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Tembec Inc.

Annual Information Form



December 15, 2005

For the fiscal year ended September 24, 2005



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TABLE OF CONTENTS

|DOCUMENTS INCORPORATED BY
    REFERENCE               | 3                                           
|----------------------------------------------------- | --------------------------------------------
|GLOSSARY                                              |                                             
|SPECIAL NOTE REGARDING
    FORWARD-LOOKING STATEMENTS | 3                                           
|ITEM 1 -                                              | DATE OF ANNUAL INFORMATION FORM             
|ITEM 2 -                                              | CORPORATE STRUCTURE                         
|ITEM 3 -                                              | GENERAL DEVELOPMENT OF THE
    BUSINESS     
|                                                      | 3.1                                         
|                                                      | 3.2                                         
|                                                      | 3.3                                         
|ITEM 4 -                                              | NARRATIVE DESCRIPTION OF THE
    BUSINESS   
|                                                      | 4.1                                         
|                                                      |                                             
|                                                      |                                             
|                                                      |                                             
|                                                      | 4.2                                         
|                                                      | 4.3                                         
|                                                      | 4.4                                         
|                                                      | 4.5                                         
|ITEM 5 -                                              | DIVIDEND POLICY                             
|ITEM 6 -                                              | GENERAL DESCRIPTION OF CAPITAL
    STRUCTURE
|                                                      | 6.1                                         
|                                                      | 6.2                                         
|ITEM 7 -                                              | MARKET FOR SECURITIES OF THE
    COMPANY    
|ITEM 8 -                                              | DIRECTORS AND OFFICERS                      
|                                                      | 8.1                                         
|                                                      |                                             
|                                                      | 8.2                                         
|                                                      |                                             
|                                                      |                                             
|                                                      |                                             
|                                                      |                                             
|                                                      |                                             
|                                                      | 8.3                                         
|ITEM 9 -                                              | LEGAL PROCEEDINGS                           
|                                                      | 9.1                                         
|                                                      | 9.2                                         
|ITEM 10 -                                             | TRANSFER AGENT                              
|ITEM 11 -                                             | MATERIAL CONTRACTS                          
|ITEM 12 -                                             | INTERESTS OF EXPERTS                        
|ITEM 13 -                                             | ADDITIONAL 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 24, 2005
(the "2005 Financial Statements"), the report of the auditors thereon dated
November 8, 2005, the management's discussion and analysis thereof (the "2005
MD&A"), and certain specifically identified pages of the Management Proxy
Circular dated December 5, 2005 prepared in connection with the January 26, 2006
annual meeting of the shareholders of Tembec Inc. (the "2006 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
"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 glossary included on page 30 of this Annual Information Form.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

- 

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

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TEMBEC INC. 
ANNUAL INFORMATION FORM

ITEM 1 - DATE OF ANNUAL INFORMATION FORM

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

ITEM 2 - CORPORATE STRUCTURE

Tembec 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 is found
at www.tembec.com.

The chart below shows Tembec's principal facilities by industry segment 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 Lumber

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

Engineered Wood

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

Specialty Cellulose

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

Tembec holds a 25% interest in AV Nackawic Inc. which owns a hardwood kraft
pulp mill located in Nackawic, New Brunswick scheduled to be restarted in early
calendar 2006 and intended to be converted to a specialty cellulose mill.

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

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

Specialty Cellulose

Since November 9th, 2005, Tembec holds a 25%
interest in AV Nackawic Inc. which owns a hardwood kraft pulp mill located in
Nackawic, New Brunswick scheduled to be restarted in early calendar 2006 and
intended to be converted to a specialty cellulose mill

ITEM 3 - GENERAL DEVELOPMENT OF THE BUSINESS

3.1  BUSINESS OVERVIEW

Tembec 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 annual information form.

Tembec produces approximately 1.7 billion board feet of
lumber, 2.2 million tonnes of pulp and 1.1 million tonnes of newsprint and
paper. For the fiscal year ended September 24, 2005, Tembec had sales of $3.6
billion, EBITDA of $25.1 million, and net losses of $304.3 million. Tembec's
total assets at that date were $3.4 billion and it employed approximately 10,000
people. The segmented results and the breakdown of sales of the Company's
products by geographic areas is shown on pages 64 to 66 of the Company's 2005
Financial Statements.

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

3.2  THREE YEAR HISTORY

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

Pulp Group

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

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

Forest Products Group

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

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

Consolidation

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

Financing

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

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

3.3  TRENDS

Reference is made to the Outlook section contained on pp. 57 and 58 of the
2005 MD&A.

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ITEM 4 - NARRATIVE DESCRIPTION OF THE BUSINESS

4.1  PRINCIPAL OPERATIONS

Tembec's business is centered around the production and sale
of forest, pulp and paper products. The manufacturing assets of the Company 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 10,000 employees of which
approximately 6,600 are covered by collective bargaining agreements. At the end
of September 2005, there were 7 agreements covering 1,388 employees that had
expired. During fiscal 2006, a total of 17 agreements covering 2,053 employees
will expire. .

The birthplace of the Company is the town of Temiscaming,
Québec. It is one of the more significant production sites owned by Tembec,
which represents approximately 16% 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 the Company's assets in these segments are located in this market.
The pulp business is global in nature, with Europe being the largest consumer.
Three of the eleven pulp mills, which represent 50% of its kraft pulp production
and 40% of its specialty pulp production, are located in Europe. The other eight
pulp mills are located in Canada. The following sections provide specifics in
relation to each of the 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") and OSB Panels, (ii) Specialty Wood
products and (iii) Engineered Wood products. For the fiscal year ended September
24, 2005, the Forest Products Group generated external sales of $1.2 billion and
EBITDA of $55.0 million. The Forest Products Group's annual sales accounted for
approximately 32% of Tembec's total consolidated sales in fiscal 2005.

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

SPRUCE, PINE, FIR LUMBER AND PANELS

|Location and Product        | MFBM   
|--------------------------- | -------
|                            |        
|Stud Lumber                 |        
|Taschereau/La Sarre, QC(1)  | 200,000
|Senneterre, QC              | 150,000
|Cochrane, ON                | 170,000
|Kapuskasing, ON             | 105,000
|                            |        
|Random Lumber               |        
|Elko, BC
    (2)            | 270,000
|Canal
    Flats, BC (2)     | 180,000
|Hearst,
    ON              | 160,000
|Timmins,
    ON             | 100,000
|Chapleau,
    ON            | 135,000
|Bearn,
    QC               | 110,000
|Nouvelle/St-Alphonse, QC(3) | 75,000 

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|                                                  |                    
|------------------------------------------------- | -------------------
|Finger Joint Lumber                               |                    
|Cranbrook, BC                                     | 25,000             
|                                                  | 1,680,000          
|                                                  | MSF                
|Saint-Georges, QC - OSB                           | 1,700,000          
|                                                  |                    
|SPECIALTY WOOD                                    |                    
|Location and Product                              | MFBM               
|Mattawa,
    ON - Pine and Hardwood Lumber        | 30,000             
|Huntsville, ON - Hardwood Lumber                  | 30,000             
|Huntsville, ON - Hardwood Flooring                | 18,000             
|Toronto,
    ON - Pre-Finished Hardwood Flooring  | 10,000             
|Brassac,
    France - Pine Lumber                 | 15,000             
|Curanilahue, Chile(4) - Radiata Pine Lumber       | 13,000             
|                                                  | 116,000            
|ENGINEERED WOOD                                   |                    
|Location and Product                              | Thousand ft. 3     
|Ville-Marie, QC(5)- Laminated Veneer Lumber       | 450                
|Amos, QC
    (5)(6)- Laminated Veneer Lumber      | 2, 500             
|                                                  | 2,950              
|                                                  |                    
|                                                  | MFBM               
|La Sarre,
    QC - Engineered Finger Joint Lumber | 60,000             
|                                                  |                    
|                                                  | Thousand linear ft.
|Bolton,
    ON(5) - Wood I-Beams                  | 30,000             
|Calgary,
    AB(5) - Wood I-Beams                 | 10,000             
|Blainville, QC(5)- Wood I-Beams                   | 3,000              
|                                                  | 43,000             
|                                                  |                    
|                                                  | Million lbs        
|Bolton,
    ON(5) - 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) 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.
>   
>   (5) Volumes reflect 50% of the actual plant
>   capacity as the units are part of the Temlam joint venture. (6) Projected
>   capacity as mill is in start-up phase.

Products and Markets

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

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

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

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

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

The SPF lumber industry is subject to both cyclical and
seasonal fluctuations in demand, which can lead to volatility in prices. North
American solid wood products demand is influenced by the general level of
economic activity, consumer confidence and interest rates. All of the above
impact on housing construction starts, which is generally regarded as the best
indicator of lumber demand. The total North American lumber demand is
approximately 68 billion board feet, with U.S. demand of approximately 56
billion board feet and the balance being consumed in Canada. U.S. producers
currently supply 35 billion board feet, leaving a U.S. domestic shortfall of
approximately 21 billion board feet. Canadian producers annually sell a total of
33 billion board feet, shipping 19 billion board feet to the U.S. and exporting
2 billion board feet outside North America. The remaining 12 billion board feet
is consumed domestically in Canada. The Company's geographic sales activity is
generally aligned with this breakdown. In fiscal 2005, 38% of the consolidated
sales occurred in Canada and 56% in the United States of America. As a result of
the significant dependence on the U.S. market, Tembec's forest products
competitiveness is heavily influenced by the relative strength of the Canadian
dollar versus the U.S. dollar. Tembec's production capacity represents less than
2.5% of the North American SPF lumber capacity.

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

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

Fibre Supply

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

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

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

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Québec

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

The Coulombe Commission, appointed by the Québec government
to study and report on the management of Crown land on its territory, made its
report public on December 14, 2004. It recommended that the Québec government
reduce timber cutting rights by 20% for fir, spruce, jack pine and tamarack
(SPF). During the spring of 2005, the Québec government announced a 20%
reduction in annual allowable cut for SPF, and 5% on other species. Cutting
rights for Tembec were reduced by 19.2% in SPF, for a total reduction of 11.6%
all species combined.

Ontario

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

Manitoba

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

British Columbia

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

The forms of forest tenures held by Tembec are one tree farm
license (25-year term replaced every 5 to 10 years) and three forest licenses
(15-year term also replaced every 5 to 10 years). Such licenses typically confer
to their holder the right to harvest a specific volume of timber on Crown lands.
In harvesting these tenures, the 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 are required to surrender a certain portion of existing
harvesting rights (roughly 20% for tenure with annual allowable cuts greater
than 200,000 m3). This surrendered volume shall be reallocated to the
British Columbia Timber Sales Program, First Nations and small tenures (for
example woodlots). While some volume of harvesting rights is lost from forest
tenures (in Tembec's case 189,310 m3, effective March 1, 2005,
through March 1, 2006), it remains available on the open market through a
competitive purchase program.

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Stumpage and Other Charges

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

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

4.1.2 Pulp Group

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

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

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

(1) 50% of current annual capacity.

Products and Markets

Most paper grade market pulps, primarily kraft, are produced
by chemical processes, although high-yield pulps are made by mechanical methods.
Kraft paper pulps are used to produce a variety of high-quality paper products
with specific brightness and strength characteristics. Softwood kraft normally
sells for a premium over hardwood kraft as its longer fibres provide required
strength properties for paper producers. High-yield market pulps have been
produced in North America since the mid 1980's. Initially, most high-yield pulps
were manufactured with softwood and utilized in tissue

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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.

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

Tembec markets its pulp on a world-wide basis, primarily
through its own sales force, with a network of offices in Canada, Switzerland,
China, Japan, South Korea and Spain. This is consistent with Tembec's strategy
of selling directly to customers and establishing long-term strategic
relationships. Tembec's sales force also markets pulp and paperboard produced by
third parties. In fiscal 2005, agency pulp sales totaled 4,400 tonnes compared
to 12,000 tonnes in fiscal 2004. On November 9, 2005, the Company acquired a 25%
equity interest in a hardwood kraft pulp mill located in Nackawic, New Brunswick
for $2.5 million. As part of the transaction, Tembec will market the hardwood
kraft pulp produced at the mill when it begins operations in early calendar
2006. Sales from the Pulp Group represented approximately 36% of Tembec's total
consolidated sales in fiscal 2005.

Fibre Supply

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

4.1.3 Paper Group

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

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

|Location and Product                       |          
|------------------------------------------ | ---------
|Newsprint                                  | Tonnes(1)
|Kapuskasing, ON -
    Newsprint(3)         | 330,000  
|Pine Falls, MB -
    Newsprint             | 185,000  
|                                           | 515,000  
|                                           |          
|Coated Paper                               |          
|St. Francisville, LA
    - Coated No 4 & 5 | 280,000  

|                                
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|                                                      |          
|----------------------------------------------------- | ---------
|                                                      |          
|Specialty Paper                                       |          
|St. Francisville, LA
    - Uncoated Bleached Board(2) | 80,000   
|St. Francisville, LA
    - Specialty Kraft Paper      | 30,000   
|                                                      | 110,000  
|Paperboard                                            |          
|Temiscaming, QC -
    Coated                          | 170,000  
|                                                      |          
|Total                                                 | 1,075,000

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

Products and Markets

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

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

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

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

Fiber Supply

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

The pulp group provides the high yield 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.

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

4.2  ENVIRONMENTAL AND SOCIAL POLICIES

Tembec shares with the community important responsibilities
towards the environment in which we live and work. The 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")

Pulp and Paper

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

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

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

Environmental Infractions

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

The infractions occurred around the time the Company 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 almost fully executed with
completion and commissioning scheduled for early calendar 2006. These
investments will ensure that, barring unforeseen events, the Temiscaming site
operates in full compliance with all regulations.

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Forest Resource Management

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

Certification

The Company was awarded Forest Stewardship Council (FSC)
certification in La Sarre, Québec as well as with respect to the Romeo Malette
and Smooth Rock Falls Forests in northeastern Ontario in the past year. The La
Sarre operation is the first public forest in Québec to be awarded certification
under the rigorous Forest Stewardship Council Standards for Canadian boreal
forests. These certifications when added to previously certified forests bring
the total area of FSC certified forest under license to Tembec to 5.4 million
hectares. As of September 2005, an additional 4 million hectares of forest have
been audited of which one million hectares are scheduled to be certified prior
to the end of the 2005 calendar year.

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

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

First Nations Policy

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

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

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

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

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4.3  RESEARCH AND DEVELOPMENT

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

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

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 FACTORS

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

Product Prices

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

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

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other currency jurisdictions. This could result in a business unit's
inability to maintain its operations during periods of low prices and/or demand.

Operational Risks

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

Fibre represents Tembec's major raw material in the
production of wood products, pulp and paper. In Canada, virgin fibre or timber
is sourced primarily by agreements with provincial governments. The agreements
grant timber tenure for terms varying from 5 to 25 years and are generally
subject to regular renewals every 5 years. Aboriginal groups have claimed
substantial portions of land in various provinces over which they claim
aboriginal title or in which they have a traditional interest and for which they
are seeking compensation from various levels of government. Tembec cannot
predict the extent to which aboriginal land claims or other rights will affect
Tembec's existing Crown tenures or Tembec's private timberlands or its ability
to harvest timber from these sources in the future, or its ability to renew or
secure other sources in the future.

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

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

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

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

The maintenance of a productive and efficient labour
environment cannot be assured. Approximately 70% of Tembec's workforce is
unionized. Collective agreements governing almost 52% of Tembec's unionized
employees will be under negotiation in the next fiscal year. Tembec may not be
able to negotiate acceptable new collective agreements upon expiration of the
existing agreements. This could result in a strike or work stoppage by the
affected workers. Renewal of agreements could result in higher wages or benefits
paid to union members. Therefore, Tembec could experience a

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disruption of its operations or higher ongoing labour costs, which could have
a material adverse effect on its business, financial condition, results of
operations and cash flow.

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

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

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

Trade Restrictions/Lumber Export Duties

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

Financial Risks/Debt Service

There is no assurance that Tembec's business will generate
sufficient cash flow from operations in the future to service Tembec's debt and
make necessary capital expenditures, in which case Tembec may seek additional
financing, dispose of certain assets or seek to refinance some or all of its
debt. Of the total long-term debt of $1.5 billion, 94% 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 $350 million, are committed until 2008 . There is no
assurance that the renewal of the credit facilities or that additional
financing, refinancing or asset disposals could be effected, if at all, on
satisfactory terms, the failure of which would materially adversely affect
Tembec's financial position.

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

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debt instruments could permit acceleration of the related debt and
acceleration of debt under other instruments that contain cross acceleration or
cross default provisions.

Growth Strategy/Acquisitions

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

ITEM 5 - DIVIDEND POLICY

The 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 Industries' Senior Notes
(the "Indentures") prohibit it from declaring or paying any dividends unless, at
the time of declaring and paying such dividend: (i) 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 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 Industries after the date of the Indentures
from the issue and sale of equity and debt securities that have been converted
into equity of Industries. Tembec Industries is currently precluded from paying
dividends based on the foregoing test.

ITEM 6 - GENERAL DESCRIPTION OF CAPITAL STRUCTURE

6.1  GENERAL DESCRIPTION OF CAPITAL STRUCTURE

The articles of the Company provide for three classes of shares: the common
shares, the Class B shares and the Class C shares.

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 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, are issuable in series. There are currently two series of the Class
B shares authorized, namely Series 2 shares and Series 4 shares, both of which
are non-voting and participate in priority to the 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 starting on June 26, 2011, at their issue price plus declared and unpaid
dividends. They may be retracted at any time in the event of a change of control
of the Company or if 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 unpaid
dividends. 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 9,103,710 are authorized and issued,
can be redeemed at any time by the Company by the issuance of shares or payment
in cash of an amount equal to their issue price and any declared and unpaid

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dividends. They are retractable starting after September 30, 2009. These
shares carry a non-cumulative monthly dividend of $0.005 per share.

The Class C shares, of which 250,000 are authorized for
issuance only to employees, are non-voting, redeemable and retractable at any
time for their issue price plus any increase in the book value per share since
the issuance date. 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. The Company has not issued any Class C Shares.

6.2  RATINGS

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

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

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

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

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

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ITEM 7 - MARKET FOR SECURITIES OF THE COMPANY

The 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 25, 2004 | High  | Low   | Close Price | Trading Volumes
|                   |       |       |             |                
|October 2004       | $8.70 | $6.95 | $7.94       | 10,315,844     
|November 2004      | $8.14 | $7.15 | $8.04       | 9,564,044      
|December 2004      | $8.00 | $7.11 | $7.21       | 7,828,356      
|January 2005       | $7.49 | $6.62 | $6.75       | 13,661,084     
|February 2005      | $7.31 | $6.50 | $6.66       | 7,049,383      
|March 2005         | $7.40 | $5.65 | $5.80       | 19,462,715     
|April 2005         | $6.05 | $2.94 | $3.45       | 18,399,159     
|May 2005           | $3.84 | $3.10 | $3.50       | 21,966,979     
|June 2005          | $3.98 | $3.26 | $3.40       | 7,800,363      
|July 2005          | $4.00 | $3.41 | $3.47       | 5,894,633      
|August 2005        | $3.64 | $2.83 | $3.18       | 13,868,098     
|September 2005     | $3.35 | $2.13 | $2.60       | 16,179,599     

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 allows 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 be
carried out through the Toronto Stock Exchange and could be made from time to
time, at market prices, during the period starting October 19, 2005, and ending
no later than October 18, 2006. During the previous 12 months, the Company
purchased and cancelled 244,700 common shares at an average price of $7.63 per
common share.

ITEM 8 - DIRECTORS AND OFFICERS

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

8.1 INFORMATION CONCERNING DIRECTORS

The board of directors of the Company is composed of fourteen
members. The Chairman of the Board and the majority of directors and members of
Board committees are independent. Mr. Frank A. Dottori (the President and Chief
Executive Officer of the Company) and Mr. Luc Rossignol (employee and President,
Local 233 of the Communications, Energy and Paperworkers Union of Canada) are
the two board members who are considered to be related and inside directors.

Set forth below is information pertaining to the directors of
the 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.

NORMAN M. BETTS, New Brunswick (Canada). Mr Betts is
Associate Professor at the Faculty of Business Administration, University of New
Brunswick. Mr. Betts serves as a director and audit committee Chair of Minacs
Worldwide Inc, Tan Range Exploration Corporation and Slam Exploration Ltd. He
also serves on the board and audit committee of the New Brunswick Power
Corporation, as co-Chair of the board of trustees of the University of New
Brunswick Pension Plan for

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Academic Employees and is a director of The Nature Conservancy of Canada for
the Atlantic region. He has been a director of the Company since January 2005
and serves as a member of its Audit and Human Resources committees.

Mr. Betts owns 2,512 common shares of the Company.

CLAUDE BOIVIN, Quebec (Canada). Mr. Boivin is the former
President and Chief Operating Officer of Hydro-Quebec and has been a director of
the Company since 1993 and serves as a member of its Corporate Governance
Committee. Mr. Boivin also serves as a director of CGI Group Inc., Héroux-Devtek
Inc., Groupe Laperrière & Verreault Inc. and of Boralex Power Income Fund. Mr.
Boivin has indicated that he will not seek another term as a director at the
upcoming annual and general meeting of shareholders.

Mr. Boivin owns 4,325 common shares of the Company

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

Mr. Brumm owns 40,246 common shares 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 Human Resources Committee.

Mr. Bujon de l'Estang owns 1,486 common shares of the Company.

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

Mr. Chevalier owns 5,539 common shares of the Company.

FRANK A. DOTTORI, O.C., Quebec (Canada). Mr. Dottori, a
founder of the Company, is the President and Chief Executive Officer of the
Company, has been a director of the Company since 1977 and serves as a member of
its Environmental and Health & Safety Committee. Mr. Dottori is Chairman of the
Pulp and Paper Research Institute of Canada, and co-chair of the Free Trade
Lumber Council. He is also a director of Saputo Inc., Bell Nordiq Group Inc. and
the Canadian Forest Innovation Council. Mr. Dottori has indicated that he will
not seek another term as a director at the upcoming annual and general meeting
of shareholders.

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Mr. Dottori owns 1,181,895 common shares of the Company.

GUY G. DUFRESNE, Québec (Canada). Mr. Dufresne is President
and CEO of La Compagnie Minière Québec Cartier, a producer of iron ore products.
Mr. Dufresne is Chairman of the board of directors of Cambior Inc. and serves on
its audit, corporate governance and human resources committees. He is also
Chairman of the Conseil du Patronat du Québec and serves as a director of the
Royal & Sun Alliance Insurance Company of Canada. Mr. Dufresne is also Chairman
of the Chamber of Maritime Commerce. Mr. Dufresne has been a director of the
Company since January 2005 and serves as a member of its Human Resources and
Environmental and Health & Safety committees.

Mr. Dufresne owns 35,098 common shares of the Company.

PIERRE GOYETTE, Quebec (Canada). Mr. Goyette has been a
director of the Company since 1986 and chairs its Audit Committee. Mr. Goyette
is also a director of Groupe St-Hubert Inc. Mr. Goyette has indicated that he
will not seek another term as a director at the upcoming annual and general
meeting of shareholders.

Mr. Goyette owns 1,566 common shares 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 and is Vice-Chair of the Royal Ontario Museum. Mr.
Janson was appointed to the board of directors of the Company in July 2004 and
serves as a member of its Corporate Governance committee and chairs its
Environmental and Health & Safety committee.

Mr. Janson owns 13,056 common shares of the Company.

GORDON S. LACKENBAUER, Alberta (Canada). Mr. Lackenbauer was
Deputy Chairman of BMO Nesbitt Burns until December 2004 and is currently a
director of TransAlta Corporation. Mr. Lackenbauer has been a director of the
Company since 1973 and Chairman 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 committees.

Mr. Lackenbauer owns 33,756 common shares of the Company.

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

Ms. McLeod owns 7,768 common shares of the Company.

The Hon. ROBERT K. RAE, P.C., O.C., Q.C., Ontario (Canada).
Mr. Rae is a partner of the law firm Goodmans LLP. Mr. Rae, former Premier of
the Province of Ontario, is a board member of Hydro One Inc., Husky Injection
Moulding Systems Limited, Niigon Technologies Ltd. and Retrocom Mid-Market Real
Estate Investment Trust. He is a director of a number of non-profit
organizations, including the Canadian Ditchley Foundation and the Pierre Elliott
Trudeau Foundation. Mr. Rae is Chairman of the Institute for Research in Public
Policy and a fellow of the Forum of Federations. Mr. Rae has been a director of
the Company since January 1997, chairs its Human Resources Committee and serves
as a member of its Corporate Governance Committee.

Mr. Rae owns 23,575 common shares of the Company.

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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 Environmental and Health & Safety Committee.

Mr. Rossignol owns 1,600 common shares of the Company.

FRANÇOIS TREMBLAY, Québec (Canada). Mr. Tremblay is a partner
of the law firm Cain Lamarre Casgrain Wells and has been a director of the
Company since 1990. He serves as a member of its Environmental and Health &
Safety Committee. Mr. Tremblay has indicated that he will not seek another term
as a director at the upcoming annual and general meeting of shareholders.

Mr. Tremblay owns 12,690 common shares of the Company.

8.1.1 Independence

The Company considers that all directors, except Messrs.
Dottori 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.. Messrs. Rae and
Tremblay are partners of law firms that provide occasional legal services to the
Company, the fees for which are not material to the Company. The board of
directors has determined that the services provided do not cause these directors
to have a "direct or indirect material relationship" with the Company for the
purposes of National Instrument 58-101, and therefore these directors are
considered independent. Mr. Frank A. Dottori, President and Chief Executive
Officer of the Company and Luc Rossignol, an employee of the Company 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. Pierre Goyette (Chairman), James E. Brumm, Norman M. Betts, Gilles
Chevalier and Ms. Mary Theresa McLeod. All the members of the Audit Committee
are considered "independent" and "financially literate" within the meaning of
Multilateral Instrument 52-110 - Audit Committees with Mr. Goyette, Mr.
Betts and Mr. Chevalier possessing the professional designation of Chartered
Accountant and considered "financial experts" within the meaning of Section 407
of the Sarbanes-Oxley Act of 2002.

8.2.2 Mandate of the Audit Committee

The 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 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.

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

8.2.4 External Auditor Service Fees

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

Audit Fees

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

Audit-Related Fees

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

Tax Fees

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

Other Fees

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

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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.

8.3  INFORMATION CONCERNING NON-DIRECTOR OFFICERS

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

During the past five years, each of the non-director officers
of the 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 Pierre Brien who, from
October 1993 to February 2003, was a Member of Parliament for the riding

1

2

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of Temiscamingue, Antonio Fratianni who, from May 1999 to
December 2004, was Senior Counsel with Royal Bank of Canada, and John Valley who
from April 1994 to January 2001 acted as a Managing Director of Chase Manhattan
Bank of Canada and from May 2001 to October 2005 acted as Managing Partner and
Principal of the Biscayne Group and most recently , also served as Chief
Negotiator for the Province of Ontario in the softwood lumber dispute.

On December 5, 2005, the directors and senior officers of the
Company beneficially owned, as a group, or exercised control or direction over,
directly or indirectly, approximately 2,055,177 common shares representing less
than 3% of the common shares outstanding.

ITEM 9 - LEGAL PROCEEDINGS

9.1  COUNTERVAILING AND ANTIDUMPING DUTIES

On April 2, 2001, petitions for the imposition of punitive
antidumping and countervailing duties on softwood lumber from Canada were filed
with the USDOC and the USITC, by certain U.S. industry and trade groups (the
"Petitioners"). On May 22, 2002, USDOC published antidumping and countervailing
duty orders in which the rates applicable to Tembec were set at 10.21% and
18.79% respectively on the basis of which it has since deposited estimates of
duties payable. The results of an administrative review process for the first
year of shipments under the orders were published on December 20, 2004. The
antidumping results were subsequently amended on January 24, 2005 and the
countervailing duty results 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
on the basis of a USITC threat of injury finding which was reversed as a result
of proceedings before a NAFTA panel. The United States launched an extraordinary
challenge to the decision rendered by the NAFTA panel. The Extraordinary
Challenge Committee ("ECC") upheld the NAFTA Panel's decision on August 10,
2005. The EEC decision normally would bring an end to these duties but the U.S.
government refused to refund and continues to collect deposits of estimated
duties in defiance of these NAFTA decisions. Tembec and other Canadian parties
have sued the U.S. Government in the U.S. Court of International Trade ("CIT")
seeking a court order mandating the revocation of the countervailing duty and
anti-dumping orders and full refund of all deposits of estimated duties. The
final amount and the effective date of countervailing and antidumping duties
that may be assessed on Canadian softwood lumber exports to the U.S. cannot be
determined at this time and will depend on the outcome of the CIT case and,
depending on its outcome, the administrative reviews.

9.2  GENERAL

Tembec 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.

ITEM 10 - TRANSFER AGENT

Tembec's transfer agent and registrar is National Bank Trust Inc. The
register of transfers of the Common Shares of Tembec maintained by National Bank
Trust Inc. is located at its offices in Montreal, Québec.

ITEM 11 - MATERIAL CONTRACTS

Tembec Industries Inc., 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 new facility is a three-year committed facility, to March 2008,
which is automatically extended for additional one year periods, unless notice
is given by either party to the agreement, and provides for floating rates of
interest.

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

Tembec Industries Inc 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.

ITEM 12 - INTERESTS OF EXPERTS

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

ITEM 13 - ADDITIONAL INFORMATION

Additional information relating to Tembec 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 information circular for its most
recent annual meeting of shareholders that involved the election of directors.

Additional financial information is provided in the Company's financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for its most recently completed financial year.

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GLOSSARY

Biomass

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

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

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

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

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

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

Hectare - 2.471 acres

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

Measurements

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

NAFTA - The North American Free Trade Agreement.

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

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

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

> Kraft pulp

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

|30  ANNUAL
    INFORMATION FORM
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|Annual Information Form
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> Specialty cellulose pulp

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.



|31  ANNUAL
    INFORMATION FORM
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TEMBEC INC.AUDIT COMMITTEE CHARTER
I.   OVERALL PURPOSE / OBJECTIVE
The Audit Committee will the Board in fulfilling its oversight
responsibilities. The Audit Committee will review the financial reporting
process, the system of internal control and management of financial risks, the
audit process, the auditor attestation process regarding internal controls and
the 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 of Directors,
management, and the internal and external auditors. The Company shall ensure
that appropriate funding is provided to the Audit Committee to compensate the
auditors and any other advisors engaged by the Audit Committee, as well as for
ordinary administrative expenses.

II.  COMPOSITION

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

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

A majority of Committee members shall constitute a quorum.

The members of the Committee shall have the right, for the
purposes of discharging the powers and responsibilities of the Committee, to
inspect any relevant records of the 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 independent counsel or advisor employed by
the Audit Committee.



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Page 2IV.  RESPONSIBILITIES AND DUTIES
The Audit Committee shall:
Documents/Reports Review
(1)     Review
  and reassess the adequacy of this Charter annually, report to the Board
  thereon and ensure that it is either published in the annual report or proxy
  circular once every three years or posted in an up-to-date format on the
  Company's website.
  
  (2)      Review and
  recommend for approval by the Board prior to any disclosure:
  (i) interim unaudited financial statements;
    
    (ii) audited annual financial statements, in
    conjunction with the report of the external auditors; and
    
    (iii) all public disclosure
    documents containing audited or unaudited financial information, including
    management's discussion and analysis of financial condition and results of
    operations, any prospectus.
  
  This review shall include, where appropriate, an examination of:
  
  (i) the existence and substance of significant
    accruals, estimates, or accounting judgments, and the level of conservatism;
    
    (ii)transactions with related parties
    and adequacy of disclosures; and
    
    (iii) qualifications, if any,
    contained in letters of representation and the contents of review or audit
    reports from the Company's external auditors, with respect to the Company's
    financial statements.
  
  (3)     Review
  any report which accompanies published financial statements (to the extent
  such a report discusses financial condition or operating results) for
  consistency of disclosure with the financial statements themselves.
  
  (4)     Obtain an explanation
  from management of all significant variances between comparative reporting
  periods and an explanation from management for items which vary from expected
  or budgeted amounts as well as from previous reporting periods.
  (5)     Review uncertainties,
  commitments, and contingent liabilities material to financial reporting.

External Audit

(6)     Recommend to the Board
  of Directors the appointment or reappointment of theexternalauditors
  and recommend the fees to be paid to the external auditors.



November 28, 2005

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Page 3(7)    Pre-approve all services to
  be provided by the external auditors.
  
  (8)    On an annual
  basis, review and discuss a written report by the 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 and require the external auditors to review the quarterly
  financial statements related documents.(11)   Review the audit findings and
  recommendations and management's response thereto.

(12)   Review annually
  with the external auditors the acceptability and the quality of the
  implementation of generally accounting principles focused on the accounting
  estimates and judgments made by management and their selection of accounting
  principles.

(13)   Review any significant
  disagreement between management the external auditors regarding the financial
  reporting.

(14)   At least annually
  consult with the external auditors out of the presence of management about
  internal controls, the fullness and accuracy of the financial statements, any
  significant difficulties encountered during the course of the audit including
  any restrictions on the scope of work or access to required information.

(15)   Consider and if appropriate
  require the rotation of the lead audit partner, concurring partner and other
  audit partners.

(16)   Review approve hiring policies
  for partners, employees and former partners and employees of its present
  external auditors of its former external auditors.

Internal Audit and Internal Control

> (17)   Review any decisions to the need
>   for internal auditing, including whether this function should be outsourced
>   and in that case, approve the supplier which shall not be the external
>   auditors.

(18)   Review and approve the
  appointment or removal of the director of internal auditing who shall be
  reporting to a senior officer other than the Corporate Controller.

(19)   Approve the mandate of the
  internal audit function, and review annually the internal audit plan and the
  corresponding budgets.



November 28, 2004

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Page4(20)   Ensure that
  management has established and maintained adequate  internal controls and
  procedures for financial reporting and accounting, with particular emphasis on
  controls over computerized systems, and review annually a management
  assessment of the effectiveness of internal controls.
  
  (21)   Review significant internal audit
  findings, recommendations and management's response,
  
  (22)   Ensure the coordination of the
  work between internal and external auditors.
  
  (23)   Ensure the
  internal auditor has ongoing access to the Chairman of the Committee as well
  as all officers of the Company, particularly the Chairman of the Board and the
  President.
  
  (24)   At least
  annually, undertake private discussions with staff of the internal audit
  function to establish internal audit independence, the level of co-operation
  received from management, the degree of interaction with the external auditor,
  and any unresolved material differences of opinion or disputes.
Risk Management
(25)   Review
  periodically and inquire of management, the internal auditors the external
  auditors concerning the financial 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 Process
(26)   In consultation with the external
  auditors and the internal auditors, review the integrity of the financial
  reporting processes, both internal and external.
  
  (27)   Consider and approve, if
  appropriate, changes to the accounting principlesandpractices
  as recommended by the external auditors, management or the internal auditors.

Legal compliance other responsibilities

> (28)   Ensure that
>   management has the proper review system in place to ensure that financial
>   statements, reports and other financial information disseminated to
>   governmental organizations and the public satisfies legal and regulatory
>   requirements.
>   
>   (29)   Review incidents of fraud,
>   illegal acts, conflicts of interest related-party transactions.

November 28, 2004

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Page5
(30)   Establish
  procedures for the receipt, retention and treatment of complaintsby the Company regarding accounting, internal accounting controls,
  orauditing matters,
  and the confidential, anonymous submission by employees ofthe Company of concerns regarding questionable accounting or
  auditing matters.

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

(32)   Review the expenses of, including
  the use of Company by officers.

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

(34)   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.





November 28, 2004

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