France purchase their fibre
requirements from many private landowners.

4.1.3    
Paper GroupThe Paper Group currently
consists of four facilities with a total of nine operating paper machines
producing newsprint, coated paper, coated board and specialty paper products.
For the fiscal year ended September 30, 2006, the Paper Group generated sales of
$874 million, negative EBITDA of $11 million, and
an operating loss of $72 million.

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

Location and ProductNewsprint
    
    Tonnes(1)Kapuskasing, ON  Newsprint
    
    330,000Pine Falls, MB  Newsprint
    
    185,000515,000Coated PaperSt. Francisville, LA  Coated
    
    280,000Specialty PaperSt. Francisville, LA  Uncoated Bleached
      Board(2)
    
    80,000St. Francisville, LA  Specialty Kraft
      Paper
    
    30,000Temiscaming, QC  Coated Paperboard
    
    180,000290,000Total
    
    1,085,000


|(1) | Although the above table shows
      all capacities in metric tonnes, coated paper and certain specialty paper
      are sold primarily in short tonnes.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Paper machine #3 was permanently
      shut down in December 2005.                                                                                      

Products and
MarketsNewsprint 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

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requirements of daily newspapers.
Canadian manufacturers of newsprint are very dependent on export markets,
particularly the U.S. market. In calendar year of 2005, the total North American
newsprint demand was approximately 10.5 million tonnes with the U.S. market
consuming 9.4 million tonnes. U.S. producers currently supply 4.3 million tonnes
of this requirement. Canadian newsprint producers annually sell a total of 7.8
million tonnes, shipping 4.8 million tonnes to the U.S. and exporting 2.0
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. Tembecs
newsprint capacity represents approximately 4% 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 3% of the North
American market. The specialty paper products segment encompasses the food and
medical papers markets and typical end uses are coffee filters, medical papers,
and pharmacy bags. 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 2006, with the
U.S. representing 87% of total sales. For fiscal year 2006, the Paper Group
represented 26% of consolidated sales.

Fiber Supply

The Paper Group receives approximately
40% of its virgin fibre requirements through internal sources with the remainder
purchased from sawmills and third-party suppliers. The paper mills consumed 0.9
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
pulps 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 86,600 tonnes in the last
fiscal year. ONP and OMG are purchased from various merchants and collection
groups.

4.2    
ENVIRONMENTAL AND SOCIAL POLICIESTembec shares with the community important
responsibilities towards the environment in which we live and work. The Company
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.

Environmental
Management

Tembec maintains two Environmental
Management Programs (EMPs) Forever
Green® and Impact Zero® targeting the forestry
and manufacturing sectors. The objectives of the EMPs are to (i) maintain
compliance with Tembecs corporate principles and environmental policy, (ii)
integrate sustainable development, (iii) respond effectively to environmental
issues, (iv) obtain appropriate certification and (v) continually improve
environmental performance.

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Pulp and PaperImpact 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 14001-2004 standard.

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 in early
2007.

Environmental
InfractionsIn the last fiscal year,
Tembec reached settlements with the Governments of Québec and Canada relating to
exceedences of allowable limits of effluents from Tembecs industrial site
located in Temiscaming, Québec. Such settlements resulted in the payment by
Tembec of a fine of $1 million to the Government of Québec, a fine of $250,000
to the Government of Canada and a contribution of $500,000 to the Environmental
Damages Fund. The infractions occurred between 2001 and 2004 when Tembec 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 been
fully executed and commissioned since early calendar 2006. These investments
will ensure that, barring unforeseen events, the Temiscaming Complex site
operates in full compliance with all applicable environmental
regulations.

Forest Resource
ManagementThe Forever Green® Program
includes the implementation and maintenance of an EMS, in compliance with the
ISO 14001-2004 standard, which aims to promote environmental protection,
sustainable forest management and conformance with Tembecs 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.

CertificationIn the past fiscal year, the Company was awarded FSC
certification at 6 new locations representing an unprecedented growth in FSC
certification for Tembec. New certificates were granted for Tembec operations in
Chapleau, Ontario, Bearn, Rouyn and Nouvelle, Québec and Cranbrook and
Invermere, British Columbia. These recent certifications bring the total area of
FSC certified forest under license to Tembec to 8.5 million hectares of Canadian forest. As of September 2006, one
forest that is 900,000 hectares in size has been
audited and is scheduled to be certified prior to the end of the 2006 calendar
year. Tembec has a total of 12 FSC forest management certificates representing
the largest area of any FSC certified company in the world.

In keeping with its philosophy to
promote environmental protection, Tembec entered into an agreement in December
2004 with Nature Conservancy of Canada (NCCÝ) to protect over 400 square kilometers (40,213 hectares) 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 (36,991 hectares) 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.

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

Tembec has agreements in place with
Missanabie Cree First Nation, Wahgoshig First Nation, Nipissing First Nation,
Taykwa Tagamou Nation in Ontario to recognize the interest of the community in
participating in forest management activities, creation of economic
opportunities and consultation initiatives.

In Québec, Tembec has agreements in
place with six First Nations communities, the most recent of which was finalized
in early 2006 with Long Point First Nation. With Timiskaming First Nation, Wolf
Lake First Nation, Eagle Village First Nation, Pikogan First Nation, Listuguj
First Nation agreements are 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 5% 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 have averaged nearly 100 million annually over the last 3
years.

4.4    
COMPETITION

The lumber, pulp and paper industries
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
FACTORSThe 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 AIF.

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

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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 Company 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 ExchangeRevenues 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 or demand.

Availability and Price of
FibreFibre 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 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.

The Province of Québec adopted new
legislation, which became effective April 1, 2005, that reduced allowable
wood-harvesting volumes by an average of 20% on public lands and 25% on
territories covered by an agreement between the Government of Québec and the
Cree First Nation. As a result, the amount of fibre we are permitted to harvest
annually, under our existing licenses from the Québec government, were reduced
by approximately 19.2% in SPF, for a total reduction of 11.6% of all species
combined.

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 further 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.

Natural EventsThe 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

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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 more than 70%
of the total timber volume harvested in British Columbia and more than 80% 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 quality of lumber
produced.

Energy CostsEnergy 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 electricity costs for Tembecs Ontario operations.

LaborThe maintenance of a productive and efficient labour environment
cannot be assured. Approximately 67% of Tembecs workforce is unionized.
Collective agreements governing approximately 29% 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 labor costs, which could have a material adverse
effect on its business, financial condition, results of operations and cash
flow.

Furthermore, 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.

Environmental
RegulationsTembec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 capital and operating expenditures in order to comply with applicable
environmental laws and regulations. Charges by the provincial and federal
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.

Operation and Maintenance of
EquipmentThe 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.



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Trade Restrictions/Lumber Export
DutiesTembec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.

Since October 12, 2006, Tembecs
sawmills are subject to an export tax on shipments to the U.S. Québec and
Ontario sawmills are also subject to an export quota. The tax and quotas may
adversely affect Tembecs financial position.

Financial Risks/Debt
ServiceThere 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 $1.5 billion, 92% 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
Company will have the required funds to repay the principal due. The Company
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 $286 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.





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Growth
Strategy/AcquisitionsTembec 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.

First Nation Land
ClaimsCanadian courts have recognized
that aboriginal people may possess rights in respect of land used or occupied by
their ancestors where treaties have not been concluded to deal with these
rights. The courts have encouraged the federal and provincial governments and
aboriginal people to resolve rights claims through the negotiation of treaties.
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 or for which they are seeking compensation from various levels of
government. Tembec, cognizant of its presence in territories on which aboriginal
people assert rights and interests, has concluded agreements with many First
Nations including the Ktunaxa Nation Tribal Council, the Missanabie Cree First
Nation, the Wahgoshig First Nation, the Nipissing First Nation, the Taykwa
Tagamou Nation, the Timiskaming First Nation, the Wolf Lake First Nation, the
Eagle Village First Nation, the Pikogan First Nation, the Listuguj First Nation
and the Long Point First Nation.

Tembec cannot predict whether
aboriginal land claims or other rights will affect Tembecs existing Crown lands
or its 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.
Furthermore, any failure to reach an agreement, conflict or disagreement with an
aboriginal group could have a material adverse effect on its
operations.

ITEM 5 - DIVIDEND
POLICYThe Company has not paid
dividends on any of its common shares in the last three years. There is
currently no restriction preventing the Company from paying dividends nor any
specific dividend policy. The Company is essentially dependent on its operating
subsidiaries to obtain the funds required for any dividend payment. The
indentures relating to Tembec Industries Senior Notes (the Indentures)
prohibit it from declaring or paying any dividends unless, at the time of
declaring and paying such dividend: (i) Tembec Industries 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 Tembec Industries
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 Tembec Industries after the date of
the Indentures from the issue and sale of equity and debt securities that have
been converted into equity of Tembec Industries. Tembec Industries is currently
precluded from paying dividends based on the foregoing test.

ITEM 6 - GENERAL DESCRIPTION OF
CAPITAL STRUCTURE6.1     GENERAL DESCRIPTION OF CAPITAL STRUCTUREThe articles of the Company provide for three classes of shares: the
common shares, the Class B shares and the Class C shares.

22

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| | Annual Information
      Form
| | -----------------------------

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

The Class B shares, of which there are
an unlimited number authorized, may be issued 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 common
shares and Class C shares in the event of liquidation, dissolution, winding-up
of the Company 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 commencing on June 26, 2011, at their issue price
and any declared and unpaid dividends thereon. They may be retracted at any time
in the event more than 50% of the outstanding voting shares of the Company or
more than half of the assets of the Company are held by third-party interests
residing outside of the province of Québec. They may also be redeemed by the
Company at any time at their issue price plus any declared and unpaid dividends
thereon. The right to receive dividends is set as a function of the amount of
dividends paid on the common shares of the Company.

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

The Class C shares, of which 250,000
are authorized, for issuance only to employees, are non-voting, redeemable and
retractable at any time for their issue price and, depending on the duration of
the employment of the employee, any increase in the book value per share since
the issuance date or any declared and unpaid dividend thereon. They are entitled
to dividends and may participate in the event of liquidation, dissolution,
winding-up of the Company or other distribution of its assets, subject to the
preference rights of Class B shareholders, but in priority to the common shares.
The Company has not issued any Class C shares.

6.2     RATINGSThe following credit rating agencies have assigned the
following non-investment grade ratings to the Senior Notes issued by Tembec
Industries:

|                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------
|Dominion Bond Rating
      Service Ltd.,                                                                                                           
|a division of the
      McGraw-Hill Companies Inc. (DBRS):                                                                                       
|                                                                                                                                                   
|                                                                                                                                                   
|Moodys Investors Service
      (Moodys):                                                                                                       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Standard & Poors
      Rating Services (S&P):                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|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 CCC is defined as very highly speculative and in
danger of default of interest and principal. The degree of adverse elements
present is more severe than long-term debt rated B. Long term-debt rated below B
often have features which, if not remedied, may lead to default. 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.



23

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| | Annual Information
      Form
| | -----------------------------

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 lowest quality of such securities rated. According to the
Moodys rating system, an obligation rated Ca is judged to be highly speculative
and likely in, or very near, default, with some prospect of recovery of
principal and interest. 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.

S&P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 S&Ps rating system, an obligation rated CCC is vulnerable to
non-payment and is dependent on 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 - MARKET FOR SECURITIES
OF THE COMPANYThe Companys common
shares are listed on the Toronto Stock Exchange under the symbol TBC. The
following table sets forth the market price range, in Canadian dollars, and
trading volumes of the Companys common shares on the Toronto Stock Exchange for
each month of the most recently completed financial year.

|                        
|------------------------
|Fiscal Year
      Ended 
|September 30,
      2006
|October
    2005        
|November
    2005       
|December
    2005       
|January
    2006        
|February
    2006       
|March 2006              
|April 2006              
|May 2006                
|June 2006               
|July 2006               
|August
2006             
|September
    2006      
|                        



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| | Annual Information
      Form
| | -----------------------------

On October 17, 2005, the Company
received acceptance from the Toronto Stock Exchange of a notice of intention to
extend its normal course issuer bid. The filing of the notice allowed the
Company to repurchase for cancellation up to 4,280,811 (approximately 5%) of its
85,616,232 common shares outstanding as at October 3, 2005. Repurchase of the
common shares would have been carried out through the Toronto Stock Exchange and
could have been made from time to time, at market prices, during the period
starting October 19, 2005, and ending no later than October 18, 2006. While the
Company purchased and cancelled 244,700 common shares at an average price of
$7.63 per common share in fiscal 2005, no repurchase was effected in the past
fiscal year. The Companys normal course issuer bid expired on October 18,
2006.

ITEM 8 - DIRECTORS AND
OFFICERSThe directors of Tembec are
elected annually to hold office until the next annual meeting or until a
successor is elected or appointed.

8.1    
INFORMATION CONCERNING
DIRECTORSThe
board of directors of the Company is composed of twelve members. The Chairman of
the Board and the majority of directors and members of Board committees are
independent. Mr. James M. Lopez (the President and Chief Executive Officer of
the Company) and Mr. Luc Rossignol (employee and President, Local 233 of the
Communications, Energy and Paperworkers Union of Canada) are not considered
independent.

Set forth below is information
pertaining to the directors of the Company based on data furnished by the
directors. The information with respect to ownership of common shares includes
those shares for which such persons have voting power or investment power.
Voting power and investment power are not shared with others unless specifically
stated. Each director, except for a director who is a unionized employee of the
Company, is required to own at least 3,500 common shares of the Company or to
acquire such amount of common shares within two years after he or she has been
elected as a director.

ANDRÉ BÉRARD, Québec (Canada). Mr.
Bérard was Chairman of the board of directors of the National Bank of Canada
from 1990 to 2004. During that time, he held various positions in a number of
key sectors within the National Bank of Canada, including that of Chairman of
the Board and Chief Executive Officer from July 1989 to March 2002. Mr. Bérard
serves on the board of directors of the following public companies: BCE Inc.,
Bell Aliant Regional Communications Income Fund, Bell Canada, BMTC Group Inc.,
Bombardier Inc., Saputo Inc., Telesat Canada and TransForce Income Fund. Mr.
Bérard has been a director of Tembec since January 2006 and serves as a member
of the Companys Corporate Governance and Human Resources Committee and Special
Committee for Strategic Purposes.

Mr. Bérard owns 10,000 common shares
and 43,479 deferred share units of the Company.

NORMAN M. BETTS, New Brunswick
(Canada). Mr. Betts is Associate Professor at the Faculty of Business
Administration, University of New Brunswick. He serves as Chairman of the board
of directors and Chairman of the audit committee of Minacs Worldwide Inc. He
also serves as director and Chairman of the audit committee for Tanzanian
Royalty Exploration Corp., formerly known as Tan Range Exploration Corporation,
New Brunswick Power Corporation and Rtica Corporation. From February 2004 to
February 2006, he served as director and Chairman of the audit committee of Slam
Exploration Ltd. He has been lead independent director and member of the
governance committee of Starfield Resources Inc. since March 2006. He has been a
director of the Company since January 2005 and serves as a member of its Audit
Committee and Special Committee for Strategic Purposes.

Mr. Betts owns 2,512 common shares and
5,104 deferred share units of the Company.



25

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| | Annual Information
      Form
| | -----------------------------

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 to 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 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
Company since April 1999 and Chairs its Corporate Governance and Human Resources
Committee.

Mr. Brumm owns 40,246 common shares and
5,104 deferred share units of the Company.

FRANÇOIS 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 Company
since January 2005 and serves as a member of its Environment, Health and Safety
Committee.

Mr. Bujon de lEstang owns 1,486 common
shares and 20,080 deferred share units of the Company.

GILLES CHEVALIER, Québec (Canada). Mr. Chevalier was, until July 2005, a Professor of
auditing at École des Hautes Études Commerciales (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
Ordre des comptables agréés du Québec in
1987. Mr. Chevalier was appointed to the board of directors of the Company in
July 2005 and Chairs its Audit Committee.

Mr. Chevalier owns 5,539 common shares
and 32,318 deferred share units of the Company.

GUY G. DUFRESNE, Québec (Canada). Mr. Dufresne was President and CEO of La Compagnie
Minière Québec Cartier, a producer of iron ore products from 1992 to October
2006. Mr. Dufresne served as Chairman of the board of directors of Cambior Inc.
and served on its audit, corporate governance and human resources committees
from April 1995 to November 2006. He is a director of the Royal & Sun
Alliance Insurance Company of Canada and of IAMGold Corporation. He is chairman
of the Chamber of Maritime Commerce and was chairman of Conseil du
patronat du Québec from June 2002 to October 2006. Mr.
Dufresne(1) has been a director of the Company since January
2005 and serves as a member of its Audit Committee and Special Committee for
Strategic Purposes.

Mr. Dufresne owns 35,098 common shares
and 16,023 deferred share units of the Company.

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. Mr. Janson was appointed to the board of directors of the Company
in July 2004 and serves as a member of its Corporate Governance and Human
Resources Committee and Chairs its Environment, Health & Safety Committee
and Special Committee for Strategic Purposes.

Mr. Janson owns 13,056 common shares
and 5,104 deferred share units of the Company.



(1) On
February 1, 2007 and prior to the annual and special meeting of shareholders,
Mr. Lackenbauer will cease to serve as Chairman of the board of directors of the
Company and Mr. Dufresne will be appointed Chairman of the board of directors of
the Company.

26



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| | Annual Information
      Form
| | -----------------------------

GORDON S. LACKENBAUER, Alberta (Canada). Mr. Lackenbauer was Deputy Chairman at BMO
Nesbitt Burns from 1990 to 2004 and is currently a director of TransAlta
Corporation, NAL Energy Inc. and Bell Globemedia Inc. Mr. Lackenbauer is also a
member of the Board of Governors of Mount Royal College. Mr. Lackenbauer has
been a director of the Company since 1973 and Chairman(1) of
the board of directors of the Company since January 20, 2005. Mr. Lackenbauer
serves as a member of the Companys Corporate Governance and Human Resources
committee and Special Committee for Strategic Purposes.

Mr. Lackenbauer owns 33,756 common
shares and 16,333 deferred share units of the Company.

JAMES M. LOPEZ, Ontario (Canada). Mr. Lopez joined the Company in 1989 and has
been a director and President and Chief Executive Officer of the Company since
January 2006. Prior to his appointment in January 2006, he served as Executive
Vice President and President of Tembecs Forest Products Group from August 2003
to January 2006. From 1999 to August 2003, Mr. Lopez was Executive Vice
President, Forest Resource Management Group of the Company. Mr. Lopez is past
Chairman of the board of directors of the Ontario Forest Industry Association
(OFIA), of the Forest Engineering Research Institute of Canada (FERIC), and of
WoodWorks Canada Corp. He is Vice Chairman of the board of directors of Forintek
Canada Corp., a research organization involved in the technological advancement
of the Canadian wood products industry.

Mr. Lopez owns 84,589 common shares of the Company.

MARY THERESA McLEOD, Ontario (Canada). Ms. McLeod was a part-time commissioner of the
Ontario Securities Commission and a member of its Board of Directors from
November 1999 to May 2006. At various times she was a member of the Ontario
Securities Commissions Audit, Adjudicative, Compensation and Nominating and
Corporate Governance committees. 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 Company since January 2003 and serves
as a member of its Audit Committee and Special Committee for Strategic
Purposes.

Ms. McLeod owns 7,768 common shares and
10,196 deferred share units of the Company.

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 Company in January 2000. He serves as a member of the Companys
Environment, Health & Safety Committee.

Mr. Rossignol owns 1,600 common shares
and 5,104 deferred share units of the Company.

EMANUELE (LINO) SAPUTO, Québec (Canada). Mr. Saputo founded the dairy processing
business Saputo Inc. with his parents in 1954 and became that companys Chairman
of the Board and President in 1969. In 1997, following the initial public
offering of Saputo Inc., he was named Chairman of the Board and Chief Executive
Officer, a position he held until March 2004. He has remained as Chairman of the
Board of Saputo Inc. since that time. Mr. Saputo has been a director of the
Company since January 2006.

Mr. Saputo directly and indirectly owns or has control over
16,569,960(2) common shares of the
Company.



| | 
| | 

(1) On February 1, 2007
and prior to the annual and special meeting of shareholders, Mr. Lackenbauer
will cease to serve as Chairman of the board of directors of the Company and Mr.
Dufresne will be appointed Chairman of the board of directors of the
Company.(2) Of this
amount, Mr. Saputo owns 377,910 common shares directly and 15,882,500 common
shares indirectly through his affiliates (one of which, Placements Jolina Inc.,
owns 8,565,100 common shares representing approximately 10 % of the outstanding
common shares of the Company). Mr. Saputo also exercises control over 309,550
common shares through powers of attorney.

27

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| | Annual Information
      Form
| | -----------------------------

8.1.1     IndependenceThe Company considers that all directors, except Messrs.
Lopez and Rossignol, qualify as independent directors 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 Mr. James M. Lopez, President and
Chief Executive Officer of the Company and Luc Rossignol, an employee of Tembec
Industries and the President of Local 233 of the Communications, Energy and
Paperworkers Union (Temiscaming Complex), are not considered
independent.

8.2        AUDIT COMMITTEE

8.2.1     General

The Company has an Audit Committee
which currently consists of Messrs. Gilles Chevalier (Chairman), Guy G.
Dufresne, Norman M. Betts, 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.
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.

8.2.2     Charter of the Audit
CommitteeThe mandate of the Audit
Committee is to assist the board of directors of the Company in fulfilling its
oversight responsibilities and as such reviews 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
Company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 mandate of the Audit Committee is attached
hereto as Schedule A and is also posted on Tembecs website at
www.tembec.com

8.2.3     Relevant Education and Experience of the
Audit Committee Members

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 Company to
prepare its annual and interim financial statements.



28

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Annual Information
      Form

|Name of
      Audit       |  |                                                                                                        
|------------------------- |  | -------------------------------------------------------------------------------------------------------
|Committee
      Member    |  | Relevant
      Education and Experience                                                                
|                         
|Norman M.
      Betts     |  | Mr. Betts is a Fellow
      Chartered Accountant and holds a Ph.D. in Management with a                
|                          |  | concentration in
      accounting and finance from Queens University. He is an
      Associate        
|                          |  | Professor at the Faculty
      of Business Administration, University of New Brunswick. He
      was   
|                          |  | made a Fellow of the New
      Brunswick Institute of Chartered Accountants in 2001. Mr.
      Betts   
|                          |  | also serves as director
      and chairman of the audit committee of Minacs Worldwide Inc.,
      Rtica
|                          |  | Corporation and Tanzanian
      Royalty Exploration Corp., formerly known as Tan Range                 
|                          |  | Exploration Corporation.
      He is also a member of the audit committee of New Brunswick             
|                          |  | Power Corporation and,
      prior to February 2006, he served as director and chairman of
      the   
|                          |  | audit committee of Slam
      Exploration Ltd.                                                         
|                         
|Gilles
      Chevalier    |  | Mr. Chevalier is a Fellow
      Chartered Accountant and holds a PhD degree in accounting
      from   
|                          |  | the University of
      Illinois. He was a Professor of auditing at the École des Hautes
      Études  
|                          |  | Commerciales (HEC),
      University of Montreal and at Laval University. He was made a                
|                          |  | Fellow of theOrdre des comptables agréés du Québecin 1986 and was President
      of theOrdre des      
|                          |  | comptables
      agréés du Québecin 1987. He was a senior partner with Belair/Deloitte
      & Touche  
|                          |  | LLP until 2002. Mr.
      Chevalier presently chairs the audit committee of two
      foundations.     
|                         
|Guy G.
      Dufresne     |  | Mr. Dufresne holds a MBA
      from Harvard University and was President and Chief Executive           
|                          |  | Officer of Québec Cartier
      Mining Company. Mr. Dufresne also served on several boards
      and   
|                          |  | audit committees,
      including as Chairman of the board of directors of Cambior Inc. and
      as   
|                          |  | member of its audit
      committee and on the board of directors of the Royal & Sun
      Alliance    
|                          |  | Insurance Company of
      Canada and of IAMGold Corporation.                                          
|                         
|Mary Theresa
      McLeod |  | Ms. McLeod is a Chartered
      Financial Analyst and holds a MBA from the University of               
|                          |  | Western Ontario. She held
      senior positions with major investment banking firms, such as          
|                          |  | Scotia McLeod Inc. and
      Merrill Lynch Canada Inc. Ms. McLeod served as director and               
|                          |  | member of audit committees
      of several public companies. Until recently, Ms. Mcleod
      served  
|                          |  | on the audit committee of
      the Ontario Securities Commission. Ms. McLeod also presently           
|                          |  | serves on the audit
      committee of Wescast Industries Inc.                                         





29

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| | Annual Information
      Form
| | -----------------------------

8.2.4 External Auditor Service
FeesThe following table shows fees
paid to KPMG LLP in Canadian dollars in the past two fiscal years for various
services provided to the Company and its subsidiaries:

Year
      Ended
    
    Year EndedSeptember 24, 2005
    
    September 30, 2006KPMGAudit Fees
    
    1,100,000
    
    2,015,000Audit-Related
      Fees
    
    335,000
    
    407,000Tax Fees
    
    223,000
    
    264,000Other Fees
    
    37,000
    
    17,000Total
    
    1,695,000
    
    2,703,000


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.

8.2.5     Policies and Procedures for the
Engagement of Audit and Non-Audit Services

The Company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.



30

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| | Annual Information
      Form
| | -----------------------------

|8.3                     |  | INFORMATION CONCERNING
      NON-DIRECTOR OFFICERS                         |  |                    
|----------------------- |  | -------------------------------------------------------------------------- |  | -------------------
|                       
|                        |  |                                                                            |  |                    
|                        |  |                                                                            |  |                    
|Non-director Officers   |  | Office with the
      Company                                              |  | and
    Country    
|                       
|Dan Alexander(1)        |  | Executive Vice President,
      President, Paper Group                     |  | Michigan,
    USA  
|Eric Bergeron           |  | Vice President, Human
      Resources                                      |  | Québec,
    Canada 
|Pierre Brien            |  | Vice President,
      Communications and Public Affairs                    |  | Québec,
    Canada 
|Paolo Dottori(2)        |  | Vice President,
      Environment, Energy and Technology                   |  | Québec,
    Canada 
|Michel J. Dumas         |  | Executive Vice President,
      Finance and Chief Financial Officer        |  | Ontario,
    Canada
|Antonio Fratianni       |  | Vice President, General
      Counsel and Secretary                        |  | Québec,
    Canada 
|Thomas McAndrew Gale    |  | Executive Vice President,
      President, Chemical Group                  |  | Québec,
    Canada 
|Terrence P. Kavanagh(3) |  | Executive Vice President
      and Chief Operating Officer                 |  | Ontario,
    Canada
|Stephen J. Norris       |  | Treasurer                                                                  |  | Québec,
    Canada 
|Yves Ouellet            |  | Vice President,
      Administration                                       |  | Québec,
    Canada 
|Mahendra Patel          |  | Vice President,
      Engineering, Purchasing and Services                 |  | Ontario,
    Canada
|Yvon Pelletier(4)       |  | Executive Vice President,
      President, Pulp Group                      |  | Ontario,
    Canada
|Jacques Rochon          |  | Vice President,
      Information Technology                               |  | Québec,
    Canada 
|Dennis Rounsville       |  | Executive Vice President,
      President, Forest Products Group           |  | B.C.,
    Canada   
|Jean-Louis Tétrault     |  | Vice President, Insurance
      and Risk Management                        |  | 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 Company have been engaged in their present
principal occupations or in other executive capacities of the Company or with
related or affiliated companies indicated opposite their name, except for Dan
Alexander, who, from March 1994 to October 2002, was President and CEO of Silver
Creek Paper, from October 2002 to October 2004, was President and CEO of Missota
Paper Company LLC and from October 2004 to March 2006, was President of
Alexander & Associates; 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



| | 
| | 

|(1)Effective October 1, 2006, Mr. Dan Alexander was appointed
      Executive Vice President, President Paper Group.                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)Effective October 1, 2006, Mr. Paolo Dottori was appointed
      Vice President, Environment, Energy and Technology in replacement of
      Jacques Rocray
|who
      retired as Vice-President Environment and Technology effective on
      September 30, 2006.                                                        
|(3)Effective December 31, 2006, Mr. Terry P. Kavanagh will be
      retiring from Tembec.                                                                    
|(4)Effective October 1, 2006, Mr. Yvon Pelletier was appointed
      Executive Vice President, President Pulp
Group.                                         



31

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| | Annual Information
      Form
| | -----------------------------

softwood lumber dispute. On November
15, 2006, the directors and senior officers of the Company beneficially owned,
as a group, or exercised control or direction over, directly or indirectly,
approximately 17,534,826 common shares representing approximately 20.5% of the
common shares outstanding.

8.4     CEASE TRADE ORDERS,
BANKRUPTCIES, PENALTIES AND
SANCTIONS

To the knowledge of the Company and based
on the information furnished by the directors and executive officers, except as
disclosed below, no director or executive officer:

|(a) is, as at the date of
      the AIF or has been, within the 10 years before the date of the AIF, a
      director or executive
|----------------------------------------------------------------------------------------------------------------------------------
|officer of any company,
      that while that person was acting in that capacity,                                                 
|(i) was the subject of a
      cease trade or similar order or an order that denied the relevant company
      access to          
|any exemption under
      securities legislation, for a period of more than 30 consecutive days;
      or                         
|(ii) was subject to an
      event that resulted, after the director or executive officer ceased to be
      a director or        
|executive officer, in the
      company being the subject of a cease trade or similar order or an order
      that                
|denied the relevant
      company access to any exemption under securities legislation, for a period
      of more                
|than 30 consecutive days;
      or                                                                                                
|(iii) within a year of
      that person ceasing to act in that capacity, became bankrupt, made a
      proposal under            
|any legislation relating
      to bankruptcy or insolvency or was subject to or instituted any
      proceedings,                 
|arrangement or compromise
      with creditors or had a receiver, receiver manager or trustee appointed
      to                  
|hold its
      assets;                                                                                                            
|(b) has, within the 10 years before the date of the AIF,
      become bankrupt, made a proposal under any
    legislation         
|relating to bankruptcy or insolvency, or become subject
      to or instituted any proceedings, arrangement or                    
|compromise with creditors, or had a receiver, receiver
      manager or trustee appointed to hold his assets;                     
|(c) has, since January 1, 2001, been subject
      to:                                                                            
|(i) any penalties or
      sanctions imposed by a court relating to securities legislation or by a
      securities               
|regulatory authority or
      has entered into a settlement agreement with a securities regulatory
      authority; or            
|(ii) any other penalties
      or sanctions imposed by a court or regulatory body that would likely
      be                      
|considered important to a
      reasonable investor in making an investment
    decision.                                         

Mr. Emanuele (Lino) Saputo is a
director of Arbec Forest Products Inc. (formerly Uniforêt Inc.) which filed for
protection under the Companies Creditors Arrangement Act on April 17, 2001. In
May 2003, Uniforêt Inc. entered into a plan of arrangement with its creditors.
In February 2004, it completed the implementation of this plan.

Mr. Michel Dumas was a director of
Gestion Papiers Gaspésia Inc. and its subsidiary, Papiers Gaspésia Inc. from
March 2004 until October 2004. On January 30, 2004, Papiers Gaspésia Inc. and
Papiers Gaspésia Limited Partnership filed for protection under the Companies
Creditors Arrangement Act. On July 4, 2005, the plan of arrangement submitted by
Papiers Gaspésia Inc. and Papiers Gaspésia Limited Partnership to their
creditors was homologated by the Court and is being implemented since
then.

Mr. John Valley was a director of
Betacom Corporation Inc. from October 2002 until November 2003. On November 14,
2003, the Court appointed an Interim Receiver for Betacom Corporation Inc. to
hold its assets. In December 2003, Betacom Corporation Inc. made a formal
assignment into bankruptcy to wind-up its affairs.

ITEM 9 -     LEGAL PROCEEDINGS 9.1     COUNTERVAILING AND ANTIDUMPING
DUTIESOn April 2, 2001,
petitions for the imposition of punitive antidumping and countervailing duties
on softwood lumber from Canada were filed with the U.S. Department of Commerce
(the USDOC) and the U.S. International Trade Commission (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.
Tembec deposited estimates of duties payable until October 12, 2006, based on
these orders. The results of an administrative review process for the first year
of shipments under the orders were published on December



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| | Annual Information
      Form
| | -----------------------------

20, 2004. The antidumping results were
subsequently amended on January 24, 2005 and the countervailing duty results
were amended 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 in part 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 continued 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. On July
21, 2006, the CIT ruled in Canadas favor, upholding the decision of the ECC,
confirming that the orders had to be revoked, the collection of deposits had to
cease, and that all deposits collected after November 4, 2004 had to be returned
with interest. The CIT reserved judgment, however, as to the return of deposits
collected between May 2002 and November 2004. On this question the CIT invited
further briefing from the parties, but eventually ruled, on October 13, 2006,
that NAFTA panels have the same effective authority as U.S. courts and that all
deposits, reaching back to the beginning of their collection, must be returned
with interest.

The countervailing duty order was based
on alleged subsidies in Canada. On March 17, 2006, a NAFTA panel ruled
definitively that there were no subsidies, but on the last possible day, April
27, the United States challenged the panel decision and the Government of Canada
supported a suspension of the challenge, which prevented the panel decision
from taking effect. The countervailing duty order, based on the March 17
decision, should have been revoked on April 28.

Meanwhile, on July 1, 2006, Canada and
the United States of America (USA) secured an agreement, based on Basic Terms
initialed on April 27, to settle the softwood lumber dispute (the
Agreement). Pursuant to this Agreement, Canadian softwood lumber
exporters will, depending upon the province in which the lumber originated,
either: (i) pay an export tax that varies inversely with the market price of
lumber (Export Tax) or (ii) pay a reduced Export Tax and be subject to
a volume restraint which also shall be a function of the market price of lumber.
Also, pursuant to this Agreement, the USA agreed to return approximately 82% of
the duties paid by the Canadian softwood lumber companies to the US Customs
since May 2002. The remainder is being turned over to the Coalition for Fair
Lumber Imports Executive Committee in the United States, the organization that
brought the litigation, and organizations chosen by the U.S. Government, in
consultation with Canada, for public works in the United States. Most lumber
companies in the industry backed the Agreement, including Tembec. On September
12, 2006, Canada and the USA signed the Agreement which then entered into force,
with amendments, on October 12, 2006. The
United States revoked the orders on October 12, terminating the collection of
duty deposits.

On October 30, 2006, Tembec received
payment of US $242 million pertaining to softwood lumber duty deposits made by
Tembec to US Customs since May 2002. The funds were advanced by Export
Development Corporation (EDC) of Canada as part of a financing
transaction made possible by the Agreement. The purchase by EDC of rights of the
duties to be refunded eliminated the waiting period anticipated for US Customs
to process the refunds.

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



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      Form
| | -----------------------------

ITEM 10
-     INTEREST OF MANAGEMENT
AND OTHERS IN MATERIAL TRANSACTIONS

On February 27, 2006, Jolina Capital
Inc., an entity who together with Placements Jolina Inc. exercises control over
more than 10% of the outstanding common shares of the Company and both of whom
are controlled by Mr. Emanuele (Lino) Saputo, purchased from Tembec its oriented
strandboard (OSB) business located in Saint-Georges-de-Champlain, Québec for a
total consideration of $98 million.

ITEM 11
-TRANSFER AGENT AND
REGISTRARTembecs transfer
agent and registrar is Computershare Trust Company of Canada. The register of
transfers of the common shares of Tembec maintained by Computershare Trust
Company of Canada is located at its offices in Montreal, Québec.

ITEM 12
-MATERIAL CONTRACTSTembec Industries, a wholly-owned subsidiary of the
Company, 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 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 $190 million revolving operating line of credit,
subsequently increased to $200 million, with an initial 364-day operating period
ending June 2006, which is extendable annually and provides for floating rates
of interest. In June 2006, the lenders declined the extension of the operating
line of credit. It became a non-revolving line of $136 million expiring in June
2008.

Tembec Industries 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 the
Company, 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.

Tembec completed the sale of its
oriented strandboard (OSB) business located in Saint-Georges-de-Champlain,
Québec to Jolina Capital Inc., on February 27, 2006, for a total consideration
of $98 million, with $88 million payable at closing, and the balance being
payable in the form of a $10 million interest-bearing note, repayable in equal
annual installments over a five-year period. As a result of this transaction,
the Company recorded a gain of $63.5 million in the quarter ending March 25,
2006 with an after tax effect of $47.2 million or $0.55 per share.

ITEM 13
-INTERESTS OF EXPERTSKPMG LLP are the external auditors of the Company who
prepared the Auditors' Report to the shareholders dated November 15, 2006,
except as to note 22(b) which is as of December 5, 2006, with respect to the
consolidated annual financial statements of the Company for the year ended
September 30, 2006 consisting of consolidated balance sheets and consolidated
statement of operations, retained earnings and cash flows. KPMG LLP is
independent with respect to Tembec within the meaning of the Code of Ethics of
the Ordre des comptables agréés du Québec.



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Annual Information
      Form

ITEM 14
-ADDITIONAL
INFORMATIONAdditional information
relating to Tembec, including the documents incorporated by reference in this
AIF, may be found on SEDAR at www.sedar.com.

Additional information, including
directors and officers remuneration and indebtedness, principal holders of the
Companys securities and securities authorized for issuance under equity
compensation plans, where applicable, is contained in the Companys 2007 Proxy
Circular for its upcoming annual and special meeting of shareholders. Additional
financial information is provided in the Companys 2006 Financial Statements and
2006 MD&A.









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| | Annual Information
      Form
| | -----------------------------

DEFINITIONS

Biomass Bark and residual wood waste used as fuel to operate cogeneration
facilities or boilers.

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 chemical pulp produced by an alkaline
cooking process using sodium sulphate.

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.



36



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| | Annual Information
      Form
| | -----------------------------

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

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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| | Annual Information
      Form
| | -----------------------------

SCHEDULE ATEMBEC INC./TEMBEC INDUSTRIES
INC.AUDIT COMMITTEE CHARTER

|I.   | OVERALL PURPOSE /
      OBJECTIVES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     | The Audit Committee (the
      Committee) will assist the Boards of Directors (the Board) of Tembec
      Inc. and Tembec Industries Inc. (collectively, the Company) in
      fulfilling its oversight responsibilities. The 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 Company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, management, and the internal and external
      auditors. The Company shall ensure that appropriate funding is provided to
      the Committee to compensate the auditors and any other advisors engaged by
      the Committee, as well as for ordinary administrative expenses.
|    
|     | Subject to any power (i)
      conferred to the Committee under the Companys by-laws or any applicable
      laws, rules or regulations (including those of any stock exchange), or
      (ii) otherwise assigned to the Committee by resolution of the Board of
      Directors, the Committee shall have no decision-making authority other
      than as specifically contemplated in this Charter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|II.  | COMPOSITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|     | The 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 (the Chairman).                                                                                                                                                                                                                                                                       
|    
|III. | MEETINGS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     | The Committee shall meet at least
      four times annually. The Committee shall meet at least quarterly with the
      external auditors and at least annually with the internal auditors to
      discuss any matters that the Committee believes should be discussed,
      including privately held conversations. 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
      Company and its subsidiaries. The Committee shall also have the authority
      to hire independent counsel and other advisors at the Companys expense,
      if necessary to carry out its duties and the authority to set and pay the
      compensation for any                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    



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| | Annual Information
      Form
| | -----------------------------

|    | independent counsel or advisor
      employed by the Committee. The Committee shall also have the authority to
      communicate directly with internal and external auditors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|IV. | RESPONSIBILITIES AND
      DUTIES                                                                                                                                             
|   
|    | The Audit Committee
      shall:                                                                                                                                              
|   
|    | Documents/Reports
      Review                                                                                                                                                
|   
|    | (1)                                                                                                                                                                           
|   
|    | (2)                                                                                                                                                                           
|   
|    |                                                                                                                                                                               
|   
|    |                                                                                                                                                                               
|   
|    |                                                                                                                                                                               
|   
|    |                                                                                                                                                                               
|   
|    |                                                                                                                                                                               
|   
|    |                                                                                                                                                                               
|   
|    |                                                                                                                                                                               
|   
|    | (3)                                                                                                                                                                           
|   
|    | (4)                                                                                                                                                                           
|   
|    | (5)                                                                                                                                                                           
|   

External Audit



| | (6) | Recommend to the Board the firm to be
      proposed to the Companys shareholders for appointment or reappointment as
      external auditors and recommend the fees to be paid to the external
      auditors. The external auditors are accountable to the Board and the
      Committee, as representatives of the Companys shareholders, and the
      external auditors shall confirm same in their annual engagement letter.
      The external auditors must report directly to the
  Committee.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | -----------------------------

|(7)  | Pre-approve all services to be
      provided by the external auditors to the Company or any of its
      subsidiaries or adopt specific policies and procedures for the engagement
      of such services, provided that such pre- approval policies and procedures
      are detailed as to the particular service, the Committee is informed of
      each service and the procedures do not include delegation of the Committee
      responsibilities to management. The Committee may delegate to one or more
      members of the Committee the authority to pre-approve services provided by
      external auditors, provided that such member or members must present any
      such services so approved to the full Committee at its first scheduled
      meeting following such pre-approval.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(12) | Review the attestation report by
      the external auditors of managements assessment of the effectiveness of
      internal controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(13) | Review any analysis prepared by
      management and/or the external auditor setting forth significant financial
      reporting issues and judgements made in connection with the preparation of
      the financial statements, including any analysis of the effects of
      alternative generally accepted accounting principles methods on the
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(14) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(15) | Review any disagreement between
      management and the external auditors regarding financial reporting and, to
      the extent possible, resolve any such disagreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(16) | At least annually consult with
      the external auditors out of the presence of management about the adequacy
      of internal controls (including the steps to be adopted in light of any
      material control deficiencies), the fullness and accuracy of the financial
      statements and any significant difficulties encountered during the course
      of the audit, including any restrictions on the scope of work or access to
      required information.                                                                                                                                                                                                                                                                                                                                
|    
|(17) | Consider and, if appropriate,
      require the rotation of the lead audit partner, concurring partner and
      other audit partners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(18) | Review and approve the Companys
      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

|(19) | 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.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    

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| | Annual Information
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|(20) | Review and approve the
      appointment or removal of the director of internal audit who shall report
      to a senior officer other than the Corporate Controller.                                                                                                                                                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(21) | Approve the mandate of the
      internal audit function, and review annually the internal audit plan and
      the corresponding budgets.                                                                                                                                                                                                                                                                                                                                                          
|    
|(22) | 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. In the event of a material
      deficiency in internal controls, the Committee shall work with the
      external auditors and internal auditors to resolve such deficiency.
|    
|(23) | Review significant internal audit
      findings, recommendations and managements response.                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(24) | Ensure the coordination of the
      work between internal and external auditors.                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(25) | Ensure the internal auditor has
      ongoing access to the Chairman as well as all officers of the Company,
      particularly the chairman of the Board and the President.                                                                                                                                                                                                                                                                                                                        
|    
|(26) | 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.                                                                                                                                                               
|    

Risk Management

|(27) | Review periodically and inquire
      of management, the internal auditors and the external auditors concerning
      the financial and business risks or exposures of the Company 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

|(28) | In consultation with the external
      auditors and the internal auditors, review the integrity and adequacy of
      the financial reporting processes, both internal and external, including
      procedures for review of the Companys public disclosure of financial
      information extracted or derived from its financial statements.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(29) | Consider and approve, if
      appropriate, changes to the accounting principles and practices as
      recommended by the external auditors, management or the internal
      auditors.                                                                                                                                                         
|    

Disclosure Policy
Oversight

|(30) | Review, report and, where
      appropriate, provide recommendations to the Board on the Companys
      disclosure policy and other related policies and procedures, and recommend
      changes as deemed appropriate. The Committee, in performing this task,
      will review any reports on or proposed amendments to the disclosure policy
      submitted to it by the Disclosure Committee.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(31) | Assist the Disclosure Committee
      and the Board in interpreting and applying the Companys disclosure policy
      and other related policies and procedures.                                                                                                                                                                                                                                   
|    
|(32) | Oversee directors, officers and
      employees compliance with the Companys disclosure policy and set out, or
      cause to be set out, measures for receiving feedback from security holders
      on such policy and its effectiveness.                                                                                                                                                       
|    



41

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| | Annual Information
      Form
| | -----------------------------

Legal compliance and other
responsibilities

|(33) | 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.                                                                            
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(34) | Review incidents of fraud,
      illegal acts, conflicts of interest and related-party transactions.                                                                                                                                                                                                                                          
|    
|(35) | Establish procedures for the
      receipt, retention and treatment of complaints received by the Company
      regarding accounting, internal accounting controls, or auditing matters,
      and the confidential, anonymous submission by employees of the Company of
      concerns regarding questionable accounting or auditing matters.
|    
|(36) | Review claims or potential claims
      and any other legal matters as reported to the Committee that could have
      an impact on the financial statements.                                                                                                                                                                                 
|    
|(37) | Review the expenses of, including
      the use of Company assets by officers.                                                                                                                                                                                                                                                                
|    
|(38) | Review material matters relating
      to audits of subsidiaries.                                                                                                                                                                                                                                                                             
|    
|(39) | Perform any other activities
      consistent with this Charter, the Companys by-laws and governing laws, as
      the Committee or the Board deems necessary or appropriate.                                                                                                                                                                
|    

Remuneration of Committee
Members

|(40) | No member of the Committee may
      earn fees from the Company or any of its subsidiaries other than fees for
      acting as a member of the Board or any Board committee (which fees may
      include cash or other in- kind consideration ordinarily available to
      directors, as well as all of the regular benefits that other directors
      receive). For greater certainty, no member of the Committee shall accept,
      directly or indirectly, any consulting, advisory or other compensatory fee
      from the Company.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    

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