Securities Law & Instruments


Mutual Reliance Review System for ExemptiveRelief Applications - trades in rights, options and shares toemployees and directors of certain 50% affiliates exempt fromregistration and prospectus requirements - first trade in rights,options and shares subject to conditions in section 2.6 of MultilateralInstrument 45-102.

Applicable Statutory Provisions

Securities Act, R.S.O. 1990 c.S.5, as am., ss.25, 53 and 74(1).

Applicable Rules

Multilateral Instrument 45-102 Resale of Securities(2001) 24 OSCB 7029.

Commission Rule 45-503 Trades to Employees,Executives and Consultants (1998) 22 OSCB 117.













WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Ontario and New Brunswick (the"Jurisdictions") has received an application fromTembec Inc. ("Tembec") for a decision pursuant tothe securities legislation of the Jurisdictions (the "Legislation")that the dealer registration requirements and the prospectusrequirements contained in the Legislation shall not apply totrades to employees or directors of certain 50% Affiliates (asdefined below) of Tembec or its subsidiaries under Tembec'sLong-Term Incentive Plan, as amended from time to time (the"Plan");

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions;

AND WHEREAS Tembec has represented tothe Decision Makers as follows:

1. Tembec is incorporated under the laws ofthe Province of Québec and is an integrated Canadianforest products company principally involved in the productionof wood products, market pulp and papers. Its head officeis located in Montreal, Québec.

2. Tembec's authorized share capital consistsof: an unlimited number of common voting shares (the "Shares");an unlimited number of non-voting Class B preferred shares,issuable in series; an unlimited number of Series 2 ClassB shares; 1,250,000 Series 3 Class B shares; 9,103,710 Series4 Class B shares; and 250,000 non-voting Class C shares.

As of June 30, 2002, 86,410,732 common shares,16,627,500 Series 2 Class B shares, 1,250,000 Series 3 ClassB shares, 9,103,710 Series 4 Class B shares and no Class Cshares were outstanding. The Shares are listed on the TorontoStock Exchange.

3. Tembec is a reporting issuer in every jurisdictionin Canada. It is not in default of any requirement of thesecurities legislation of any jurisdiction in Canada.

4. Tembec owns 100% of the shares of TembecInvestments Inc. which, in turn, owns 100% of the shares ofTembec Industries Inc. ("Industries"). Industriesown securities of certain other entities, including the 50%Affiliates (defined below).

5. Industries own 50% of the issued and outstandingvoting shares of each of 791615 Ontario Limited (o/a ExcelForest Products Limited) ("Excel"), AV Cell Inc.("AV Cell"), Marathon Pulp Inc. ("Marathon")and Temlam Inc. ("Temlam"). Temlam owns 100% ofJager Building Systems Inc. ("Jager") (Temlam, Jager,Excel, AV Cell and Marathon are hereinafter collectively referredto as the "50% Affiliates").

6. Excel is a producer of softwood lumberand is part of Tembec's forest product group. The majorityof the wood processed in Excel's operations originates fromthe allocations of Spruce Falls Inc., a wholly-owned subsidiaryof Industries. Excel's operations are geographically proximateto Kapuskasing and Timmins, locations at which Industrieshas operations and considerable wood supply. Industries currentlyowns 50% of the outstanding voting shares of Excel. In addition,it has an option to purchase the remaining 50% interest ofExcel. Pursuant to a unanimous shareholders' agreement datedMarch 16, 2001, until March 15, 2006, the board of directorsof Excel is to be composed of one director only, designatedby Industries. Industries also has the right to appoint twomembers of the four-person management committee responsiblefor the day-to-day operations of Excel. The senior managementof Excel are supervised by and report to a member of the seniormanagement of Industries.

7. Temlam, a joint venture between Industriesand SGF Rexfor Inc. ("SGF Rexfor"), is a manufacturerof engineered wood products and is part of Tembec's forestproducts group. The operating assets of Temlam were transferredto Temlam by Industries. In its operations, Temlam uses woodfrom the allocations of Industries. In return, Temlam suppliesIndustries with wood chips. Pursuant to a unanimous shareholders'agreement entered into on July 27, 2001, Industries was grantedthe right to appoint three directors to the six-person boardof directors of Temlam. In addition, Industries has an optionto purchase the interest of SGF Rexfor in Temlam. Moreover,SGF Rexfor may require Industries to purchase its shares inTemlam. All individuals working at Temlam are currently employeesof Industries, although it is contemplated that they willbe transferred to Temlam. Jager, a wholly-owned subsidiaryof Temlam, purchases 85-90% of the jointed wood produced byIndustries, which it processes into wood beams and sells tothird parties. Jager also purchases approximately 75% of thelaminated veneer lumber produced by Temlam which it then sellsto third parties.

8. AV Cell was created as a strategic alliancebetween Industries and certain members of the Aditya Birlagroup of companies (customers of Industries). AV Cell producesdissolving pulp and is a part of Tembec's pulp group. Pursuantto a shareholders' agreement entered into as of January 7,1998, Industries has the right to appoint four directors tothe eight-person board of directors of AV Cell. The Chairmanof AV Cell is nominated on a rotating annual basis by Industriesand Aditya. Industries also has the right to select the ChiefOperating Officer of AV Cell. Three members of the managementof AV Cell were formerly employees of Industries. Pursuantto a Technical and Support Services Agreement dated as ofJanuary 7, 1998, Industries provides technical and supportservices to AV Cell including: (i) the conversion of the Atholville,New Brunswick mill to produce suitable dissolving pulp; (ii)support relating to technical aspects including process, engineeringand environment in order to maximize the quality as per customerneeds and minimize costs; (iii) cost efficient procurementof wood supply; and (iv) cost effective transportation andshipping. The Aditya Birla group of companies purchase theentire output of AV Cell.

9. Marathon is a 50% joint venture betweenIndustries and Kruger which produces north bleached softwoodkraft. Marathon is also part of Tembec's pulp group. Industriesprovides expertise in operation and technical support servicesto Marathon. Tembec International Sales Corporation has soleresponsibility for marketing all output of Marathon whichKruger does not purchase. One member of the management ofMarathon was formerly employed by Industries. Two former membersof the management of Marathon are presently members of themanagement of Industries. A shareholders' agreement enteredinto as of February 2, 2000 between Industries and Krugergrants Tembec the right to appoint three directors to thesix-person board of directors. The shareholders' agreementalso contains a shotgun clause.

10. As part of the operations of the Tembecgroup, Tembec and Industries intend to transfer some of theiremployees to the 50% Affiliates. Employees may also be transferredfrom the 50% Affiliates to Tembec or Industries. Transferredemployees would become employees of the transferee company.

11. The Plan currently provides for the grantof either rights ("Rights") or options ("Options")to directors and employees of Tembec and its subsidiaries.Each Right entitles a Participant to purchase Shares withor without financial assistance from Tembec or its subsidiarieswithin a period of 60 days from the date of the grant. EachOption entitles the Participant to purchase Shares withoutfinancial assistance from Tembec or its subsidiaries for aperiod of up to ten years.

12. The definition of "Company"in the current Plan includes Tembec and its subsidiaries.In consequence, Options granted under the Plan to an employeeof Tembec or a subsidiary who is subsequently transferredto a 50% Affiliate would terminate ninety (90) days aftersuch employee was transferred. Any unpaid subscription forshares by a transferred employee pursuant to the exerciseof Rights would be cancelled automatically upon such transferand the balance of any outstanding loans (including interestthereon) to such employee pursuant to the Plan would haveto be repaid within thirty (30) days. In addition, the definitionof "Company" in the Plan means that neither Rightsnor Options can be granted under the Plan to directors andemployees of the 50% Affiliates.

13. Proposed modifications to the Plan wouldexpand the definition of the "Company" to include50% Affiliates so as to permit employees transferred by Tembecor Industries to a 50% Affiliate to retain their Rights and/orOptions, and also to permit the grant of Rights and Optionsunder the Plan to directors and employees of 50% Affiliates.A copy of the modified Plan has been provided with the applicationfor this relief.

14. The modification of the Plan to include50% Affiliates was approved by the board of directors of Tembec,subject to receipt of regulatory approval. It was also acceptedby the Toronto Stock Exchange by letters dated May 23, 2002and June 11, 2002, and approved by the Commission des valeursmobilières du Québec on August 8, 2002.

15. Participation in the Plan is voluntaryand participants will not be induced to participate in thePlan by expectation of employment or continued employment.

AND WHEREAS pursuant to the System thisDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each Decision Maker is satisfiedthat the test contained in the Legislation that provides theDecision Maker with the jurisdiction to make the Decision hasbeen met.

THE DECISION of the Decision Makers pursuantto the Legislation is that trades in Rights, Options and theunderlying Shares made pursuant to the Plan to employees anddirectors of a 50% Affiliate who are resident in the Jurisdictionsare not subject to the dealer registration requirements or theprospectus requirements contained in the Legislation, providedthat the first trades of such shares is deemed to be a distributionor a primary distribution to the public unless the requirementsof subsection 2.6(3), (4) or (5) of Multilateral Instrument45-102 have been satisfied.

November 20, 2002.

"Robert L. Shirriff"                    "HaroldP. Hands"